AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON January 28, 2000
--------------------------------------------------------------------------
FILE NOS. 333-93871
811-6116
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 1 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 24 /X/
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
(Exact Name of Registrant)
NORTHBROOK LIFE INSURANCE COMPANY
(Name of Depositor)
NORTHBROOK LIFE INSURANCE COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
847/402-2400
(Address and Telephone Number of Depositor's Principal Offices)
MICHAEL J. VELOTTA
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
NORTHBROOK LIFE INSURANCE COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
847/402-2400
(Name, Complete Address and Telephone Number of Agent for Service)
COPIES TO:
RICHARD T. CHOI, ESQUIRE DANIEL J. FITZPATRICK, ESQUIRE
FREEDMAN, LEVY, KROLL & SIMONDS DEAN WITTER REYNOLDS INC.
1050 CONNECTICUT AVENUE, N.W. TWO WORLD TRADE CENTER
SUITE 825 NEW YORK, NEW YORK 10048
WASHINGTON, D.C. 20036-5366
Approximate date of proposed public offering: Continuous.
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on January 31, 2000 pursuant to paragraph (b) of Rule 485
/ / 60 days after filign pursuant to paragraph (a)(1) of Rule 485
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
Title of Securities Being Registered: Units of interest in the Northbrook
Variable Annuity Account II under deferred variable annuity contracts.
<PAGE>
PREFERRED CLIENT VARIABLE ANNUITY
NORTHBROOK LIFE INSURANCE COMPANY
P.O. BOX 94040
PALATINE, IL 60094
TELEPHONE NUMBER: 1-800-654-2397 PROSPECTUS DATED JANUARY 31,
2000
- --------------------------------------------------------------------------------
Northbrook Life Insurance Company ("NORTHBROOK") is offering the Preferred
Client Variable Annuity, an individual and group flexible premium deferred
variable annuity contract ("CONTRACT"). This prospectus contains information
about the Contract that you should know before investing. Please keep it for
future reference.
The Contract offers 32 investment alternatives ("INVESTMENT ALTERNATIVES"). The
investment alternatives include a fixed account option ("FIXED ACCOUNT OPTION")
and 31 variable sub-accounts ("VARIABLE SUB-ACCOUNTS") of the Northbrook
Variable Annuity Account II ("VARIABLE ACCOUNT"). Each Variable Sub-Account
invests exclusively in shares of portfolios ("PORTFOLIOS") of the following
mutual funds ("FUNDS"):
- AIM VARIABLE INSURANCE FUNDS, INC.
- ALLIANCE VARIABLE PRODUCTS SERIES FUND
- MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
- MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
- PUTNAM VARIABLE TRUST CLASS IB SHARES
- VAN KAMPEN LIFE INVESTMENT TRUST
WE (Northbrook) have filed a Statement of Additional Information, dated January
31, 2000, with the Securities and Exchange Commission ("SEC"). It contains more
information about the Contract and is incorporated herein by reference, which
means that it is legally a part of this prospectus. Its table of contents
appears on page of this prospectus. For a free copy, please write or call us at
the address or telephone number above, or go to the SEC's Web site
(http://www.sec.gov). You can find other information and documents about us,
including documents that are legally a part of this prospectus, at the SEC's Web
site.
- --------------------------------------------------------------------------------
<TABLE>
<C> <S>
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR
HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS
IMPORTANT PROSPECTUS. ANY ONE WHO TELLS YOU OTHERWISE IS COMMITTING A
NOTICES FEDERAL CRIME.
INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
</TABLE>
- PROSPECTUS
1
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
- ----------------------------------------------------------------------------
OVERVIEW
- ----------------------------------------------------------------------------
Important Terms 3
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The Contract At A Glance 4
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How the Contract Works 6
- ----------------------------------------------------------------------------
Expense Table 7
- ----------------------------------------------------------------------------
Financial Information 11
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CONTRACT FEATURES
- ----------------------------------------------------------------------------
The Contract 12
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Purchase of Contracts 13
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Contract Value 14
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Investment Alternatives 15
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The Variable Sub-Accounts 15
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The Fixed Account Option 17
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Transfers 17
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Expenses 19
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Access to Your Money 20
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Income Payments 21
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Death Benefits 23
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</TABLE>
<TABLE>
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<CAPTION>
PAGE
<S> <C>
OTHER INFORMATION
- ----------------------------------------------------------------------------
More Information: 25
- ----------------------------------------------------------------------------
Northbrook 25
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The Variable Account 25
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The Portfolios 25
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The Contract 26
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Qualified Plans 26
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Legal Matters 27
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Taxes 27
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Performance Information 30
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
- ----------------------------------------------------------------------------
</TABLE>
2 - PROSPECTUS
<PAGE>
IMPORTANT TERMS
- -------------------------------------------------------------------
This prospectus uses a number of important terms that you may not be familiar
with. The index below identifies the page that describes each term. The first
use of each term in this prospectus appears in highlights.
<TABLE>
<CAPTION>
PAGE
<S> <C>
- --------------------------------------------------------------------------------
Accumulation Phase 6
- --------------------------------------------------------------------------------
Accumulation Unit 11
- --------------------------------------------------------------------------------
Accumulation Unit Value 11
- --------------------------------------------------------------------------------
Annuitant 12
- --------------------------------------------------------------------------------
Automatic Additions Program 13
- --------------------------------------------------------------------------------
Automatic Portfolio Rebalancing Program 18
- --------------------------------------------------------------------------------
Beneficiary 12
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Cancellation Period 4
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* Contract 1
- --------------------------------------------------------------------------------
Contract Anniversary 5
- --------------------------------------------------------------------------------
Contract Owner ("You") 12
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Contract Value 14
- --------------------------------------------------------------------------------
Contract Year 5
- --------------------------------------------------------------------------------
Death Benefit Anniversary 23
- --------------------------------------------------------------------------------
Death Benefit Combination Option 23
- --------------------------------------------------------------------------------
Dollar Cost Averaging Option 17
- --------------------------------------------------------------------------------
Dollar Cost Averaging Program 18
- --------------------------------------------------------------------------------
Due Proof of Death 23
- --------------------------------------------------------------------------------
Enhanced Death Benefit 24
- --------------------------------------------------------------------------------
Fixed Account Option 16
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PAGE
<S> <C>
Funds 1
- --------------------------------------------------------------------------------
Income Plan 21
- --------------------------------------------------------------------------------
Investment Alternatives 1
- --------------------------------------------------------------------------------
Issue Date 6
- --------------------------------------------------------------------------------
Northbrook ("We") 25
- --------------------------------------------------------------------------------
Payout Phase 6
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Payout Start Date 6
- --------------------------------------------------------------------------------
Performance Benefit Combination Option 24
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Performance Death Benefit Option 23
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Performance Income Benefit Option 22
- --------------------------------------------------------------------------------
Portfolios 1
- --------------------------------------------------------------------------------
Qualified Contracts 12
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Right to Cancel 4
- --------------------------------------------------------------------------------
SEC 1
- --------------------------------------------------------------------------------
Settlement Value 24
- --------------------------------------------------------------------------------
Systematic Withdrawal Program 20
- --------------------------------------------------------------------------------
Valuation Date 13
- --------------------------------------------------------------------------------
Variable Account 1
- --------------------------------------------------------------------------------
Variable Sub-Account 1
- --------------------------------------------------------------------------------
</TABLE>
* If you purchase a group Contract, we will issue you a certificate that
represents your ownership and that summarizes the provisions of the group
Contract. References to "Contract" in this prospectus include certificates,
unless the context requires otherwise. In certain states the Contract is
available only as a group Contract.
3 - PROSPECTUS
<PAGE>
THE CONTRACT AT A GLANCE
- -------------------------------------------------------------------
The following is a snapshot of the Contract. Please read the remainder of this
prospectus for more information.
<TABLE>
<S> <C>
FLEXIBLE PAYMENTS You can purchase a Contract with an initial purchase payment
of $1,000 or more. You can add to your Contract as often and
as much as you like, but each payment must be at least $100.
You must maintain a minimum account size of $1,000.
- --------------------------------------------------------------------------------------------------------
RIGHT TO CANCEL You may cancel your Contract within 20 days of receipt or
any longer period as your state may require ("CANCELLATION
PERIOD "). Upon cancellation, we will return your purchase
payments adjusted, to the extent state and federal law
permit, to reflect the investment experience of any amounts
allocated to the Variable Account.
- --------------------------------------------------------------------------------------------------------
EXPENSES You will bear the following expenses:
- Total Variable Account annual fees equal to 0.70% of
average daily net assets (0.83% if you select the
PERFORMANCE DEATH BENEFIT OPTION, or the PERFORMANCE
INCOME BENEFIT OPTION, and 0.94% if you select the
PERFORMANCE BENEFIT COMBINATION OPTION or the DEATH
BENEFIT COMBINATION OPTION)
- Transfer fee of $25 after 12th transfer in any CONTRACT
YEAR (fee currently waived)
- State premium tax (if your state imposes one)
In addition, each Portfolio pays expenses that you will bear
indirectly if you invest in a Variable Sub-Account.
- --------------------------------------------------------------------------------------------------------
INVESTMENT ALTERNATIVES The Contract offers 32 investment alternatives including:
- a Fixed Account Option (which credits interest at rates
we guarantee)
- 31 Variable Sub-Accounts investing in Portfolios offering
professional money management by these investment
advisers:
- A I M ADVISORS, INC.
- ALLIANCE CAPITAL MANAGEMENT, L.P.
- MORGAN STANLEY DEAN WITTER ADVISORS, INC.
- MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
- PUTNAM INVESTMENT MANAGEMENT, INC.
- VAN KAMPEN ASSET MANAGEMENT INC.
To find out current rates being paid on the Fixed Account
Option, or to find out how the Variable Sub-Accounts have
performed, call us at 1-800-654-2397.
- --------------------------------------------------------------------------------------------------------
SPECIAL SERVICES For your convenience, we offer these special services:
- AUTOMATIC ADDITIONS PROGRAM
- AUTOMATIC PORTFOLIO REBALANCING PROGRAM
- DOLLAR COST AVERAGING PROGRAM
- SYSTEMATIC WITHDRAWAL PROGRAM
</TABLE>
4 - PROSPECTUS
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------
INCOME PAYMENTS You can choose fixed income payments, variable income
payments, or a combination of the two. You can receive your
income payments in one of the following ways:
- life income with guaranteed payments
- joint and survivor life income
- guaranteed payments for a specified period
- --------------------------------------------------------------------------------------------------------
DEATH BENEFITS If you or the ANNUITANT dies before the PAYOUT START DATE,
we will pay the death benefit described in the Contract. We
also offer death benefit options.
- --------------------------------------------------------------------------------------------------------
TRANSFERS Before the Payout Start Date, you may transfer your Contract
value ("CONTRACT VALUE") among the investment alternatives,
with certain restrictions. Transfers must be at least $100
or the total amount in the investment alternative, whichever
is less.
We do not currently impose a fee upon transfers. However, we
reserve the right to charge $25 per transfer after the 12th
transfer in each "Contract Year," which we measure from the
date we issue your contract or a Contract anniversary
("CONTRACT ANNIVERSARY").
- --------------------------------------------------------------------------------------------------------
WITHDRAWALS You may withdraw some or all of your Contract Value at any
time during the Accumulation Phase. In general, you must
withdraw at least $500 at a time or the total amount in the
investment alternative, if less. A 10% federal tax penalty
may apply if you withdraw before you are 59 1/2 years old.
</TABLE>
The Preferred Client Variable Annuity is currently available only to
participants in the Morgan Stanley Dean Witter Choice Account Program ("CHOICE
ACCOUNT PROGRAM"). The fees and expenses associated with the Choice Account
Program are separate from and in addition to the fees and expenses associated
with the Preferred Client Variable Annuity. These fees are fully described in
your Choice Account agreement. You should consult your Morgan Stanley Dean
Witter Financial Advisor for details.
5 - PROSPECTUS
<PAGE>
HOW THE CONTRACT WORKS
- -------------------------------------------------------------------
The Contract basically works in two ways.
First, the Contract can help you (we assume you are the "CONTRACT OWNER") save
for retirement because you can invest in up to 32 investment alternatives and
pay no federal income taxes on any earnings until you withdraw them. You do this
during what we call the "ACCUMULATION PHASE" of the Contract. The Accumulation
Phase begins on the date we issue your Contract (we call that date the "ISSUE
DATE") and continues until the Payout Start Date, which is the date we apply
your money to provide income payments. During the Accumulation Phase, you may
allocate your purchase payments to any combination of the Variable Sub-Accounts
and/or the Fixed Account Option. If you invest in the Fixed Account Option, you
will earn a fixed rate of interest that we declare periodically. If you invest
in any of the Variable Sub-Accounts, your investment return will vary up or down
depending on the performance of the corresponding Portfolios.
Second, the Contract can help you plan for retirement because you can use it to
receive retirement income for life and/or for a pre-set number of years, by
selecting one of the income payment options (we call these "INCOME PLANS")
described on page 21. You receive income payments during what we call the
"PAYOUT PHASE" of the Contract, which begins on the Payout Start Date and
continues until we make the last payment required by the Income Plan you select.
During the Payout Phase, if you select a fixed income payment option, we
guarantee the amount of your payments, which will remain fixed. If you select a
variable income payment option, based on one or more of the Variable
Sub-Accounts, the amount of your payments will vary up or down depending on the
performance of the corresponding Portfolios. The amount of money you accumulate
under your Contract during the Accumulation Phase and apply to an Income Plan
will determine the amount of your income payments during the Payout Phase.
The timeline below illustrates how you might use your Contract.
<TABLE>
<CAPTION>
ISSUE ACCUMULATION PHASE PAYOUT START PAYOUT
DATE DATE PHASE
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
You buy You save for You elect to receive You can receive Or you can
a Contract retirement income income payments receive income
payments or receive for a set period payments for life
a lump sum payment
</TABLE>
As the Contract owner, you exercise all of the rights and privileges provided by
the Contract. If you die, any surviving Contract owner or, if there is none, the
BENEFICIARY will exercise the rights and privileges provided by the Contract.
SEE "THE CONTRACT." In addition, if you die before the Payout Start Date, we
will pay a death benefit to any surviving Contract owner, or if there is none,
to your Beneficiary. SEE "Death Benefits."
Please call us at 1-800-654-2397 if you have any question about how the Contract
works.
6 - PROSPECTUS
<PAGE>
EXPENSE TABLE
- -------------------------------------------------------------------
The table below lists the expenses that you will bear directly or indirectly
when you buy a Contract. The table and the examples that follow do not reflect
premium taxes that may be imposed by the state where you reside. For more
information about Variable Account expenses, see "Expenses," below. For more
information about Portfolio expenses, please refer to the accompanying
prospectuses for the Funds. The table and expenses also do not reflect the
expenses associated with the Choice Account Program. Please see your Morgan
Stanley Dean Witter Financial Advisor for details.
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Withdrawal Charge None
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------
Annual Contract Maintenance Charge None
- -------------------------------------------------------------------------
Transfer Fee $25*
- -------------------------------------------------------------------------
</TABLE>
*Applies solely to the thirteenth and subsequent transfers within a Contract
Year excluding transfers due to dollar cost averaging and automatic portfolio
rebalancing. We are currently waiving the transfer fee.
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSET VALUE
DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge 0.60%**
- -------------------------------------------------------
Administrative Expense Charge 0.10%
- -------------------------------------------------------
Total Variable Account Annual Expenses 0.70%
- -------------------------------------------------------
</TABLE>
**If you select the Performance Death Benefit Option or the Performance Income
Benefit Option, the mortality and expense risk charge is 0.73%. If you select
the Performance Benefit Combination Option, or the Death Benefit Combination
Option, the mortality and expense risk charge is 0.84%.
7 - PROSPECTUS
<PAGE>
PORTFOLIO ANNUAL EXPENSES (After Voluntary Reductions and Reimbursements)
(as a percentage of Portfolio average daily net assets)(1)
<TABLE>
<CAPTION>
Management Other Total Portfolio
Portfolio Fees Rule 12b-1 Fees Expenses Annual Expenses
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS INC.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund 0.62% -- 0.05% 0.67%
- ---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund 0.64% -- 0.08% 0.72%
- ---------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund 0.61% -- 0.05% 0.66%
- ---------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VARIABLE PRODUCTS SERIES FUND(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio 0.75% 0.25% 0.12% 1.12%
- ---------------------------------------------------------------------------------------------------------------------------------
Growth and Income Portfolio 0.63% 0.25% 0.10% 0.98%
- ---------------------------------------------------------------------------------------------------------------------------------
Premier Growth Portfolio 1.00% 0.25% 0.09% 1.34%
- ---------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT
SERIES
- ---------------------------------------------------------------------------------------------------------------------------------
Money Market 0.50% -- 0.02% 0.52%
- ---------------------------------------------------------------------------------------------------------------------------------
Quality Income Plus 0.50% -- 0.02% 0.52%
- ---------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond 0.45% -- 0.17% 0.62%
- ---------------------------------------------------------------------------------------------------------------------------------
High Yield 0.50% -- 0.03% 0.53%
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities 0.65% -- 0.02% 0.67%
- ---------------------------------------------------------------------------------------------------------------------------------
Income Builder 0.75% -- 0.06% 0.81%
- ---------------------------------------------------------------------------------------------------------------------------------
Dividend Growth 0.52% -- 0.01% 0.53%
- ---------------------------------------------------------------------------------------------------------------------------------
Aggressive Equity 0.75% -- 0.33% 1.08%
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Growth 0.65% -- 0.05% 0.70%
- ---------------------------------------------------------------------------------------------------------------------------------
Global Dividend Growth 0.75% -- 0.09% 0.84%
- ---------------------------------------------------------------------------------------------------------------------------------
European Growth 0.99% -- 0.12% 1.11%
- ---------------------------------------------------------------------------------------------------------------------------------
Pacific Growth 0.99% -- 0.52% 1.51%
- ---------------------------------------------------------------------------------------------------------------------------------
Equity 0.50% -- 0.02% 0.52%
- ---------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 0.40% -- 0.19% 0.59%
- ---------------------------------------------------------------------------------------------------------------------------------
Competitive Edge "Best Ideas" 0.65% -- 0.27% 0.92%
- ---------------------------------------------------------------------------------------------------------------------------------
Strategist 0.50% -- 0.02% 0.52%
- ---------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS
INC.(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Equity 0.00% -- 1.95% 1.95%
- ---------------------------------------------------------------------------------------------------------------------------------
Equity Growth 0.09% -- 0.76% 0.85%
- ---------------------------------------------------------------------------------------------------------------------------------
International Magnum 0.15% -- 1.00% 1.15%
- ---------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value 0.23% -- 0.82% 1.05%
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Real Estate 0.17% -- 0.93% 1.10%
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST CLASS IB SHARES(5)
- ---------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund 0.46% 0.15% 0.04% 0.65%
- ---------------------------------------------------------------------------------------------------------------------------------
Putnam VT International Growth Fund 0.80% 0.15% 0.27% 1.22%
- ---------------------------------------------------------------------------------------------------------------------------------
Putnam VT Voyager Fund 0.54% 0.15% 0.04% 0.73%
- ---------------------------------------------------------------------------------------------------------------------------------
VAN KAMPEN LIFE INVESTMENT TRUST(6)
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Growth 0.32% -- 0.53% 0.85%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) FIGURES SHOWN IN THE TABLE ARE FOR THE YEAR ENDED DECEMBER 31, 1998, UNLESS
OTHERWISE NOTED.
(2) Class B of the Alliance Variable Products Series Fund has a distribution
plan or "Rule 12b-1 plan" as described in that Fund's prospectus. Because no
Class B shares were issued as of December 31, 1998, figures (other than
"12b-1 Fees") are based on the expenses of the Fund's Class A shares for the
fiscal year ended December 31, 1998, plus Class B's maximum annual
Rule 12b-1 fee of 0.25%. Fees are stated net of waivers and/or
reimbursements. Absent fee waivers and/or reimbursements, the estimated
management fees, Rule 12b-1 fees, other expenses, and total annual Portfolio
expenses paid to Alliance by the Premier Growth Portfolio as a percentage of
net assets, would have been: 1.00%, 0.25%, 0.09%, and 1.34% respectively.
8 - PROSPECTUS
<PAGE>
(3) Morgan Stanley Dean Witter Advisors Inc. has permanently undertaken to
assume all expenses of the S&P 500 Index Portfolio (except for brokerage
fees) and to waive the compensation provided in its management agreement
with the Fund to the extent that such expenses and compensation on an
annualized basis exceed .50% of the daily net assets of the S&P 500 Index
Portfolio.
(4) Morgan Stanley Dean Witter Investment Management Inc. has voluntarily agreed
to a reduction in its management fees and to reimburse the Portfolios for
which it acts as investment adviser for certain expenses of the Portfolios.
Absent such reductions, the management fees, other expenses, and total
annual Portfolio expenses would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Emerging Markets Equity 1.25% 2.20% 3.45%
------------------------------------------------------------------------------------------------------------------------------
Equity Growth 0.55% 0.76% 1.31%
------------------------------------------------------------------------------------------------------------------------------
International Magnum 0.80% 1.00% 1.80%
------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value 0.75% 0.82% 1.57%
------------------------------------------------------------------------------------------------------------------------------
U.S. Real Estate 0.80% 0.93% 1.73%
</TABLE>
(5) Since the funds have not offered Class IB shares for a full fiscal year,
figures shown in the table for Class IB shares are for the period ended
December 31, 1998 and are estimates based on the corresponding expenses for
the fund's Class IA shares for the corresponding period, adjusted to reflect
the 12b-1 fee paid by Class IB shares. Class IB shares for Putnam VT Growth
and Income Fund commenced operations on April 6, 1998 and Class IB shares
for Putnam UT International Growth Fund and Putnam VT Voyager Fund commenced
operations on April 30, 1998. Figures shown in the table include amounts
paid through expense offset and brokerage service arrangements.
(6) Van Kampen Asset Management Inc. has voluntarily agreed to a reduction in
its management fees and to reimburse the Emerging Growth Portfolio for which
it acts as investment adviser if such fees would cause "TOTAL PORTFOLIO
ANNUAL EXPENSES" to exceed the amount set forth in the table above. Absent
such reductions, the management fees, other expenses, and total annual
Portfolio expenses would have been 0.70%, 0.53%, and 1.23%, respectively.
9 - PROSPECTUS
<PAGE>
EXAMPLE
The example below shows the dollar amount of expenses that you would bear
directly or indirectly if you:
- - invested $1,000 in a Variable Sub-Account,
- - earned a 5% annual return on your investment, and
- - elected the Performance Benefit Combination Option or the Death Benefit
Combination Option.
THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO
PAY IF YOU SURRENDER YOUR CONTRACT.
<TABLE>
<CAPTION>
Variable Sub-Account 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS INC.
- ------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Capital Appreciation Fund $16 $51 $ 88 $192
- ------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Growth Fund $17 $53 $ 91 $198
- ------------------------------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund $16 $51 $ 88 $191
- ------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VARIABLE PRODUCTS SERIES FUNDS
- ------------------------------------------------------------------------------------------------------------------------------
Alliance Growth Fund $21 $65 $112 $241
- ------------------------------------------------------------------------------------------------------------------------------
Alliance Growth and Income Fund $20 $61 $105 $226
- ------------------------------------------------------------------------------------------------------------------------------
Alliance Premier Growth Fund $23 $72 $123 $264
- ------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER V.I.S
- ------------------------------------------------------------------------------------------------------------------------------
Money Market Fund $15 $46 $ 80 $176
- ------------------------------------------------------------------------------------------------------------------------------
Quality Income Plus Fund $15 $46 $ 80 $176
- ------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond Fund $16 $50 $ 86 $187
- ------------------------------------------------------------------------------------------------------------------------------
High Yield Fund $15 $47 $ 81 $177
- ------------------------------------------------------------------------------------------------------------------------------
Utilities Fund $16 $51 $ 88 $192
- ------------------------------------------------------------------------------------------------------------------------------
Income Builder Fund $18 $56 $ 96 $208
- ------------------------------------------------------------------------------------------------------------------------------
Dividend Growth Fund $15 $47 $ 81 $177
- ------------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund $17 $52 $ 90 $196
- ------------------------------------------------------------------------------------------------------------------------------
Global Dividend Growth Fund $18 $56 $ 97 $211
- ------------------------------------------------------------------------------------------------------------------------------
European Growth Fund $21 $65 $111 $240
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Growth Fund $25 $77 $132 $281
- ------------------------------------------------------------------------------------------------------------------------------
Equity Fund $15 $46 $ 80 $176
- ------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund $16 $49 $ 84 $183
- ------------------------------------------------------------------------------------------------------------------------------
Competitive Edge "Best Ideas" Fund $19 $59 $101 $219
- ------------------------------------------------------------------------------------------------------------------------------
Strategist Fund $15 $46 $ 80 $176
- ------------------------------------------------------------------------------------------------------------------------------
Aggressive Equity Fund $21 $64 $110 $237
- ------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Real Estate Fund $21 $65 $111 $239
- ------------------------------------------------------------------------------------------------------------------------------
International Magnum Fund $21 $66 $113 $244
- ------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund $18 $57 $ 98 $212
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Equity Fund $30 $91 $154 $325
- ------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund $20 $63 $108 $233
- ------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST CLASS IB SHARES
- ------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund $16 $51 $ 87 $190
- ------------------------------------------------------------------------------------------------------------------------------
Putnam VT International Growth Fund $22 $68 $117 $251
- ------------------------------------------------------------------------------------------------------------------------------
Putnam VT Voyager Fund $17 $53 $ 91 $199
- ------------------------------------------------------------------------------------------------------------------------------
VAN KAMPEN LIFE INVESTMENT TRUST
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $18 $57 $ 98 $212
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please remember that you are looking at an example and not a representation of
past or future expenses. Your actual expenses may be lower or greater than those
shown above. Similarly, your rate of return may be lower or greater than 5%,
which is not guaranteed. The above examples assume the election of the
Performance Benefit Combination Option, or the Death Benefit Combination Option,
with a mortality and expense risk charge of 0.84%. If those options were not
elected, the expense figures shown above would be slightly lower.
10 - PROSPECTUS
<PAGE>
FINANCIAL INFORMATION
- -------------------------------------------------------------------
To measure the value of your investment in the Variable Sub-Accounts during the
Accumulation Phase, we use a unit of measure we call the "ACCUMULATION UNIT."
Each Variable Sub-Account has a separate value for its Accumulation Units we
call the "ACCUMULATION UNIT VALUE." Accumulation Unit Value is analogous to, but
not the same as, the share price of a mutual fund.
There are no Accumulation Unit Values to report because the Contracts were first
offered as of the date of this prospectus.
The financial statements of the Variable Account and Northbrook as of December
31, 1998 and for the periods ended December 31, 1998 and 1997 and the
accompanying Independent Auditors' Reports appear in the Statement of Additional
Information. The financial statements of the Variable Account and Northbrook as
of and for the periods ended September 30, 1999 are unaudited and also appear in
the Statement of Additional Information.
11 - PROSPECTUS
<PAGE>
THE CONTRACT
- -------------------------------------------------------------------
CONTRACT OWNER
The Preferred Client Variable Annuity is a contract between you, the Contract
owner, and Northbrook, a life insurance company. As the Contract owner, you may
exercise all of the rights and privileges provided to you by the Contract. That
means it is up to you to select or change (to the extent permitted):
- - the investment alternatives during the Accumulation and Payout Phases,
- - the amount and timing of your purchase payments and withdrawals,
- - the programs you want to use to invest or withdraw money,
- - the income payment plan you want to use to receive retirement income,
- - the Annuitant (either yourself or someone else) on whose life the income
payments will be based,
- - the Beneficiary or Beneficiaries who will receive the benefits that the
Contract provides when the last surviving Contract owner or Annuitant dies,
and
- - any other rights that the Contract provides.
If you die, any surviving Contract owner, or, if none, the Beneficiary will
exercise the rights and privileges provided to them by the Contract. The
Contract cannot be jointly owned by both a non-natural person and a natural
person.
You can use the Contract with or without a qualified plan. A "qualified plan" is
a retirement savings plan, such as an IRA or tax-sheltered annuity, that meets
the requirements of the Internal Revenue Code. Qualified plans may limit or
modify your rights and privileges under the Contract. We use the term "Qualified
Contract" to refer to a Contract used with a qualified plan. See "Qualified
Plans" on page .
ANNUITANT
The Annuitant is the individual whose life determines the amount and duration of
income payments (other than under Income Plans with guaranteed payments for a
specified period). The Annuitant must be a natural person.
You initially designate an Annuitant in your application. If the Contract owner
is a natural person, you may change the Annuitant at any time prior to the
Payout Start Date. Once we receive your change request, any change will be
effective at the time you sign the written notice. We are not liable for any
payment we make or other action we take before receiving any written request
from you. Before the Payout Start Date, you may designate a joint Annuitant, who
is a second person on whose life income payments depend. If the Annuitant dies
prior to the Payout Start Date, the new Annuitant will be the youngest Contract
owner, otherwise, the youngest Beneficiary, unless the Contract owner names a
different Annuitant.
BENEFICIARY
The Beneficiary is the person who may elect to receive the death benefit or
become the new Contract owner if the sole surviving Contract owner dies before
the Payout Start Date. If the sole surviving Contract owner dies after the
Payout Start Date, the Beneficiary will receive any guaranteed income payments
scheduled to continue.
You may name one or more Beneficiaries when you apply for a Contract. You may
change or add Beneficiaries at any time by writing to us, unless you have
designated an irrevocable Beneficiary. We will provide a change of Beneficiary
form to be signed and filed with us. Any change will be effective at the time
you sign the written notice, whether or not the Annuitant is living when we
receive the notice. Until we receive your written notice to change a
Beneficiary, we are entitled to rely on the most recent Beneficiary information
in our files. We will not be liable as to any payment or settlement made prior
to receiving the written notice. Accordingly, if you wish to change your
Beneficiary, you should deliver your written notice to us promptly.
If you did not name a Beneficiary or, if the named Beneficiary is no longer
living and there are no other surviving Beneficiaries, the new Beneficiary will
be:
- - your spouse, if he or she is still alive, otherwise
- - your surviving children equally, or if you have no surviving children,
- - your estate.
If more than one Beneficiary survives you, (or the Annuitant, if the Contract
owner is not a natural person) we will divide the death benefit among your
Beneficiaries according to your most recent written instructions. If you have
not given us written instructions, we will pay the death benefit in equal
amounts to the surviving Beneficiaries.
MODIFICATION OF THE CONTRACT
Only a Northbrook officer may approve a change in or waive any provision of the
Contract. Any change or waiver must be in writing. None of our agents has the
authority to change or waive the provisions of the Contract. We may not change
the terms of the Contract without your consent, except to conform the Contract
to applicable law or changes in the law. If a provision of the Contract is
inconsistent with state law, we will follow state law.
ASSIGNMENT
We will not honor an assignment of an interest in a Contract as collateral or
security for a loan. However, you
12 - PROSPECTUS
<PAGE>
may assign periodic income payments under the Contract prior to the Payout Start
Date. No Beneficiary may assign benefits under the Contract until they are
payable to the Beneficiary. We will not be bound by any assignment until the
assignor signs it and files it with us. We are not responsible for the validity
of any assignment. Federal law prohibits or restricts the assignment of benefits
under many types of retirement plans and the terms of such plans may themselves
contain restrictions on assignments. An assignment may also result in taxes or
tax penalties. YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN YOUR
CONTRACT.
PURCHASES
- -------------------------------------------------------------------
MINIMUM PURCHASE PAYMENTS
Your initial purchase payment must be at least $1,000. We may increase or
decrease this minimum in the future. You may make additional purchase payments
of at least $100 at any time prior to the Payout Start Date. We reserve the
right to lower the minimum and limit the maximum amount of purchase payments we
will accept. We also reserve the right to reject any application.
AUTOMATIC ADDITIONS PROGRAM
You may make subsequent purchase payments of at least $100 by automatically
transferring amounts from your bank account or your Morgan Stanley Dean Witter
Choice Account. Please consult your Morgan Stanley Dean Witter Financial Advisor
for details.
ALLOCATION OF PURCHASE PAYMENTS
At the time you apply for a Contract, you must decide how to allocate your
purchase payments among the investment alternatives. The allocation you specify
on your application will be effective immediately. All allocations must be in
whole percentages that total 100% or in whole dollars. The minimum you may
allocate to any investment alternative is $100. You can change your allocations
by notifying us in writing.
We will allocate your purchase payments to the investment alternatives according
to your most recent instructions on file with us. Unless you notify us in
writing otherwise, we will allocate subsequent purchase payments according to
the allocation for the previous purchase payment. We will effect any change in
allocation instructions at the time we receive written notice of the change in
good order.
We will credit the initial purchase payment that accompanies your completed
application to your Contract within 2 business days after we receive the payment
at our headquarters. If your application is incomplete, we will ask you to
complete your application within 5 business days. If you do so, we will credit
your initial purchase payment to your Contract within that 5 business day
period. If you do not, we will return your purchase payment at the end of the 5
business day period unless you expressly allow us to hold it until you complete
the application. We will credit subsequent purchase payments to the Contract on
the business day that we receive the purchase payment at our headquarters.
We use the term "business day" to refer to each day Monday through Friday that
the New York Stock Exchange is open for business. We also refer to these days as
"VALUATION DATES." If we receive your purchase payment after 3 p.m. Central Time
on any Valuation Date, we will credit your purchase payment using the
Accumulation Unit Values computed on the next Valuation Date.
RIGHT TO CANCEL
You may cancel the Contract within the Cancellation Period, which is the 20-day
period after you receive the Contract or such longer period as your state may
require. If you exercise this "RIGHT TO CANCEL," the Contract terminates and we
will pay you the full amount of your purchase payments allocated to the Fixed
Account Option. We also will return your purchase payments allocated to the
Variable Account after an adjustment, to the extent state or federal law permit,
to reflect investment gain or loss that occurred from the date of allocation
through the date of cancellation. Some states may require us to return a greater
amount to you.
13 - PROSPECTUS
<PAGE>
CONTRACT VALUE
- -------------------------------------------------------------------
Your Contract Value at any time during the Accumulation Phase is equal to the
sum of the value of your Accumulation Units in the Variable Sub-Accounts you
have selected, plus the value of your investment in the Fixed Account Option.
ACCUMULATION UNITS
To determine the number of Accumulation Units of each Variable Sub-Account to
allocate to your Contract, we divide (i) the amount of the purchase payment or
transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation
Unit Value of that Variable Sub-Account next computed after we receive your
payment or transfer. For example, if we receive a $10,000 purchase payment
allocated to a Variable Sub-Account when the Accumulation Unit Value for the
Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable
Sub-Account to your Contract. Withdrawals and transfers from a Variable
Sub-Account would, of course, reduce the number of Accumulation Units of that
Sub-Account allocated to your Contract.
ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account
will rise or fall to reflect:
- - changes in the share price of the Portfolio in which the Variable Sub-Account
invests, and
- - the deduction of amounts reflecting the mortality and expense risk charge,
administrative expense charge, and any provision for taxes that have accrued
since we last calculated the Accumulation Unit Value.
We determine transfer fees (currently waived) separately for each Contract. They
do not affect Accumulation Unit Value. Instead, we obtain payment of those
charges and fees by redeeming Accumulation Units. For details on how we
calculate Accumulation Unit Value, please refer to the Statement of Additional
Information.
We determine a separate Accumulation Unit Value for each Variable Sub-Account on
each Valuation Date. We also determine a separate set of Accumulation Unit
Values that reflect the cost of the Performance Death Benefit Option, or the
Performance Income Benefit Option, and a third set of Accumulation Unit Values
that reflect the cost of the Performance Benefit Combination Option and Death
Benefit Combination Option.
YOU SHOULD REFER TO THE PROSPECTUSES FOR THE FUNDS THAT ACCOMPANY THIS
PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED,
SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE
CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE.
14 - PROSPECTUS
<PAGE>
INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS
- -------------------------------------------------------------------
You may allocate your purchase payments to up to 31 Variable Sub-Accounts. Each
Variable Sub-Account invests in the shares of a corresponding Portfolio. Each
Portfolio has its own investment objective(s) and policies. We briefly describe
the Portfolios below.
For more complete information about each Portfolio, including the investment
objective(s), expenses and risks associated with the Portfolio, please refer to
the accompanying prospectuses for the Funds. You should carefully review the
Fund prospectuses before allocating amounts to the Variable Sub-Accounts.
<TABLE>
Portfolio: Each Portfolio Seeks: Investment Adviser:
<S> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund Growth of capital
AIM V.I. Growth Fund Growth of capital
AIM V.I. Value Fund Long-term growth of capital
A I M Advisors, Inc.
ALLIANCE VARIABLE PRODUCTS SERIES FUND
Growth Portfolio Long-term growth of capital.
Current income is incidental to the
Portfolio's objective
Growth and Income Portfolio Reasonable current income and
reasonable opportunity for
appreciation
Premier Growth Portfolio Growth of capital by pursuing
aggressive investment policies
Alliance Capital
Management, L.P.
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
Money Market Portfolio High current income, preservation
of capital, and liquidity
Quality Income Plus Portfolio High current income and, as a
secondary objective, capital
appreciation when consistent with
its primary objective
Short-Term Bond Portfolio High current income consistent with
preservation of capital
High Yield Portfolio High current income and, as a
secondary objective, capital
appreciation when consistent with
its primary objective
Utilities Portfolio Capital appreciation and current
income
Income Builder Portfolio Reasonable income and, as a
secondary objective, growth of
capital
Dividend Growth Portfolio Reasonable current income and
long-term growth of income and
capital
Capital Growth Portfolio Long-term capital growth
Global Dividend Growth Portfolio Reasonable current income and
long-term growth of income and
capital
European Growth Portfolio To maximize the capital
appreciation on its investments
Pacific Growth Portfolio To maximize the capital
appreciation on its investments
Aggressive Equity Portfolio Capital Growth
Equity Portfolio Growth of capital and, as a
secondary objective, income when
consistent with its primary
objective.
S&P 500 Index Investment results that, before
expenses, correspond to the total
return of the Standard and Poor's
500 Composite Stock Price Index
Competitive Edge "Best Ideas" Long-term capital growth
Portfolio
Strategist Portfolio High total investment return
Morgan Stanley Dean
Witter Advisors, Inc.
</TABLE>
15 - PROSPECTUS
<PAGE>
<TABLE>
Portfolio: Each Portfolio Seeks: Investment Adviser:
<S> <C> <C>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
Equity Growth Portfolio Long-term capital appreciation
U.S. Real Estate Portfolio Above-average current income and
long-term capital appreciation
International Magnum Portfolio Long-term capital appreciation
Emerging Markets Equity Portfolio Long-term capital appreciation
Morgan Stanley Dean
Witter Investment
Management, Inc.
Mid-Cap Value Above-average total return over a Miller Anderson &
market cycle of three to five years Sherrerd
PUTNAM VARIABLE TRUST (CLASS IB SHARES)
Putnam VT Growth and Income Fund Capital growth and current income
Putnam VT International Growth Fund Capital appreciation
Putnam VT Voyager Fund Capital appreciation
Putnam Investment
Management, Inc.
VAN KAMPEN LIFE INVESTMENT TRUST
Emerging Growth Portfolio Capital appreciation Van Kampen Asset
Management Inc.
</TABLE>
AMOUNTS YOU ALLOCATE TO VARIABLE SUB-ACCOUNTS MAY GROW IN VALUE, DECLINE IN
VALUE, OR GROW LESS THAN YOU EXPECT, DEPENDING ON THE INVESTMENT PERFORMANCE OF
THE PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE
INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES.
SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
16 - PROSPECTUS
<PAGE>
INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT OPTION
- -------------------------------------------------------------------
You may allocate all or a portion of your purchase payments to the Fixed
Account. We are currently offering only a Dollar Cost Averaging Fixed Account
Option ("DOLLAR COST AVERAGING OPTION"), described below. We may offer
additional Fixed Account options in the future. The Dollar Cost Averaging Option
may not be available in all states. Northbrook may also limit the availability
of the Dollar Cost Averaging Option. Please consult with your Morgan Stanley
Dean Witter Financial Advisor for current information. The Fixed Account
supports our insurance and annuity obligations. The Fixed Account consists of
our general assets other than those in segregated asset accounts. We have sole
discretion to invest the assets of the Fixed Account, subject to applicable law.
Any money you allocate to the Fixed Account does not entitle you to share in the
investment experience of the Fixed Account.
DOLLAR COST AVERAGING OPTION
You may establish a Dollar Cost Averaging Program, as described on page 18, by
allocating purchase payments to the DOLLAR COST AVERAGING OPTION. Purchase
payments that you allocate to the Dollar Cost Averaging Option will earn
interest for up to a 1 year period at the current rate in effect at the time of
allocation. We will credit interest daily at a rate that will compound over the
year to the annual interest rate we guaranteed at the time of allocation. You
may not transfer funds from other investment alternatives to the Dollar Cost
Averaging Option.
The crediting rates for the Dollar Cost Averaging Option will never be less than
3% annually.
We may declare more than one interest rate for different monies based upon the
date of allocation to the Dollar Cost Averaging Option. For current interest
rate information, please contact your Morgan Stanley Dean Witter Financial
Advisor or our customer support unit at 1-800-654-2397.
INVESTMENT ALTERNATIVES: TRANSFERS
- -------------------------------------------------------------------
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer the Contract Value among the
investment alternatives. You may not transfer Contract Value into the Dollar
Cost Averaging Option. You may request transfers in writing on a form that we
provide or by telephone according to the procedure described below. The minimum
amount that you may transfer is $100 or the total amount in the investment
alternative, whichever is less. We currently do not assess, but reserve the
right to assess, a $25 charge on each transfer in excess of 12 per Contract
Year. We will notify you at least 30 days before we begin imposing the transfer
charge. We treat transfers to or from more than one Portfolio on the same day as
one transfer.
We will process transfer requests that we receive before 3:00 p.m. Central Time
on any Valuation Date using the Accumulation Unit Values for that Date. We will
process requests completed after 3:00 p.m. on any Valuation Date using the
Accumulation Unit Values for the next Valuation Date. The Contract permits us to
defer transfers from the Fixed Account Option for up to 6 months from the date
we receive your request. If we decide to postpone transfers for 30 days or more,
we will pay interest as required by applicable law. Any interest would be
payable from the date we receive the transfer request to the date we make the
transfer.
We reserve the right to limit transfers among the Variable Sub-Accounts if we
determine, in our sole discretion, that transfers by one or more Contract owners
would be to the disadvantage of other Contract owners. We may limit transfers by
taking such steps as:
- - imposing a minimum time period between each transfer,
- - refusing to accept transfer requests of an agent acting under a power of
attorney on behalf of more than one Contract owner, or
- - limiting the dollar amount that a Contract owner may transfer between the
Variable Sub-Accounts and the Fixed Account Option at any one time.
We may apply the restrictions in any manner reasonably designed to prevent
transfers that we consider disadvantageous to other Contract owners.
We reserve the right to waive any transfer restrictions.
TRANSFERS DURING THE PAYOUT PHASE
During the Payout Phase, you may make transfers among the Variable Sub-Accounts
so as to change the relative weighting of the Variable Sub-Accounts on which
your variable income payments will be based. In addition, you will have a
limited ability to make transfers from the Variable Sub-Accounts to increase the
proportion of your income payments consisting of fixed income payments. You may
not, however, convert any portion of your right to
17 - PROSPECTUS
<PAGE>
receive fixed income payments into variable income payments.
You may not make any transfers for the first 6 months after the Payout Start
Date. Thereafter, you may make transfers among the Variable Sub-Accounts or make
transfers from the Variable Sub-Accounts to increase the proportion of your
income payments consisting of fixed income payments. Your transfers must be at
least 6 months apart.
TELEPHONE TRANSFERS
You may make transfers by telephone by calling 1-800-654-2397 if you have on
file a completed authorization form. The cut off time for telephone transfer
requests is 3:00 p.m. Central Time. In the event that the New York Stock
Exchange closes early, i.e., before 3:00 p.m. Central Time, or in the event that
the Exchange closes early for a period of time but then reopens for trading on
the same day, we will process telephone transfer requests as of the close of the
Exchange on that particular day. We will not accept telephone requests received
at any telephone number other than the number that appears in this paragraph or
received after the close of trading on the Exchange.
We may suspend, modify or terminate the telephone transfer privilege at any time
without notice.
We use procedures that we believe provide reasonable assurance that the
telephone transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
DOLLAR COST AVERAGING PROGRAM
Through our Dollar Cost Averaging Program, you may automatically transfer a set
amount every month (or other intervals we may offer) during the Accumulation
Phase from any Variable Sub-Account or the Dollar Cost Averaging Option to any
Variable Sub-Account. Transfers made through dollar cost averaging must be $100
or more.
We will not charge a transfer fee for transfers made under this Program, nor
will such transfers count against the 12 transfers you can make each Contract
Year without paying a transfer fee.
The theory of dollar cost averaging is that if purchases of equal dollar amounts
are made at fluctuating prices, the aggregate average cost per unit will be less
than the average of the unit prices on the same purchase dates. However,
participation in this Program does not assure you of a greater profit from your
purchases under the Program nor will it prevent or necessarily reduce losses in
a declining market. Call or write us for information on how to enroll.
AUTOMATIC PORTFOLIO REBALANCING PROGRAM
Once you have allocated your money among the Variable Sub-Accounts, the
performance of each Sub-Account may cause a shift in the percentage you
allocated to each Sub-Account. If you select our AUTOMATIC PORTFOLIO REBALANCING
PROGRAM, we will automatically rebalance the Contract Value in each Variable
Sub-Account and return it to the desired percentage allocations. We will not
include money you allocate to the Fixed Account Option in the Automatic
Portfolio Rebalancing Program.
We will rebalance your account each quarter (or other intervals that we may
offer) according to your instructions. We will transfer amounts among the
Variable Sub-Accounts to achieve the percentage allocations you specify. You can
change your allocations at any time by contacting us in writing or by telephone.
The new allocation will be effective with the first rebalancing that occurs
after we receive your requests. We are not responsible for rebalancing that
occurs prior to receipt of your request.
Example:
Assume that you want your initial purchase payment split among 2 Variable
Sub-Accounts. You want 40% to be in the High Yield Variable Sub-Account and
60% to be in the Equity Growth Variable Sub-Account. Over the next 2 months
the bond market does very well while the stock market performs poorly. At
the end of the first quarter, the High Yield Variable Sub-Account now
represents 50% of your holdings because of its increase in value. If you
choose to have your holdings rebalanced quarterly, on the first day of the
next quarter, we would sell some of your units in the High Yield Variable
Sub-Account and use the money to buy more units in the Equity Growth
Variable Sub-Account so that the percentage allocations would again be 40%
and 60% respectively.
The Automatic Portfolio Rebalancing Program is available only during the
Accumulation Phase. The transfers made under the Program do not count towards
the 12 transfers you can make without paying a transfer fee, and are not subject
to a transfer fee.
Portfolio rebalancing is consistent with maintaining your allocation of
investments among market segments, although it is accomplished by reducing your
Contract Value allocated to the better performing segments.
18 - PROSPECTUS
<PAGE>
EXPENSES
- -------------------------------------------------------------------
As a Contract owner, you will bear, directly or indirectly, the charges and
expenses described below.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily at an annual rate of 0.60%
of the average daily net assets you have invested in the Variable Sub-Accounts
(0.73% if you select either the Performance Death Benefit Option or the
Performance Income Benefit Option, and 0.84% if you select the Performance
Benefit Combination Option or the Death Benefit Combination Option). The
mortality and expense risk charge is for all the insurance benefits available
with your Contract (including our guarantee of annuity rates and the death
benefits), for certain expenses of the Contract, and for assuming the risk
(expense risk) that the current changes will not be sufficient in the future to
cover the cost of administering the Contract. If the charges under the Contract
are not sufficient, then we will bear the loss. We charge an additional amount
for the Death Benefit Options and the Performance Income Benefit Option to
compensate us for the additional risk that we accept by providing these Options.
We guarantee the mortality and expense risk charge and we cannot increase it. We
assess the mortality and expense risk charge during both the Accumulation Phase
and the Payout Phase.
ADMINISTRATIVE EXPENSE CHARGE
We deduct an administrative expense charge daily at an annual rate of 0.10% of
the average daily net assets you have invested in the Variable Sub-Accounts. We
guarantee the administrative expense charge and we cannot increase it. We intend
this charge to cover actual administrative expenses. There is no necessary
relationship between the amount of administrative charge imposed on a given
Contract and the amount of expenses that may be attributed to that Contract. We
assess this charge each day during the Accumulation Phase and the Payout Phase.
TRANSFER FEE
We do not currently impose a fee upon transfers among the investment
alternatives. However, we reserve the right to charge a $25 per transfer after
the 12th transfer in each Contract Year. We will not charge a transfer fee on
transfers that are part of a Dollar Cost Averaging or Automatic Portfolio
Rebalancing Program.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for paying these taxes and
will deduct them from your Contract Value. Some of these taxes are due when the
Contract is issued, others are due when income payments begin or upon surrender.
Our current practice is not to charge anyone for these taxes until income
payments begin or when a total withdrawal occurs including payment upon death.
At our discretion, we may discontinue this practice and deduct premium taxes
from the purchase payments. Premium taxes generally range form 0% to 4%,
depending on the state.
At the Payout Start Date, if applicable, we deduct the charge for premium taxes
from each investment alternative in the proportion that the Contract owner's
value in the investment alternative bears to the total Contract Value.
DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES
We are not currently making a provision for taxes. In the future, however, we
may make a provision for taxes if we determine, in our sole discretion, that we
will incur a tax as a result of the operation of the Variable Account. We will
deduct for any taxes we incur as a result of the operation of the Variable
Account, whether or not we previously made a provision for taxes and whether or
not is was sufficient. Our status under the Internal Revenue Code is briefly
described in the Statement of Additional Information.
OTHER EXPENSES
Each Portfolio deducts advisory fees and other expenses from its assets. You
indirectly bear the charges and expenses of the Portfolios whose shares are held
by the Variable Sub-Accounts. These fees and expenses are described in the
accompanying prospectuses for the Funds. For a summary of current estimates of
those charges and expenses, see pages above. We may receive compensation from
the investment advisers or administrators of the Portfolios for administrative
services we provide to the Portfolios.
The Preferred Client Variable Annuity is offered only to participants in the
Choice Account Program. The fees and expenses associated with the Program are
separate from and in addition to the fees and expenses associated with the
Preferred Client Variable Annuity. You should consult your Morgan Stanley Dean
Witter Financial Advisor for details.
19 - PROSPECTUS
<PAGE>
ACCESS TO YOUR MONEY
- -------------------------------------------------------------------
You can withdraw some or all of your Contract Value at any time during the
Accumulation Phase. Withdrawals also are available under limited circumstances
on or after the Payout Start Date. See "Income Plans" on page 21.
You can withdraw money from the Variable Account and/or the Fixed Account
Option. The amount payable upon withdrawal is the Contract Value (or portion
thereof) next computed after we receive the request for a withdrawal at our
headquarters, less any income tax withholding, penalty tax, and any premium
taxes. To complete a partial withdrawal from the Variable Account, we will
cancel Accumulation Units in an amount equal to the withdrawal and any
applicable charges and taxes. We will pay withdrawals from the Variable Account
within 7 days of receipt of the request, subject to postponement in certain
circumstances.
You must name the investment alternative from which you are taking the
withdrawal. If none is named, then the withdrawal request is incomplete and
cannot be honored. In general, you must withdraw at least $500 at a time. You
may also withdraw a lesser amount if you are withdrawing your entire interest in
a Variable Sub-Account.
We impose no withdrawal charge for withdrawals out of the Preferred Client
Variable Annuity. However, withdrawals, including withdrawals made to pay all or
part of any fee associated with the Choice Account Program, also may be subject
to income tax and a 10% penalty tax, as described in "Taxes," below. In
addition, a charge may apply if you decide to no longer participate in the
Choice Account Program. You should consult your Morgan Stanley Dean Witter
Financial advisor for details.
The total amount paid or surrender may be more or less than the total purchase
payments due to prior withdrawals, any deductions, and investment performance.
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under
the Contract if:
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 SEC; or
3. The SEC permits delay for your protection.
In addition, we may delay payment or transfers from the Fixed Account Option for
up to 6 months or shorter period if required by law. If we delay payment or
transfer for 30 days or more, we will pay interest as required by applicable
law. Any interest would be payable from the date we receive the withdrawal
request to the date we make the payment or transfer.
SYSTEMATIC WITHDRAWAL PROGRAM
You may choose to receive systematic withdrawal payments on a monthly basis at
any time prior to the Payout Start Date. The minimum amount of each systematic
withdrawal is $100. We will deposit systematic withdrawal payments into the
Contract owner's bank account or Morgan Stanley Dean Witter Account. Please
consult with your Morgan Stanley Dean Witter Financial Advisor for details.
Depending on fluctuations in the value of the Variable Sub-Accounts and the
value of the Fixed Account Option, systematic withdrawals may reduce or even
exhaust the Contract Value. Income taxes may apply to systematic withdrawals.
Please consult your tax advisor before taking any withdrawal.
We may modify or suspend the Systematic Withdrawal Program and charge a
processing fee for the service. If we modify or suspend the Systematic
Withdrawal Program, existing systematic withdrawal payments will not be
affected.
MINIMUM CONTRACT VALUE
If your request for a partial withdrawal would reduce your Contract Value to
less than $1,000, we may treat it as a request to withdraw your entire Contract
Value. Your Contract will terminate if you withdraw all of your Contract Value.
We will, however, ask you to confirm your withdrawal request before terminating
your Contract. If we terminate your Contract, we will distribute to you its
Contract Value, less any applicable charges and taxes.
20 - PROSPECTUS
<PAGE>
INCOME PAYMENTS
- -------------------------------------------------------------------
PAYOUT START DATE
The Payout Start Date is the day that money is applied to an Income Plan. The
Payout Start Date must be no later than:
- - the Annuitant's 90th Birthday, or
- - the 10th Contract Anniversary, if later.
You may change the Payout Start Date at any time by notifying us in writing of
the change at least 30 days before the scheduled Payout Start Date. Absent a
change, we will use the Payout Start Date stated in your Contract.
INCOME PLANS
An "Income Plan" is a series of payments on a scheduled basis to you or to
another person designated by you. You may choose and change your choice of
Income Plan until 30 days before the Payout Start Date. If you do not select an
Income Plan, we will make income payments in accordance with Income Plan 1 with
guaranteed payment for 10 years. After the Payout Start Date, you may not make
withdrawals (except as described below) or change your choice of Income Plan.
Three Income Plans are available under the Contract. Each is available to
provide:
- - fixed income payments;
- - variable income payments; or
- - a combination of the two.
The three Income Plans are:
INCOME PLAN 1 -- LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make
periodic income payments for at least as long as the Annuitant lives. If the
Annuitant dies before we have made all of the guaranteed income payments, we
will continue to pay the remainder of the guaranteed income payments as required
by the Contract.
INCOME PLAN 2 -- JOINT AND SURVIVOR LIFE INCOME. Under this plan, we make
periodic income payments for as long as either the Annuitant or the joint
Annuitant is alive.
INCOME PLAN 3 -- GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD (5 TO 30
YEARS). Under this plan, we make periodic income payments for the period you
have chosen. These payments do not depend on the Annuitant's life. We will
deduct the mortality and expense risk charge from the assets of the Variable
Account supporting this Income Plan even though we may not bear any mortality
risk.
The length of any guaranteed payment period under your selected Income Plan
generally will affect the dollar amounts of each income payment. As a general
rule, longer guaranteed periods result in lower income payments, all other
things being equal. For example, if choose an Income Plan with payments that
depend on the life of the Annuitant but with no minimum specified period for
guaranteed payments, the income payments generally will be greater than the
income payments made under the same Income Plan with a minimum specified period
for guaranteed payments.
We may make other Income Plans available including ones that you and we agree
upon. You may obtain information about them by writing or calling us.
If you choose Income Plan 1 or 2, or, if available, another Income Plan with
payments that continue for the life of the Annuitant or joint Annuitant, we may
require proof of age and sex of the Annuitant or joint Annuitant before starting
income payments, and proof that the Annuitant or joint Annuitant is still alive
before we make each payment. Please note that under such Income Plans, if you
elect to take no minimum guaranteed payments, it is possible that the payee
could receive only 1 income payment if the Annuitant and any joint Annuitant
both die before the second income payment, or only 2 income payments if they die
before the third income payment, and so on.
Generally, you may not make withdrawals after the Payout Start Date. One
exception to this rule applies if you are receiving variable income payments
that do not depend on the life of the Annuitant (such as under Income Plan 3).
In that case you may terminate the Variable Account portion of the income
payments at any time and receive a lump sum equal to the present value of the
remaining variable payments due.
You may apply your Contract Value to an Income Plan. If you elected the
Performance Income Benefit Option, you may be able to apply an amount greater
than your Contract Value to an Income Plan. You must apply at least the Contract
Value in the Fixed Account Option on the Payout Start Date to fixed income
payments. If you wish to apply any portion of your Fixed Account Option balance
to provide variable income payments, you should plan ahead and transfer that
amount to the Variable Sub-Accounts prior to the Payout Start Date. If you do
not tell us how to allocate your Contract Value among fixed and variable income
payments, we will apply your Contract Value in the Variable Account to variable
income payments and your Contract Value in the Fixed Account Option to fixed
income payments.
We will apply your Contract Value, less applicable taxes, to your Income Plan on
the Payout Start Date. If the amount available to apply under an Income Plan is
less than $2,000, or not enough to provide an initial payment of at least $20,
and state law permits, we may:
- - terminate the Contract and pay you the Contract Value, less any applicable
taxes, in a lump sum instead of the periodic payments you have chosen, or
21 - PROSPECTUS
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- - we may reduce the frequency of your payments so that each payment will be at
least $20.
VARIABLE INCOME PAYMENTS
The amount of your variable income payments depends upon the investment results
of the Variable Sub-Accounts you select, the premium taxes you pay, the age and
sex of the Annuitant, and the Income Plan you choose. We guarantee that the
payments will not be affected by (a) actual mortality experience and (b) the
amount of our administration expenses.
We cannot predict the total amount of your variable income payments. Your
variable income payments may be more or less than your total purchase payments
because (a) variable income payments vary with the investment results of the
underlying Portfolios, and (b) the Annuitant could live longer or shorter than
we expect based on the tables we use.
In calculating the amount of the periodic payments in the annuity tables in the
Contract, we assumed an annual investment rate of 3%. If the actual net
investment return of the Variable Sub-Accounts you choose is less than this
assumed investment rate, then the dollar amount of your variable income payments
will decrease. The dollar amount of your variable income payments will increase,
however, if the actual net investment return exceeds the assumed investment
rate. The dollar amount of the variable income payments stays level if the net
investment return equals the assumed investment rate. Please refer to the
Statement of Additional Information for more detailed information as to how we
determine variable income payments.
FIXED INCOME PAYMENTS
We guarantee income payment amounts derived from any Fixed Account Option for
the duration of the Income Plan. We calculate the fixed income payments by:
1. deducting any applicable premium tax; and
2. applying the resulting amount to the greater of (a) the appropriate value
from the income payment table in your Contract or (b) such other value as we are
offering at that time.
We may defer making fixed income payments for a period of up to 6 months or such
shorter time state law may require. If we defer payments for 30 days or more, we
will pay interest as required by law from the date we receive the withdrawal
request to the date we make payment.
PERFORMANCE INCOME BENEFIT
The Performance Income Benefit is an optional benefit that you may elect. On the
date we issue the rider for this benefit ("Rider Date"), the Performance Income
Benefit is equal to the Contract Value. On each Contract Anniversary, we will
recalculate your Performance Income Benefit to equal the greater of your
Contract Value on that date or the most recently calculated Performance Income
Benefit. We will also recalculate your Performance Income Benefit whenever you
make an additional purchase payment or a partial withdrawal. Additional purchase
payments will increase the Performance Income Benefit dollar-for-dollar.
Withdrawals will reduce the Performance Income Benefit by an amount equal to:
(i) the Performance Income Benefit just before the withdrawal, multiplied by
(ii) the ratio of the withdrawal amount to the Contract Value just before the
withdrawal.
In the absence of any withdrawals or purchase payments, the Performance Income
Benefit will be the greatest of the Contract Value on the Rider Date and all
Contract Anniversary Contract Values on or prior to the Payout Start Date.
We will recalculate the Performance Income Benefit as described above until the
oldest Contract owner or Annuitant (if the Contract owner is not a natural
person) attains age 85. After age 85, we will only recalculate the Performance
Income Benefit to reflect additional purchase payments and withdrawals. You must
exercise the benefit by age 90.
To exercise your Performance Income Benefit, you must apply it to an Income
Plan. The Payout Start Date you select must begin on or after your tenth
Contract Anniversary, after electing the benefit, and within 30 days after a
Contract Anniversary. In addition, you must apply your Performance Income
Benefit to an Income Plan that provides guaranteed payments for either a single
or joint life for at least:
1. 10 years, if the youngest Annuitant's age is 80 or less on the date you apply
the Benefit, or
2. 5 years, if the youngest Annuitant's age is greater than 80 on the date you
apply the Benefit.
If your current Contract Value is higher than the Performance Income Benefit,
you can apply the Contract Value to any Income Plan. The Performance Income
Benefit may not be available in all states.
At present, we do not permit you to simultaneously elect the Performance Income
Benefit and the Death Benefit Combination Option. We do, however, reserve the
right to do so in the future.
CERTAIN EMPLOYEE BENEFIT PLANS
The Contracts offered by this prospectus contain income payment tables that
provide for different payments to men and women of the same age, except in
states that require unisex tables. We reserve the right to use income payment
tables that do not distinguish on the basis of sex to the extent permitted by
law. In certain employment-related situations, employers are required by law to
use the same income payment tables for men and women. Accordingly, if
22 - PROSPECTUS
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the Contract is to be used in connection with an employment-related retirement
or benefit plan and we do not offer unisex annuity tables in your state, you
should consult with legal counsel as to whether the purchase of a Contract is
appropriate.
DEATH BENEFITS
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We will pay a death benefit if, prior to the Payout Start Date:
1. any Contract owner dies, or
2. the Annuitant dies.
We will pay the death benefit to the new Contract owner as determined
immediately after the death. The new Contract owner would be a surviving
Contract owner or, if none, the Beneficiary. In the case of the death of an
Annuitant, we will pay the death benefit to the current Contract owner.
A request for payment of the death benefit must include "Due Proof of Death." We
will accept the following documentation as Due Proof of Death:
- - a certified copy of a death certificate,
- - a certified copy of a decree of a court of competent jurisdiction as to the
finding of death, or
- - any other proof acceptable to us.
DEATH BENEFIT AMOUNT
Prior to the Payout Start Date, the death benefit is equal to the greatest of:
1. the Contract Value as of the date we determine the death benefit, or
2. the sum of all purchase payments made less any amounts deducted in connection
with partial withdrawals (including any applicable premium taxes), or
3. the Contract Value on the most recent DEATH BENEFIT ANNIVERSARY prior to the
date we determine the death benefit, plus any purchase payments and less any
amounts deducted in connection with any partial withdrawals since that Death
Benefit Anniversary.
A "Death Benefit Anniversary" is every 6th Contract Anniversary beginning with
the 6th Contract Anniversary. For example, the 6th, 12th and 18th Contract
Anniversaries are the first three Death Benefit Anniversaries.
We will determine the value of the death benefit as of the end of the Valuation
Date on which we receive a complete request for payment of the death benefit. If
we receive a request after 3 p.m. Central Time on a Valuation Date, we will
process the request as of the end of the following Valuation Date.
DEATH BENEFIT OPTIONS
The Performance Death Benefit, the Performance Benefit Combination, and the
Death Benefit Combination Options are optional benefits that you may elect. If
the Contract owner is a natural person, these Options apply only on the death of
the Contract owner. If the Contract owner is not a natural person, these Options
apply only on the death of the Annuitant. For Contracts with a death benefit
option, the death benefit will be the greater of (1) through (3) above, or (4)
the death benefit option you selected. The death benefit options may not be
available in all states.
PERFORMANCE DEATH BENEFIT OPTION. The Performance Death Benefit on the date we
issue the rider for this option ("Rider Date") is equal to the Contract Value.
On each Contract Anniversary, we will recalculate your Performance Death Benefit
to equal the greater of your Contract Value on that date, or the most recently
calculated Performance Death Benefit. We also will recalculate your Performance
Death Benefit whenever you make an additional purchase payment or a partial
withdrawal. Additional purchase payments will increase the Performance Death
Benefit dollar-for-dollar. Withdrawals will reduce the Performance Death Benefit
by an amount equal to: (i) the Performance Death Benefit immediately before the
withdrawal, multiplied by (ii) the ratio of the withdrawal amount to the
Contract Value just before the withdrawal. In the absence of any withdrawals or
purchase payments, the Performance Death Benefit will be the greatest of the
Contract Value on the Rider Date and all Contract Anniversary Contract Values on
or before the date we calculate the death benefit.
We will recalculate the Performance Death Benefit as described above until the
oldest Contract owner (the Annuitant, if the owner is not a natural person),
attains age 85. After age 85, we will recalculate the Performance Death Benefit
only to reflect additional purchase payments and withdrawals.
DEATH BENEFIT COMBINATION OPTION. If you select the Death Benefit Combination
Option, the death benefit payable will be the greater of the death benefits
provided by the Performance Death Benefit or the Enhanced Death Benefit
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described below. THE ENHANCED DEATH BENEFIT IS ONLY AVAILABLE THROUGH THE DEATH
BENEFIT COMBINATION OPTION. We sometimes refer to the Death Benefit Combination
Option as the "Best of the Best" death benefit option.
ENHANCED DEATH BENEFIT. The Enhanced Death Benefit on the date we issue the
rider for this option ("Rider Date") is equal to the Contract Value. On the
first Contract anniversary after the Rider Date, the Enhanced Death Benefit is
equal to the Contract Value on the Rider Date plus interest at an annual rate of
5% per year for the portion of the year since the Rider Date. On each subsequent
Contract Anniversary, we will multiply the Enhanced Death Benefit as of the
prior Contract Anniversary by 1.05. This results in an increase of 5% annually.
We will recalculate the Enhanced Death Benefit as described above, but not
beyond the Contract Anniversary preceding the oldest Contract owner's (the
Annuitant, if the owner is not a natural person), 85th birthday. For all ages,
we will recalculate the Enhanced Death Benefit on each Contract Anniversary, or
upon receipt of a death claim, as follows:
- - We will reduce the Enhanced Death Benefit by the percentage of any Contract
Value withdrawn since the prior Contract Anniversary; and
- - We will increase the Enhanced Death Benefit by any additional purchase
payments since the prior Contract Anniversary.
PERFORMANCE BENEFIT COMBINATION OPTION. You may elect the Performance Death
Benefit in combination with the Performance Income Benefit. We call this the
"Performance Benefit Combination Option."
None of the Enhanced Death Benefit, the Performance Death Benefit, the
Performance Benefit Combination, or the Death Benefit Combination will ever be
greater than the maximum death benefit allowed by any nonforfeiture laws which
govern the Contract.
DEATH BENEFIT PAYMENTS
If the new Contract owner is a natural person, the new Contract owner may elect
to:
1. receive the death benefit in a lump sum, or
2.apply the death benefit to an Income Plan. Payments from the Income Plan must
begin within 1 year of the date of death and must be payable throughout:
- - the life of the new Contract owner; or
- - for a guaranteed number of payments from 5 to 30 years, but not to exceed the
life expectancy of the (new) Contract owner.
Options 1 and 2 above are only available if the new Contract owner elects one of
these options within 180 days of the date of death. Otherwise, the new Contract
owner will receive the Settlement Value. The "Settlement Value" is the Contract
Value, less premium tax. The Settlement Value paid will be the Settlement Value
next computed on or after the requested distribution date for payment, or on the
mandatory distribution date of 5 years after the date of your death, whichever
is earlier. We are currently waiving the 180 day limit, but we reserve the right
to enforce the limitation in the future.
In any event, the entire value of the Contract must be distributed within 5
years after the date of the death unless an Income Plan is elected or a
surviving spouse continues the Contract in accordance with the provisions
described below.
If the new Contract owner is your spouse, then he or she may elect one of the
options listed above or may continue the Contract in the Accumulation Phase as
if the death had not occurred. On the date the Contract is continued, the
Contract Value will equal the amount of the death benefit as determined as of
the Valuation Date on which we received Due Proof of Death (the next Valuation
Date, if we receive Due Proof of Death after 3 p.m. Central Time). The Contract
may only be continued once.
If the new Contract owner is corporation, trust, or other non-natural person,
then the new Contract owner may elect, within 180 days of your death, to receive
the death benefit in lump sum or may elect to receive the Settlement Value in a
lump sum within 5 years of death. We are currently waiving the 180 day limit,
but we reserve the right to enforce the limitation in the future.
DEATH OF ANNUITANT. If any Annuitant who is not also the Contract owner dies
prior to the Payout Start Date, the Contract owner must elect one of the
applicable options described below.
If the Contract owner is a natural person, the Contract owner may elect to
continue the Contract as if the death had not occurred, or, if we receive Due
Proof of Death within 180 days of the date of the Annuitant's death, the
Contract owner may choose to:
1. receive the death benefit in a lump sum; or
2. apply the death benefit to an Income Plan that must begin within 1 year of
the date of death and must be for a guaranteed number of payments for a period
from 5 to 30 years but not to exceed the life expectancy of the Contract owner.
If the Contract owner elects to continue the Contract or to apply the death
benefit to an Income Plan, the new Annuitant will be the youngest Contract
owner, unless the Contract owner names a different Annuitant.
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If the Contract owner is a non-natural person, the non-natural Contract owner
may elect, within 180 days of the Annuitant's date of death, to receive the
death benefit in a lump sum or may elect to receive the Settlement Value payable
in a lump sum within 5 years of the Annuitant's date of death. If the
non-natural Contract owner does not make one of the above described elections,
the Settlement Value must be withdrawn by the non-natural Contract owner on or
before the mandatory distribution date 5 years after the Annuitant's death.
We are currently waiving the 180 day limit, but we reserve the right to enforce
the limitation in the future.
MORE INFORMATION
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NORTHBROOK
Northbrook is the issuer of the Contract. Northbrook is an Arizona stock life
insurance company organized in 1978. Northbrook is currently licensed to operate
in all states (except New York), the District of Columbia, and Puerto Rico. We
intend to offer the Contract in those jurisdictions in which we are licensed.
Our headquarters are located at 3100 Sanders Road, Northbrook, Illinois, 60062.
Northbrook is a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), an Illinois stock life insurance company. Allstate Life is a
wholly owned subsidiary of Allstate Life Insurance Company, an Illinois stock
property-liability insurance company. All of the outstanding capital stock of
Allstate Insurance Company is owned by The Allstate Corporation.
Northbrook and Allstate Life entered into a reinsurance agreement effective
December 31, 1987. Under the reinsurance agreement, Allstate Life reinsures all
of Northbrook's liabilities under the Contracts. The reinsurance agreement
provides us with financial backing from Allstate Life. However, it does not
create a direct contractual relationship between Allstate Life and you. In other
words, the obligations of Allstate Life under the reinsurance agreement are to
Northbrook; Northbrook remains the sole obligor under the Contract to you.
Several independent rating agencies regularly evaluate life insurers'
claims-paying ability, quality of investments, and overall stability. A.M. Best
Company assigns A+ (Superior) to Allstate Life which automatically reinsures all
net business of Northbrook. A.M. Best Company also assigns Northbrook the rating
of A+(r) because Northbrook automatically reinsures all net business with
Allstate Life. Standard & Poor's Insurance Rating Services assigns an AA+ (Very
Strong) financial strength rating and Moody's assigns an Aa2 (Excellent)
financial strength rating to Northbrook. Northbrook shares the same ratings of
its parent, Allstate Life. These ratings do not reflect the investment
performance of the Variable Account. We may from time to time advertise these
ratings in our sales literature.
THE VARIABLE ACCOUNT
Northbrook established the Northbrook Variable Annuity Account II on May 8,
1990. We have registered the Variable Account with the SEC as a unit investment
trust. The SEC does not supervise the management of the Variable Account or
Northbrook.
We own the assets of the Variable Account. The Variable Account is a segregated
asset account under Arizona insurance law. That means we account for the
Variable Account's income, gains, and losses separately from the results of our
other operations. It also means that only the assets of the Variable Account
that are in excess of the reserves and other Contract liabilities with respect
to the Variable Account are subject to liabilities relating to our other
operations. Our obligations arising under the Contracts are general corporate
obligations of Northbrook.
The Variable Account consists of 31 Variable Sub-Accounts, each of which invests
in a corresponding Portfolio. We may add new Variable Sub-Accounts or eliminate
one or more of them, if we believe marketing, tax, or investment conditions so
warrant. We do not guarantee the investment performance of the Variable Account,
its Sub-Accounts or the Portfolios. We may use the Variable Account to fund our
other annuity contracts. We will account separately for each type of annuity
contract funded by the Variable Account.
THE PORTFOLIOS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all
dividends and capital gains distributions from the Portfolios in shares of the
distributing Portfolio at their net asset value.
VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote
the shares of the Portfolios held by the Variable Sub-Accounts to which you have
allocated your Contract Value. Under current law, however, you are entitled to
give us instructions on how to vote those shares on certain matters. Based on
our present view of the law, we will vote the shares of the Portfolios that we
hold directly or indirectly through the Variable Account in accordance with
25 - PROSPECTUS
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instructions that we receive from Contract owners entitled to give such
instructions.
As a general rule, before the Payout Start Date, the Contract owner or anyone
with a voting interest is the person entitled to give voting instructions. The
number of shares that a person has a right to instruct will be determined by
dividing the Contract Value allocated to the applicable Variable Sub-Account by
the net asset value per share of the corresponding Portfolio as of the record
date of the meeting. After the Payout Start Date the person receiving income
payments has the voting interest. The payee's number of votes will be determined
by dividing the reserves for such Contract allocated to the applicable Variable
Sub-Account by the net asset value per share of the corresponding Portfolio as
of the record date of the meeting. The votes decrease as income payments are
made and as the reserves for the Contract decrease.
We will vote shares attributable to Contracts for which we have not received
instructions, as well as shares attributable to us, in the same proportion as we
vote shares for which we have received instructions, unless we determine that we
may vote such shares in our own discretion. We will apply voting instructions to
abstain on any item to be voted upon on a pro rate basis to reduce the votes
eligible to be cast.
We reserve the right to vote Portfolio shares as we see fit without regard to
voting instructions to the extent permitted by law. If we disregard voting
instructions, we will include a summary of that action and our reasons for that
action in the next semi-annual financial report we send to you.
CHANGES IN PORTFOLIOS. We reserve the right, subject to any applicable law, to
make additions to, deletions from or substitutions for the Portfolio shares held
by any Variable Sub-Account. If the shares of any of the Portfolios are no
longer available for investment by the Variable Account or if, in our judgment,
further investment in such shares is no longer desirable in view of the purposes
of the Contract, we may eliminate that Portfolio and substitute shares of
another eligible investment fund. Any substitution of securities will comply
with the requirements of the Investment Company Act of 1940. We also may add new
Variable Sub-Accounts that invest in additional mutual funds. We will notify you
in advance of any change.
CONFLICTS OF INTEREST. Certain of the Portfolios sell their shares to separate
accounts underlying both variable life insurance and variable annuity contracts.
It is conceivable that in the future it may be unfavorable for variable life
insurance separate accounts and variable annuity separate accounts to invest in
the same Portfolio. The boards of directors or trustees of these Portfolios
monitor for possible conflicts among separate accounts buying shares of the
Portfolios. Conflicts could develop for a variety of reasons. For example,
differences in treatment under tax and other laws or the failure by a separate
account to comply with such laws could cause a conflict. To eliminate a
conflict, a Portfolio's board of directors or trustees may require a separate
account to withdraw its participation in a Portfolio. A Portfolio's net asset
value could decrease if it had to sell investment securities to pay redemption
proceeds to a separate account withdrawing because of a conflict.
THE CONTRACT
The Contracts are distributed exclusively by their principal underwriter, Dean
Witter Reynolds Inc. ("Dean Witter"). Dean Witter, a wholly owned subsidiary of
Morgan Stanley Dean Witter & Co., 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.
ADMINISTRATION. We have primary responsibility for all administration of the
Contracts and the Variable Account. We provide the following administrative
services, among others:
- - issuance of the Contracts;
- - maintenance of Contract owner records;
- - Contract owner services;
- - calculation of unit values;
- - maintenance of the Variable Account; and
- - preparation of Contract owner reports.
We will send you Contract statements at least annually prior to the Payout Start
Date. You should notify us promptly in writing of any address change. You should
read your statements and confirmations carefully and verify their accuracy. You
should contact us promptly if you have a question about a periodic statement. We
will investigate all complaints and make any necessary adjustments
retroactively, but you must notify us of a potential error within a reasonable
time after the date of the questioned statement. If you wait too long, we will
make the adjustment as of the date that we receive notice of the potential
error.
We also will provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.
QUALIFIED PLANS
If you use the Contract with a qualified plan, the plan may impose different or
additional conditions or limitations on withdrawals, death benefits, Payout
Start Dates, income payments, and other Contract features. In addition, adverse
tax consequences may result if qualified plan limits on distributions and other
conditions are not met. Please consult your qualified plan administrator for
more information.
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LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised Northbrook on
certain federal securities law matters. All matters of state law pertaining to
the Contracts, including the validity of the Contracts and Northbrook's right to
issue such Contracts under state insurance law, have been passed upon by
Michael J. Velotta, General Counsel of Northbrook.
TAXES
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THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
NORTHBROOK 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 your individual circumstances.
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, you are not taxed on increases in the Contract Value
until a distribution occurs. This rule applies only where:
1. the Contract owner is a natural person,
2. the investments of the Variable Account are "adequately diversified"
according to Treasury Department regulations, and
3) Northbrook 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 such as corporations, trusts, or other entities are not treated as
annuity contracts for federal income tax purposes. The income on such contracts
is taxed as ordinary income received or accrued by the owner during the taxable
year. Please see the Statement of Additional Information for a discussion of
several exceptions to the general rule for Contracts owned by non-natural
persons.
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" consistent with standards under Treasury Department
regulations. If the investments in the Variable Account are not adequately
diversified, the Contract will not be treated as an annuity contract for federal
income tax purposes. As a result, the income on the Contract will be taxed as
ordinary income received or accrued by the Contract owner during the taxable
year. Although Northbrook does not have control over the Portfolios or their
investments, we expect the Portfolios to meet the diversification requirements.
OWNERSHIP TREATMENT. The IRS has stated that you will be considered the owner of
Variable Account assets if you possess 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 the regulations do not provide guidance concerning circumstances in which
investor control of separate account investments may cause an investor to be
treated as the owner of the separate account. The Treasury Department also
stated that future guidance would be issued regarding the extent that owners
could direct sub-account investments without being treated as owners of the
underlying assets of the separate account.
Your rights under the Contract are different than those described by the IRS in
rulings in which it found that contract owners were not owners of separate
account assets. For example, you have the choice to allocate premiums and
Contract Values among more investment alternatives. Also, you may be able to
transfer among investment alternatives more frequently than in such rulings.
These differences could result in you being treated as the owner of the Variable
Account. If this occurs, income and gain from the Variable Account assets would
be includible in your gross income. Northbrook does not know what standards will
be set forth in any regulations or rulings which the Treasury Department may
issue. It is possible that future standards announced by the Treasury Department
could adversely affect the tax treatment of your Contract. We reserve the right
to modify the Contract as necessary to attempt to prevent you from being
considered the federal tax owner of the assets of the Variable Account. However,
we make no guarantee that such modification to the Contract will be successful.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make 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. The investment in the Contract is the gross
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premium paid for the Contract minus any amounts previously received from the
Contract if such amounts were properly excluded from your gross income. If you
make 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 (i.e., nondeductible IRA contributions, after tax contributions to
qualified plans) bears to the Contract Value, is excluded from your income. If
you make 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.
"Nonqualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions. "Qualified distributions" from Roth IRAs are
not included in gross income. "Qualified distributions" are any distributions
made more than 5 taxable years after the taxable year of the first contribution
to any Roth IRA and which are:
- - made on or after the date the individual attains age 59 1/2,
- - made to a Beneficiary after the Contract owner's death,
- - attributable to the Contract owner being disabled, or
- - for a first time home purchase (first time home purchases are subject to a
lifetime limit of $10,000).
If you transfer a non-Qualified Contract without full and adequate consideration
to a person other than your spouse (or to a former spouse incident to a
divorce), you will be taxed on the difference between the Contract Value and the
investment in the Contract at the time of transfer. Except for certain Qualified
Contracts, any amount you receive 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 annuity
payments received from a non-Qualified Contract provides for the return of your
investment in the Contract in equal tax-free amounts over the payment period.
The balance of each payment received is taxable. For 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. If you elect 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. The annuity payments will be fully taxable
after the total amount of the investment in the Contract is excluded using these
ratios. If you die, and annuity payments cease before the total amount of the
investment in the Contract is recovered, the unrecovered amount will be allowed
as a deduction for your last taxable year.
TAXATION OF ANNUITY DEATH BENEFITS. Death of a Contract owner, or death of the
Annuitant if the Contract is owned by a non-natural person, will cause a
distribution of death benefits from a Contract. Generally, such amounts are
included 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. Please see the Statement of Additional Information
for more detail on distribution at death requirements.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable
amount of any premature distribution from a non-Qualified Contract. The penalty
tax generally applies to any distribution made prior to the date you attain age
59 1/2. However, no penalty tax is incurred on distributions:
1. made on or after the date the Contract owner attains age 59 1/2;
2. made as a result of the Contract owner's death or disability;
3. made in substantially equal periodic payments over the Contract owner's life
or life expectancy,
4. made under an immediate annuity, or
5. attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine if any other exceptions
to the penalty apply to your situation. Similar exceptions may apply to
distributions from Qualified Contracts.
AGGREGATION OF ANNUITY CONTRACTS. All non-qualified deferred annuity contracts
issued by Northbrook (or its affiliates) to the same Contract 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.
The income on qualified plan and IRA investments is tax deferred, and the income
on variable annuities held by such plans does not receive any additional tax
deferral. You should review the annuity features, including all benefits and
expenses, prior to purchasing a variable annuity in a qualified plan or IRA.
28 - PROSPECTUS
<PAGE>
Contracts may be used as investments with certain qualified plans such as:
- - Individual Retirement Annuities or Accounts (IRAs) under Section 408 of the
Internal Revenue Code ("Code");
- - Roth IRAs under Section 408A of the Code;
- - Simplified Employee Pension Plans under Section 408(k) of the Code;
- - Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section
408(p) of the Code;
- - Tax Sheltered Annuities under Section 403(b) of the Code;
- - Corporate and Self Employed Pension and Profit Sharing Plans; and
- - State and Local Government and Tax-Exempt Organization Deferred Compensation
Plans.
Northbrook reserves the right to limit the availability of the Contract for use
with any of the qualified plans listed above.
In the case of certain 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
tax-deferred retirement savings plans for employees of certain non-profit and
educational organizations. Under Section 403(b), any Contract used for a
403(b) plan must provide that distributions attributable to salary reduction
contributions made after December 31, 1988, and all earnings on salary reduction
contributions, may be made only:
1. on or after the date of employee
- - attains age 59 1/2,
- - separates from service,
- - dies,
- - becomes disabled, or
2. on account of hardship (earnings on salary reduction contributions may not be
distributed on the account of hardship).
These limitations do not apply to withdrawals where Northbrook is directed to
transfer some or all of the Contract Value to another 403(b) plan.
INCOME TAX WITHHOLDING
Northbrook is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless you elect to make a "direct rollover"
of such amounts to an IRA or eligible retirement plan. Eligible rollover
distributions generally include all distributions from Qualified Contracts,
excluding IRAs, with the exception of:
1. required minimum distributions, or
2. a series of substantially equal periodic payments made over a period of at
least 10 years, or,
3. over the life (joint lives) of the participant (and beneficiary).
Northbrook may be required to withhold federal and state income taxes on any
distributions from non-Qualified Contracts or Qualified Contracts that are not
eligible rollover distributions, unless you notify us of your election to not
have taxes withheld.
29 - PROSPECTUS
<PAGE>
PERFORMANCE INFORMATION
- -------------------------------------------------------------------
We may advertise the performance of the Variable Sub-Accounts, including yield
and total return information. Yield refers to the income generated by an
investment in a Variable Sub-Account over a specified period. Total return
represents the change, over a specified period of time, in the value of an
investment in a Variable Sub-Account after reinvesting all income distributions.
All performance advertisements will include, as applicable, standardized yield
and total return figures that reflect the deduction of insurance charges.
Performance advertisements also may include aggregate, average, year-by-year, or
other types of total return figures.
Performance information for periods prior to the inception date of the Variable
Sub-Accounts will be based on the historical performance of the corresponding
Portfolios for the periods beginning with the inception dates of the Portfolios
and adjusted to reflect current Contract expenses. You should not interpret
these figures to reflect actual historical performance of the Variable Account.
We may include in advertising and sales materials tax deferred compounding
charts and other hypothetical illustrations that compare currently taxable and
tax deferred investment programs based on selected tax brackets. Our
advertisements also may compare the performance of our Variable Sub-Accounts
with: (a) certain unmanaged market indices, including but not limited to the Dow
Jones Industrial Average, the Standard & Poor's 500, and the Shearson Lehman
Bond Index; and/or (b) other management investment companies with investment
objectives similar to the underlying funds being compared. In addition, our
advertisements may include the performance ranking assigned by various
publications, including the Wall Street Journal, Forbes, Fortune, Money,
Barron's, Business Week, USA Today, and statistical services, including Lipper
Analytical Services Mutual Fund Survey, Lipper Annuity and Closed End Survey,
the Variable Annuity Research Data Survey, and SEI.
30 - PROSPECTUS
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
<S> <C>
- ----------------------------------------------------------------------------
Additions, Deletions or Substitutions of Investments
- ----------------------------------------------------------------------------
The Contract
- ----------------------------------------------------------------------------
Purchase of Contracts
- ----------------------------------------------------------------------------
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers)
- ----------------------------------------------------------------------------
Performance Information
- ----------------------------------------------------------------------------
Calculation of Accumulation Unit Values
- ----------------------------------------------------------------------------
Calculation of Variable Income Payments
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
DESCRIPTION
<S> <C>
General Matters
- ----------------------------------------------------------------------------
Incontestability
- ----------------------------------------------------------------------------
Settlements
- ----------------------------------------------------------------------------
Safekeeping of the Variable Account's Assets
- ----------------------------------------------------------------------------
Premium Taxes
- ----------------------------------------------------------------------------
Tax Reserves
- ----------------------------------------------------------------------------
Federal Tax Matters
- ----------------------------------------------------------------------------
Experts
- ----------------------------------------------------------------------------
Financial Statements
- ----------------------------------------------------------------------------
</TABLE>
------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE
ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
<PAGE>
PREFERRED CLIENT VARIABLE ANNUITY
Northbrook Life and Annuity Company Statement of Additional Information
Northbrook Variable Annuity Account II Dated January 31, 2000
Post Office Box 94040
Palatine, IL 60094-4040
1 (800) 654 - 2397
This Statement of Additional Information supplements the information in the
prospectus for the Preferred Client Variable Annuity Contracts that we offer.
This Statement of Additional Information is not a prospectus. You should read it
with the prospectus, dated January 31, 2000, for the Contract. You may obtain a
prospectus by calling or writing us at the address or telephone number listed
above, or by calling or writing your Morgan Stanley Dean Witter Financial
Advisor.
Except as otherwise noted, this Statement of Additional Information uses the
same defined terms as the prospectus for the Morgan Stanley Dean Witter
Preferred Client Variable Annuity Contracts.
<PAGE>
TABLE OF CONTENTS
Description Page
- ----------- ----
Additions, Deletions or Substitutions of Investments 1
The Contract 2
Purchase of Contracts 2
Tax-free Exchanges (1035 Exchanges, Rollovers and 2
Transfers)
Performance Information 3
Calculation of Accumulation Unit Values 13
Calculation of Variable Income Payments 13
General Matters 14
Incontestability 14
Settlements 14
Safekeeping of the Variable Account's Assets 15
Premium Taxes 15
Tax Reserves 15
Federal Tax Matters 16
Experts 19
Financial Statements 19
<PAGE>
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
We may add, delete, or substitute the Portfolio shares held by any Variable
Sub-Account to the extent the law permits. We may substitute shares of any
Portfolio with those of another Portfolio of the same or different mutual
Portfolio if the shares of the Portfolio are no longer available for investment
or if we believe investment in any Portfolio would become inappropriate in view
of the purposes of the Variable Account.
We will not substitute shares attributable to a Contract owner's interest in a
Variable Sub-Account until we have notified the Contract owner of the change,
and until the Securities and Exchange Commission has approved the change, to the
extent such notification and approval are required by law. 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 Contract owners.
We also may establish additional Variable Sub-Accounts or series of Variable
Sub-Accounts. Each additional Variable Sub-Account would purchase shares in a
new Portfolio of the same or different mutual fund. We may establish new
Variable Sub-Accounts when we believe marketing needs or investment conditions
warrant. We determine the basis on which we will offer any new Variable
Sub-Accounts in conjunction with the Contract to existing Contract owners. We
may eliminate one or more Variable Sub-Accounts if, in our sole discretion,
marketing, tax or investment conditions so warrant.
We may, by appropriate endorsement, change the Contract as we believe necessary
or appropriate to reflect any substitution or change in the Portfolios. If we
believe the best interests of persons having voting rights under the Contracts
would be served, we may operate the Variable Account as a management company
under the Investment Company Act of 1940 or we may withdraw its registration
under such Act if such registration is no longer required.
<PAGE>
THE CONTRACT
The Contract is primarily designed to aid individuals in long-term financial
planning. You can use it for retirement planning regardless of whether the
retirement plan qualifies for special federal income tax treatment.
PURCHASE OF CONTRACTS
Dean Witter Reynolds Inc., is the principal underwriter and distributor of the
Contracts. The offering of the Contracts is continuous. We do not anticipate
discontinuing the offering of the Contracts but we reserve the right to do so at
any time.
TAX-FREE EXCHANGES (1035 EXCHANGES, ROLLOVERS AND TRANSFERS)
We accept purchase payments that are the proceeds of a Contract in a transaction
qualifying for a tax-free exchange under Section 1035 of the Internal Revenue
Code ("Code"). Except as required by federal law in calculating the basis of the
Contract, we do not differentiate between Section 1035 purchase payments and
non-Section 1035 purchase payments.
We also accept "rollovers" and transfers from Contracts qualifying as
tax-sheltered annuities ("TSAs"), individual retirement annuities or accounts
("IRAs"), or any other Qualified Contract that is eligible to "rollover" into an
IRA. We differentiate among non-Qualified Contracts, TSAs, IRAs and other
Qualified Contracts to the extent necessary to comply with federal tax laws. For
example, we restrict the assignment, transfer, or pledge of TSAs and IRAs so the
Contracts will continue to qualify for special tax treatment. A Contract 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.
<PAGE>
PERFORMANCE INFORMATION
From time to time we may advertise the "standardized," "non-standardized," and
"adjusted historical" total returns of the Variable Sub-Accounts, as described
below. Please remember that past performance is not an estimate or guarantee of
future performance and does not necessarily represent the actual experience of
amounts invested by a particular Contract owner.
STANDARDIZED TOTAL RETURNS
A Variable Sub-Account's standardized total return represents the average annual
total return of that Sub-Account over a particular period. We compute
standardized total return by finding the annual percentage rate that, when
compounded annually, will accumulate a hypothetical $1,000 purchase payment to
the redeemable value at the end of the one, five or ten year period, or for a
period from the date of commencement of the Variable Sub-Account's operations,
if shorter than any of the foregoing. We use the following formula prescribed by
the SEC for computing standardized total return:
1000(1 + T)n = ERV
where:
T = average annual total return
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of 1, 5, or 10 year periods
or shorter period
n = number of years in the period
1000 = hypothetical $1,000 investment
The standardized total returns for the Variable Sub-Accounts available under the
Contract for the periods ended December 31, 1999 are set out below. No
standardized total returns are shown for Money Market Variable Sub-Account. No
standardized total returns are shown for the Variable Sub-Accounts marked with
an asterisk (*) below which had not commenced operations as of the date of this
Statement of Additional Information.
The Preferred Client Variable Annuity Contracts were first offered to the public
as of the date of this Statement of Additional Information. Accordingly,
performance figures for Variable Sub-Accounts prior to those dates reflect the
historical performance of the Variable Sub-Accounts, adjusted to reflect the
current level of charges that apply to the Variable Sub-Accounts under the
Preferred Client Contracts.
<PAGE>
Variable Sub-Account Inception Dates:
Morgan Stanley Dean Witter Variable Investment Series:
Variable Sub-Account Date
- -------------------- ----
Quality Income Plus October 25, 1990
High Yield October 25, 1990
Utilities October 25, 1990
Dividend Growth October 25, 1990
Equity October 25, 1990
Strategist October 25, 1990
Capital Growth March 1, 1991
European Growth March 1, 1991
Global Dividend Growth February 23, 1994
Pacific Growth February 23, 1994
Income Builder January 21, 1997
Short-Term Bond May 3, 1999
Aggressive Equity May 3, 1999
S&P 500 Index May 18, 1998
Competitive Edge ("Best Ideas") May 18, 1998
Morgan Stanley Dean Witter Universal Funds, Inc.:
Variable Sub-Account Date
- -------------------- ----
Equity Growth March 16, 1998
International Magnum March 16, 1998
Emerging Markets Equity March 16, 1998
U.S. Real Estate May 18, 1998
Mid-Cap Value* January 31, 2000
Van Kampen Life Investment Trust:
Variable Sub-Account Date
- -------------------- ----
Emerging Growth March 16, 1998
AIM Variable Insurance Funds, Inc.:
Variable Sub-Account Date
- -------------------- ----
Capital Appreciation* January 31, 2000
Growth* January 31, 2000
Value* January 31, 2000
Alliance Variable Products Series Fund:
Variable Sub-Account Date
- -------------------- ----
Growth* January 31, 2000
Growth and Income* January 31, 2000
Premier Growth* January 31, 2000
Putnam Variable Trust (Class IB Shares):
Variable Sub-Account Date
- -------------------- ----
Growth and Income* January 31, 2000
International Growth* January 31, 2000
Voyager* January 31, 2000
* The Variable Sub-Account had not commenced operations as of the date of this
Statement of Additional Information.
(WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION OR PERFORMANCE INCOME BENEFIT
OPTION)
10 Years or Since
Variable Sub-Account One Year Five Years Portfolio Inception
- -------------------- -------- ---------- -------------------
High Yield -2.02% 5.13% 7.55%
Equity 57.49% 34.77% 22.19%
Quality Income Plus -4.98% 7.15% 7.01%
Strategist 16.53% 15.44% 12.25%
Dividend Growth -3.07% 17.86% 15.50%
Utilities 11.93% 19.06% 14.58%
European Growth 28.21% 24.00% 18.85%
Capital Growth 32.37% 23.36% 14.54%
Pacific Growth 64.94% -0.14% -1.57%
Global Dividend Growth 13.85% 14.94% 12.54%
Income Builder 6.32% N/A 10.04%
Equity Growth 38.48% N/A 20.95%
International Magnum 24.32% N/A 11.67%
Emerging Markets Equity 94.32% N/A 19.68%
U.S. Real Estate -2.16% N/A -8.27%
Competitive Edge ("Best Ideas") 25.22% N/A 13.23%
S&P 500 Index 18.86% N/A 19.12%
Short-Term Bond N/A N/A 1.64%
Aggressive Equity N/A N/A 75.94%
Mid-Cap Value* N/A N/A N/A
Van Kampen Emerging Growth 102.96% N/A 64.73%
AIM V.I. Capital Appreciation* N/A N/A N/A
AIM V.I. Growth* N/A N/A N/A
AIM V.I Value* N/A N/A N/A
Alliance Growth* N/A N/A N/A
Alliance Growth and Income* N/A N/A N/A
Alliance Premier Growth* N/A N/A N/A
Putnam VT Growth and Income* N/A N/A N/A
Putnam VT International Growth* N/A N/A N/A
Putnam VT Voyager* N/A N/A N/A
<PAGE>
(WITH PERFORMANCE DEATH BENEFIT OPTION OR PERFORMANCE INCOME BENEFIT OPTION)
10 Years or Since
Variable Sub-Account One Year Five Years Portfolio Inception
- -------------------- -------- ---------- -------------------
High Yield -2.15% 4.99% 7.41%
Equity 57.28% 34.59% 22.03%
Quality Income Plus -5.11% 7.01% 6.87%
Strategist 16.38% 15.29% 12.10%
Dividend Growth -3.20% 17.71% 15.35%
Utilities 11.78% 18.91% 14.43%
European Growth 28.05% 23.84% 18.70%
Capital Growth 32.19% 23.20% 14.39%
Pacific Growth 64.72% -0.27% -1.69%
Global Dividend Growth 13.71% 14.79% 12.40%
Income Builder 6.18% N/A 9.90%
Equity Growth 38.30% N/A 20.79%
International Magnum 24.16% N/A 11.53%
Emerging Markets Equity 94.07% N/A 19.53%
U.S. Real Estate -2.29% N/A -8.39%
Competitive Edge ("Best 25.05% N/A 13.08%
Ideas")
S&P 500 Index 18.71% N/A 18.96%
Short-Term Bond N/A N/A 1.51%
Aggressive Equity N/A N/A 75.71%
Van Kampen Emerging Growth 102.69% N/A 64.51%
Mid-Cap Value* N/A N/A N/A
AIM V.I Capital Appreciation* N/A N/A N/A
AIM V.I Growth* N/A N/A N/A
AIM V.I Value* N/A N/A N/A
Alliance Growth* N/A N/A N/A
Alliance Growth and Income* N/A N/A N/A
Alliance Premier Growth* N/A N/A N/A
Putnam VT Growth and Income* N/A N/A N/A
Putnam VT International Growth* N/A N/A N/A
Putnam Voyager* N/A N/A N/A
<PAGE>
(WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION
OPTION)
10 Years or Since
Variable Sub-Account One Year Five Years Portfolio Inception
-------- ---------- -------------------
High Yield -2.25% 4.87% 7.29%
Equity 57.11% 34.44% 21.90%
Quality Income Plus -5.21% 6.89% 6.75%
Strategist 16.25% 15.16% 11.98%
Dividend Growth -3.30% 17.58% 15.22%
Utilities 11.66% 18.78% 14.30%
European Growth 27.91% 23.71% 18.57%
Capital Growth 32.05% 23.07% 14.26%
Pacific Growth 64.54% -0.38% -1.80%
Global Dividend Growth 13.58% 14.67% 12.27%
Income Builder 6.06% N/A 9.77%
Equity Growth 38.15% N/A 20.66%
International Magnum 24.02% N/A 11.41%
Emerging Markets Equity 93.86% N/A 19.39%
U.S Real Estate -2.39% N/A -8.49%
Competitive Edge ("Best 24.92% N/A 12.96%
Ideas")
S&P 500 Index 18.58% N/A 18.83%
Short-Term Bond N/A N/A 1.40%
Aggressive Equity N/A N/A 75.52%
Mid-Cap Value* N/A N/A N/A
Van Kampen Emerging Growth 102.47% N/A 64.33%
AIM V.I Capital Appreciation* N/A N/A N/A
AIM V.I Growth* N/A N/A N/A
AIM V.I Value* N/A N/A N/A
Alliance Growth* N/A N/A N/A
Alliance Growth and Income* N/A N/A N/A
Alliance Premier Growth* N/A N/A N/A
Putnam VT Growth and Income* N/A N/A N/A
Putnam VT International Growth* N/A N/A N/A
Putnam VT Voyager* N/A N/A N/A
NON-STANDARDIZED TOTAL RETURNS
From time to time, we 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. The formula for computing such total return quotations involves a per
unit change calculation. This calculation is based on the Accumulation Unit
Value at the end of the defined period divided by the Accumulation Unit Value at
the beginning of such period, minus 1. The periods included in such
advertisements are "year-to-date" (prior calendar year end to the day of the
advertisement); "year to most recent quarter" (prior calendar year end to the
end of the most recent quarter); "the prior calendar year"; " 'n' most recent
Calendar Years"; and "Inception (commencement of the Variable Sub-Account's
operation) to date" (day of the advertisement).
<PAGE>
ADJUSTED HISTORICAL TOTAL RETURNS
We may advertise the total return for periods prior to the date that the
Variable Sub-Accounts commenced operations. We will calculate such "adjusted
historical total returns" using the historical performance of the underlying
Portfolios and adjusting such performance to reflect the current level of
charges that apply to the Variable Sub-Accounts under the Contract.
The adjusted historical total returns for the Variable Sub-Accounts for the
periods ended December 31, 1999 are set out below. No adjusted historical total
returns are shown for the Money Market Variable Sub-Account.
The following list provides the inception date for the Portfolio corresponding
to each of the Variable Sub-Accounts included in the tables.
Inception Date of
Variable Sub-Account Corresponding Portfolio
- -------------------- -----------------------
High Yield March 9, 1984
Equity March 9, 1984
Quality Income Plus March 1, 1987
Strategist March 1, 1987
Dividend Growth March 1, 1990
Utilities March 1, 1990
European Growth March 1, 1991
Capital Growth March 1, 1991
Pacific Growth February 24, 1994
Global Dividend Growth February 24, 1994
Income Builder January 21, 1997
Equity Growth January 2, 1997
International Magnum January 2, 1997
Emerging Markets Equity October 1,1996
Mid-Cap Value January 2, 1997
U.S. Real Estate March 4, 1997
Competitive Edge ("Best May 18, 1998
Ideas")
S&P 500 Index May 18, 1998
Short-Term Bond May 2, 1999
Aggressive Equity May 2, 1999
Van Kampen Emerging Growth July 3, 1995
AIM V.I. Capital Appreciation May 5, 1993
AIM V.I. Growth May 5, 1993
AIM V.I. Value May 5, 1993
Alliance Growth September 15, 1994
Alliance Growth and Income January 14, 1991
Alliance Premier Growth July 14, 1999
Putnam VT Growth and Income February 1, 1988
Putnam VT International Growth January 2, 1997
Putnam VT Voyager February 1, 1988
(WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION OR PERFORMANCE INCOME BENEFIT
OPTION )
10 Years or Since
Variable Sub-Account One Year Five Years Portfolio Inception
- -------------------- -------- ---------- -------------------
High Yield -2.02% 5.13% 7.55%
Equity 57.49% 34.77% 22.19%
Quality Income Plus -4.98% 7.15% 7.01%
Strategist 16.53% 15.44% 12.25%
Dividend Growth -3.07% 17.86% 12.25%
Utilities 11.93% 19.06% 13.45%
European Growth 28.21% 24.00% 18.85%
Capital Growth 32.37% 23.36% 14.54%
Pacific Growth 64.94% -0.14% -1.57%
Global Dividend Growth 13.85% 14.94% 12.54%
Income Builder 6.32% N/A 10.04%
Equity Growth 38.48% N/A 29.50%
International Magnum 24.32% N/A 12.65%
Emerging Markets Equity 94.32% N/A 11.30%
Mid-Cap Value 19.75% N/A 23.44%
U.S. Real Estate -2.16% N/A -0.28%
Competitive Edge ("Best 25.22% N/A 13.23%
Ideas")
S&P 500 Index 18.86% N/A 19.12%
Short-Term Bond N/A N/A 1.64%
Aggressive Equity N/A N/A 75.94%
Van Kampen Emerging Growth 102.96% N/A 64.73%
AIM V.I. Capital Appreciation 43.61% 23.98% 20.95%
AIM V.I. Growth 34.29% 26.95% 20.80%
AIM V.I. Value 28.99% 25.10% 21.31%
Alliance Growth 33.53% 30.44% 29.75%
Alliance Growth and Income 10.59% 23.05% 14.68%
Alliance Premier Growth N/A N/A 29.37%
Putnam VT Growth and Income 0.76% 18.40% 13.04%
Putnam VT International Growth 58.92% N/A 29.21%
Putnam VT Voyager 56.91% 30.55% 21.28%
<PAGE>
(WITH PERFORMANCE DEATH BENEFIT OPTION OR PERFORMANCE INCOME BENEFIT OPTION)
10 Years or Since
Variable Sub-Account One Year Five Years Portfolio Inception
- -------------------- -------- ---------- -------------------
High Yield -2.15% 4.99% 7.41%
Equity 57.28% 34.59% 22.03%
Quality Income Plus -5.11% 7.01% 6.87%
Strategist 16.38% 15.29% 12.10%
Dividend Growth -3.20% 17.71% 12.10%
Utilities 11.78% 18.91% 13.30%
European Growth 28.05% 23.84% 18.70%
Capital Growth 32.19% 23.20% 14.39%
Pacific Growth 64.72% -0.27% -1.69%
Global Dividend Growth 13.71% 14.79% 12.40%
Income Builder 6.18% N/A 9.90%
Equity Growth 38.30% N/A 29.33%
International Magnum 24.16% N/A 12.51%
Emerging Markets Equity 94.07% N/A 11.15%
Mid-Cap Value 19.60% N/A 23.28%
U.S. Real Estate -2.29% N/A -0.41%
Competitive Edge ("Best 25.05% N/A 13.08%
Ideas")
S&P 500 Index 18.71% N/A 18.96%
Short-Term Bond N/A N/A 1.51%
Aggressive Equity N/A N/A 75.71%
Van Kampen Emerging Growth 102.69% N/A 64.51%
AIM V.I. Capital Appreciation 43.42% 23.82% 20.80%
AIM V.I. Growth 34.12% 26.79% 20.64%
AIM V.I. Value 28.82% 24.94% 21.16%
Alliance Growth 33.36% 30.27% 29.58%
Alliance Growth and Income 10.45% 22.89% 14.53%
Alliance Premier Growth N/A N/A 29.20%
Putnam VT Growth and Income 0.62% 18.25% 12.89%
Putnam VT International Growth 58.71% N/A 29.04%
Putnam VT Voyager 56.71% 30.38% 21.12%
<PAGE>
(WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION
OPTION)
10 Years or Since
Variable Sub-Account One Year Five Years Portfolio Inception
- -------------------- -------- ---------- -------------------
High Yield -2.25% 4.87% 7.29%
Equity 57.11% 34.44% 21.90%
Quality Income Plus -5.21% 6.89% 6.75%
Strategist 16.25% 15.16% 11.98%
Dividend Growth -3.30% 17.58% 11.98%
Utilities 11.66% 18.78% 13.18%
European Growth 27.91% 23.71% 18.57%
Capital Growth 32.05% 23.07% 14.26%
Pacific Growth 64.54% -0.38% -1.80%
Global Dividend Growth 13.58% 14.67% 12.27%
Income Builder 6.06% N/A 9.77%
Equity Growth 38.15% N/A 29.19%
International Magnum 24.02% N/A 12.38%
Emerging Markets Equity 93.86% N/A 11.03%
Mid-Cap Value 19.47% N/A 23.15%
U.S. Real Estate -2.39% N/A -0.52%
Competitive Edge ("Best 24.92% N/A 12.96%
Ideas")
S&P 500 Index 18.58% N/A 18.83%
Short-Term Bond N/A N/A 1.40%
Aggressive Equity N/A N/A 75.52%
Van Kampen Emerging Growth 102.47% N/A 64.33%
AIM V.I. Capital Appreciation 43.26% 23.69% 20.66%
AIM V.I. Growth 33.97% 26.65% 20.51%
AIM V.I. Value 28.68% 24.80% 21.02%
Alliance Growth 33.21% 30.13% 29.44%
Alliance Growth and Income 10.33% 22.76% 14.40%
Alliance Premier Growth N/A N/A 29.06%
Putnam VT Growth and Income 0.51% 18.12% 12.77%
Putnam VT International Growth 58.54% N/A 28.90%
Putnam VT Voyager 56.54% 30.24% 20.99%
<PAGE>
CALCULATION OF ACCUMULATION UNIT VALUES
The value of Accumulation Units will change each Valuation Period according to
the investment performance of the Portfolio shares purchased by each Variable
Sub-Account and the deduction of certain expenses and charges. A "Valuation
Period" is the period from the end of one Valuation Date and continues to the
end of the next Valuation Date. A Valuation Date ends at the close of regular
trading on the New York Stock Exchange (currently 3:00 p.m. Central Time).
The Accumulation Unit Value of a Variable Sub-Account for any Valuation Period
equals the Accumulation Unit Value as of the immediately preceding Valuation
Period, multiplied by the Net Investment Factor (described below) for that
Variable Sub-Account for the current Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor for a Valuation Period is a number representing the
change, since the last Valuation Period, in the value of Variable Sub-Account
assets per Accumulation Unit due to investment income, realized or unrealized
capital gain or loss, deductions for taxes, if any, and deductions for the
mortality and expense risk charge and administrative expense charge. We
determine the Net Investment Factor for each Variable Sub-Account for any
Valuation Period by dividing (A) by (B) and subtracting (C) from the result,
where:
(A) is the sum of:
(1) the net asset value per share of the Portfolio underlying the
Variable 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 underlying the Variable
Sub-Account during the current Valuation Period;
(B) is the net asset value per share of the Portfolio underlying the
Variable Sub-Account determined as of the end of the immediately
preceding Valuation Period; and
(C) is the annualized mortality and expense risk and administrative
expense charges divided by the number of days in the current calendar
year and then multiplied by the number of calendar days in the current
Valuation Period.
CALCULATION OF VARIABLE INCOME PAYMENTS
We calculate the amount of the first variable income payment under an Income
Plan by applying the Contract Value allocated to each Variable Sub-Account less
any applicable premium tax charge deducted at the time, to the income payment
tables in the Contract. We divide the amount of the first variable annuity
income payment by the Variable Sub-Account's then current Annuity Unit value to
determine the number of annuity units ("Annuity Units") upon which later income
payments will be based. To determine income payments after the first, we simply
multiply the number of Annuity Units determined in this manner for each Variable
Sub-Account by the then current Annuity Unit value ("Annuity Unit Value") for
that Variable Sub-Account.
CALCULATION OF ANNUITY UNIT VALUES
Annuity Units in each Variable Sub-Account are valued separately and Annuity
Unit Values will depend upon the investment experience of the particular
Portfolio in which the Variable Sub-Account invests. We calculate the Annuity
Unit Value for each Variable Sub-Account at the end of any Valuation Period by:
o multiplying the Annuity Unit Value at the end of the immediately preceding
Valuation Period by the Variable Sub-Account's Net Investment Factor
(described in the preceding section) for the Period; and then
o dividing the product by the sum of 1.0 plus the assumed investment rate for
the Valuation Period.
The assumed investment rate adjusts for the interest rate assumed in the income
payment tables used to determine the dollar amount of the first variable income
payment, and is at an effective annual rate which is disclosed in the Contract.
We determine the amount of the first variable income payment paid under an
Income Plan using the income payment tables set out in the Contracts. The
Contracts include tables that differentiate on the basis of sex, except in
states that require the use of unisex tables.
GENERAL MATTERS
INCONTESTABILITY
We will not contest the Contract after we issue it.
SETTLEMENTS
The Contract must be returned to us prior to any settlement. We must receive due
proof of the Contract owner(s) death (or Annuitant's death if there is a
non-natural Contract owner) before we will settle a death claim.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
We hold title to the assets of the Variable Account. We keep the assets
physically segregated and separate and apart from our general corporate assets.
We maintain records of all purchases and redemptions of the Portfolio shares
held by each of the Variable Sub-Accounts.
The Portfolios do not issue stock certificates. Therefore, we hold the Variable
Account's assets in open account in lieu of stock certificates. See the
Portfolios' prospectuses for a more complete description of the custodian of the
Portfolios.
PREMIUM TAXES
Applicable premium tax rates depend on the Contract owner's state of residency
and the insurance laws and our status in those states where premium taxes are
incurred. Premium tax rates may be changed by legislation, administrative
interpretations, or judicial acts.
TAX RESERVES
We do not establish capital gains tax reserves for any Variable Sub-Account nor
do we deduct charges for tax reserves because we believe that capital gains
attributable to the Variable Account will not be taxable. However, we reserve
the right to deduct charges to establish tax reserves for potential taxes on
realized or unrealized capital gains.
<PAGE>
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. WE MAKE
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
Northbrook is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code. Since the Variable Account is not an entity separate
from Northbrook, and its operations form a part of Northbrook, it will not be
taxed separately as a "Regulated Investment Company" under Subchapter M of the
Code. Investment income and realized capital gains of the Variable Account are
automatically applied to increase reserves under the contract. Under existing
federal income tax law, Northbrook believes that the Variable Account investment
income and capital gains will not be taxed to the extent that such income and
gains are applied to increase the reserves under the contract. Accordingly,
Northbrook does not anticipate that it will incur any federal income tax
liability attributable to the Variable Account, and therefore Northbrook does
not intend to make provisions for any such taxes. If Northbrook is taxed on
investment income or capital gains of the Variable Account, then Northbrook may
impose a charge against the Variable Account in order to make provision for such
taxes.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE
There are several exceptions to the general rule that annuity 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.
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
The Contract may be used with several types of qualified plans. Northbrook
reserves the right to limit the availability of the contract for use with any of
the qualified plans listed below. 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. Contract owners and participants under the plan and
annuitants and beneficiaries under the Contract may be subject to the terms and
conditions of the plan regardless of the terms of the Contract.
IRAs
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an IRA. IRAs 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 IRA. An IRA generally may not
provide life insurance, but it may provide a death benefit that equals the
greater of the premiums paid and the Contract's Cash Value. The Contract
provides a death benefit that in certain circumstances may exceed the greater of
the payments and the Contract Value. It is possible that the death benefit could
be viewed as violating the prohibition on investment in life insurance contracts
with the result that the Contract would not be viewed as satisfying the
requirements of an IRA.
ROTH IRAs
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth IRA. Roth IRAs
are subject to limitations on the amount that can be contributed and on the time
when distributions may commence. "Qualified distributions" from Roth IRAs are
not includible in gross income. "Qualified distributions" are any distributions
made more than five taxable years after the taxable year of the first
contribution to the Roth IRA, and which are made on or after the date the
individual attains age 59 1/2, made to a beneficiary after the owner's death,
attributable to the owner being disabled or for a first time home purchase
(first time home purchases are subject to a lifetime limit of $10,000).
"Nonqualified distributions" are treated as made from contributions first and
are includible in gross income to the extent such distributions exceed the
contributions made to the Roth IRA. The taxable portion of a "nonqualified
distribution" may be subject to the 10% penalty tax on premature distributions.
Subject to certain limitations, a traditional Individual Retirement Account or
Annuity may be converted or "rolled over" to a Roth IRA. The taxable portion of
a conversion or rollover distribution is includible in gross income, but is
exempted from the 10% penalty tax on premature distributions.
SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees using the employees' IRAs 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. Employers intending to use the Contract in connection with
such plans should seek competent advice. In particular, employers should
consider that an IRA generally may not provide life insurance, but it may
provide a death benefit that equals the greater of the premiums paid and the
contract's cash value. The Contract provides a death benefit that in certain
circumstances may exceed the greater of the payments and the Contract Value.
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
on or after the date 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 for hardship). These limitations
do not apply to withdrawals where Northbrook is directed to transfer some or all
of the Contract Value to another 403(b) plan.
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. To the extent the Contracts are used in connection with an
eligible plan, employees are considered general creditors of the employer and
the employer as owner of the contract has the sole right to the proceeds of the
contract. Generally, under the non-natural owner rules, such Contracts are not
treated as annuity contracts for federal income tax purposes. Under these plans,
contributions made for the benefit of the employees will not be includible in
the employees' gross income until distributed from the plan. However, under a
Section 457 plan all the compensation deferred under the plan must remain solely
the property of the employer, subject only to the claims of the employer's
general creditors, until such time as made available to the employee or a
beneficiary.
EXPERTS
The financial statements and related financial statement schedule of Northbrook
as of December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998 that appear in this Statement of Additional Information,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The financial statements of the Variable Account as of December 31, 1998 and for
the periods indicated in the table of contents to the financial statements
appearing in this Statement of Additional Information have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
The financial statements of the Variable Account and Northbrook as of December
31, 1998 and for the periods ended December 31, 1998 and 1997 and the
accompanying Independent Auditors' Reports appear on the pages that follow. The
financial statements of the Variable Account and Northbrook for the period ended
September 30, 1999 also appear on the pages that follow and are unaudited. The
financial statements of Northbrook included herein should be considered only as
bearing upon the ability of Northbrook to meet its obligations under the
Contracts.
<PAGE>
-------------------------------------------------------------------------------
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
Financial Statements as of December 31, 1998
and for the periods ended December 31, 1998
and December 31, 1997, and
Independent Auditors' Report
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Independent Auditors' Report 1
Statements of Net Assets as of December 31, 1998 for the following:
Investments in the Morgan Stanley Dean Witter Variable Investment
Series Portfolios: 2
Money Market
High Yield
Equity
Quality Income Plus
Strategist
Dividend Growth
Utilities
European Growth
Capital Growth
Global Dividend Growth
Pacific Growth
Capital Appreciation
Income Builder
Competitive Edge "Best Ideas"
S&P 500 Index
Investments in the Morgan Stanley Dean Witter Universal Funds, Inc.
Portfolios:
International Magnum
Emerging Markets Equity
Equity Growth
U.S. Real Estate
Investment in the Van Kampen Life Investment Trust Portfolio:
Emerging Growth
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Statements of Operations for the following:
For the Year Ended December 31, 1998
Investments in the Morgan Stanley Dean Witter Variable Investment
Series Portfolios: 3,4,5
Money Market
High Yield
Equity
Quality Income Plus
Strategist
Dividend Growth
Utilities
European Growth
Capital Growth
Global Dividend Growth
Pacific Growth
Capital Appreciation
Income Builder
For the Period May 18, 1998 to December 31, 1998 5
Investments in the Morgan Stanley Dean Witter Variable Investment
Series Portfolios:
Competitive Edge "Best Ideas"
S&P 500 Index
For the Period March 16, 1998 to December 31, 1998 5
Investments in the Morgan Stanley Dean Witter Universal Funds,
Inc. Portfolios:
International Magnum
Emerging Markets Equity
Equity Growth
For the Period May 18, 1998 to December 31, 1998 5
Investments in the Morgan Stanley Dean Witter Universal Funds,
Inc. Portfolios:
U.S. Real Estate
For the Period March 16, 1998 to December 31, 1998 5
Investment in the Van Kampen Life Investment Trust Portfolio:
Emerging Growth
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Statements of Changes in Net Assets for the following:
For the Years Ended December 31, 1998, and 1997
Investments in the Morgan Stanley Dean Witter Variable Investment
Series Portfolios: 6,7,9,10
Money Market
High Yield
Equity
Quality Income Plus
Strategist
Dividend Growth
Utilities
European Growth
Capital Growth
Global Dividend Growth
Pacific Growth
For the Year Ended December 31, 1998, and for the Period
January 21, 1997 to December 31, 1997
Investments in the Morgan Stanley Dean Witter Variable
Investment Series Portfolios:
Capital Appreciation
Income Builder 8, 10
For the Period May 18, 1998 to December 31, 1998
Investments in the Morgan Stanley Dean Witter Variable Investment
Series Portfolios: 8
Competitive Edge "Best Ideas"
S&P 500 Index
For the Period March 16, 1998 to December 31, 1998
Investments in the Morgan Stanley Dean Witter Universal Funds,
Inc. Portfolios:
International Magnum
Emerging Markets Equity
Equity Growth
For the Period May 18, 1998 to December 31, 1998
Investment in the Morgan Stanley Dean Witter Universal Funds, Inc. Portfolio:
U.S. Real Estate
For the Period March 16, 1998 to December 31, 1998
Investment in the Van Kampen Life Investment Trust Portfolio:
Emerging Growth
Notes to Financial Statements 11-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Northbrook Life Insurance Company:
We have audited the accompanying statements of net assets of each of the
sub-accounts ("portfolios" for purposes of this report), listed in the table of
contents, that comprise Northbrook Variable Annuity Account II (the "Account"),
a Separate Account of Northbrook Life Insurance Company, an affiliate of The
Allstate Corporation, as of December 31, 1998, and the related statements of
operations and changes in net assets for the applicable periods indicated in the
table of contents. 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 audits 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, 1998. 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 each of the portfolios, listed in the table
of contents, that comprise the Account as of December 31, 1998, and the results
of their operations, and the changes in their net assets for each of the
periods, indicated in the table of contents, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 18, 1999
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
($ and shares in thousands)
ASSETS
Investments in the Morgan Stanley Dean Witter Variable
Investment Series Portfolios:
Money Market, 401,023 shares (cost $401,023) $ 401,023
High Yield, 66,497 shares (cost $407,839) 337,140
Equity, 26,919 shares (cost $761,382) 1,038,517
Quality Income Plus, 45,087 shares (cost $481,586) 495,962
Strategist, 33,442 shares (cost $456,197) 556,471
Dividend Growth, 94,314 shares (cost $1,606,539) 2,087,163
Utilities, 23,911 shares (cost $353,913) 508,112
European Growth, 17,375 shares (cost $353,686) 472,241
Capital Growth, 6,310 shares (cost $100,444) 128,471
Global Dividend Growth, 32,832 shares (cost $405,572) 454,072
Pacific Growth, 9,197 shares (cost $66,760) 47,365
Capital Appreciation, 3,020 shares (cost $33,114) 31,290
Income Builder, 7,319 shares (cost $83,510) 83,874
Competitive Edge "Best Ideas", 3,599 shares (cost $34,032) 35,309
S&P 500 Index, 4,143 shares (cost $41,873) 46,487
Investments in the Morgan Stanley Dean Witter Universal Funds,
Inc. Portfolios:
International Magnum, 308 shares (cost $3,639) 3,463
Emerging Markets Equity, 205 shares (cost $1,636) 1,459
Equity Growth, 1,701 shares (cost $24,283) 25,683
U.S. Real Estate, 202 shares (cost $2,036) 1,980
Investments in the Van Kampen Life Investment Trust Portfolio:
Emerging Growth, 426 shares (cost $8,141) 9,640
------------
Total assets 6,765,722
LIABILITIES
Payable to Northbrook Life Insurance Company:
Accrued contract maintenance charges 1,499
------------
Net assets $ 6,764,223
============
See notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Morgan Stanley Dean Witter Variable Investment Series Portfolios
--------------------------------------------------------------------------
For the Year Ended December 31, 1998
--------------------------------------------------------------------------
Quality
Money High Income Dividend
Market Yield Equity Plus Strategist Growth
--------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 17,397 $ 43,535 $ 109,635 $ 28,193 $ 56,397 $ 209,394
Charges from Northbrook Life Insurance
Company:
Mortality and expense risk (4,498) (4,678) (11,173) (5,781) (6,152) (25,103)
Administrative expense (350) (360) (862) (455) (480) (1,944)
--------- --------- --------- --------- --------- ---------
Net investment income (loss) 12,549 38,497 97,600 21,957 49,765 182,347
--------- --------- --------- --------- --------- ---------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 239,277 154,402 95,654 59,783 60,552 184,605
Cost of investments sold 239,277 164,118 73,762 58,900 51,539 133,624
--------- --------- --------- --------- --------- ---------
Net realized gains (losses) -- (9,716) 21,892 883 9,013 50,981
--------- --------- --------- --------- --------- ---------
Change in unrealized gains (losses) -- (58,495) 101,407 7,935 48,208 (11,845)
--------- --------- --------- --------- --------- ---------
Net gains (losses) on investments - -- (68,211) 123,299 8,818 57,221 39,136
--------- --------- --------- --------- --------- ---------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 12,549 $ (29,714) $ 220,899 $ 30,775 $ 106,986 $ 221,483
========= ========= ========= ========= ========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Morgan Stanley Dean Witter Variable Investment Series Portfolios
--------------------------------------------------------------------------
For the Year Ended December 31, 1998
--------------------------------------------------------------------------
Global Capital
European Capital Dividend Pacific Appreci-
Utilities Growth Growth Growth Growth ation
--------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 34,513 $ 32,912 $ 9,336 $ 56,581 $ 2,661 $ 200
Charges from Northbrook Life Insurance
Company:
Mortality and expense risk (5,586) (5,623) (1,586) (5,960) (645) (420)
Administrative expense (439) (436) (123) (462) (50) (32)
--------- --------- --------- --------- --------- ---------
Net investment income (loss) 28,488 26,853 7,627 50,159 1,966 (252)
--------- --------- --------- --------- --------- ---------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 67,310 104,720 26,648 87,138 69,894 10,850
Cost of investments sold 47,924 80,227 22,224 77,300 93,611 10,897
--------- --------- --------- --------- --------- ---------
Net realized gains (loss) 19,386 24,493 4,424 9,838 (23,717) (47)
--------- --------- --------- --------- --------- ---------
Change in unrealized gains (losses) 41,969 25,370 6,985 (15,619) 14,937 (2,968)
--------- --------- --------- --------- --------- ---------
Net gains (losses) on investments 61,355 49,863 11,409 (5,781) (8,780) (3,015)
--------- --------- --------- --------- --------- ---------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 89,843 $ 76,716 $ 19,036 $ 44,378 $ (6,814) $ (3,267)
========= ========= ========= ========= ========= =========
See notes to financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Van Kampen
Life
Investment
Morgan Stanley Dean Witter Morgan Stanley Dean Witter Univeral Trust
Variable Investment Series Funds, Inc. Portfolios Portfolio
------------------------------ ----------------------------------------- ----------
For the For the
For the Period Period
Year May 18, March 16,
Ended For the Period 1998 to 1998 to
December May 18, 1998 to For the Period March 16, December December
31, 1998 December 31, 1998 1998 to December 31, 1998 31, 1998 31, 1998
-------- ------------------- ------------------------------ --------- ---------
Compet-
itive
Edge Inter- Emerging U.S.
Income "Best S&P 500 national Markets Equity Real Emerging
Builder Ideas" Index Magnum Equity Growth Estate Growth
-------- -------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 4,591 $ -- $ -- $ 20 $ 7 $ 106 $ 54 $ --
Charges from Northbrook Life Insurance
Company:
Mortality and expense risk (1,007) (199) (159) (25) (9) (172) (10) (44)
Administrative expense (76) (15) (12) (2) (1) (13) (1) (3)
-------- -------- -------- -------- -------- -------- -------- --------
Net investment income (loss) 3,508 (214) (171) (7) (3) (79) 43 (47)
-------- -------- -------- -------- -------- -------- -------- --------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales 9,687 9,230 1,921 1,007 603 2,815 298 1,422
Cost of investments sold 9,828 9,577 1,955 1,082 669 3,027 328 1,474
-------- -------- -------- -------- -------- -------- -------- --------
Net realized gains (losses) (141) (347) (34) (75) (66) (212) (30) (52)
-------- -------- -------- -------- -------- -------- -------- --------
Change in unrealized gains (losses) (3,234) 1,277 4,614 (176) (177) 1,400 (56) 1,499
-------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on investments (3,375) 930 4,580 (251) (243) 1,188 (86) 1,447
-------- -------- -------- -------- -------- -------- -------- --------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 133 $ 716 $ 4,409 $ (258) $ (246) $ 1,109 $ (43) $ 1,400
======== ======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Morgan Stanley Dean Witter Variable Investment Series Portfolios
--------------------------------------------------------------------------------------
For the Year Ended December 31, 1998
--------------------------------------------------------------------------------------
Quality
Money High Income Dividend
Market Yield Equity Plus Strategist Growth
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 12,549 $ 38,497 $ 97,600 $ 21,957 $ 49,765 $ 182,347
Net realized gains (losses) -- (9,716) 21,892 883 9,013 50,981
Change in unrealized gains (losses) -- (58,495) 101,407 7,935 48,208 (11,845)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from operations 12,549 (29,714) 220,899 30,775 106,986 221,483
FROM CAPITAL TRANSACTIONS
Deposits 129,304 89,840 172,406 61,783 73,193 365,505
Benefit payments (10,995) (6,105) (8,144) (7,285) (6,681) (20,960)
Payments on termination (87,147) (37,591) (87,507) (51,273) (53,776) (208,790)
Contract maintenance charges (141) (129) (381) (199) (221) (878)
Transfers among the portfolios and
with the Fixed Account - net 56,130 (15,774) 4,500 38,984 13,210 (16,301)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from capital transactions 87,151 30,241 80,874 42,010 25,725 118,576
----------- ----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS 99,700 527 301,773 72,785 132,711 340,059
NET ASSETS AT BEGINNING OF YEAR 301,234 336,538 736,514 423,067 423,637 1,746,643
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS AT END OF YEAR $ 400,934 $ 337,065 $1,038,287 $ 495,852 $ 556,348 $ 2,086,702
=========== =========== =========== =========== =========== ===========
<FN>
See notes to financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Morgan Stanley Dean Witter Variable Investment Series Portfolios
----------------------------------------------------------------------------
For the Year Ended December 31, 1998
----------------------------------------------------------------------------
Global
European Capital Dividend Pacific Capital
Utilities Growth Growth Growth Growth Appreciation
---------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 28,488 $ 26,853 $ 7,627 $ 50,159 $ 1,966 $ (252)
Net realized gains (losses) 19,386 24,493 4,424 9,838 (23,717) (47)
Change in unrealized gains (losses) 41,969 25,370 6,985 (15,619) 14,937 (2,968)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from operations 89,843 76,716 19,036 44,378 (6,814) (3,267)
FROM CAPITAL TRANSACTIONS
Deposits 58,091 77,756 17,878 54,785 5,414 12,585
Benefit payments (7,223) (4,658) (965) (4,783) (481) (278)
Payments on termination (56,603) (44,010) (15,021) (45,080) (5,343) (2,047)
Contract maintenance charges (207) (197) (51) (209) (24) (13)
Transfers among the portfolios and with the
Fixed Account - net 14,560 8,524 (10,068) (45,404) (7,740) (6,494)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting from
capital transactions 8,618 37,415 (8,227) (40,691) (8,174) 3,753
----------- ----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS 98,461 114,131 10,809 3,687 (14,988) 486
NET ASSETS AT BEGINNING OF YEAR 409,538 358,005 117,633 450,284 62,342 30,797
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS AT END OF YEAR $ 507,999 $ 472,136 $ 128,442 $ 453,791 $ 47,354 $ 31,283
=========== =========== =========== =========== =========== ===========
<FN>
See notes to financial statements.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
Van Kampen
Life
Morgan Stanley Dean Witter Investment
Variable Investment Series Morgan Stanley Dean Witter Trust
Portfolio Universal Funds, Inc. Portfolio Portfolio
---------------------------------- --------------------------------------------- ----------
For the For the
Period Period
For the May 18, March 16,
Year Ended For the Period For the Period 1998 to 1998 to
December May 18, 1998 to March 16, 1998 to December December
31, 1998 December 31, 1998 December 31, 1998 31, 1998 31, 1998
---------- --------------------- --------------------------------- --------- ---------
Competi-
tive Edge Inter- Emerging U.S.
Income "Best S&P 500 national Markets Equity Real Emerging
Builder Ideas" Index Magnum Equity Growth Estate Growth
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 3,508 $ (214) $ (171) $ (7) $ (3) $ (79) $ 43 $ (47)
Net realized gains (losses) (141) (347) (34) (75) (66) (212) (30) (52)
Change in unrealized gains (losses) (3,234) 1,277 4,614 (176) (177) 1,400 (56) 1,499
--------- --------- --------- --------- --------- --------- --------- ---------
Change in net assets resulting
from operations 133 716 4,409 (258) (246) 1,109 (43) 1,400
FROM CAPITAL TRANSACTIONS
Deposits 34,230 19,127 20,590 2,610 1,114 21,346 1,559 5,514
Benefit payments (920) (168) (60) (11) -- (354) -- --
Payments on termination (5,563) (423) (593) (168) (7) (594) (35) (272)
Contract maintenance charges (31) (10) (12) (1) -- (7) (1) (3)
Transfers among the portfolios and
with the Fixed Account - net 3,008 16,059 22,143 1,291 598 4,177 500 2,999
--------- --------- --------- --------- --------- --------- --------- ---------
Change in net assets resulting
from capital transactions 30,724 34,585 42,068 3,721 1,705 24,568 2,023 8,238
--------- --------- --------- --------- --------- --------- --------- ---------
INCREASE (DECREASE) IN NET ASSETS 30,857 35,301 46,477 3,463 1,459 25,677 1,980 9,638
NET ASSETS AT BEGINNING OF PERIOD 52,998 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
NET ASSETS AT END OF PERIOD $ 83,855 $ 35,301 $ 46,477 $ 3,463 $ 1,459 $ 25,677 $ 1,980 $ 9,638
========= ========= ========= ========= ========= ========= ========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
($ and units in thousands, except value per unit)
Morgan Stanley Dean Witter Variable Investment Series Portfolios
---------------------------------------------------------------------------------------------
For the Year Ended December 31, 1997
---------------------------------------------------------------------------------------------
Quality
Money High Income Dividend
Market Yield Equity Plus Strategist Growth Utilities
----------- ----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 12,015 $ 30,441 $ 33,669 $ 21,868 $ 15,247 $ 79,397 $ 12,658
Net realized gains (losses) -- (164) 14,161 (1,005) 6,525 27,352 15,934
Change in unrealized gains (losses) -- (2,116) 125,556 16,518 21,328 191,096 56,029
----------- ----------- ----------- ---------- ----------- ----------- ----------
Change in net assets resulting
from operations 12,015 28,161 173,386 37,381 43,100 297,845 84,621
FROM CAPITAL TRANSACTIONS
Deposits 149,402 104,526 162,502 50,521 85,569 446,039 30,744
Benefit payments (9,812) (3,029) (4,642) (7,406) (4,738) (13,976) (6,217)
Payments on termination (82,460) (34,243) (76,080) (55,141) (53,102) (185,959) (53,999)
Contract maintenance charges (101) (123) (296) (182) (184) (748) (192)
Transfers among the portfolios and
with the Fixed Account - net (68,644) 13,062 30,461 (17,577) 6,753 59,898 (32,932)
----------- ----------- ----------- ---------- ----------- ----------- ----------
Change in net assets resulting
from capital transactions (11,615) 80,193 111,945 (29,785) 34,298 305,254 (62,596)
----------- ----------- ----------- ---------- ----------- ----------- ----------
INCREASE (DECREASE) IN NET ASSETS 400 108,354 285,331 7,596 77,398 603,099 22,025
NET ASSETS AT BEGINNING OF PERIOD 300,834 228,184 451,183 415,471 346,239 1,143,544 387,513
NET ASSETS AT END OF PERIOD $ 301,234 $ 336,538 $ 736,514 $ 423,067 $ 423,637 $ 1,746,643 $ 409,538
=========== =========== =========== ========== =========== =========== ==========
CONTRACTS WITHOUT THE
DEATH BENEFIT OPTIONS
Net asset value per unit at end
of period $ 12.55 $ 26.65 $ 38.87 $ 17.98 $ 21.54 $ 32.59 $ 24.21
=========== =========== =========== ========== =========== =========== ==========
Units outstanding at end of period 18,622 8,795 13,509 20,834 16,149 39,665 15,170
=========== =========== =========== ========== =========== =========== ==========
CONTRACTS WITH THE
DEATH BENEFIT OPTIONS
Net asset value per unit at
end of period $ 12.51 $ 26.57 $ 38.76 $ 17.93 $ 21.48 $ 32.50 $ 24.14
=========== =========== =========== ========== =========== =========== ==========
Units outstanding at end
of period 5,407 3,844 5,455 2,701 3,529 13,970 1,754
=========== =========== =========== ========== =========== =========== ==========
<FN>
See notes to the financial statements.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
($ and units in thousands, except value per unit)
Morgan Stanley Dean Witter Variable Investment Series Portfolios
---------------------------------------------------------------------------------
For the Period January 21,
For the Year Ended December 31, 1997 to December 31, 1997
----------------------------------------------------- --------------------------
Global
European Capital Dividend Pacific Capital Income
Growth Growth Growth Growth Appreciation Builder
---------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 15,664 $ 9,696 $ 17,676 $ 231 $ (214) $ 934
Net realized gains (losses) 12,290 3,189 3,995 (8,369) 158 34
Change in unrealized gains (losses) 15,432 4,657 12,263 (35,707) 1,144 3,598
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from operations 43,386 17,542 33,934 (43,845) 1,088 4,566
FROM CAPITAL TRANSACTIONS
Deposits 87,645 24,982 128,566 15,672 18,352 31,208
Benefit payments (2,725) (910) (3,466) (1,262) (109) (165)
Payments on termination (37,732) (11,218) (41,571) (11,743) (944) (1,458)
Contract maintenance charges (148) (49) (199) (37) (12) (15)
Transfers among the portfolios and
with the Fixed Account - net (3,726) 8,692 25,556 (26,769) 12,422 18,862
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from capital transactions 43,314 21,497 108,886 (24,139) 29,709 48,432
----------- ----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS 86,700 39,039 142,820 (67,984) 30,797 52,998
NET ASSETS AT BEGINNING OF PERIOD 271,305 78,594 307,464 130,326 -- --
NET ASSETS AT END OF PERIOD $ 358,005 $ 117,633 $ 450,284 $ 62,342 $ 30,797 $ 52,998
=========== =========== =========== =========== =========== ===========
CONTRACTS WITHOUT THE
DEATH BENEFIT OPTIONS
Net asset value per unit at end
of period $ 27.87 $ 20.18 $ 15.30 $ 6.06 $ 11.18 $ 12.08
=========== =========== =========== =========== =========== ===========
Units outstanding at end of period 9,762 4,469 21,656 8,190 1,609 2,363
=========== =========== =========== =========== =========== ===========
CONTRACTS WITH THE
DEATH BENEFIT OPTIONS
Net asset value per unit at end
of period $ 27.79 $ 20.12 $ 15.26 $ 6.04 $ 11.16 $ 12.07
=========== =========== =========== =========== =========== ===========
Units outstanding at end of period 3,091 1,365 7,789 2,105 1,148 2,025
=========== =========== =========== =========== =========== ===========
<FN>
See notes to the financial statements.
</FN>
</TABLE>
10
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, a wholly owned subsidiary of
Allstate Insurance Company, which is wholly owned by The Allstate
Corporation.
Northbrook Life issues two variable annuity contracts, the Northbrook
Variable Annuity II and the Morgan Stanley Dean Witter Variable Annuity II
Asset Manager, the deposits of which are invested at the direction of the
contractholder in the sub-accounts ("portfolios" for the purposes of this
report) that comprise the Account. Contractholders bear all investment risk
for amounts allocated to the Account. The portfolios invest in the Morgan
Stanley Dean Witter Variable Investment Series, Morgan Stanley Dean Witter
Universal Funds, Inc., and Van Kampen Life Investment Trust (collectively,
the "Funds").
Northbrook Life provides insurance and administrative services to the
contractholders for a fee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS - Investments consist of shares of the Funds and
are stated at fair value based on quoted market prices at December 31,
1998.
INVESTMENT INCOME - Investment income consists of dividends declared by the
Funds 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 portfolio shares by the
Account and the cost of such shares, which is determined on a weighted
average basis.
FEDERAL INCOME TAXES - The Account intends to qualify as a segregated asset
account as defined in the Internal Revenue Code ("Code"). As such, the
operations of the Account are included in the tax return of Northbrook
Life. Northbrook Life is taxed as a life insurance company under the Code.
No federal income taxes are payable by the Account in 1998 as the Account
did not generate taxable income.
11
<PAGE>
3. CONTRACT CHARGES
Northbrook Life charges each contractholder daily at a per annum rate as
follows:
Mortality and Administrative
expense risk expense
------------ -------
Northbrook Variable Annuity II 1.25% (a) .10%
Morgan Stanley Dean Witter Variable
Annuity II Asset Manager 1.49% (b) .10%
(a) Two optional death benefit provisions (enhanced death benefit and
performance death benefit) and an optional performance income benefit
are available at an additional charge of .13% for each, bringing the
mortality and expense risk charge to 1.38% when one of these options
has been selected. When both the performance income benefit and the
performance death benefit are selected, an additional charge of .24%
is assessed for a total mortality and expense risk charge of 1.49%.
(b) Two optional death benefit provisions (enhanced death benefit and
performance death benefit) and an optional performance income benefit
are available at an additional charge of .13% for each, bringing the
mortality and expense risk charge to 1.62% when one of these options
has been selected. When both the performance income benefit and the
performance death benefit are selected, an additional charge of .24%
is assessed for a total mortality and expense risk charge of 1.73%.
Northbrook Life charges an annual contract maintenance fee of $30 for each
Northbrook Variable Annuity II contract. If aggregate deposits are less
than $50,000 in the Morgan Stanley Dean Witter Variable Annuity II Asset
Manager contract, Northbrook Life will deduct an annual maintenance fee of
$35 on each contract anniversary.
4. FINANCIAL INSTRUMENTS
The investments of the Account are carried at fair value, based on quoted
market prices. Accrued contract maintenance charges are of a short-term
nature. It is assumed that their carrying value approximates fair value.
12
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
Northbrook Variable Annuity II
Unit activity during 1998:
--------------------------------------
Units Units Accumulation
Outstanding Outstanding Unit Value
December Units Units December December
31, 1997 Issued Redeemed 31, 1998 31, 1998
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Investments in the Morgan Stanley Dean Witter Variable
Investment Series Portfolios:
Money Market 18,622,471 29,618,231 (27,081,671) 21,159,031 $ 12.98
High Yield 8,795,791 2,662,861 (3,259,510) 8,199,142 24.66
Equity 13,509,402 2,779,303 (3,679,964) 12,608,741 50.02
Quality Income Plus 20,834,557 4,548,681 (5,071,041) 20,312,197 19.27
Strategist 16,149,246 2,137,422 (3,712,656) 14,574,012 26.88
Dividend Growth 39,664,627 5,856,411 (9,186,865) 36,334,173 36.73
Utilities 15,169,533 2,081,739 (3,709,730) 13,541,542 29.46
European Growth 9,762,952 3,453,911 (4,248,976) 8,967,887 34.08
Capital Growth 4,468,723 591,637 (1,397,402) 3,662,958 23.81
Global Dividend Growth 21,656,308 2,154,837 (6,176,673) 17,634,472 16.99
Pacific Growth 8,189,699 5,896,210 (7,759,942) 6,325,967 5.36
Capital Appreciation 1,609,271 675,388 (843,723) 1,440,936 10.15
Income Builder 2,364,018 1,697,157 (1,081,195) 2,979,980 12.30
Competitive Edge "Best Ideas" -- 2,229,816 (797,071) 1,432,745 9.73
S&P 500 Index -- 2,077,746 (355,037) 1,722,709 11.13
Investments in the Morgan Stanley Dean Witter
Universal Funds, Inc. Portfolios:
International Magnum -- 200,313 (63,685) 136,628 9.79
Emerging Markets Equity -- 133,597 (51,595) 82,002 7.10
Equity Growth -- 986,727 (164,689) 822,038 10.10
U.S. Real Estate -- 104,232 (24,503) 79,729 9.06
Investments in the Van Kampen Life Investment
Trust Portfolios:
Emerging Growth -- 343,599 (88,895) 254,704 12.00
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
13
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
Northbrook Variable Annuity II with Death Benefit or
Peformance Income Benefit Option
Unit activity during 1998:
--------------------------------------
Units Units Accumulation
Outstanding Outstanding Unit Value
December Units Units December December
31, 1997 Issued Redeemed 31, 1998 31, 1998
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Investments in the Morgan Stanley Dean Witter Variable
Investment Series Portfolios:
Money Market 5,406,811 21,513,035 (17,980,986) 8,938,860 $ 12.96
High Yield 3,843,598 3,574,266 (2,113,354) 5,304,510 24.56
Equity 5,455,102 4,060,420 (1,584,262) 7,931,260 49.82
Quality Income Plus 2,701,037 3,748,051 (1,339,495) 5,109,593 19.20
Strategist 3,529,251 2,975,852 (865,951) 5,639,152 26.78
Dividend Growth 13,969,794 9,295,313 (3,328,670) 19,936,437 36.59
Utilities 1,754,323 2,529,566 (773,386) 3,510,503 29.44
European Growth 3,091,241 3,420,945 (1,843,647) 4,668,539 33.94
Capital Growth 1,365,100 814,201 (491,454) 1,687,847 23.72
Global Dividend Growth 7,788,524 3,158,171 (2,016,791) 8,929,904 16.92
Pacific Growth 2,105,010 8,584,871 (8,233,030) 2,456,851 5.33
Capital Appreciation 1,147,553 1,051,403 (671,619) 1,527,337 10.12
Income Builder 2,025,367 2,373,888 (747,044) 3,652,211 12.27
Competitive Edge "Best Ideas" -- 2,682,216 (716,848) 1,965,368 9.72
S&P 500 Index -- 2,152,754 (149,453) 2,003,301 11.12
Investments in the Morgan Stanley Dean Witter
Universal Funds, Inc. Portfolios:
International Magnum -- 228,450 (57,553) 170,897 9.78
Emerging Markets Equity -- 147,831 (53,231) 94,600 7.09
Equity Growth -- 1,868,415 (337,596) 1,530,819 10.09
U.S. Real Estate -- 92,318 (11,536) 80,782 9.05
Investments in the Van Kampen Life Investment
Trust Portfolios:
Emerging Growth -- 502,151 (100,069) 402,082 11.98
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
14
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED (Continued)
(Units in whole amounts)
Northbrook Variable Annuity II with Performance Income Benefit
and Performance Death Benefit
Morgan Stanley Dean Witter Variable Annuity II Asset Manager
Unit activity during 1998:
--------------------------------------
Units Units Accumulation
Outstanding Outstanding Unit Value
December Units Units December December
31, 1997 Issued Redeemed 31, 1998 31, 1998
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Investments in the Morgan Stanley Dean Witter Variable
Investment Series Portfolios:
Money Market -- 1,644,566 (889,826) 754,740 $ 12.48
High Yield -- 273,602 (42,100) 231,502 17.98
Equity -- 278,757 (22,594) 256,163 43.83
Quality Income Plus -- 391,268 (43,470) 347,798 14.53
Strategist -- 564,092 (21,225) 542,867 24.30
Dividend Growth -- 729,569 (54,057) 675,512 30.37
Utilities -- 221,861 (15,643) 206,218 24.92
European Growth -- 234,177 (36,757) 197,420 30.72
Capital Growth -- 57,773 (9,695) 48,078 21.61
Global Dividend Growth -- 189,638 (17,977) 171,661 16.18
Pacific Growth -- 82,742 (28,808) 53,934 5.45
Capital Appreciation -- 98,642 (13,164) 85,478 9.96
Income Builder -- 213,958 (31,274) 182,684 11.99
Competitive Edge "Best Ideas" -- 236,351 (40,019) 196,332 9.70
S&P 500 Index -- 360,475 (41,570) 318,905 11.03
Investments in the Morgan Stanley Dean Witter
Universal Funds, Inc. Portfolios:
International Magnum -- 49,175 (10,653) 38,522 9.60
Emerging Markets Equity -- 29,155 (9,532) 19,623 7.09
Equity Growth -- 195,673 (27,114) 168,559 10.33
U.S. Real Estate -- 45,915 (5,428) 40,487 9.05
Investments in the Van Kampen Life Investment
Trust Portfolios:
Emerging Growth -- 115,373 (21,999) 93,374 12.35
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
15
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED (Continued)
(Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II Asset Manager
with Death Benefit or Performance Income Benefit Option
Unit activity during 1998:
--------------------------------------
Units Units Accumulation
Outstanding Outstanding Unit Value
December Units Units December December
31, 1997 Issued Redeemed 31, 1998 31, 1998
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Investments in the Morgan Stanley Dean Witter Variable
Investment Series Portfolios:
Money Market -- 589,224 (503,397) 85,827 $ 10.15
High Yield -- 401,477 (363,262) 38,215 8.86
Equity -- 85,082 (4,965) 80,117 10.27
Quality Income Plus -- 56,800 (4,022) 52,778 10.35
Strategist -- 38,941 (14,885) 24,056 10.34
Dividend Growth -- 173,319 (7,329) 165,990 10.10
Utilities -- 35,912 (2,623) 33,289 10.90
European Growth -- 497,082 (290,652) 206,430 9.01
Capital Growth -- 5,156 (3) 5,153 9.70
Global Dividend Growth -- 39,005 (694) 38,311 9.88
Pacific Growth -- 299,447 (297,824) 1,623 10.99
Capital Appreciation -- 30,193 (1,781) 28,412 8.52
Income Builder -- 17,665 (833) 16,832 9.68
Competitive Edge "Best Ideas" -- 25,339 (532) 24,807 9.56
S&P 500 Index -- 109,657 (4,705) 104,952 10.38
Investments in the Morgan Stanley Dean Witter
Universal Funds, Inc. Portfolios:
International Magnum -- 9,577 (2) 9,575 8.76
Emerging Markets Equity -- 5,918 (1,993) 3,925 8.11
Equity Growth -- 18,569 (644) 17,925 9.88
U.S. Real Estate -- 17,480 (17) 17,463 9.11
Investments in the Van Kampen Life Investment
Trust Portfolios:
Emerging Growth -- 31,848 (797) 31,051 10.50
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
16
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED (Continued)
(Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II Asset Manager
with Performance Income Benefit and Performance Death Benefit
Unit activity during 1998:
--------------------------------------
Units Units Accumulation
Outstanding Outstanding Unit Value
December Units Units December December
31, 1997 Issued Redeemed 31, 1998 31, 1998
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Investments in the Morgan Stanley Dean Witter Variable
Investment Series Portfolios:
Money Market -- 67,944 (52,888) 15,056 $ 10.14
High Yield -- 12,539 (1,140) 11,399 8.86
Equity -- 62,407 (31,801) 30,606 10.26
Quality Income Plus -- 81,104 (33) 81,071 10.35
Strategist -- 18,099 (10) 18,089 10.33
Dividend Growth -- 74,673 (15,719) 58,954 10.09
Utilities -- 19,656 (12) 19,644 10.89
European Growth -- 10,229 (8) 10,221 9.00
Capital Growth -- 12,471 (7) 12,464 9.70
Global Dividend Growth -- 14,658 (6) 14,652 9.88
Pacific Growth -- 4,550 -- 4,550 10.98
Capital Appreciation -- 11,988 (3) 11,985 8.51
Income Builder -- 3,159 (1) 3,158 9.67
Competitive Edge "Best Ideas" -- 12,372 (3) 12,369 9.56
S&P 500 Index -- 41,707 (10) 41,697 10.37
Investments in the Morgan Stanley Dean Witter
Universal Funds, Inc. Portfolios:
International Magnum -- -- -- -- --
Emerging Markets Equity -- 4,236 (1) 4,235 8.11
Equity Growth -- -- -- -- --
U.S. Real Estate -- -- -- -- --
Investments in the Van Kampen Life Investment
Trust Portfolios:
Emerging Growth -- 27,037 (7) 27,030 10.50
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
17
<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", an affiliate of The Allstate Corporation)
as of December 31, 1998 and 1997, and the related Statements of Operations and
Comprehensive Income, Shareholder's Equity and Cash Flows for each of the three
years in the period ended December 31, 1998. 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 the Company as of December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 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 19, 1999
F-1
<PAGE>
F-2
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
December 31,
------------
($ in thousands) 1998 1997
---- ----
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $81,156 and $72,491) $ 86,336 $ 76,402
Short-term 5,083 3,031
---------- ----------
Total investments 91,419 79,433
Reinsurance recoverable from Allstate Life
Insurance Company 2,148,091 2,293,094
Receivable from affiliates, net -- 1,467
Other assets 8,206 5,033
Separate Accounts 7,031,083 5,719,203
---------- ----------
TOTAL ASSETS $9,278,799 $8,098,230
========== ==========
LIABILITIES
Reserve for life-contingent contract benefits $ 145,055 $ 144,352
Contractholder funds 2,003,122 2,148,555
Current income taxes payable 1,830 162
Deferred income taxes 3,316 2,674
Payable to affiliates, net 6,586 --
Separate Accounts 7,031,083 5,719,203
---------- ----------
TOTAL LIABILITIES 9,190,992 8,014,946
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 10)
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
Retained income 25,340 21,642
Accumulated other comprehensive income:
Unrealized net capital gains 3,367 2,542
---------- ----------
Total accumulated other comprehensive income 3,367 2,542
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 87,807 83,284
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $9,278,799 $8,098,230
========== ==========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
F-3
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Net investment income $ 5,691 $ 5,146 $ 4,888
Realized capital gains and losses 2 (68) (20)
------- ------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 5,693 5,078 4,868
Income tax expense 1,995 1,756 1,666
------- ------- -------
NET INCOME 3,698 3,322 3,202
------- ------- -------
OTHER COMPREHENSIVE INCOME, AFTER-TAX
Change in unrealized net capital gains and losses 825 1,256 (1,371)
------- ------- -------
COMPREHENSIVE INCOME $ 4,523 $ 4,578 $ 1,831
======= ======= =======
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
F-4
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
December 31,
------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
COMMON STOCK $ 2,500 $ 2,500 $ 2,500
-------- -------- --------
ADDITIONAL CAPITAL PAID-IN 56,600 56,600 56,600
-------- -------- --------
RETAINED INCOME
Balance, beginning of year 21,642 18,320 15,118
Net income 3,698 3,322 3,202
-------- -------- --------
Balance, end of year 25,340 21,642 18,320
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year 2,542 1,286 2,657
Change in unrealized net capital gains and losses 825 1,256 (1,371)
-------- -------- --------
Balance, end of year 3,367 2,542 1,286
-------- -------- --------
Total shareholder's equity $ 87,807 $ 83,284 $ 78,706
======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
F-5
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,698 $ 3,322 $ 3,202
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, amortization and
other non-cash items 518 516 782
Realized capital gains and losses (2) 68 20
Changes in:
Life-contingent contract benefits and
contractholder funds 273 205 (198)
Income taxes payable 1,866 (480) 346
Other operating assets and liabilities 4,126 (264) 542
-------- -------- --------
Net cash provided by operating activities 10,479 3,367 4,694
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,922 1,606 3,522
Investment collections 10,253 10,036 5,770
Investment purchases (20,690) (18,568) (15,532)
Change in short-term investments, net (1,964) 3,559 1,459
-------- -------- --------
Net cash used in investing activities (10,479) (3,367) (4,781)
-------- -------- --------
NET DECREASE IN CASH -- -- (87)
CASH AT THE BEGINNING OF YEAR -- -- 87
-------- -------- --------
CASH AT END OF YEAR $ -- $ -- $ --
======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
<PAGE>
F-6
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"). These financial statements have been prepared in conformity with
generally accepted accounting principles.
To conform with the 1998 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets savings products and life insurance exclusively through Dean
Witter Reynolds Inc. ("Dean Witter") (see Note 4), a wholly owned subsidiary of
Morgan Stanley Dean Witter. Savings products include deferred annuities, such as
variable annuities and fixed rate single and flexible premium annuities, and
immediate annuities. Life insurance includes universal life and variable life
products. In 1998, substantially all of the Company's statutory premiums and
deposits were from annuities. The Company re-domesticated its operations from
Illinois to Arizona in 1998.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrenders or withdrawal by customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal and
state regulation and legislation that, if passed, would allow banks greater
participation in securities and insurance businesses. Such events would present
an increased level of competition for sales of the Company's products.
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 demand for these products.
Additionally, traditional demutualizations of mutual insurance companies and
enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; and (2) increasing competition in the
capital markets.
The Company is authorized to sell life and savings products in all states except
New York, as well as in the District of Columbia and Puerto Rico. The top
geographic locations for statutory premiums and deposits for the Company are
California, Florida and Texas for the year ended December 31, 1998. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits.
Substantially all premiums and deposits are ceded to ALIC under reinsurance
agreements.
<PAGE>
F-7
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. Short-term investments are
carried at cost or amortized cost, which approximates fair value.
Investment income consists primarily of interest and dividends on short-term
investments. Interest is recognized on an accrual basis and dividends are
recorded at the ex-dividend date. 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.
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC. Such amounts are reflected net of such reinsurance in the
statements of operations and comprehensive income. The amounts shown in the
Company's statements of operations and comprehensive income relate to the
investment of those assets of the Company that are not transferred 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.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Revenues on universal life-type contracts are comprised of contract charges and
fees, and are recognized when assessed against the policyholder account balance.
Revenues on investment contracts include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balance. All premium revenues and contract charges are primarily
reinsured with ALIC.
INCOME TAXES
The income tax provision is calculated under the liability method and presented
net of reinsurance. Deferred tax assets and liabilities are recorded based on
the difference between the financial statement and tax bases of assets and
liabilities at the enacted tax rates. Deferred income taxes arise from
unrealized capital gains and losses on fixed income securities carried at fair
value and differences in the tax bases of investments.
<PAGE>
F-8
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity and variable life
policies, 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. The Company's Separate Accounts consist
of: Northbrook Variable Annuity Account, Northbrook Variable Annuity Account II
and Northbrook Life Variable Life Separate Account A. Each of the Separate
Accounts are 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 and comprehensive income. Revenues to the Company from
the Separate Accounts consist of contract maintenance fees, administration fees,
mortality and expense risk charges and cost of insurance charges, all of which
are reinsured with ALIC.
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to structured
settlement annuities with life contingencies, is computed on the basis of
assumptions as to future investment yields, mortality, morbidity, terminations
and expenses. These assumptions include provisions for adverse deviation and
generally vary by such characteristics as type of coverage, year of issue and
policy duration. Reserve interest rates ranged from 4.00% to 11.00% during 1998.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most fixed annuities
and universal life policies. 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 1998, credited interest rates on
contractholder funds ranged from 3.46% to 11.00% for those contracts with fixed
interest rates and from 3.25% to 6.50% 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.
NEW ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive income is a
measurement of certain changes in shareholder's equity that result from
transactions and other economic events other than transactions with
shareholders. For the Company, these consist of changes in unrealized gains and
losses on the investment portfolio (See Note 9).
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 redefines how segments are
determined and requires additional segment disclosures for both annual and
interim financial reporting. The Company has identified itself as a single
operating segment.
<PAGE>
F-9
PENDING ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP is required to be adopted in 1999. The
SOP provides guidance concerning when to recognize a liability for
insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: 1) an assessment has been
imposed or it is probable that an assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying alternatives for estimating the accrual. In addition,
industry groups are working to improve the information available. Adoption of
this standard is not expected to be material to the results of operations or
financial position of the Company.
3. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such reinsurance in the statements of
operations and comprehensive income. The amounts shown in the Company's
statements of operations and comprehensive income relate to the investment of
those assets of the Company that are not transferred under reinsurance
agreements. Reinsurance recoverable and the related reserve for life-contingent
contract benefits and contracholder funds are reported separately in the
statements of financial position. The Company continues to have primary
liability as the direct insurer for risks reinsured.
Investment income earned on the assets which support contractholder funds and
the reserve for life-contingent contract benefits is not included in the
Company's financial statements as those assets are owned and managed under the
terms of reinsurance agreements. The following amounts were ceded to ALIC under
reinsurance agreements.
YEAR ENDED DECEMBER 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
Premiums $ 2,528 $ 1,979 $ 3,775
Contract charges 102,218 83,559 60,744
Credited interest, policy benefits,
and certain expenses 217,428 201,526 218,088
BUSINESS OPERATIONS
The Company utilizes services provided by AIC and ALIC and business facilities
owned or leased, and operated by AIC in conducting its business activities. The
Company reimburses AIC and ALIC for the operating expenses incurred 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 $26,230, $23,978 and $26,583 in 1998, 1997 and 1996,
respectively. Of these costs, the Company retains investment related expenses.
All other costs are ceded to ALIC under reinsurance agreements.
<PAGE>
F-10
4. EXCLUSIVE DISTRIBUTION AGREEMENT
The Company and ALIC have a strategic alliance with Dean Witter to develop,
market and distribute proprietary annuity and life insurance products through
Morgan Stanley Dean Witter Financial Advisors. Affiliates of Dean Witter are the
investment managers for the Morgan Stanley Dean Witter Variable Investment
Series, Morgan Stanley Universal Funds, Inc. and the Van Kampen American Capital
Life Investment Trust, the funds in which the assets of the Separate Accounts
are invested.
Under the terms of the strategic alliance, the Company has agreed to use Dean
Witter as an exclusive distribution channel for the Company's products. In
addition to the Company's products, Dean Witter markets other products which
compete with those of the Company. The strategic alliance is cancelable by
either party, however, the Company believes the benefits derived by Dean Witter
will preserve the alliance. If Dean Witter would choose to cancel the alliance,
existing contracts and policies would not be affected.
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
COST GAINS LOSSES VALUE
---------- ------- ------- -------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1998
U.S. government and agencies $ 8,648 $ 1,469 $ -- $10,117
Municipal 590 11 -- 601
Corporate 33,958 1,634 (16) 35,576
Mortgage-backed securities 37,960 2,250 (168) 40,042
------- ------- ------- -------
Total fixed income securities $81,156 $ 5,364 $ (184) $86,336
======= ======= ======= =======
AT DECEMBER 31, 1997
U.S. government and agencies $ 8,638 $ 823 $ -- $ 9,461
Municipal 1,143 28 -- 1,171
Corporate 25,913 897 (12) 26,798
Mortgage-backed securities 36,797 2,315 (140) 38,972
------- ------- ------- -------
Total fixed income securities $72,491 $ 4,063 $ (152) $76,402
======= ======= ======= =======
</TABLE>
<PAGE>
F-11
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at December
31, 1998:
AMORTIZED FAIR
COST VALUE
Due in one year or less $ 1,443 $ 1,452
Due after one year through five years 7,546 7,950
Due after five years through ten years 26,008 27,429
Due after ten years 8,199 9,463
------- -------
43,196 46,294
Mortgage-backed securities 37,960 40,042
------- -------
Total $81,156 $86,336
======= =======
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
Fixed income securities $ 5,616 $ 5,364 $ 4,675
Short-term investments 190 84 390
------- ------- -------
Investment income, before expense 5,806 5,448 5,065
Investment expense 115 302 177
------- ------- -------
Net investment income $ 5,691 $ 5,146 $ 4,888
======= ======= =======
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
Fixed income securities $ 2 $ (70) $ (22)
Short-term investments -- 2 2
------- ------- -------
Realized capital gains and losses 2 (68) (20)
Income tax (1) 24 7
------- ------- -------
Realized capital gains and losses, after tax $ 1 $ (44) $ (13)
======= ======= =======
Excluding calls and prepayments, gross losses of $9, $70 and $32 were realized
on sales of fixed income securities during 1998, 1997 and 1996, respectively.
<PAGE>
F-12
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
COST/
AMORTIZED FAIR GROSS UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES NET GAINS
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 81,156 $ 86,336 $ 5,364 $ (184) $ 5,180
======== ======== ======== ========
Deferred income taxes (1,813)
--------
Unrealized net capital gains $ 3,367
========
</TABLE>
CHANGE IN UNREALIZED NET CAPITAL GAINS
YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
Fixed income securities $ 1,269 $ 1,932 $(2,108)
Deferred income taxes (444) (676) 737
------- ------- -------
Increase (decrease) in unrealized net
capital gains $ 825 $ 1,256 $(1,371)
======= ======= =======
SECURITIES ON DEPOSIT
At December 31, 1998, fixed income securities with a carrying value of $9,188
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 presented below 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 significant assets
(including reinsurance recoverable) and liabilities (including universal
life-type insurance reserves and deferred income taxes) are not considered
financial instruments and are not carried at fair value. Other assets and
liabilities considered financial instruments, such as accrued investment income,
are generally of a short-term nature. Their carrying values are assumed to
approximate fair value.
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Fixed income securities $ 86,336 $ 86,336 $ 76,402 $ 76,402
Short-term investments 5,083 5,083 3,031 3,031
Separate Accounts 7,031,083 7,031,083 5,719,203 5,719,203
<PAGE>
F-13
Fair values for fixed income securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. Short-term investments are highly
liquid investments with maturities of less than one year whose carrying value
approximates fair value. Separate Accounts assets are carried in the statements
of financial position at fair value based on quoted market prices.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Contractholder funds on
investment contracts $1,839,114 $1,814,684 $1,977,479 $1,951,214
Separate Accounts 7,031,083 7,031,083 5,719,203 5,719,203
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
Accounts liabilities are carried at the fair value of the underlying assets.
7. INCOME TAXES
The Company joins the Corporation and its other eligible domestic subsidiaries
(the "Allstate Group") in the filing of a consolidated federal income tax return
and is party to a federal income tax allocation agreement (the "Allstate Tax
Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the Company pays
to or receives from the Corporation the amount, if any, by which the Allstate
Group's federal income tax liability is affected by virtue of inclusion of the
Company in the consolidated federal income tax return. Effectively, this results
in the Company's annual income tax provision being computed, with adjustments,
as if the Company filed a separate return.
Prior to Sears, Roebuck and Co.'s ("Sears") distribution ("Sears distribution")
on June 30, 1995 of its 80.3% ownership in the Corporation to Sears
shareholders, 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.
<PAGE>
F-14
As a result of the Sears distribution, the Allstate Group was no longer included
in the Sears Tax Group, and the Tax Sharing Agreement was terminated.
Accordingly, the Allstate Group and Sears Group entered into a new tax sharing
agreement, which adopts many of the principles of the Tax Sharing Agreement and
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Sears distribution, including the treatment
of audits of tax returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's federal income tax returns through the 1993 tax year. Any adjustment
that may result from IRS examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or results of operations of
the Company.
The components of the deferred income tax assets and liabilities at December 31,
are as follows:
1998 1997
---- ----
DEFERRED ASSETS
Separate Accounts $ -- $ 149
------- -------
DEFERRED LIABILITIES
Difference in tax bases of investments (1,503) (1,454)
Unrealized net capital gains (1,813) (1,369)
------- -------
Total deferred liabilities (3,316) (2,823)
------- -------
Net deferred liability $(3,316) $(2,674)
======= =======
The components of income tax expense for the year ended December 31, are as
follows:
1998 1997 1996
---- ---- ----
Current $ 1,797 $ 1,843 $ 1,642
Deferred 198 (87) 24
------- ------- -------
Total income tax expense $ 1,995 $ 1,756 $ 1,666
======= ======= =======
The Company paid income taxes of $129, $2,236 and $2,308 in 1998, 1997 and 1996,
respectively. The Company had a current income tax liability of $1,830 and $162
at December 31, 1998 and 1997, respectively.
<PAGE>
F-15
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
1998 1997 1996
------ ------ ------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Tax-exempt income (0.2) (0.4) (0.6)
Other 0.2 -- (0.2)
------ ------ ------
Effective income tax rate 35.0% 34.6% 34.2%
====== ====== ======
Prior to January 1, 1984, the Company was entitled to exclude certain amounts
from taxable income and accumulate such amounts in a "policyholder surplus"
account. The balance in this account at December 31, 1998, approximately $16,
will result in federal income taxes payable of $6 if distributed by the Company.
No provision for taxes has been made as the Company has no plan to distribute
amounts from this account. No further additions to the account have been
permitted since the Tax Reform Act of 1984.
8. STATUTORY FINANCIAL INFORMATION
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Arizona
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), 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 significant impact on statutory surplus or statutory net
income.
The NAIC's codification initiative has produced a comprehensive guide of revised
statutory accounting principles. While the NAIC has approved a January 1, 2001
implementation date for the newly developed guidance, companies must adhere to
the implementation date adopted by their state of domicile. The Company's state
of domicile, Arizona, is continuing its comparison of codification and current
statutory accounting requirements to determine necessary revisions to existing
state laws and regulations. The requirements are not expected to have a material
impact on the statutory surplus of the Company.
<PAGE>
F-16
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 the Company 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 1999 without prior approval of the Arizona Department of Insurance is
$3,518.
9. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------- ---------------------------- -----------------------------
After- After- After-
Pretax Tax tax Pretax Tax tax Pretax Tax tax
------ --- --- ------ --- --- ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized capital gains
and losses:
- ---------------------------------
Unrealized holding gains
(losses) arising during
the period $ 1,271 $ (445) $ 826 $ 1,862 $ (652) $ 1,210 $(2,130) $ 745 $(1,385)
Less: reclassification
adjustment for realized
net capital gains
included in net income 2 (1) 1 (70) 24 (46) (22) 8 (14)
------- ------- ------- ------- ------- ------- ------- ------- -------
Unrealized net capital
gains (losses) 1,269 (444) 825 1,932 (676) 1,256 (2,108) 737 (1,371)
------- ------- ------- ------- ------- ------- ------- ------- -------
Other comprehensive
income $ 1,269 $ (444) $ 825 $ 1,932 $ (676) $ 1,256 $(2,108) $ 737 $(1,371)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
10. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing banks
from engaging in the securities and insurance business, tax law changes
affecting the taxation of insurance companies, the tax treatment of insurance
products and its impact on the relative desirability of various personal
investment vehicles, and proposed legislation to prohibit the use of gender in
determining insurance rates and benefits. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
<PAGE>
F-17
NORTHBROOK LIFE INSURANCE COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
Life insurance in force $ 494,256 $ 494,256 $ --
========= ========= =========
Premiums and contract charges:
Life and annuities $ 104,746 $ 104,746 $ --
========= ========= =========
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
Life insurance in force $ 515,890 $ 515,890 $ --
========= ========= =========
Premiums and contract charges:
Life and annuities $ 85,538 $ 85,538 $ --
========= ========= =========
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
Life insurance in force $ 556,242 $ 556,242 $ --
========= ========= ==========
Premiums and contract charges:
Life and annuities $ 64,519 $ 64,519 $ --
========= ========= ==========
<PAGE>
Northbrook Variable Annuity Account II
Financial Statements as of September 30, 1999
(unaudited)
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
September 30, 1999
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C>
ASSETS
Allocation to Sub-Accounts investing in the Morgan Stanley Dean Witter Variable Investment Series:
Money Market, 398,814,536 shares (cost $398,814,536) $ 398,814,536
Quality Income Plus, 6,054,996 shares (cost $465,300,338) 440,422,881
Short-term Bond, 59,205 shares (cost $2,035,748) 2,032,008
High Yield, 14,223,103 shares (cost $385,394,966) 292,554,127
Utilities, 2,547,336 shares (cost $370,592,461) 495,601,477
Income Builder, 1,173,901 shares (cost $81,664,818) 78,215,399
Dividend Growth, 6,685,112 shares (cost $1,975,013,665) 2,006,190,570
Aggressive Equity, 343,895 shares (cost $9,272,015) 9,363,664
Capital Growth, 985,059 shares (cost $110,675,713) 123,885,868
Global Dividend Growth, 3,474,548 shares (cost $420,654,234) 460,476,481
European Growth, 4,882,438 shares (cost $376,266,693) 439,059,372
Pacific Growth, 24,052,176 shares (cost $84,055,661) 83,276,024
Equity, 1,338,190 shares (cost $1,087,840,507) 1,340,607,257
S&P 500 Index, 684,333 shares (cost $121,610,892) 126,091,359
Competitive Edge "Best Ideas", 622,653 shares (cost $41,166,120) 44,353,721
Strategist, 2,452,024 shares (cost $485,625,158) 602,153,211
Allocation to Sub-Accounts investing in the Morgan Stanley Dean Witter Universal Funds, Inc.:
Equity Growth, 291,175 shares (cost $40,738,229) 45,927,696
U.S. Real Estate, 128,204 shares (cost $5,380,896) 5,135,098
International Magnum, 401,727 shares (cost $7,154,296) 7,449,438
Emerging Markets Equity, 1,002,462 shares (cost $12,301,748) 12,361,788
Allocation to Sub-Accounts investing in the Van Kampen Life Investment Trust:
Emerging Growth, 190,404 shares (cost $47,274,047) 54,207,590
-------------------
Total Assets 7,068,179,565
LIABILITIES -
Payable to Northbrook Life Insurance Company:
Accrued contract maintenance charges 1,539,301
-------------------
Net Assets $7,066,640,264
===================
</TABLE>
See notes to financial statements.
2
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Morgan Stanley Dean Witter Variable Investment Series
--------------------------------------------------------------------------------
For the Period Ended September 30, 1999
--------------------------------------------------------------------------------
Quality
Money Income Short-term High
Market Plus Bond (a) Yield Utilities
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $13,387,457 $23,034,435 $ 24,946 $33,103,933 $19,332,788
Charges from Northbrook Life Insurance Company
Mortality and expense risk 3,867,166 4,498,408 6,766 3,121,840 4,936,496
Administrative expense 297,462 350,536 501 238,876 384,429
------------- ------------- ------------- ------------- -------------
Net investment income (loss) 9,222,829 18,185,491 17,679 29,743,217 14,011,863
------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 341,583,311 63,134,749 589,758 69,980,415 54,962,121
Cost of investments sold 341,583,311 64,598,701 589,464 85,549,379 37,536,220
------------- ------------- ------------- ------------- -------------
Net realized gains (losses) - (1,463,952) 294 (15,568,964) 17,425,901
------------- ------------- ------------- ------------- -------------
Change in unrealized gains (losses) - (39,254,078) (3,739) (22,141,693) (29,188,984)
------------- ------------- ------------- ------------- -------------
Net gains (losses) on investments - (40,718,030) (3,445) (37,710,657) (11,763,083)
------------- ------------- ------------- ------------- -------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $9,222,829 $(22,532,539) $ 14,234 $ (7,967,440) $2,248,780
============= ============= ============= ============= =============
(a) For the Period Beginning May 3, 1999 and Ended September 30, 1999
</TABLE>
See notes to financial statements.
3
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Morgan Stanley Dean Witter Variable Investment Series
-------------------------------------------------------------------------------
For the Period Ended September 30, 1999
-------------------------------------------------------------------------------
Global
Income Dividend Aggressive Capital Dividend
Builder Growth Equity (a) Growth Growth
------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $4,647,759 $ 335,584,564 $ 8,727 $16,452,354 $40,083,959
Charges from Northbrook Life Insurance Company
Mortality and expense risk 816,127 21,219,154 25,099 1,254,562 4,459,564
Administrative expense 61,390 1,629,544 1,823 96,830 343,688
------------- -------------- -------------- ------------- ------------
Net investment income (loss) 3,770,242 312,735,866 (18,195) 15,100,962 35,280,707
------------- -------------- -------------- ------------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 13,575,816 146,949,651 3,523,480 20,066,715 49,279,007
Cost of investments sold 13,372,915 83,099,260 3,485,152 16,107,577 42,351,639
------------- -------------- -------------- ------------- ------------
Net realized gains (losses) 202,901 63,850,391 38,328 3,959,138 6,927,368
------------- -------------- -------------- ------------- ------------
Change in unrealized gains (losses) (3,813,710) (449,447,131) 91,649 (14,816,616) (8,677,808)
------------- -------------- -------------- ------------- ------------
Net gains (losses) on investments (3,610,809) (385,596,740) 129,977 (10,857,478) (1,750,440)
------------- -------------- -------------- ------------- ------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 159,433 $ (72,860,874) $ 111,782 $4,243,484 $33,530,267
============= ============== ============== ============= ============
</TABLE>
(a) For the Period Beginning May 3, 1999 and Ended September 30, 1999
See notes to financial statements.
4
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Morgan Stanley Dean Witter Variable Investment Series
--------------------------------------------------------------------------------
For the Period Ended September 30, 1999
--------------------------------------------------------------------------------
Competitive
European Pacific S&P 500 Edge
Growth Growth Equity Index "Best Ideas"
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $46,688,627 $ 690,429 $ 160,930,723 $ 501,146 $ 254,529
Charges from Northbrook Life Insurance Company
Mortality and expense risk 4,462,527 629,461 12,332,914 964,103 400,316
Administrative expense 342,944 48,307 942,545 72,030 29,810
------------- ------------- -------------- ------------- -------------
Net investment income (loss) 41,883,156 12,661 147,655,264 (534,987) (175,597)
------------- ------------- -------------- ------------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 132,473,642 142,283,885 55,492,886 8,200,218 6,333,730
Cost of investments sold 109,114,603 140,025,622 39,568,525 7,473,064 5,929,120
------------- ------------- -------------- ------------- -------------
Net realized gains (losses) 23,359,039 2,258,263 15,924,361 727,154 404,610
------------- ------------- -------------- ------------- -------------
Change in unrealized gains (losses) (55,762,422) 18,615,212 (24,368,851) (133,384) 1,910,066
------------- ------------- -------------- ------------- -------------
Net gains (losses) on investments (32,403,383) 20,873,475 (8,444,490) 593,770 2,314,676
------------- ------------- -------------- ------------- -------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $9,479,773 $20,886,136 $ 139,210,774 $ 58,783 $2,139,079
============= ============= ============== ============= =============
</TABLE>
See notes to financial statements.
5
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Morgan Stanley Dean Witter Morgan Stanley Dean Witter
Variable Investment Series Universal Funds, Inc.
------------------------------ -----------------------------------------------
For the Period Ended September 30, 1999
--------------------------------------------------------------------------------
Capital Equity U.S. Real International
Strategist Appreciation Growth Estate Magnum
------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $10,142,093 $ 76,656 $ 36,841 $ 24,140 $ 6,563
Charges from Northbrook Life Insurance Company
Mortality and expense risk 5,786,819 93,215 360,156 37,672 47,787
Administrative expense 446,196 7,030 26,586 2,765 3,520
------------- -------------- ------------- ------------- --------------
Net investment income (loss) 3,909,078 (23,589) (349,901) (16,297) (44,744)
------------- -------------- ------------- ------------- --------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 42,975,720 37,654,645 4,804,985 1,380,069 4,902,237
Cost of investments sold 33,222,083 37,258,765 4,290,298 1,351,902 4,820,822
------------- -------------- ------------- ------------- --------------
Net realized gains (losses) 9,753,637 395,880 514,687 28,167 81,415
------------- -------------- ------------- ------------- --------------
Change in unrealized gains (losses) 16,254,357 1,824,852 3,789,937 (189,011) 470,999
------------- -------------- ------------- ------------- --------------
Net gains (losses) on investments 26,007,994 2,220,732 4,304,624 (160,844) 552,414
------------- -------------- ------------- ------------- --------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $29,917,072 $2,197,143 $3,954,723 $ (177,141) $ 507,670
============= ============== ============= ============= ==============
</TABLE>
See notes to financial statements.
6
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------
(unaudited)
Morgan Stanley Van Kampen
Dean Witter Life
Universal Funds Investment
Inc. Trust
--------------- --------------------
For the Period Ended September 30, 1999
Emerging
Markets Emerging
Equity Growth
--------------- --------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends $ (6,499) $ (20,343)
Charges from Northbrook Life Insurance Company
Mortality and expense risk 61,235 310,134
Administrative expense 4,508 22,683
--------------- --------------------
Net investment income (loss) (72,242) (353,160)
--------------- --------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 9,543,366 5,157,769
Cost of investments sold 9,058,271 4,510,063
--------------- --------------------
Net realized gains (losses) 485,095 647,706
--------------- --------------------
Change in unrealized gains (losses) 237,315 5,433,828
--------------- --------------------
Net gains (losses) on investments 722,410 6,081,534
--------------- --------------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 650,168 $ 5,728,374
=============== ====================
</TABLE>
See notes to financial statements.
7
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
(unaudited)
Morgan Stanley Dean Witter Variable Investment Series
-----------------------------------------------------------------------
For the Period Ended September 30, 1999
-----------------------------------------------------------------------
Quality
Money Income Short-term High
Market Plus Bond (a) Yield Utilities
------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 9,222,829 $ 18,185,491 $ 17,679 $ 29,743,217 $ 14,011,863
Net realized gains (losses) - (1,463,952) 294 (15,568,964) 17,425,901
Change in unrealized gains (losses) - (39,254,078) (3,739) (22,141,693) (29,188,984)
------------- ------------ ----------- ------------ ------------
Change in net assets resulting
from operations 9,222,829 (22,532,539) 14,234 (7,967,440) 2,248,780
------------- ------------ ----------- ------------ ------------
FROM CAPITAL TRANSACTIONS
Deposits 61,288,145 26,064,902 587,114 23,448,087 33,267,561
Benefit payments (10,688,527) (5,559,582) - (3,210,434) (6,407,961)
Payments on termination (79,812,365) (38,315,163) (60,309) (26,216,925) (34,706,020)
Contract maintenance charges (101,300) (128,819) (521) (88,652) (152,093)
Transfers among the sub-accounts
and with the Fixed Account - net 17,885,060 (15,054,172) 1,491,048 (30,539,081) (6,755,720)
------------- ------------ ----------- ------------ ------------
Change in net assets resulting
from capital transactions (11,428,987) (32,992,834) 2,017,332 (36,607,005) (14,754,233)
------------- ------------ ----------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS (2,206,158) (55,525,373) 2,031,566 (44,574,445) (12,505,453)
NET ASSETS AT BEGINNING OF PERIOD 400,933,840 495,852,338 - 337,064,860 507,998,999
------------- ------------ ----------- ------------ ------------
NET ASSETS AT END OF PERIOD $398,727,682 $440,326,965 $ 2,031,566 $292,490,415 $495,493,546
============= ============= ============ ============= =============
(a) For the Period Beginning May 3, 1999 and Ended September 30, 1999
See notes to financial statements
</TABLE>
8
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
(unaudited)
Morgan Stanley Dean Witter Variable Investment Series
------------------------------------------------------------------------
For the Period Ended September 30, 1999
------------------------------------------------------------------------
Global
Income Dividend Aggressive Capital Dividend
Builder Growth Equity (a) Growth Growth
----------- -------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $3,770,242 $ 312,735,866 $ (18,195) $ 15,100,962 $ 35,280,707
Net realized gains (losses) 202,901 63,850,391 38,328 3,959,138 6,927,368
Change in unrealized gains (losses) (3,813,710) (449,447,131) 91,649 (14,816,616) (8,677,808)
----------- -------------- ----------- ------------- -------------
Change in net assets
resulting from operations 159,433 (72,860,874) 111,782 4,243,484 33,530,267
----------- -------------- ----------- ------------- -------------
FROM CAPITAL TRANSACTIONS
Deposits 7,002,388 161,148,836 5,827,201 6,787,414 18,255,175
Benefit payments (710,549) (17,890,857) - (841,848) (4,268,261)
Payments on termination (3,907,178) (131,186,124) (12,680) (8,673,046) (26,558,406)
Contract maintenance charges (25,682) (677,792) (2,377) (37,144) (157,849)
Transfers among the sub-accounts
and with the Fixed Account - net (8,175,150) (19,480,146) 3,437,699 (6,062,386) (14,395,767)
----------- -------------- ----------- ------------- -------------
Change in net assets resulting
from capital transactions (5,816,171) (8,086,083) 9,249,843 (8,827,010) (27,125,108)
----------- -------------- ----------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS (5,656,738) (80,946,957) 9,361,625 (4,583,526) 6,405,159
NET ASSETS AT BEGINNING OF PERIOD 83,855,103 2,086,700,619 - 128,442,414 453,971,041
----------- -------------- ----------- ------------- -------------
NET ASSETS AT END OF PERIOD $78,198,365 $2,005,753,662 $9,361,625 $123,858,888 $460,376,200
=========== =============== =========== ============= =============
(a) For the Period Beginning May 3, 1999 and Ended September 30, 1999
</TABLE>
See notes to financial statements.
9
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
(unaudited)
Morgan Stanley Dean Witter Variable Investment Series
---------------------------------------------------------------------
For the Period Ended September 30, 1999
---------------------------------------------------------------------
Competitive
European Pacific S&P 500 Edge
Growth Growth Equity Index "Best Ideas"
------------ ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 41,883,156 $ 12,661 $ 147,655,264 $ (534,987) $ (175,597)
Net realized gains (losses) 23,359,039 2,258,263 15,924,361 727,154 404,610
Change in unrealized gains (losses) (55,762,422) 18,615,212 (24,368,851) (133,384) 1,910,066
------------ ----------- ------------- ------------ ----------
Change in net assets
resulting from operations 9,479,773 20,886,136 139,210,774 58,783 2,139,079
------------ ----------- ------------- ------------ ----------
FROM CAPITAL TRANSACTIONS
Deposits 27,280,797 9,997,324 130,241,259 46,998,609 10,405,193
Benefit payments (2,670,145) (307,009) (8,723,983) (154,992) (333,571)
Payments on termination (30,981,629) (3,815,189) (73,980,533) (5,487,445) (2,494,539)
Contract maintenance charges (130,872) (30,209) (406,335) (34,156) (15,130)
Transfers among the sub-accounts
and with the Fixed Account - net (36,150,438) 9,172,588 115,687,349 38,205,922 (658,349)
------------ ----------- ------------- ------------ ----------
Change in net assets resulting
from capital transactions (42,652,287) 15,017,505 162,817,757 79,527,938 6,903,604
------------ ----------- ------------- ------------ ----------
INCREASE (DECREASE) IN NET ASSETS (33,172,514) 35,903,641 302,028,531 79,586,721 9,042,683
NET ASSETS AT BEGINNING OF PERIOD 472,136,266 47,354,245 1,038,286,770 46,477,182 35,301,381
------------ ----------- ------------- ------------ ----------
NET ASSETS AT END OF PERIOD $438,963,752 $83,257,886 $1,340,315,301 $126,063,903 $44,344,064
============= ============ =============== ============= ============
</TABLE>
See notes to financial statements.
10
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
(unaudited)
Morgan Stanley Dean Witter Morgan Stanley Dean Witter
Variable Investment Series Universal Funds, Inc.
------------------------- ----------------------------------------
For the Period Ended September 30, 1999
--------------------------------------------------------------------
Capital Equity U.S. Real International
Strategist Appreciation Growth Estate Magnum
------------ ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 3,909,078 $ (23,589) $ (349,901) $ (16,297) $ (44,744)
Net realized gains (losses) 9,753,637 395,880 514,687 28,167 81,415
Change in unrealized gains (losses) 16,254,357 1,824,852 3,789,937 (189,011) 470,999
------------ ----------- ---------- ----------- --------------
Change in net assets
resulting from operations 29,917,072 2,197,143 3,954,723 (177,141) 507,670
------------ ----------- ---------- ----------- --------------
FROM CAPITAL TRANSACTIONS
Deposits 41,236,562 1,294,872 13,384,043 1,862,999 2,446,259
Benefit payments (6,661,677) (57,970) (216,218) - (8,954)
Payments on termination (34,358,655) (647,504) (2,178,656) (134,562) (99,621)
Contract maintenance charges (180,311) 3,364 (14,684) (1,587) (2,240)
Transfers among the sub-accounts
and with the Fixed Account - net 15,720,869 (34,072,674) 5,311,370 1,604,730 1,142,149
------------ ----------- ---------- ----------- --------------
Change in net assets resulting
from capital transactions 15,756,788 (33,479,912) 16,285,855 3,331,580 3,477,593
------------ ----------- ---------- ----------- --------------
INCREASE (DECREASE) IN NET ASSETS 45,673,860 (31,282,769) 20,240,578 3,154,439 3,985,263
NET ASSETS AT BEGINNING OF PERIOD 556,348,215 31,282,769 25,677,115 1,979,540 3,462,552
------------ ----------- ---------- ----------- --------------
NET ASSETS AT END OF PERIOD $602,022,075 $ - $45,917,693 $5,133,979 $ 7,447,815
============ =========== ========== =========== ==============
</TABLE>
See notes to financial statements.
11
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------
(unaudited)
Morgan Stanley Van Kampen
Dean Witter Life
Universal Funds Investment
Inc. Trust
------------- -------------
For the Period Ended September 30, 1999
----------------------------------------------------
Emerging
Markets Emerging
Equity Growth
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (72,242) $ (353,160)
Net realized gains (losses) 485,095 647,706
Change in unrealized gains (losses) 237,315 5,433,828
------------- -------------
Change in net assets resulting from operations 650,168 5,728,374
------------- -------------
FROM CAPITAL TRANSACTIONS
Deposits 3,824,307 16,577,303
Benefit payments (4,713) (115,085)
Payments on termination (283,846) (1,421,758)
Contract maintenance charges (3,752) (16,199)
Transfers among the sub-accounts
and with the Fixed Account - net 6,717,971 23,805,534
------------- -------------
Change in net assets resulting
from capital transactions 10,249,967 38,829,795
------------- -------------
INCREASE (DECREASE) IN NET ASSETS 10,900,135 44,558,169
NET ASSETS AT BEGINNING OF PERIOD 1,458,960 9,637,617
------------- -------------
NET ASSETS AT END OF PERIOD $12,359,095 $54,195,786
============= =============
</TABLE>
See notes to financial statements.
12
<PAGE>
Northbrook Variable Annuity Account II
Notes to Financial Statements
(unaudited)
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, a wholly owned subsidiary of Allstate Insurance
Company, which is wholly owned by The Allstate Corporation.
These financial statements and notes as of September 30, 1999 and for the
nine-month period ended September 30, 1999 are unaudited. The financial
statements reflect all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary for the fair
presentation of the financial position, results of operations and changes in net
assets for the interim period. These financial statements and notes should be
read in conjuction with the Northbrook Variable Annuity Account II financial
statements and notes for the period ended December 31, 1998 included in the
Registration Statement on Form N-4 for the Account. The results of operations
for the interim period should not be considered indicative of results expected
for the full year.
13
<PAGE>
Northbrook Variable Annuity Account II
Notes to Financial Statements
(unaudited)
<TABLE>
<CAPTION>
2. UNITS OUTSTANDING AND ACCUMULATION UNIT VALUE
(Units in whole amounts)
Northbrook Variable Annuity II
------------------------------------
Accumulation
Units Outstanding Unit Value
September 30, 1999 September 30, 1999
----------------- ----------------
<S> <C> <C>
Investments in the Morgan Stanley Dean Witter Variable Investment Series :
Money Market 18,744,779 13.33
Quality Income Plus 17,942,124 18.37
Short-term Bond 73,668 10.04
High Yield 6,782,147 23.97
Utilities 12,223,599 29.72
Income Builder 2,681,570 12.34
Dividend Growth 33,811,135 35.47
Aggressive Equity 265,541 10.31
Capital Growth 3,293,711 24.62
Global Dividend Growth 15,885,728 18.30
European Growth 7,816,241 34.80
Pacific Growth 7,024,939 7.25
Equity 12,939,755 56.67
S&P 500 Index 3,916,957 11.55
Competitive Edge "Best Ideas" 1,535,962 10.30
Strategist 13,773,317 28.35
Investments in the Morgan Stanley Dean Witter Universal Funds, Inc.:
Equity Growth 1,210,290 11.45
U.S. Real Estate 234,262 8.93
International Magnum 224,028 10.82
Emerging Markets Equity 456,708 9.16
Investments in the Van Kampen Life Investment Trust:
Emerging Growth 1,137,739 15.12
Units relating to accrued contract maintenance charges are included in units redeemed.
</TABLE>
14
<PAGE>
Northbrook Variable Annuity Account II
Notes to Financial Statements
(unaudited)
<TABLE>
<CAPTION>
2. UNITS OUTSTANDING AND ACCUMULATION UNIT VALUE (continued)
(Units in whole amounts)
Northbrook Variable Annuity II with
Death Benefit or Performance Income
Benefit Option
------------------------------------
Accumulation
Units Outstanding Unit Value
September 30, 1999 September 30, 1999
----------------- ----------------
<S> <C> <C>
Investments in the Morgan Stanley Dean Witter Variable Investment Series :
Money Market 9,676,996 13.27
Quality Income Plus 5,341,720 18.28
Short-term Bond 91,910 10.03
High Yield 4,959,140 23.85
Utilities 4,020,801 29.57
Income Builder 3,326,309 12.29
Dividend Growth 21,206,956 35.29
Aggressive Equity 393,899 10.30
Capital Growth 1,619,876 24.49
Global Dividend Growth 8,797,975 18.21
European Growth 4,402,400 34.63
Pacific Growth 4,052,684 7.21
Equity 9,870,262 56.38
S&P 500 Index 5,065,370 11.53
Competitive Edge "Best Ideas" 2,305,808 10.28
Strategist 6,482,772 28.20
Investments in the Morgan Stanley Dean Witter Universal Funds, Inc.:
Equity Growth 2,272,032 11.43
U.S. Real Estate 191,602 8.91
International Magnum 310,425 10.80
Emerging Markets Equity 699,182 9.14
Investments in the Van Kampen Life Investment Trust:
Emerging Growth 1,767,221 15.09
Units relating to accrued contract maintenance charges are included in units redeemed.
</TABLE>
15
<PAGE>
Northbrook Variable Annuity Account II
Notes to Financial Statements
(unaudited)
2. UNITS OUTSTANDING AND ACCUMULATION UNIT VALUE (continued)
(Units in whole amounts)
<TABLE>
<CAPTION>
Northbrook Variable Annuity II with
Performance Income Benefit Option
and Performance Death Benefit or the
"Best of the Best" Death Benefit Option
-------------------------------------
Accumulation
Units Outstanding Unit Value
September 30, 1999 September 30, 1999
----------------- ----------------
<S> <C> <C>
Investments in the Morgan Stanley Dean Witter Variable Investment Series :
Money Market 1,104,106 13.05
Quality Income Plus 329,372 17.98
Short-term Bond 30,447 10.03
High Yield 271,919 23.45
Utilities 330,417 29.09
Income Builder 260,672 12.26
Dividend Growth 1,339,616 34.72
Aggressive Equity 203,678 10.30
Capital Growth 106,226 24.12
Global Dividend Growth 393,772 18.06
European Growth 348,855 34.10
Pacific Growth 269,760 7.15
Equity 763,112 55.47
S&P 500 Index 1,456,531 11.51
Competitive Edge "Best Ideas" 347,113 10.27
Strategist 885,767 27.75
Investments in the Morgan Stanley Dean Witter Universal Funds, Inc.:
Equity Growth 407,925 11.41
U.S. Real Estate 93,663 8.90
International Magnum 97,190 10.78
Emerging Markets Equity 142,737 9.13
Investments in the Van Kampen Life Investment Trust:
Emerging Growth 490,456 15.06
Units relating to accrued contract maintenance charges are included in units redeemed.
</TABLE>
16
<PAGE>
Northbrook Variable Annuity Account II
Notes to Financial Statements
(unaudited)
2. UNITS OUTSTANDING AND ACCUMULATION UNIT VALUE (continued)
(Units in whole amounts)
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable
Annuity II AssetManager
------------------------------------
Accumulation
Units Outstanding Unit Value
September 30, 1999 September 30, 1999
---------------- ----------------
<S> <C> <C>
Investments in the Morgan Stanley Dean Witter Variable Investment Series :
Money Market 222,508 10.38
Quality Income Plus 386,229 9.85
Short-term Bond 1,059 10.03
High Yield 250,133 8.60
Utilities 145,827 10.94
Income Builder 40,469 9.69
Dividend Growth 419,190 9.73
Aggressive Equity 5,626 10.30
Capital Growth 19,366 10.02
Global Dividend Growth 64,463 10.63
European Growth 81,244 9.19
Pacific Growth 13,946 14.85
Equity 204,496 11.61
S&P 500 Index 143,869 10.76
Competitive Edge "Best Ideas" 48,932 10.12
Strategist 199,260 10.88
Investments in the Morgan Stanley Dean Witter Universal Funds, Inc.:
Equity Growth 34,913 11.18
U.S. Real Estate 13,409 8.96
International Magnum 33,302 9.67
Emerging Markets Equity 11,667 10.45
Investments in the Van Kampen Life Investment Trust:
Emerging Growth 67,405 13.22
Units relating to accrued contract maintenance charges are included in units redeemed.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Northbrook Variable Annuity Account II
Notes to Financial Statements
(unaudited)
2. UNITS OUTSTANDING AND ACCUMULATION UNIT VALUE (continued)
(Units in whole amounts)
Morgan Stanley Dean Witter Variable
Annuity II AssetManager with
Death Benefit or Performance Income
Benefit Option
--------------------------------------
Accumulation
Units Outstanding Unit Value
September 30, 1999 September 30, 1999
-------------------- --------------
Investments in the Morgan Stanley Dean Witter Variable Investment Series :
<S> <C> <C>
Money Market 236,460 10.36
Quality Income Plus 196,505 9.84
Short-term Bond 5,411 10.02
High Yield 329,926 8.59
Utilities 131,137 10.93
Income Builder 49,221 9.68
Dividend Growth 568,032 9.72
Aggressive Equity 18,656 10.29
Capital Growth 16,315 10.00
Global Dividend Growth 95,276 10.62
European Growth 158,161 9.17
Pacific Growth 28,156 14.83
Equity 316,869 11.60
S&P 500 Index 272,054 10.74
Competitive Edge "Best Ideas" 59,249 10.10
Strategist 127,139 10.87
Investments in the Morgan Stanley Dean Witter Universal Funds, Inc.:
Equity Growth 85,751 11.16
U.S. Real Estate 25,188 8.95
International Magnum 18,847 9.65
Emerging Markets Equity 13,973 10.43
Investments in the Van Kampen Life Investment Trust:
Emerging Growth 85,600 13.20
Units relating to accrued contract maintenance charges are included in units
redeemed.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Northbrook Variable Annuity Account II
Notes to Financial Statements
(unaudited)
2. UNITS OUTSTANDING AND ACCUMULATION UNIT VALUE (continued)
(Units in whole amounts)
Morgan Stanley Dean Witter Variable
Annuity II AssetManager with
Performance Income Benefit
and Performance Death Benefit
or the "Best of the Best" Death
Benefit Option
------------------------------------
Accumulation
Units Outstanding Unit Value
September 30, 1999 September 30, 1999
------------------- --------------
Investments in the Morgan Stanley Dean Witter Variable Investment Series :
<S> <C> <C>
Money Market 122,737 10.35
Quality Income Plus 145,844 9.82
Short-term Bond 57,745 10.85
High Yield 32,107 8.58
Utilities
Income Builder 16,060 9.67
Dividend Growth 205,302 9.71
Aggressive Equity 21,152 10.29
Capital Growth 17,460 9.99
Global Dividend Growth 52,572 10.60
European Growth 42,870 9.16
Pacific Growth 36,871 14.81
Equity 191,790 11.58
S&P 500 Index 113,371 10.72
Competitive Edge "Best Ideas" 14,593 10.09
Strategist 17,463 8.94
Investments in the Morgan Stanley Dean Witter Universal Funds, Inc.:
Equity Growth 8,392 11.15
U.S. Real Estate 58,614 10.91
International Magnum 12,346 9.64
Emerging Markets Equity 20,637 10.42
Investments in the Van Kampen Life Investment Trust:
Emerging Growth 70,449 13.18
Units relating to accrued contract maintenance charges are included in units
redeemed.
</TABLE>
19
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
Financial Statements as of September 30, 1999
(unaudited)
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
($ in thousands, except par value data) (UNAUDITED)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $87,390 and $81,156) .......... $ 86,523 $ 86,336
Short-term ....................................... 4,047 5,083
----------- -----------
Total investments .......................... 90,570 91,419
Reinsurance recoverable from
Allstate Life Insurance Company .................. 2,020,444 2,148,091
Other assets ........................................ 6,525 6,705
Separate Accounts ................................... 7,313,227 7,031,083
----------- -----------
TOTAL ASSETS ............................... $ 9,430,766 $ 9,277,298
=========== ===========
LIABILITIES
Reserve for life-contingent contract benefits ....... $ 146,183 $ 145,055
Contractholder funds ................................ 1,874,367 2,003,122
Current income taxes payable ........................ 1,828 1,830
Deferred income taxes ............................... 1,119 3,316
Payable to affiliates, net .......................... 6,766 5,085
Separate Accounts ................................... 7,313,227 7,031,083
----------- -----------
TOTAL LIABILITIES .......................... 9,343,490 9,189,491
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 4)
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
Retained income ..................................... 28,739 25,340
Accumulated other comprehensive income:
Unrealized net capital gains and losses ......... (563) 3,367
----------- -----------
TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME (563) 3,367
----------- -----------
TOTAL SHAREHOLDER'S EQUITY ................. 87,276 87,807
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY . $ 9,430,766 $ 9,277,298
=========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
($ in thousands) 1999 1998 1999 1998
------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
REVENUES
Net investment income ........... $ 1,684 $ 1,457 $ 4,668 $ 4,267
Realized capital gains and losses (8) 12 557 12
------- ------- ------- -------
INCOME BEFORE INCOME TAX EXPENSE 1,676 1,469 5,225 4,279
Income tax expense .............. 586 524 1,826 1,500
------- ------- ------- -------
NET INCOME ...................... $ 1,090 $ 945 $ 3,399 $ 2,779
======= ======= ======= =======
See notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
($ in thousands) 1999 1998
-------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................ $ 3,399 $ 2,779
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
non-cash items ................................. 192 397
Realized capital gains and losses .................. (557) (12)
Changes in:
Reserve for life-contingent contract benefits
and contractholder funds ................... 20 271
Income taxes payable ........................... (82) 922
Other operating assets and payable to affiliates 1,074 3,804
-------- --------
Net cash provided by operating activities .. 4,046 8,161
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales ................................ 16,059 --
Investment collections ............................. 6,007 7,681
Investment purchases ............................... (27,244) (15,782)
Change in short-term investments, net ..................... 1,132 (36)
-------- --------
Net cash used in investing activities ...... (4,046) (8,137)
-------- --------
NET INCREASE IN CASH ...................................... -- 24
CASH AT THE BEGINNING OF PERIOD ........................... -- --
-------- --------
CASH AT END OF PERIOD ..................................... $ -- $ 24
======== ========
</TABLE>
See notes to financial statements.
5
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. 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"). These financial statements have
been prepared in conformity with generally accepted accounting principles.
The financial statements and notes as of September 30, 1999 and for the
three month and nine month periods ended September 30, 1999 and 1998 are
unaudited. The interim financial statements reflect all adjustments
(consisting only of normal recurring accruals) which are, in the opinion
of management, necessary for the fair presentation of the financial
position, results of operations and cash flows for the interim periods.
The financial statements and notes should be read in conjunction with the
financial statements and notes thereto included in the Northbrook Life
Insurance Company Annual Report on Form 10-K for 1998. The results of
operations for the interim periods should not be considered indicative of
results to be expected for the full year.
Effective January 1, 1999, the Company adopted Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments." The SOP provides guidance concerning when
to recognize a liability for insurance-related assessments and how those
liabilities should be measured. Specifically, insurance-related
assessments should be recognized as liabilities when all of the following
criteria have been met: 1) an assessment has been imposed or it is
probable that an assessment will be imposed, 2) the event obligating an
entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The adoption of this statement had
an immaterial impact on the Company's results of operations and financial
position.
To conform with the 1999 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
2. REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses
are ceded to ALIC, and reflected net of such reinsurance 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 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.
6
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Investment income earned on the assets which support contractholder funds
and the reserve for life-contingent contract benefits is not included in
the Company's financial statements as those assets are owned and managed
by the assuming company under the terms of reinsurance agreements. The
following amounts were ceded to ALIC under reinsurance agreements.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
($ in thousands) 1999 1998 1999 1998
-------- -------- -------- --------
Premiums $ 175 $ 883 $ 2,117 $ 1,893
Contract charges 29,919 25,684 87,499 76,317
Credited interest, policy
benefits, and certain
expenses 57,864 56,435 171,725 162,165
3. COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax
basis are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
($ in thousands) 1999 1998
------------------------------------ --------------------------------
AFTER- AFTER-
PRETAX TAX TAX PRETAX TAX TAX
------ --- --- ------ --- ---
<S> <C> <C> <C> <C> <C> <C>
Unrealized capital gains and losses:
Unrealized holding
(losses) gains arising
during the period $ (1,213) $425 $ (788) $2,235 $(783) $ 1,452
Less: reclassification
adjustment for realized
net capital
(losses)gains included in
net income (8) 3 (5) 12 (4) 8
Unrealized net capital -------- -------- -------- -------- ------- --------
(losses) gains (1,205) 422 (783) 2,223 (779) 1,444
-------- -------- -------- -------- ------- --------
Other comprehensive
(loss) income $ (1,205) $ 422 (783) $ 2,223 $ (779) 1,444
======== ======== ======== =======
Net income 1,090 945
-------- --------
Comprehensive
income $ 307 $2,389
======== ========
</TABLE>
7
<PAGE>
<TABLE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------
($ in thousands) 1999 1998
------------------------------------ --------------------------------
AFTER- AFTER-
PRETAX TAX TAX PRETAX TAX TAX
------ --- --- ------ --- ---
<S> <C> <C> <C> <C> <C> <C>
Unrealized capital gains and losses:
Unrealized holding
(losses) gains arising
during the period $ (5,490) $1,922 $ (3,568) $2,653 $(929) $ 1,724
Less: reclassification
adjustment for realized
net capital
gains included in
net income 557 (195) 362 12 (4) 8
Unrealized net capital -------- -------- -------- -------- ------- --------
(losses) gains (6,047) 2,117 (3,930) 2,641 (925) 1,716
-------- -------- -------- -------- ------- --------
Other comprehensive
(loss) income $ (6,047) $2,117 (3,930) $ 2,641 $ (925) 1,716
======== ====== ======== =======
Net income 3,399 2,779
-------- --------
Comprehensive
(loss) income $ (531) $4,495
======== ========
</TABLE>
4. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company is subject to the effects of a changing social, economic and
regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing
banks from engaging in the securities and insurance business, tax law
changes affecting the taxation of insurance companies, the tax treatment
of insurance products and its impact on the relative desirability of
various personal investment vehicles, and proposed legislation to prohibit
the use of gender in determining insurance rates and benefits. The
ultimate changes and eventual effects, if any, of these initiatives are
uncertain.
Various other legal and regulatory actions are currently pending that
involve the Company and specific aspects of its conduct of business. In
the opinion of management, the ultimate liability, if any, in one or more
of these actions in excess of amounts currently reserved is not expected
to have a material effect on the results of operations, liquidity or
financial position of the Company.
8
<PAGE>
PART C
OTHER INFORMATION
24. FINANCIAL STATEMENTS AND EXHIBITS
(a) 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.
(b) EXHIBITS
(1) Resolution of the Board of Directors of Northbrook Life Insurance Company
authorizing establishment of the Variable Annuity Account II (Incorporated
herein by reference to Post-Effective Amendment No. 13 to Registrant's
Registration Statement (File No. 033-35412) dated December 31, 1996).
(2) Not applicable
(3)(a) Form of Underwriting Agreement (Incorporated herein by reference to
Post-Effective Amendment No. 13 to Registrant's Registration Statement
(File No. 033-35412) dated December 31, 1996).
(b) Form of General Agency Agreement (Incorporated herein by reference to
Post-Effective Amendment No. 13 to Registrant's Registration Statement
(File No. 033-35412) dated December 31, 1996).
(4)(a) Form of Contract and Certificate Amendments for the Preferred Client
Variable Annuity (Incorporated herein by reference to Post-Effective
Amendment No. 22 to Registrant's Registration Statement (File No.
033-35412) dated November 12, 1999).
(5)(a) Form of Application for the Morgan Stanley Dean Witter Preferred Client
Variable Annuity (Incorporated herein by reference to Post-Effective
Amendment No. 22 to Registrant's Registration Statement (File No.
033-35412) dated November 12, 1999).
(6)(a) Amended and Restated Articles of Incorporation and Articles of
Redomestication of Northbrook Life Insurance Company (Incorporated herein
by reference to Depositor's Form 10-K dated March 30, 1999).
(b) Amended and Restated By-laws of Northbrook Life Insurance Company
(Incorporated herein by reference to Depositor's Form 10-K dated March
30, 1999.)
(7) Not applicable
(8) Forms of Participation Agreements:
(a) Morgan Stanley Dean Witter Variable Investment Series (Incorporated
herein by reference to Post-Effective Amendment No. 12 to Registrant's
Registration Statement (File No. 033-35412) dated April 29, 1996).
(b) Morgan Stanley Dean Witter Universal Funds, Inc.
(c) AIM Variable Insurance Funds, Inc.
(d) Alliance Variable Products Series Fund
(e) Putnam Variable Trust
(f) Van Kampen Life Investment Trust
(9) Opinion and Consent of Michael J. Velotta, Vice President, Secretary and
General Counsel of Northbrook Life Insurance Company.
(10)(a) Independent Auditors' Consent.
(b) Consent of Attorneys
(11) Not applicable
(12) Not applicable
(13)(a) Performance Data Calculations (Incorporated herein by reference to
Post-Effective Amendment No. 22 to Registrant's Registration Statement
(File No. 033-35412) dated November 12, 1999).
(13)(b) Performance Data Calculations
New PCVA Portfolios for January 2000
AIM Portfolios
Capital Appreciation
Growth
Value
Alliance Portfolios
Premier Growth
Growth
Growth & Income
Putnam Portfolios
International Growth
Growth & Income
Voyager
MSDW Universal Portfolios
Mid-Cap Value
(14) Not applicable
(99)(a) Power of Attorney for Casey J. Sylla (Incorporated herein by reference
to Post-Effective, Amendment No. 12 to Registrant's Registration Statement
(File No. 033-35412) dated April 29, 1996).
(b) Power of Attorney for Kevin R. Slawin (Incorporated herein by
reference to Post-Effective Amendment No. 13 to Registrant's
Registration Statement (File No. 033-35412) dated December 31, 1996).
(c) Powers of Attorney for Louis G. Lower, Michael J. Velotta, Thomas J.
Wilson and John R. Hunter (Incorporated herein by reference to
Post-Effective Amendment No. 21 to Registrant's Registration Statement
(File No. 033-35412) dated May 30, 1999).
(d) Power of Attorney for Samuel H. Pilch (Incorporated herein by
reference to Post-Effective Amendment No. 22 to Registrant's
Registration Statement (File No. 033-35412) dated November 12, 1999).
<TABLE>
<CAPTION>
25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL POSITION AND OFFICE WITH
BUSINESS ADDRESS DEPOSITOR OF THE ACCOUNT
<S> <C>
Louis G. Lower, II Chairman of the Board, Chief Executive Officer
Thomas J. Wilson, II Director, President and Chief Operating Officer
Michael J. Velotta Director, Vice President, Secretary and General Counsel
Sarah R. Donahue Director and Assistant Vice President
John R. Hunter Director and Vice President
Kevin R. Slawin Director and Vice President
Casey J. Sylla Director and Chief Investment Officer
Timothy N. Vander Pas Director and Assistant Vice President
Marla G. Friedman Vice President
Karen C. Gardner Vice President
James P. Zils Treasurer
Samuel H. Pilch Controller
Ronald Johnson Assistant Vice President
Barry S. Paul Assistant Vice President and Assistant Treasurer
C. Nelson Strom Assistant Vice President and Corporate Actuary
Charles F. Thalheimer Assistant Vice President
Timothy N. Vander Pas Assistant Vice President
Patricia W. Wilson Assistant Vice President, Assistant Secretary and Assistant Treasurer
Joanne M. Derrig Assistant Secretary, Assistant General Counsel and Chief Compliance Officer
Emma M. Kalaidjian Assistant Secretary
Paul N. Kierig Assistant Secretary
Mary J. McGinn Assistant Secretary
Gregory C. Sernett Assistant Secretary
</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
Incorporated herein by reference to Annual Report on Form 10-K, filed by the
Allstate Corporation on March 26, 1999 (File No. 1-11840).
27. NUMBER OF CONTRACT OWNERS
As of the date of the filing of this Registration Statement, the offering of the
Preferred Client Variable Annuity had not commenced.
28. INDEMNIFICATION
The General Agency Agreement (Exhibit 3(b)) contains 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 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 by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of is 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.
29. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Dean Witter Reynolds Inc., is the
principal underwriter for the following affiliated investment companies:
Northbrook Variable Annuity Account
Northbrook Life Variable Life Separate Account A
Allstate Life of New York Variable Annuity Account
Allstate Life of New York Variable Annuity Account II
(b) The directors and principal officers of the principal underwriter are:
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices
Address* of Each Such Person with Underwriter
<S> <C>
Philip J. Purcell Director, Chairman and Chief Executive Officer
Richard M. DeMartini Director, President and Chief Operating Officer Dean Witter Capital
James F. Higgins Director, President and Chief Operating Officer Dean Witter Financial
Stephen R. Miller Director and Senior Executive Vice President
Mitchell M. Merin Director, Executive Vice President and Chief Administrative Officer
Michael H. Stone Executive Vice President and Secretary
Raymond J. Drop Director, Executive Vice President
Fredrick J. Frohne Executive Vice President
E. Davisson Hardman, Jr. Executive Vice President
Jeremiah A. Mullins Executive Vice President
John H. Schaefer Director, Executive Vice President
Robert B. Sculthorpe Executive Vice President
Thomas C. Schneider Director, Executive Vice President
William B. Smith Executive Vice President
Ronald T. Carman Senior Vice President, Associate General Counsel and Assistant Secretary
Paul J. Dubow Senior Vice President and Deputy General Counsel
Alexander C. Frank Senior Vice President and Treasurer
Michael T. Gregg Senior Vice President, Deputy General Counsel and Assistant Secretary
Joseph G. Siniscalchi Senior Vice President and Controller, Dean Witter Financial
Kelly McNamara Corley Senior Vice President and Director of Governmental Affairs
Charles F. Vadala, Jr. Senior Vice President and Chief Financial Officer
Anthony Basile Senior Vice President
Michael T. Cunningham Senior Vice President
Mary E. Curran Senior Vice President
Lorena J. Kern Senior Vice President
George R. Ross Senior Vice President
Debra M. Aaron Vice President
Darlene R. Lockhart Vice President
Harvey B. Mogenson Vice President
Kevin Mooney Vice President
Saul Rosen Vice President
Frank G. Skubic Vice President
Eileen S. Wallace Vice President
Michael D. Browne Assistant Secretary
Marilyn K. Cranney Assistant Secretary
Sabrina Hurley Assistant Secretary
Joyce L. Kramer Assistant Secretary
Bruce F. Alonso Director
John J. Mack Director
Alan A. Schroder Director
Robert G. Scott Director
</TABLE>
* The principal business address of the above-named individuals is Two World
Trade Center, New York, New York 10048.
(c) Compensation of Dean Witter Reynolds Inc.
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>
Name of Principal Net Underwriting Compensation on Brokerage Compensation
Underwriter Discounts and Redemption Commissions
Commissions
- ----------------- ---------------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
Dean Witter Reynolds Inc. N/A N/A $49,299,644.67 N/A
</TABLE>
30. LOCATION OF ACCOUNTS AND RECORDS
The Depositor, Northbrook Life Insurance Company, is located at 3100 Sanders
Road, Northbrook, Illinois 60062. The Distributor, Dean Witter Reynolds Inc., is
located at Two World Trade Center, New York, New York 10048.
Each company maintains those accounts and records required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the rules
promulgated thereunder.
31. MANAGEMENT SERVICES
None
32. UNDERTAKINGS
The Registrant undertakes to file a post-effective amendment to the 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 prospectus or
application to purchase a contract offered by the prospectus, a toll-free number
that an applicant can call to request a Statement of Additional Information or a
post card or similar written communication 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.
<PAGE>
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 and that the provisions of paragraphs 1-4 of the no-action letter have
been complied with.
REPRESENTATION REGARDING CONTRACT EXPENSES
Northbrook Life Insurance Company represents that the fees and charges deducted
under the Individual and Group 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 Insurance Company.
<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
amended Registration Statement and has caused this amended 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 27th day of January, 2000.
NORTHBROOK VARIABLE ANNUITY ACCOUNT II
(REGISTRANT)
BY: NORTHBROOK LIFE INSURANCE COMPANY
(DEPOSITOR)
(SEAL)
By: /s/MICHAEL J. VELOTTA
---------------------
Michael J. Velotta
Vice President, Secretary and
General Counsel
As required by the Securities Act of 1933, this amended Registration Statement
has been duly signed below by the following Directors and Officers of Northbrook
Life Insurance Company on the 27th day of January, 2000.
*/LOUIS G. LOWER, II Chairman of the Board, Chief
Louis G. Lower, II Executive Officer and Director
(Principal Executive Officer)
/s/MICHAEL J. VELOTTA Vice President, Secretary, General
Michael J. Velotta Counsel and Director
*/THOMAS J. WILSON, II Vice Chairman and Director
Thomas J. Wilson, II (Principal Operating Officer)
*/JOHN R. HUNTER Director
John R. Hunter
*/KEVIN R. SLAWIN Vice President and Director
Kevin R. Slawin (Principal Financial Officer)
*/CASEY J. SYLLA Chief Investment Officer and Director
Casey J. Sylla
*/SAMUEL H. PILCH Controller
Samuel H. Pilch (Principal Accounting Officer)
*/ By Michael J. Velotta, pursuant to Powers of Attorney previously filed.
<PAGE>
EXHIBIT INDEX
Exhibit Description
(8) Forms of Participation Agreements:
( b ) Morgan Stanley Dean Witter Universal Funds, Inc.
( c ) AIM Variable Insurance Funds, Inc.
( d ) Alliance Variable Products Series Fund
( e ) Putnam Variable Trust
( f ) Van Kampen Life Investment Trust
(9)(a) Opinion and Consent of Michael J. Velotta, Vice
President, Secretary and General Counsel
(10)(a) Independent Auditors' Consent
(10)(b) Consent of Attorneys
(13)(b) Performance Data Calculations
New PCVA Portfolios for January 2000
AIM Portfolios
Capital Appreciation
Growth
Value
Alliance Portfolios
Premier Growth
Growth
Growth & Income
Putnam Portfolios
International Growth
Growth & Income
Voyager
MSDW Universal Portfolios
Mid-Cap Value
Exhibit 8(b)
PARTICIPATION AGREEMENT
Among
MORGAN STANLEY UNIVERSAL FUNDS, INC.,
MORGAN STANLEY ASSET MANAGEMENT INC.
MILLER ANDERSON & SHERRERD, LLP
and
NORTHBROOK LIFE INSURANCE COMPANY
DATED AS OF
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I. Purchase of Fund Shares 2
ARTICLE II Representations and Warranties 4
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 6
ARTICLE IV. Sales Material and Information 8
ARTICLE V Fees and Expenses 9
ARTICLE VI. Diversification 10
ARTICLE VII. Potential Conflicts 10
ARTICLE VIII. Indemnification 12
ARTICLE IX. Applicable Law 19
ARTICLE X. Termination 19
ARTICLE XI. Notices 21
ARTICLE XII. Miscellaneous 22
SCHEDULE A Separate Accounts and Contracts A-1
SCHEDULE B Portfolios of Morgan Stanley Universal Funds, Inc. B-1
SCHEDULE C Proxy Voting Procedures C-1
</TABLE>
<PAGE>
THIS AGREEMENT, made and entered into as of the _____ day of ____, 1998
by and among NORTHBROOK LIFE INSURANCE COMPANY (hereinafter the
"Company"), an Illinois corporation, on its own behalf and on behalf of
each separate account of the Company set forth on Schedule A hereto as
may be amended from time to time (each such account hereinafter
referred to as the "Account"), and MORGAN STANLEY UNIVERSAL FUNDS, INC.
(hereinafter the "Fund"), a Maryland corporation, and MORGAN STANLEY
ASSET MANAGEMENT INC. and MILLER ANDERSON & SHERRERD, LLP (hereinafter
collectively the "Advisers" and individually the "Adviser"), a Delaware
corporation and a Pennsylvania limited liability partnership,
respectively.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as (i) the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an
investment vehicle under their Variable Insurance Contracts enter into
participation agreements with the Fund and the Advisers (the "Participating
Insurance Companies");
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of securities
and other assets, any one or more of which may be made available under this
Agreement, as may be amended from time to time by mutual agreement of the
parties hereto (each such series hereinafter referred to as a "Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 19, 1996 (File No. 812-10118), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by Variable
Annuity Product separate accounts of both affiliated and unaffiliated life
insurance companies and Qualified Plans (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, each Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, each Adviser manages certain Portfolios of the Fund; and
WHEREAS, Morgan Stanley & Co. Incorporated (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Account, shares
in the Portfolios set forth in Schedule B attached to this Agreement, to fund
certain of the aforesaid Variable Insurance Products and the Underwriter is
authorized to sell such shares to each such Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Purchase of Fund Shares
1.1. The Fund agrees to make available for purchase by the Company
shares of the Fund and shall execute orders placed for each Account on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of such order. For purposes of this Section 1.1, the Company shall be
the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 10:00 a.m. Eastern time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund, so long as this Agreement is in effect, agrees to make
its shares available indefinitely for purchase at the applicable net asset value
per share by the Company and its Accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and Exchange
Commission and the Fund shall use reasonable efforts to calculate such net asset
value on each day which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of Directors of the Fund (hereinafter
the "Board") may refuse to permit the Fund to sell shares of any Portfolio to
any person, or suspend or terminate the offering of shares of any Portfolio if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans. No shares of any Portfolio will be sold to the general public.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund, provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.5. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Variable Insurance
Products issued by the Company, under which amounts may be invested in the Fund
(hereinafter the "Contracts"), are listed on Schedule A attached hereto and
incorporated herein by reference, as such Schedule A may be amended from time to
time by mutual written agreement of all of the parties hereto. The Company will
give the Fund and the Adviser 45 days written notice of its intention to make
available in the future, as a funding vehicle under the Contracts, any other
investment company.
1.6. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purposes of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.9. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to make such net asset value
per share available by 7:00 p.m. Eastern time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 424.40 of the New York Insurance Laws and has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Maryland and the Fund represents that their respective operations are
and shall at all times remain in material compliance with the laws of the State
of Maryland to the extent required to perform this Agreement.
2.7. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.8. Each Adviser represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
compliance in all material respects with the laws of its state of domicile and
any applicable state and federal securities laws.
2.9. The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid blanket fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees and other individuals/entities dealing with the money and/or
securities of the Fund are covered by a blanket fidelity bond or similar
coverage, in an amount not less than $5 million. The aforesaid includes coverage
for larceny and embezzlement and is issued by a reputable bonding company. The
Company agrees to make all reasonable efforts to see that this bond or another
bond containing these provisions is always in effect, and agrees to notify the
Fund and the Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy Statements; Voting
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the Company,
in lieu of providing printed copies the Fund shall provide camera-ready film or
computer diskettes containing the Fund's prospectus and statement of additional
information, and such other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus and/or
statement of additional information for the Fund is amended during the year) to
have the prospectus for the Contracts and the Fund's prospectus printed together
in one document, and to have the statement of additional information for the
Fund and the statement of additional information for the Contracts printed
together in one document. Alternatively, the Company may print the Fund's
prospectus and/or its statement of additional information in combination with
other fund companies' prospectuses and statements of additional information.
3.2. Except as provided in this Section 3.2., all expenses of printing
and distributing Fund prospectuses and statements of additional information
shall be the expense of the Company. The Fund shall not pay any costs of
typesetting, printing or distribution of the Fund's prospectus and/or statement
of additional information to prospective Contract owners. Such expenses shall be
borne by the Company as provided in the Company's General Agency Agreement with
Dean Witter Reynolds Inc. For prospectuses and statements of additional
information provided by the Company to its existing owners of Contracts who
currently own shares of one or more of the Fund's Portfolios, in order to update
disclosure as required by the 1933 Act and/or the 1940 Act, the cost of printing
shall be borne by the Fund. If the Company chooses to receive camera-ready film
or computer diskettes in lieu of receiving printed copies of the Fund's
prospectus, the Fund will reimburse the Company in an amount equal to the
product of x and y where x is the number of such prospectuses distributed to
owners of the Contracts who currently own shares of one or more of the Fund's
Portfolios, and y is the Fund's per unit cost of typesetting and printing the
Fund's prospectus. The same procedures shall be followed with respect to the
Fund's statement of additional information. The Company agrees to provide the
Fund or its designee with such information as may be reasonably requested by the
Fund to assure that the Fund's expenses do not include the cost of printing any
prospectuses or statements of additional information other than those actually
distributed to existing owners of the Contracts.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate, as
agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and statements of additional information, which are covered in
section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract
owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners;
and
(iii) vote Fund shares for which no instructions
have been received in the same proportion as
Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.6. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
3.7. The Fund shall use reasonable efforts to provide Fund
prospectuses, reports to shareholders, proxy materials and other Fund
communications (or camera-ready equivalents) to the Company sufficiently in
advance of the Company's mailing dates to enable the Company to complete, at
reasonable cost, the printing, assembling and/or distribution of the
communications in accordance with applicable laws and regulations.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or the Adviser(s) is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund or its
designee reasonably objects to such use within ten Business Days after receipt
of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate account(s)
is named at least ten Business Days prior to its use. No such material shall be
used if the Company or its designee reasonably objects to such use within ten
Business Days after receipt of such material.
4.4. The Fund and the Advisers shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, which are relevant
to the Company or the Contracts.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in the Fund under the Contracts.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to the Company
under this Agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus to owners of Contracts issued by the Company.
ARTICLE VI. Diversification
6.1 The Fund shall at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
817-5.
6.2 The Adviser, upon the prior written request of the Company by
February 1, shall provide written confirmation by no later than February 15,
that the Fund was adequately diversified within the meaning of Section 817 and
Regulation 1.817-5 as of December 31 of the prior year.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by Variable Insurance Product owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
Board shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
each member of the Board and officers, and each Adviser and each director and
officer of each Adviser, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
registration statement or prospectus for the Contracts or in the Contracts
or in sales literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by the
Company, or persons under its control and other than statements or
representations authorized by the Fund or an Adviser) or unlawful conduct
of the Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them or any of their
officers or directors in connection with this Agreement, the issuance or sale of
the Contracts, with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
8.2. Indemnification by the Advisers
8.2(a). Each Adviser agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company and each of its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section 8.2) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of shares of the Portfolio
that it manages or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by the Fund
or persons under its control and other than statements or representations
authorized by the Company) or unlawful conduct of the Fund, Adviser(s) or
Underwriter or persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of or
result from any other material breach of this Agreement by the Adviser as
limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). An Adviser shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.2(c). An Adviser shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Adviser in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Adviser of any such claim shall not relieve
the Adviser from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Adviser will be entitled to participate, at its own
expense, in the defense of such action. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Adviser of the commencement of
any litigation or proceedings against it or any of its officers or directors in
connection with this Agreement, the issuance or sale of the Contracts, with
respect to the operation of each Account, or the sale or acquisition of shares
of the Fund.
8.3. Indemnification by the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Fund) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence (except for
failure to comply with Section VI of this Agreement for which the standard is
negligence), bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement; or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund;
8.3(b). The Fund shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
8.3(c). The Fund shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Fund in writing within a reasonable time after the
summons or other first legal process (including any IRS administrative process)
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. The Fund shall be liable under this
indemnification provision for any claim (including but not limited to any fine
or penalty) with respect to any and all IRS audit, settlement, closing
agreement, ruling or other administrative process, provided that the Fund is
notified in writing within a reasonable time of any administrative action
involving the IRS. In case any such action is brought against the Indemnified
Parties, the Fund will be entitled to participate, at its own expense, in the
defense thereof. The Fund also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action, except with respect
to any claim or action related to Section 817(h) of the Code or Regulation
1.817-5. With regard to any claim or action related to Section 817(h) or
Regulation 1.817-5, the Indemnified Party shall permit the Fund to attend and
otherwise assist the Indemnified Party with respect to any conferences,
settlement discussions, or other administrative or judicial proceeding or
contests (including judicial appeals thereof) with the IRS or any other claimant
regarding any claims that could give rise to liability to the Fund, provided
that the Indemnified Party shall control, in good faith, the conduct of such
conferences, discussions, proceedings, or contest (or appeals thereof). After
notice from the Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Fund of the commencement of
any litigation or proceedings against it or any of its officers or directors in
connection with this Agreement, the issuance or sale of the Contracts, with
respect to the operation of each Account, or the sale or acquisition of shares
of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the first to
occur of:
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio is not reasonably available to
meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event any of the Portfolio's
shares are not registered, issued or sold in accordance with applicable
state and/or federal law or such law precludes the use of such shares as
the underlying investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio
falls to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund by written notice to the Company if the
Fund shall determine, in its sole judgment exercised in good faith, that
the Company and/or its affiliated companies has suffered a material adverse
change in its business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material adverse publicity,
or
(g) termination by the Company by written notice to the Fund and the
Adviser, if the Company shall determine, in its sole judgment exercised in
good faith, that either the Fund or the Adviser has suffered a material
adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the written notice
specified in Section 1.5 hereof and at the time such notice was given there
was no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section 10.1(h)
shall be effective forty five (45) days after the notice specified in
Section 1.5 was given.
10.2. Notwithstanding any termination of this Agreement, the Fund shall at the
option of the Company, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing, Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to direct reallocation of
investments in the Fund, redemption of investments in the Fund and/or investment
in the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
<PAGE>
10.3. The Company shall not redeem Fund shares attributable to the Contracts (as
distinct from Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the Securities and Exchange Commission pursuant to
Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish
to the Fund the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund) to the effect that any redemption pursuant
to clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Contracts, the Company shall not
prevent Contract Owners from allocating payments to a Portfolio that was
otherwise available under the Contracts without first giving the Fund 90 days
prior written notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Fund:
Morgan Stanley Universal Funds, Inc.
c/o Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
<PAGE>
If to Adviser:
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
Attention: Lorraine Truten
If to the Company:
Northbrook Life Insurance Company
3100 Sanders Road, N4A
Northbrook, Illinois 60062
Attention: Timothy N. Vander Pas
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the property of the
Fund for the enforcement of any claims against the Fund as neither the Board,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
12.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto;
provided, however, that an Adviser may assign this Agreement or any rights or
obligations hereunder to any affiliate of or company under common control with
the Adviser, if such assignee is duly licensed and registered to perform the
obligations of the Adviser under this Agreement.
12. 9 The Company shall furnish, or shall cause to be furnished, to the Fund or
its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical and in any event within
90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if any), as
soon as practical and in any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as practical
after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial reports of
the Company filed with the Securities and Exchange Commission or any state
insurance regulator, as soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent accountants in
connection with any annual, interim or special audit made by them of the
books of the Company, as soon as practical after the receipt thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
NORTHBROOK LIFE INSURANCE COMPANY
By: ______________________________
Name: Timothy N. Vander Pas
Title: Assistant Vice President
MORGAN STANLEY UNIVERSAL FUNDS, INC.
By: ______________________________
Name: Michael Klein
Title: President
MORGAN STANLEY ASSET MANAGEMENT INC.
By: ______________________________
Name: Marna Whittington
Title: Managing Director
MILLER ANDERSON & SHERRERD, LLP
By: ______________________________
Name: Marna Whittington
Title: Authorized Signatory
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account and Form Number and Name of Contract
Date Established by Board of Directors Funded by Separate Account
<S> <C>
Northbrook Variable Annuity Account II Dean Witter Variable Annuity II
Established May 18, 1990 Group Master Policy NLU 437
Certificate Form NLU 438
NLU 654 (FL)
NLU 419 (CT, MD, ME, NC, OH, VT)
NLU 521 (ID)
NLU 783 (MN)
NLU 703 (SC)
NORTHBROOK VARIABLE ANNUITY II
NLU 419 (OR)
NLU 521 (TX)
THE PREFERRED CLIENT VARIABLE ANNUITY
NLU 906 Countrywide Contract
Master Group Policy NLU 904
Certificate Form NLU 905
</TABLE>
A-1
SCHEDULE B
PORTFOLIOS OF MORGAN STANLEY
DEAN WITTER UNIVERSAL FUNDS, INC.
Equity Growth
International Magnum
Emerging Markets Equity
U.S. Real Estate
Mid Cap Value
B-1
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of
voting instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will
inform the Company of the Record, Mailing and Meeting dates. This will
be done verbally approximately two months before meeting.
. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to
call in the number of Customers to the Fund , as soon as possible, but
no later than two weeks after the Record Date.
. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting,
instruction solicitation material. The Fund will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Fund or its affiliate must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
C-1
<PAGE>
. name (legal name as found on account registration)
. address
. fund or account number
. coding to state number of units
. individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
. During this time, the Fund will develop, produce and pay for the Notice
of Proxy and the Proxy Statement (one document). Printed and folded
notices and statements will be sent to Company for insertion into
envelopes (envelopes and return envelopes are provided and paid for by
the Company). Contents of envelope sent to Customers by the Company
will include:
. Voting Instruction Card(s)
. One proxy notice and statement (one document)
. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is important.
One copy will be supplied by the Fund.)
. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to the Fund.
. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
C-2
<PAGE>
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) The Fund
must review and approve tabulation format.
. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 a.m. Eastern time.
The Fund may request an earlier deadline if reasonable and if required
to calculate the vote in time for the meeting.
. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. The Fund will provide a standard form for each Certification.
C-3
. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will
be permitted reasonable access to such Cards.
. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
C-4
<PAGE>
Exhibit 8(c)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
NORTHBROOK LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
DEAN WITTER REYNOLDS, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Description Page
<S> <C>
Section 1. Available Funds..................................................................2
1.1 Availability...............................................................2
1.2 Addition, Deletion or Modification of Funds................................2
1.3 No Sales to the General Public.............................................2
Section 2. Processing Transactions..........................................................3
2.1 Timely Pricing and Orders..................................................3
2.2 Timely Payments............................................................3
2.3 Applicable Price...........................................................4
2.4 Dividends and Distributions................................................4
2.5 Book Entry.................................................................4
Section 3. Costs and Expenses...............................................................4
3.1 General....................................................................4
3.2 Parties To Cooperate.......................................................4
Section 4. Legal Compliance.................................................................5
4.1 Tax Laws...................................................................5
4.2 Insurance and Certain Other Laws...........................................7
4.3 Securities Laws............................................................8
4.4 Notice of Certain Proceedings and Other Circumstances......................9
4.5 LIFE COMPANY or UNDERWRITER To Provide Documents;
Information About AVIF.....................................................9
4.6 AVIF or AIM To Provide Documents; Information About
LIFE COMPANY..............................................................10
Section 5. Mixed and Shared Funding........................................................12
5.1 General...................................................................12
5.2 Disinterested Directors...................................................12
5.3 Monitoring for Material Irreconcilable Conflicts..........................12
5.4 Conflict Remedies.........................................................13
5.5 Notice to LIFE COMPANY....................................................14
5.6 Information Requested by Board of Directors...............................14
5.7 Compliance with SEC Rules.................................................15
5.8 Other Requirements........................................................15
Section 6. Termination.....................................................................15
6.1 Events of Termination.....................................................15
6.2 Notice Requirement for Termination........................................16
6.3 Funds To Remain Available.................................................17
6.4 Survival of Warranties and Indemnifications...............................17
6.5 Continuance of Agreement for Certain Purposes.............................17
Section 7. Parties To Cooperate Respecting Termination.....................................17
Section 8. Assignment......................................................................17
Section 9. Notices.........................................................................18
Section 10. Voting Procedures..............................................................18
Section 11. Foreign Tax Credits............................................................19
Section 12. Indemnification................................................................19
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER...........................19
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM...........................21
12.3 Effect of Notice..........................................................24
12.4 Successors................................................................24
Section 13. Applicable Law.................................................................24
Section 14. Execution in Counterparts......................................................24
Section 15. Severability...................................................................24
Section 16. Rights Cumulative..............................................................24
Section 17. Headings.......................................................................25
Section 18. Confidentiality................................................................25
Section 19. Trademarks and Fund Names......................................................25
Section 20. Parties to Cooperate...........................................................26
Section 21. Amendments.....................................................................26
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ____ day of _________, 1999
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM")
Northbrook Life Insurance Company, an Arizona life insurance company ("LIFE
COMPANY"), on behalf of itself and each of its segregated asset accounts listed
in Schedule A hereto, as the parties hereto may amend from time to time (each,
an "Account," and collectively, the "Accounts"); and Dean Witter Reynolds, Inc.,
an affiliate of LIFE COMPANY and the principal underwriter of the Contracts
("UNDERWRITER") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of fifteen separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") and/or policies
("Policies") as set forth on Schedule A hereto, as the Parties hereto may amend
from time to time, which Contracts and Policies (hereinafter collectively, the
"Policies"), if required by applicable law, will be registered under the 1933
Act; and
WHEREAS, LIFE COMPANY will fund the Policies through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Policies will be registered as securities under the 1933 Act
(or exempt therefrom); and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, AIM is a broker-dealer registered with the SEC under the 1934 Act
and a member in good standing of NASD;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
Section 1. Available Funds
1.1 Availability.
AVIF will make Shares of each Fund available to LIFE COMPANY for purchase
and redemption at net asset value and with no sales charges, subject to the
terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 Addition, Deletion or Modification of Funds.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Policies, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 No Sales to the General Public.
AVIF represents and warrants that no Shares of any Fund have been or will
be sold to the general public.
<PAGE>
Section 2. Processing Transactions
2.1 Timely Pricing and Orders.
(a) AVIF or its designated agent will use its best efforts to provide LIFE
COMPANY with the net asset value per Share for each Fund by 6:00 p.m. Central
Time on each Business Day. As used herein, "Business Day" shall mean any day on
which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF
calculates the Fund's net asset value and (iii) LIFE COMPANY is open for
business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to LIFE COMPANY in the event that AVIF is unable
to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to LIFE COMPANY.
(c) Each order to purchase or redeem Shares will separately describe the
amount of Shares of each Fund to be purchased, redeemed or exchanged and will
not be netted; provided however, with respect to payment of the purchase price
by LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall
net purchase and redemption orders with respect to each Fund and shall transmit
one net payment per Fund in accordance with Section 2.2, below. Each order to
purchase or redeem Shares shall also specify whether the order results from
purchase payments, surrenders, partial withdrawals of charges or requests for
other transactions under Policies (collectively, "Policy transactions").
(d) If AVIF provides materially incorrect Share net asset value information
(as determined under SEC guidelines), LIFE COMPANY shall be entitled to an
adjustment to the number of Shares purchased or redeemed to reflect the correct
net asset value per Share. Any material error in the calculation or reporting of
net asset value per Share, dividend or capital gain information shall be
reported promptly upon discovery to LIFE COMPANY. Materiality and reprocessing
cost reimbursement shall be determined in accordance with standards established
by the parties as provided in Schedule B, attached hereto and herein
incorporated.
2.2 Timely Payments.
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
<PAGE>
2.3 Applicable Price.
(a) Share purchase and redemption orders that result from Policy
transactions and that LIFE COMPANY receives prior to the close of regular
trading on the New York Stock Exchange on a Business Day will be executed at the
net asset values of the appropriate Funds next computed after receipt by AVIF or
its designated agent of the orders. For purposes of this Section 2.3(a), LIFE
COMPANY shall be the designated agent of AVIF for receipt of orders relating to
Policy transactions on each Business Day and receipt by such designated agent
shall constitute receipt by AVIF; provided, that AVIF receives notice of such
orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 Dividends and Distributions.
AVIF will furnish notice promptly to LIFE COMPANY any income dividends or
capital gain distributions payable on the Shares of any Fund. LIFE COMPANY
hereby elects to reinvest all dividends and capital gains distributions in
additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 Book Entry.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
Section 3. Costs and Expenses
3.1 General.
Except as otherwise specifically provided in Schedule C, attached hereto
and made a part hereof, each Party will bear, or arrange for others to bear, all
expenses incident to its performance under this Agreement.
3.2 Parties To Cooperate.
Each Party agrees to cooperate with the others, as applicable, in arranging
to print, mail and/or deliver, in a timely manner, combined or coordinated
prospectuses or other materials of AVIF and the Accounts.
<PAGE>
Section 4. Legal Compliance
4.1 Tax Laws.
(a) AVIF represents and warrants that each Fund is currently qualified and
will continue to qualify as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). AVIF
will notify LIFE COMPANY immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will comply and maintain each Fund's compliance
with the diversification requirements set forth in Section 817(h) of the Code
and Section 1.817-5(b) of the regulations under the Code. AVIF will notify LIFE
COMPANY immediately upon having a reasonable basis for believing that a Fund has
ceased to so comply or that a Fund might not so comply in the future.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY's knowledge, of any Policy owner, annuitant or
participant under the Policies (collectively, "Participants"), that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise
to any claim against AVIF or its affiliates as a result of such a failure or
alleged failure to so comply with Section 817(h) (hereinafter respectively
referred to in this paragraph (c) as "failure" or "alleged failure"):
(i) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions of
Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or alleged
failure;
(iii)LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such failure,
including, without limitation, demonstrating, pursuant to
Treasury Regulations Section 1.817-5(a)(2), to the Commissioner
of the IRS that such failure was inadvertent, provided that LIFE
COMPANY shall not be required to make any such demonstration of
inadvertence unless AVIF represents or provides an opinion of
counsel, which representation or opinion shall be reasonably
satisfactory to LIFE COMPANY, to the effect that a reasonable
basis exists for making such demonstration;
<PAGE>
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal
and accounting advisors to participate in any conferences,
settlement discussions or other administrative or judicial
proceeding or contests (including judicial appeals thereof) with
the IRS, any Participant or any other claimant regarding any
claims that could give rise to liability to AVIF or its
affiliates as a result of such a failure or alleged failure;
provided, however, that LIFE COMPANY will retain control of the
conduct of such conferences, discussions, proceedings, contests
or appeals thereof;
(v) any written materials to be submitted by LIFE COMPANY to the IRS,
any Participant or any other claimant in connection with any of
the foregoing proceedings or contests (including, without
limitation, any such materials to be submitted to the IRS
pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a)
shall be provided by LIFE COMPANY to AVIF (together with any
supporting information or analysis); subject to the
confidentiality provisions of Section 18, at least ten (10)
business days or such shorter period to which the Parties hereto
may from time to time agree, prior to the day on which such
proposed materials are to be submitted and (b) shall not be
submitted by LIFE COMPANY to any such person without the express
written consent of AVIF which shall not be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF shall
reasonably request (including, without limitation, by providing
AVIF and its accounting and legal advisors with copies of any
relevant books and records (or portions thereof) of LIFE COMPANY
that may be reasonably requested by or on behalf of AVIF and that
LIFE COMPANY is permitted to provide in accordance with
applicable law) in order to facilitate review by AVIF or its
advisors of any written submissions provided to it pursuant to
the preceding clause or its assessment of the validity or amount
of any claim against its arising from such a failure or alleged
failure;
(vii)LIFE COMPANY shall not with respect to any claim of the IRS or
any Participant that would give rise to a claim against AVIF or
its affiliates (a) compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable administrative
or judicial appeals, without the express written consent of AVIF
or its affiliates, which shall not be unreasonably withheld,
provided that LIFE COMPANY shall not be required, after
exhausting all administrative remedies, to appeal any adverse IRS
or judicial decision unless AVIF or its affiliates shall have
provided an opinion of independent counsel approved by LIFE
COMPANY, which approval shall not be unreasonably withheld, to
the effect that a reasonable basis exists for taking such appeal
(or, in the case of an appeal to the United States Supreme Court,
that LIFE COMPANY should be more likely than not to prevail on
such appeal) and provided further that the costs of any such
appeal shall be borne equally by the Parties hereto; and
<PAGE>
(viii) AVIF and its affiliates shall have no liability as a result of
such failure or alleged failure if LIFE COMPANY fails to comply
with any of the foregoing clauses (i) through (vii), and such
failure could be shown to have materially contributed to the
liability.
Should AVIF or any of its affiliates refuse to give its written consent to
any compromise or settlement of any claim or liability hereunder, LIFE COMPANY
may, in its discretion, authorize AVIF or its affiliates to act in the name of
LIFE COMPANY in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control; provided, that in no event shall LIFE COMPANY have any liability
resulting from AVIF's refusal to accept the proposed settlement or compromise
with respect to any failure caused by AVIF. As used in this Agreement, the term
"affiliates" shall have the same meaning as "affiliated person" as defined in
Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Policies currently are
and at all times will be treated as annuity, endowment or life insurance
contracts under applicable provisions of the Code. LIFE COMPANY will notify AVIF
immediately upon having a reasonable basis for believing that any of the
Policies have ceased to be so treated or that they might not be so treated in
the future, provided that such notice shall be kept confidential during the
period of LIFE COMPANY's investigation of any such circumstances to the extent
permitted by applicable law.
(e) LIFE COMPANY represents and warrants that each Account is and at all
times will be a "segregated asset account" and that interests in each Account
are offered exclusively through the purchase of or transfer into a "variable
contract," within the meaning of such terms under Section 817 of the Code and
the regulations thereunder. LIFE COMPANY will notify AVIF immediately upon
having a reasonable basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
4.2 Insurance and Certain Other Laws.
(a) AVIF and AIM will use their best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by LIFE COMPANY.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Illinois and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Section 245.21 of the Illinois
Insurance Code and the regulations thereunder, and (iii) the Policies comply in
all material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
(d) AIM represents and warrants that it is a Delaware corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(e) UNDERWRITER represents and warrants that it is a Delaware corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
4.3 Securities Laws.
(a) LIFE COMPANY and UNDERWRITER represent and warrant that (i) interests
in each Account pursuant to the Policies will be registered under the 1933 Act
to the extent required by the 1933 Act, (ii) the Policies will be duly
authorized for issuance and sold in compliance with all applicable federal and
state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940
Act and Illinois law, (iii) each Account is and will remain registered under the
1940 Act, to the extent required by the 1940 Act, (iv) each Account does and
will comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Policies, together with any amendments
thereto, will at all times comply in all material respects with the requirements
of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the
registration statement for its Contracts under the 1933 Act and for its Policies
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Policies or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF and AIM represent and warrant that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF's Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will register and qualify its Shares for sale in accordance with
the laws of any state or other jurisdiction if and to the extent reasonably
deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
4.4 Notice of Certain Proceedings and Other Circumstances.
(a) AVIF and/or AIM will immediately notify LIFE COMPANY of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to AVIF's registration statement
under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or AVIF Prospectus that may affect the
offering of Shares of AVIF, (iii) the initiation of any proceedings for that
purpose or for any other purpose relating to the registration or offering of
AVIF's Shares, or (iv) any other action or circumstances that may prevent the
lawful offer or sale of Shares of any Fund in any state or jurisdiction,
including, without limitation, any circumstances in which (a) such Shares are
not registered and, in all material respects, issued and sold in accordance with
applicable state and federal law, or (b) such law precludes the use of such
Shares as an underlying investment medium of the Policies issued or to be issued
by LIFE COMPANY. AVIF will make every reasonable effort to prevent the issuance,
with respect to any Fund, of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
(b) LIFE COMPANY and/or UNDERWRITER will immediately notify AVIF of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to each Account's registration
statement under the 1933 Act relating to the Policies or each Account
Prospectus, (ii) any request by the SEC for any amendment to such registration
statement or Account Prospectus that may affect the offering of Shares of AVIF,
(iii) the initiation of any proceedings for that purpose or for any other
purpose relating to the registration or offering of each Account's interests
pursuant to the Policies, or (iv) any other action or circumstances that may
prevent the lawful offer or sale of said interests in any state or jurisdiction,
including, without limitation, any circumstances in which said interests are not
registered and, in all material respects, issued and sold in accordance with
applicable state and federal law. LIFE COMPANY will make every reasonable effort
to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
4.5 LIFE COMPANY or UNDERWRITER To Provide Documents; Information About
AVIF.
(a) LIFE COMPANY and/or UNDERWRITER will provide to AVIF or its designated
agent at least one (1) complete copy of all SEC registration statements, Account
Prospectuses, reports, any preliminary and final voting instruction solicitation
material, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to each Account or the Policies,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY and/or UNDERWRITER will provide to AVIF or its designated
agent at least one (1) complete copy of each piece of sales literature or other
promotional material not prepared by AVIF or its affiliates, in which AVIF or
any of its affiliates is named, at least ten (10) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time, agree upon.
No such material shall be used if AVIF or its designated agent objects to such
use within ten (10) Business Days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree upon. AVIF hereby
designates its investment advisor as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY the UNDERWRITER nor any of their respective
affiliates, will give any information or make any representations or statements
on behalf of or concerning AVIF or its affiliates in connection with the sale of
the Policies other than (i) the information or representations contained in the
registration statement, including the AVIF Prospectus contained therein,
relating to Shares, as such registration statement and AVIF Prospectus may be
amended from time to time; or (ii) in reports or proxy materials for AVIF; or
(iii) in published reports for AVIF that are in the public domain and approved
by AVIF for distribution; or (iv) in sales literature or other promotional
material approved by AVIF, except with the express written permission of AVIF.
(d) LIFE COMPANY and the UNDERWRITER shall adopt and implement procedures
reasonably designed to ensure that information concerning AVIF, AIM and their
affiliates that is intended for use only by brokers or agents selling the
Policies (i.e., information that is not intended for distribution to
Participants or offeree) ("broker only materials") is so used, and neither AVIF
nor any of its affiliates shall be liable for any losses, damages or expenses
relating to the improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF or AIM To Provide Documents; Information About LIFE COMPANY and
the UNDERWRITER.
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all
SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY or UNDERWRITER a camera ready copy of
all AVIF prospectuses and a printed copy, to be reproduced by LIFE COMPANY, of
AVIF statements of additional information, additionally AVIF will provide
printed copies of proxy materials, periodic reports to shareholders and other
materials required by law to be sent to Participants who have allocated any
Policy value to a Fund. AVIF will provide such copies to LIFE COMPANY or
UNDERWRITER in a timely manner so as to enable LIFE COMPANY, as the case may be,
to print and distribute such materials within the time required by law to be
furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least one
(1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, UNDERWRITER, or any of their respective
affiliates is named, or that refers to the Policies, at least ten (10) Business
Days prior to its use or such shorter period as the Parties hereto may, from
time to time, agree upon. No such material shall be used if LIFE COMPANY or its
designated agent objects to such use within ten (10) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. LIFE COMPANY shall receive all such sales literature until
such time as it appoints a designated agent by giving notice to AVIF in the
manner required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
UNDERWRITER, each Account, or the Policies other than (i) the information or
representations contained in the registration statement, including each Account
Prospectus contained therein, relating to the Policies, as such registration
statement and Account Prospectus may be amended from time to time; or (ii) in
published reports for the Account or the Policies that are in the public domain
and approved by LIFE COMPANY for distribution; or (iii) in sales literature or
other promotional material approved by LIFE COMPANY or its affiliates, except
with the express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, UNDERWRITER and their respective affiliates that is intended for use
only by brokers or agents selling the Policies (i.e., information that is not
intended for distribution to Participants or offerees) ("broker only materials")
is so used, and neither LIFE COMPANY, UNDERWRITER nor any of their respective
affiliates shall be liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media, (e.g., on-line
networks such as the Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, and proxy materials
and any other material constituting sales literature or advertising under the
NASD rules, the 1933 Act or the 1940 Act.
Section 5. Mixed and Shared Funding
5.1 General.
The SEC has granted an order to AVIF exempting it from certain provisions
of the 1940 Act and rules thereunder so that AVIF may be available for
investment by certain other entities, including, without limitation, separate
accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY, and trustees of qualified pension and retirement plans (collectively,
"Mixed and Shared Funding"). The Parties recognize that the SEC has imposed
terms and conditions for such orders that are substantially identical to many of
the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Policy is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 Disinterested Directors.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board;(b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 Monitoring for Material Irreconcilable Conflicts.
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity contract
and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the voting
instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting instructions
of Plan participants.
Consistent with the SEC's requirements in connection with exemptive orders
of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the
Board of Directors in carrying out its responsibilities by providing the Board
of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants. LIFE COMPANY's
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests of Participants.
5.4 Conflict Remedies.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the Accounts
from AVIF or any Fund and reinvesting such assets in a different
investment medium, including another Fund of AVIF, or submitting
the question whether such segregation should be implemented to a
vote of all affected Participants and, as appropriate,
segregating the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all Participants)
that votes in favor of such segregation, or offering to the
affected Participants the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940 Act
or a new separate account that is operated as a management
company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within six (6) months
after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to LIFE COMPANY conflicts with the
majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict (after consideration of all
Participants), and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF. No charge or penalty will be imposed as a result of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Policies. LIFE
COMPANY will not be required by the terms hereof to establish a new funding
medium for any Policies if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 Notice to LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 Information Requested by Board of Directors.
LIFE COMPANY and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request so that the Board of Directors may
fully carry out the obligations imposed upon it by the provisions hereof or any
exemptive order granted by the SEC to permit Mixed and Shared Funding, and said
reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors actions
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies and Participating Plans of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be properly
recorded in the minutes of the Board of Directors or other appropriate records,
and such minutes or other records will be made available to the SEC upon
request.
5.7 Compliance with SEC Rules.
If, at any time during which AVIF is serving as an investment medium for
variable life insurance Policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2
are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to
Mixed and Shared Funding, AVIF agrees that it will comply with the terms and
conditions thereof and that the terms of this Section 5 shall be deemed modified
if and only to the extent required in order also to comply with the terms and
conditions of such exemptive relief that is afforded by any of said rules that
are applicable.
5.8 Other Requirements.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
Section 6. Termination
6.1 Events of Termination.
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of AVIF or LIFE COMPANY upon the approval by (i) a
majority of the Disinterested Directors or (ii) a majority vote of the Shares of
the affected Fund that are held in the corresponding Subaccount of an Account
(pursuant to the procedures set forth in Section 10 of this Agreement for voting
Shares in accordance with Participant instructions); or
(b) at the option of AVIF or AIM upon institution of formal proceedings
against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY's obligations
under this Agreement or related to the sale of the Policies, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF or AIM
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on the Fund with respect to which the Agreement is to be
terminated; or
(c) at the option of LIFE COMPANY upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE
COMPANY reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the
Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares are
not registered and, in all material respects, issued and sold in accordance with
any applicable federal or state law, or (ii) such law precludes the use of such
Shares as an underlying investment medium of the Policies issued or to be issued
by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
(g) at the option of LIFE COMPANY if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions (other than by reason
of failure of the Policies issued by LIFE COMPANY to qualify as annuity or life
insurance contracts under the Code, or the failure of any account or Policy to
meet the definition of "segregated asset account" or "variable contract";
respectively, within the meaning of the Code) or if LIFE COMPANY reasonably
believes that the Fund may fail to so comply; or
(h) at the option of AVIF or AIM if the Policies issued by LIFE COMPANY
cease to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Policies are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 Notice Requirement for Termination.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 Funds To Remain Available.
Except (a) as necessary to implement Participation-initiated transactions,
(b) as required by state insurance laws or regulations, (c) as required pursuant
to Section 5 of this Agreement, or (d) with respect to any Fund as to which this
Agreement has terminated pursuant to Section 6.1 hereof, LIFE COMPANY shall not
(i) redeem AVIF Shares attributable to the Policies (as opposed to AVIF Shares
attributable to LIFE COMPANY's assets held in each Account), or (ii) prevent
Participants from allocating payments to or transferring amounts from a Fund
that was otherwise available under the Policies, until six (6) months after LIFE
COMPANY shall have notified AVIF of its intention to do so and until 36 full
calendar months shall have expired from the date on which an Account first
invested in any Fund.
6.4 Survival of Warranties and Indemnifications.
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 Continuance of Agreement for Certain Purposes.
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this
Agreement shall nevertheless continue in effect as to any Shares of that Fund
that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
Section 7. Parties To Cooperate Respecting Termination
The Parties hereto agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Policies in such Fund.
Section 8. Assignment
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
Section 9. Notices
Notices and communications required or permitted will be given by means
mutually acceptable to the Parties concerned. Each other notice or communication
required or permitted by this Agreement will be given to the following persons
at the following addresses and facsimile numbers, or such other persons,
addresses or facsimile numbers as the Party receiving such notices or
communications may subsequently direct in writing:
AIM Variable Insurance Funds, Inc.
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
Northbrook Life Insurance Company
Allstate Life Financial Services, Inc.
3100 Sanders Road, Suite J5D
Northbrook, IL 60062
Facsimile: (847) 402-4371
Attn: Michael J. Velolta, Esq.
Section 10. Voting Procedures
Subject to the cost allocation procedures set forth in Section 3 hereof,
LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants. Neither
LIFE COMPANY nor any of its affiliates will in any way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Shares held for such Participants except with respect to matters as to which
LIFE COMPANY has the right, under Rule 6e-2 or 6e-3(T) under the 1940 Act, to
vote the Shares without regard to voting instructions from Participants. LIFE
COMPANY reserves the right to vote shares held in any Account in its own right,
to the extent permitted by law. LIFE COMPANY shall be responsible for assuring
that each of its Accounts holding Shares calculates voting privileges in a
manner consistent with that of other Participating Insurance Companies or in the
manner required by the Mixed and Shared Funding exemptive order obtained by
AVIF. AVIF will notify LIFE COMPANY of any changes of interpretations or
amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF
will comply with all provisions of the 1940 Act requiring voting by
shareholders, and in particular, AVIF either will provide for annual meetings
(except insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings) or will comply with Section 16(c) of the 1940 Act
(although AVIF is not one of the trusts described in Section 16(c) of that Act)
as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF
will act in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors and with whatever
rules the SEC may promulgate with respect thereto.
Section 11. Foreign Tax Credits
AVIF agrees to consult in advance with LIFE COMPANY concerning any decision
to elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
Section 12. Indemnification
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, AIM,
their affiliates, and each person, if any, who controls AVIF, AIM, or their
affiliates within the meaning of Section 15 of the 1933 Act and each of their
respective directors and officers, (collectively, the "Indemnified Parties" for
purposes of this Section 12.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common law or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions are related to the sale or acquisition
of AVIF's Shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, the
Policies, or sales literature or advertising for the Policies (or
any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to LIFE COMPANY or
UNDERWRITER by or on behalf of AVIF or AIM for use in any
Account's 1933 Act registration statement, any Account
Prospectus, the Policies, or sales literature or advertising or
otherwise for use in connection with the sale of Policies or
Shares (or any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not supplied for
use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their
respective affiliates and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates or persons
under their control (including, without limitation, their
employees and "persons associated with a member," as that term is
defined in paragraph (q) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Policies or
Shares; or
(iii)arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to AVIF, AIM or their affiliates by or on
behalf of LIFE COMPANY, UNDERWRITER or their respective
affiliates for use in AVIF's 1933 Act registration statement,
AVIF Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER
to perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement, or
any material breach of any representation and/or warranty made by
LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or
result from any other material breach of this Agreement by LIFE
COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Policies issued by LIFE
COMPANY to qualify as life insurance, endowment or annuity
contracts under the Code, otherwise than by reason of any Fund's
failure to comply with Subchapter M or Section 817(h) of the
Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section
12.1 with respect to any losses, claims, damages, liabilities or actions to
which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF or AIM.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section
12.1 with respect to any action against an Indemnified Party unless AVIF or AIM
shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability
which they may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.1. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, LIFE
COMPANY and UNDERWRITER shall be entitled to participate, at their own expense,
in the defense of such action and also shall be entitled to assume the defense
thereof, with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from LIFE
COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or
UNDERWRITER's election to assume the defense thereof, the Indemnified Party will
cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and
expenses of any additional counsel retained by it, and neither LIFE COMPANY nor
UNDERWRITER will be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e),
below, AVIF and AIM agree to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF and/or AIM) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law, or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions are related to
the sale or acquisition of AVIF's Shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus or sales literature
or advertising of AVIF (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or its
affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their
respective affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, or in sales literature or advertising
or otherwise for use in connection with the sale of Contracts or
Shares (or any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising for the
Policies, or any amendment or supplement to any of the foregoing,
not supplied for use therein by or on behalf of AVIF, AIM or
their affiliates and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent conduct of AVIF,
AIM or their affiliates or persons under their control
(including, without limitation, their employees and "persons
associated with a member" as that term is defined in Section (q)
of Article I of the NASD By-Laws), in connection with the sale or
distribution of AVIF Shares; or
(iii)arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, sales
literature or advertising covering the Policies, or any amendment
or supplement to any of the foregoing, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon and in conformity with information furnished to LIFE
COMPANY, UNDERWRITER or their respective affiliates by or on
behalf of AVIF or AIM for use in any Account's 1933 Act
registration statement, any Account Prospectus, sales literature
or advertising covering the Policies, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services (including but not limited to,
the provisions of correct net asset value) and furnish the
materials required of it under the terms of this Agreement, or
any material breach of any representation and/or warranty made by
AVIF in this Agreement or arise out of or result from any other
material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e)
hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, the written consent of AVIF
and/or AIM) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses) to which the Indemnified Parties may become subject
directly or indirectly under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or actions directly or indirectly
result from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against LIFE COMPANY or UNDERWRITER pursuant to the
Policies, the costs of any ruling and closing agreement or other settlement with
the IRS, and the cost of any substitution by LIFE COMPANY of Shares of another
investment company or portfolio for those of any adversely affected Fund as a
funding medium for each Account that LIFE COMPANY reasonably deems necessary or
appropriate as a result of the noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY,
UNDERWRITER, each Account or Participants.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF and/or AIM in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF or AIM of any such action shall not relieve
AVIF or AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and/or AIM will be entitled to participate,
at its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the conduct
of any ruling request and closing agreement or other settlement proceeding with
the IRS), with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from AVIF and/or
AIM to such Indemnified Party of AVIF's or AIM's election to assume the defense
thereof, the Indemnified Party will cooperate fully with AVIF and AIM and shall
bear the fees and expenses of any additional counsel retained by it, and AVIF
and AIM will not be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
(e) In no event shall AVIF or AIM be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, LIFE COMPANY, UNDERWRITER or any other Participating
Insurance Company or any Participant, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result from (i) a breach
of any representation, warranty, and/or covenant made by LIFE COMPANY or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance
Company to maintain its segregated asset account (which invests in any Fund) as
a legally and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the provisions of
the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or
any Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any Fund serves as an
underlying funding vehicle) as life insurance, endowment or annuity contracts
under applicable provisions of the Code; provided however, that the limitation
of liability contained in this paragraph (e) shall not apply if the breach or
failures described in subparagraphs (i), (ii) and (iii), above, by LIFE COMPANY
or any Participating Insurance Company resulted from failure of AVIF to comply
with the requirements of Subchapter M or Section 817(h) of the Code.
12.3 Effect of Notice.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Sections 12.1(c) or 12.2(d) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 Successors.
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
Section 13. Applicable Law
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
Section 15. Severability
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
Section 17. Headings
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
Section 18. Confidentiality
AVIF acknowledges that the identities of the customers of LIFE COMPANY or
any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
LIFE COMPANY Protected Parties or any of their employees or agents in connection
with LIFE COMPANY's performance of its duties under this Agreement are the
valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the LIFE COMPANY Protected Parties' customers, or any other
information or property of the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the "AVIF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties' customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF's prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
Section 19. Trademarks and Fund Names
(a) Except as may otherwise be provided in a License Agreement among A I M
Management Group, Inc., LIFE COMPANY and UNDERWRITER, neither LIFE COMPANY nor
UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF's or AIM's prior written consent, the granting of which shall
be at AVIF's or AIM's sole option.
(b) Except as otherwise expressly provided in this Agreement, neither AVIF,
its investment adviser, its principal underwriter, or any affiliates thereof
shall use any trademark, trade name, service mark or logo of LIFE COMPANY,
UNDERWRITER or any of their affiliates, or any variation of any such trademark,
trade name, service mark or logo, without LIFE COMPANY's or UNDERWRITER's prior
written consent, the granting of which shall be at LIFE COMPANY's or
UNDERWRITER's sole option.
Section 20. Parties to Cooperate
Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and will permit each other and such
authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
Section 21. Amendments
No provision of this Agreement may be amended or modified in any manner
except by a written agreement executed by all parties hereto.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: ________________________ By:
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: ________________________ By:
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
NORTHBROOK LIFE INSURANCE COMPANY,
on behalf of itself and its
separate accounts
Attest: ________________________ By:
Name: ________________________ Name:
Title: ________________________ Title:
ALLSTATE LIFE FINANCIAL SERVICES,INC.
Attest: ________________________ By:
Name: ________________________ Name:
Title: ________________________ Title:
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE POLICIES
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
o Northbrook Variable Annuity Account II
Established May 18, 1990
POLICIES FUNDED BY THE SEPARATE ACCOUNTS
o NLU906 Countrywide Contract
Master Group Policy NLU904
Certificate From NLU905
<PAGE>
SCHEDULE B
AIM's Pricing Error Policies
Determination of Materiality
In the event that AIM discovers an error in the calculation of the Fund's net
asset value, the following policies will apply:
If the amount of the error is less than $.01 per share, it is considered
immaterial and no adjustments are made.
If the amount of the error is $.01 per share or more, then the following
thresholds are applied:
a. If the amount of the difference in the erroneous net asset value
and the correct net asset value is less than .5% of the correct
net asset value, AIM will reimburse the affected Fund to the
extent of any loss resulting from the error. No other adjustments
shall be made.
b. If the amount of the difference in the erroneous net asset value
and the correct net asset value is .5% of the correct net asset
value or greater, then AIM will determine the impact of the error
to the affected Fund and shall reimburse such Fund (and/or LIFE
COMPANY, as appropriate) to the extent of any loss resulting from
the error. To the extent that an overstatement of net asset value
per share is detected quickly and LIFE COMPANY has not mailed
redemption checks to Participants, LIFE COMPANY and AIM agree to
examine the extent of the error to determine the feasibility of
reprocessing such redemption transaction (for purposes of
reimbursing the Fund to the extent of any such overpayment).
Reprocessing Cost Reimbursement
To the extent a reprocessing of Participant transactions is required pursuant to
paragraph (b), above, AIM shall reimburse LIFE COMPANY for LIFE COMPANY's
reprocessing costs in an amount not to exceed $3.00 per contract affected by $10
or more.
The Pricing Policies described herein may be modified by AVIF as approved by its
Board of Directors. AIM agrees to use its best efforts to notify LIFE COMPANY at
least five (5) days prior to any such meeting of the Board of Directors of AVIF
to consider such proposed changes.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE C
EXPENSE ALLOCATIONS
- ----------------------------------- -------------------------------------- ---------------------------------------
Description LIFE COMPANY AIM/AVIF
- ----------------------------------- -------------------------------------- ---------------------------------------
Registration
<S> <C> <C>
Prepare and file registration Account registration statements Fund registration statements
statements1
Payment of fees Account fees Fund fees
- ----------------------------------- -------------------------------------- ---------------------------------------
Prospectuses
Typesetting Account Prospectuses Fund Prospectuses
Printing2 Account Prospectuses Fund Prospectuses
- ----------------------------------- -------------------------------------- ---------------------------------------
SAIs
Typesetting Account SAIs Fund SAIs
Printing Account SAIs Fund SAIs
- ----------------------------------- -------------------------------------- ---------------------------------------
Supplements (to Prospectuses or
SAIs)
Typesetting and Printing Account Supplements (unless changes Fund Supplements (unless changes
relate only to the Fund) relate only to the Account)
Account Supplements (for changes that
Fund Supplements (for changes that relate only to Fund)
relate only to Account)
- ----------------------------------- -------------------------------------- ---------------------------------------
Financial Reports
Typesetting
Account Reports Fund Reports
Printing2
Account Reports Fund Reports
- ----------------------------------- -------------------------------------- ---------------------------------------
Description LIFE COMPANY AIM/AVIF
- ----------------------------------- -------------------------------------- ---------------------------------------
Proxies3
Typesetting, printing and mailing Account and Fund Proxies where the Account and
Fund Proxies where the of proxy solicitation materials matters submitted are
solely Account matters submitted are solely Fund and voting instruction related
related solicitation materials and tabulation of proxies to Participants
- ----------------------------------- -------------------------------------- ---------------------------------------
Other (Sales Related)
Contract owner communication Account related items Fund related items
Distribution
Policies
Administration
Account (Policies)
- ----------------------------------- -------------------------------------- ---------------------------------------
</TABLE>
- --------
1Includes all filings and costs necessary to keep registrations current
and effective; including, without limitation, filing Forms N-SAR and Rule 24f-2
Notices as required by law.
2To the extent that documents prepared by LIFE COMPANY and AIM are
printed together, the printing cost shall be allocated in proportion to the
number of pages attributable to each document.
3When proxy materials are required for both Account and Fund matters,
the costs shall be split proportionately based upon those materials related
solely to the Account and those materials related solely to the Fund. The cost
with respect to joint materials shall be allocated evenly between LIFE COMPANY
and AIM.
<PAGE>
Exhibit 8(d)
CLASS B MASTER
PARTICIPATION AGREEMENT
AMONG
[INSURANCE COMPANY,]
[CONTRACTS DISTRIBUTOR,]
ALLIANCE CAPITAL MANAGEMENT L.P.
AND
ALLIANCE FUND DISTRIBUTORS, INC.
DATED AS OF
[ ]
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ___ day of ___________,
199__ ("Agreement"), by and among [Insurance Company], a ____________ life
insurance company ("Insurer") (on behalf of itself and its "Separate Account,"
defined below); [Contracts Distributor], a ____________ corporation ("Contracts
Distributor"), the principal underwriter with respect to the Contracts referred
to below; Alliance Capital Management L.P., a Delaware limited partnership
("Adviser"), the investment adviser of the Fund referred to below; and Alliance
Fund Distributors, Inc., a Delaware corporation ("Distributor"), the Fund's
principal underwriter (collectively, the "Parties"),
WITNESSETH THAT:
WHEREAS Insurer, the Distributor, and Alliance Variable Products Series
Fund, Inc. (the "Fund") desire that Class B shares of the Fund's [Name
Portfolios] (the "Portfolios"; reference herein to the "Fund" includes reference
to each Portfolio to the extent the context requires) be made available by
Distributor to serve as underlying investment media for [those combination fixed
and variable annuity contracts of Insurer that are the subject of Insurer's Form
N-4 registration statement filed with the Securities and Exchange Commission
(the "SEC"), File No. ____________ (the "Contracts"),] to be offered through
Contracts Distributor and other registered broker-dealer firms as agreed to by
Insurer and Contracts Distributor; and
WHEREAS the Contracts provide for the allocation of net amounts received by
Insurer to separate series (the "Divisions"; reference herein to the "Separate
Account" includes reference to each Division to the extent the context requires)
of the Separate Account for investment in Class B shares of corresponding
Portfolios of the Fund that are made available through the Separate Account to
act as underlying investment media,
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and Distributor will make Class B shares of the
Portfolios available to Insurer for this purpose at net asset value and with no
sales charges, all subject to the following provisions:
Section 1. Additional Portfolios
The Fund has and may, from time to time, add additional Portfolios, which
will become subject to this Agreement, if, upon the written consent of each of
the Parties hereto, they are made available as investment media for the
Contracts.
Section 2. Processing Transactions
2.1 Timely Pricing and Orders.
The Adviser or its designated agent will provide closing net asset value,
dividend and capital gain information for each Portfolio to Insurer at the close
of trading on each day (a "Business Day") on which (a) the New York Stock
Exchange is open for regular trading, (b) the Fund calculates the Portfolio's
net asset value and (c) Insurer is open for business. The Fund or its designated
agent will use its best efforts to provide this information by 6:00 p.m.,
Eastern time. Insurer will use these data to calculate unit values, which in
turn will be used to process transactions that receive that same Business Day's
Separate Account Division's unit values. Such Separate Account processing will
be done the same evening, and corresponding orders with respect to Fund shares
will be placed the morning of the following Business Day. Insurer will use its
best efforts to place such orders with the Fund by 10:00 a.m., Eastern time.
2.2 Timely Payments.
Insurer will transmit orders for purchases and redemptions of Fund shares
to Distributor, and will wire payment for net purchases to a custodial account
designated by the Fund on the day the order for Fund shares is placed, to the
extent practicable. Payment for net redemptions will be wired by the Fund to an
account designated by Insurer on the same day as the order is placed, to the
extent practicable, and in any event be made within six calendar days after the
date the order is placed in order to enable Insurer to pay redemption proceeds
within the time specified in Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act").
2.3 Redemption in Kind.
The Fund reserves the right to pay any portion of a redemption in kind of
portfolio securities, if the Fund's board of directors (the "Board of
Directors") determines that it would be detrimental to the best interests of
shareholders to make a redemption wholly in cash.
2.4 Applicable Price.
The Parties agree that Portfolio share purchase and redemption orders
resulting from Contract owner purchase payments, surrenders, partial
withdrawals, routine withdrawals of charges, or other transactions under
Contracts will be executed at the net asset values as determined as of the close
of regular trading on the New York Stock Exchange on the Business Day that
Insurer receives such orders and processes such transactions, which, Insurer
agrees shall occur not earlier than the Business Day prior to Distributor's
receipt of the corresponding orders for purchases and redemptions of Portfolio
shares. For the purposes of this section, Insurer shall be deemed to be the
agent of the Fund for receipt of such orders from holders or applicants of
contracts, and receipt by Insurer shall constitute receipt by the Fund. All
other purchases and redemptions of Portfolio shares by Insurer, will be effected
at the net asset values next computed after receipt by Distributor of the order
therefor, and such orders will be irrevocable. Insurer hereby elects to reinvest
all dividends and capital gains distributions in additional shares of the
corresponding Portfolio at the record-date net asset values until Insurer
otherwise notifies the Fund in writing, it being agreed by the Parties that the
record date and the payment date with respect to any dividend or distribution
will be the same Business Day.
Section 3. Costs and Expenses
3.1 General.
Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 Registration.
The Fund will bear the cost of its registering as a management investment
company under the 1940 Act and registering its shares under the Securities Act
of 1933, as amended (the "1933 Act"), and keeping such registrations current and
effective; including, without limitation, the preparation of and filing with the
SEC of Forms N-SAR and Rule 24f-2 Notices respecting the Fund and its shares and
payment of all applicable registration or filing fees with respect to any of the
foregoing. Insurer will bear the cost of registering the Separate Account as a
unit investment trust under the 1940 Act and registering units of interest under
the Contracts under the 1933 Act and keeping such registrations current and
effective; including, without limitation, the preparation and filing with the
SEC of Forms N-SAR and Rule 24f-2 Notices respecting the Separate Account and
its units of interest and payment of all applicable registration or filing fees
with respect to any of the foregoing.
3.3 Other (Non-Sales-Related) Expenses.
The Fund will bear the costs of preparing, filing with the SEC and setting
for printing the Fund's prospectus, statement of additional information and any
amendments or supplements thereto (collectively, the "Fund Prospectus"),
periodic reports to shareholders, Fund proxy material and other shareholder
communications and any related requests for voting instructions from
Participants (as defined below). Insurer will bear the costs of preparing,
filing with the SEC and setting for printing, the Separate Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Separate Account Prospectus"), any periodic reports to
owners, annuitants or participants under the Contracts (collectively,
"Participants"), and other Participant communications. The Fund and Insurer each
will bear the costs of printing in quantity and delivering to existing
Participants the documents as to which it bears the cost of preparation as set
forth above in this Section 3.3, it being understood that reasonable cost
allocations will be made in cases where any such Fund and Insurer documents are
printed or mailed on a combined or coordinated basis. If requested by Insurer,
the Fund will provide annual Prospectus text to Insurer on diskette for printing
and binding with the Separate Account Prospectus.
3.4 Other Sales-Related Expenses.
Expenses of distributing the Portfolio's shares and the Contracts will be
paid by Contracts Distributor and other parties, as they shall determine by
separate agreement.
3.5 Parties to Cooperate.
The Adviser, Insurer, Contracts Distributor, and Distributor each agrees to
cooperate with the others, as applicable, in arranging to print, mail and/or
deliver combined or coordinated prospectuses or other materials of the Fund and
Separate Account.
Section 4. Legal Compliance
4.1 Tax Laws.
(a) The Adviser will use its best efforts to qualify and to maintain
qualification of each Portfolio as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
the Adviser or Distributor will notify Insurer immediately upon having a
reasonable basis for believing that a Portfolio has ceased to so qualify or that
it might not so qualify in the future.
(b) Insurer represents that it believes, in good faith, that the Contracts
will be treated as [annuity] contracts under applicable provisions of the Code
and that it will make every effort to maintain such treatment. Insurer will
notify the Fund and Distributor immediately upon having a reasonable basis for
believing that any of the Contracts have ceased to be so treated or that they
might not be so treated in the future.
(c) The Fund will use its best efforts to comply and to maintain each
Portfolio's compliance with the diversification requirements set forth in
Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the
Code, and the Fund, Adviser or Distributor will notify Insurer immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so comply
or that a Portfolio might not so comply in the future.
(d) Insurer represents that it believes, in good faith, that the Separate
Account is a "segregated asset account" and that interests in the Separate
Account are offered exclusively through the purchase of or transfer into a
"variable contract," within the meaning of such terms under Section 817(h) of
the Code and the regulations thereunder. Insurer will make every effort to
continue to meet such definitional requirements, and it will notify the Fund and
Distributor immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the future.
(e) The Adviser will manage the Fund as a RIC in compliance with Subchapter
M of the Code and will use its best efforts to manage to be in compliance with
Section 817(h) of the Code and regulations thereunder. The Fund has adopted and
will maintain procedures for ensuring that the Fund is managed in compliance
with Subchapter M and Section 817(h) and regulations thereunder.
(f) Should the Distributor or Adviser become aware of a failure of Fund, or
any of its Portfolios, to be in compliance with Subchapter M of the Code or
Section 817(h) of the Code and regulations thereunder, they represent and agree
that they will immediately notify Insurer of such in writing.
4.2 Insurance and Certain Other Laws.
(a) The Adviser will use its best efforts to cause the Fund to comply with
any applicable state insurance laws or regulations, to the extent specifically
requested in writing by Insurer. If it cannot comply, it will so notify Insurer
in writing.
(b) Insurer represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of [____________] and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains the
Separate Account as a segregated asset account under [State Law], and (iii) the
Contracts comply in all material respects with all other applicable federal and
state laws and regulations.
(c) Insurer and Contracts Distributor represent and warrant that Contracts
Distributor is a business corporation duly organized, validly existing, and in
good standing under the laws of the State of [____________] and has full
corporate power, authority and legal right to execute, deliver, and perform its
duties and comply with its obligations under this Agreement.
(d) Distributor represents and warrants that it is a business corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has full corporate power, authority and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
(e) Distributor represents and warrants that the Fund is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(f) Adviser represents and warrants that it is a limited partnership, duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 Securities Laws.
(a) Insurer represents and warrants that (i) interests in the Separate
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act and the Contracts will be duly authorized for
issuance and sold in compliance with [State] law, (ii) the Separate Account is
and will remain registered under the 1940 Act to the extent required by the 1940
Act, (iii) the Separate Account does and will comply in all material respects
with the requirements of the 1940 Act and the rules thereunder, (iv) the
Separate Account's 1933 Act registration statement relating to the Contracts,
together with any amendments thereto, will, at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, and (v)
the Separate Account Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(b) The Adviser and Distributor represent and warrant that (i) Fund shares
sold pursuant to this Agreement will be registered under the 1933 Act to the
extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Maryland law, (ii) the Fund is and will remain registered under
the 1940 Act to the extent required by the 1940 Act, (iii) the Fund will amend
the registration statement for its shares under the 1933 Act and itself under
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares, (iv) the Fund does and will comply in all material
respects with the requirements of the 1940 Act and the rules thereunder, (v) the
Fund's 1933 Act registration statement, together with any amendments thereto,
will at all times comply in all material respects with the requirements of the
1933 Act and rules thereunder, and (vi) the Fund Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(c) The Fund will register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction only if and to the extent
reasonably deemed advisable by the Fund, Insurer or any other life insurance
company utilizing the Fund.
(d) Distributor and Contracts Distributor each represents and warrants that
it is registered as a broker-dealer with the SEC under the Securities Exchange
Act of 1934, as amended, and is a member in good standing of the National
Association of Securities Dealers Inc. (the "NASD").
4.4 Notice of Certain Proceedings and Other Circumstances.
(a) Distributor or the Fund shall immediately notify Insurer of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Fund's registration statement
under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Fund Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Fund's shares, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of Fund shares in any
state or jurisdiction, including, without limitation, any circumstances in which
(x) the Fund's shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (y) such law
precludes the use of such shares as an underlying investment medium of the
Contracts issued or to be issued by Insurer. Distributor and the Fund will make
every reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
(b) Insurer and Contracts Distributor shall immediately notify the Fund of
(i) the issuance by any court or regulatory body of any stop order, cease and
desist order or similar order with respect to the Separate Account's
registration statement under the 1933 Act relating to the Contracts or the
Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account Prospectus, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Contracts, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Insurer and Contracts Distributor will make every reasonable effort
to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
4.5 Insurer to Provide Documents.
Upon request, Insurer will provide the Fund and the Distributor one
complete copy of SEC registration statements, Separate Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and amendments to
any of the above, that relate to the Separate Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6 Fund to Provide Documents.
Upon request, the Fund will provide to Insurer one complete copy of SEC
registration statements, Fund Prospectuses, reports, any preliminary and final
proxy material, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
Section 5. Mixed and Shared Funding
5.1 General.
The Fund has obtained an order exempting it from certain provisions of the
1940 Act and rules thereunder so that the Fund is available for investment by
certain other entities, including, without limitation, separate accounts funding
variable life insurance policies and separate accounts of insurance companies
unaffiliated with Insurer ("Mixed and Shared Funding Order"). The Parties
recognize that the SEC has imposed terms and conditions for such orders that are
substantially identical to many of the provisions of this Section 5.
5.2 Disinterested Directors.
The Fund agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of Adviser or Distributor within the meaning of Section 2(a)(19) of the
1940 Act.
5.3 Monitoring for Material Irreconcilable Conflicts.
The Fund agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life insurance companies utilizing the
Fund, including the Separate Account. Insurer agrees to inform the Board of
Directors of the Fund of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder,
but the Parties recognize that such a conflict may arise for a variety of
reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax
or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract participants or by
participants of different life insurance companies utilizing the Fund; or
(f) a decision by a life insurance company utilizing the Fund to
disregard the voting instructions of participants.
Insurer will assist the Board of Directors in carrying out its
responsibilities by providing the Board of Directors with all information
reasonably necessary for the Board of Directors to consider any issue raised,
including information as to a decision by Insurer to disregard voting
instructions of Participants.
5.4 Conflict Remedies.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Insurer and the other life insurance
companies utilizing the Fund will, at their own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a
vote of all affected participants and, as appropriate, segregating the
assets of any particular group (e.g., annuity contract owners or
participants, life insurance contract owners or all contract owners and
participants of one or more life insurance companies utilizing the Fund)
that votes in favor of such segregation, or offering to the affected
contract owners or participants the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "Management Company" in Section 4(3) of the 1940 Act or a new
separate account that is operated as a Management Company.
(b) If the material irreconcilable conflict arises because of Insurer's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Insurer may be
required, at the Fund's election, to withdraw the Separate Account's investment
in the Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six months after the Fund
gives notice to Insurer that this provision is being implemented, and until such
withdrawal Distributor and the Fund shall continue to accept and implement
orders by Insurer for the purchase and redemption of shares of the Fund.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to Insurer conflicts with the majority
of other state regulators, then Insurer will withdraw the Separate Account's
investment in the Fund within six months after the Fund's Board of Directors
informs Insurer that it has determined that such decision has created a material
irreconcilable conflict, and until such withdrawal Distributor and Fund shall
continue to accept and implement orders by Insurer for the purchase and
redemption of shares of the Fund.
(d) Insurer agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Fund or Distributor be
required to establish a new funding medium for any Contracts. Insurer will not
be required by the terms hereof to establish a new funding medium for any
Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 Notice to Insurer.
The Fund will promptly make known in writing to Insurer the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 Information Requested by Board of Directors.
Insurer and the Fund will at least annually submit to the Board of
Directors of the Fund such reports, materials or data as the Board of Directors
may reasonably request so that the Board of Directors may fully carry out the
obligations imposed upon it by the provisions hereof, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying life insurance companies
utilizing the Fund of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Directors or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
5.7 Compliance with SEC Rules.
If, at any time during which the Fund is serving an investment medium for
variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2
are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to
mixed and shared funding, the Parties agree that they will comply with the terms
and conditions thereof and that the terms of this Section 5 shall be deemed
modified if and only to the extent required in order also to comply with the
terms and conditions of such exemptive relief that is afforded by any of said
rules that are applicable.
Section 6. Termination
6.1 Events of Termination.
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
(a) at the option of Insurer or Distributor upon at least six months
advance written notice to the other Parties, or
(b) at the option of the Fund upon (i) at least sixty days advance
written notice to the other parties, and (ii) approval by (x) a majority of
the disinterested Directors upon a finding that a continuation of this
Contract is contrary to the best interests of the Fund, or (y) a majority
vote of the shares of the affected Portfolio in the corresponding Division
of the Separate Account (pursuant to the procedures set forth in Section 11
of this Agreement for voting Trust shares in accordance with Participant
instructions).
(c) at the option of the Fund upon institution of formal proceedings
against Insurer or Contracts Distributor by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding Insurer's
obligations under this Agreement or related to the sale of the Contracts,
the operation of the Separate Account, or the purchase of the Fund shares,
if, in each case, the Fund reasonably determines that such proceedings, or
the facts on which such proceedings would be based, have a material
likelihood of imposing material adverse consequences on the Portfolio to be
terminated; or
(d) at the option of Insurer upon institution of formal proceedings
against the Fund, Adviser, or Distributor by the NASD, the SEC, or any
state insurance regulator or any other regulatory body regarding the
Fund's, Adviser's or Distributor's obligations under this Agreement or
related to the operation or management of the Fund or the purchase of Fund
shares, if, in each case, Insurer reasonably determines that such
proceedings, or the facts on which such proceedings would be based, have a
material likelihood of imposing material adverse consequences on Insurer,
Contracts Distributor or the Division corresponding to the Portfolio to be
terminated; or
(e) at the option of any Party in the event that (i) the Portfolio's
shares are not registered and, in all material respects, issued and sold in
accordance with any applicable state and federal law or (ii) such law
precludes the use of such shares as an underlying investment medium of the
Contracts issued or to be issued by Insurer; or
(f) upon termination of the corresponding Division's investment in the
Portfolio pursuant to Section 5 hereof; or
(g) at the option of Insurer if the Portfolio ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar
provisions; or
(h) at the option of Insurer if the Portfolio fails to comply with
Section 817(h) of the Code or with successor or similar provisions; or
(i) at the option of Insurer if Insurer reasonably believes that any
change in a Fund's investment adviser or investment practices will
materially increase the risks incurred by Insurer.
6.2 Funds to Remain Available.
Except (i) as necessary to implement Participant-initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Portfolio
as to which this Agreement has terminated, Insurer shall not (x) redeem Fund
shares attributable to the Contracts, or (y) prevent Participants from
allocating payments to or transferring amounts from a Portfolio that was
otherwise available under the Contracts, until, in either case, 90 calendar days
after Insurer shall have notified the Fund or Distributor of its intention to do
so.
6.3 Survival of Warranties and Indemnifications.
All warranties and indemnifications will survive the termination of this
Agreement.
6.4 Continuance of Agreement for Certain Purposes.
Notwithstanding any termination of this Agreement, the Distributor shall
continue to make available shares of the Portfolios pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (the "Existing Contracts"), except as otherwise
provided under Section 5 of this Agreement. Specifically, and without
limitation, the Distributor shall facilitate the sale and purchase of shares of
the Portfolios as necessary in order to process premium payments, surrenders and
other withdrawals, and transfers or reallocations of values under Existing
Contracts.
Section 7. Parties to Cooperate Respecting Termination
The other Parties hereto agree to cooperate with and give reasonable
assistance to Insurer in taking all necessary and appropriate steps for the
purpose of ensuring that the Separate Account owns no shares of a Portfolio
after the Final Termination Date with respect thereto.
Section 8. Assignment
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
Section 9. Class B Distribution Payments
From time to time during the term of this Agreement the Distributor may
make payments to the Contracts Distributor pursuant to a distribution plan
adopted by the Fund with respect to the Class B shares of the Portfolios
pursuant to Rule 12b-1 under the 1940 Act (the "Rule 12b-1 Plan) in
consideration of the Contracts Distributor's furnishing distribution services
relating to the Class B shares of the Portfolios and providing administrative,
accounting and other services, including personal service and/or the maintenance
of Participant accounts, with respect to such shares. The Distributor has no
obligation to make any such payments, and the Contracts Distributor waives any
such payment, until the Distributor receives monies therefor from the Fund. Any
such payments made pursuant to this Section 9 shall be subject to the following
terms and conditions: (a) Any such payments shall be in such amounts as the
Distributor may from time to time advise the Contracts Distributor in writing
but in any event not in excess of the amounts permitted by the Rule 12b-1 Plan.
Such payments may include a service fee in the amount of .25 of 1% per annum of
the average daily net assets of the Fund attributable to the Class B shares of a
Portfolio held by clients of the Contracts Distributor. Any such service fee
shall be paid solely for personal service and/or the maintenance of Participant
accounts. (b) The provisions of this Section 9 relate to a plan adopted by the
Fund pursuant to Rule 12b-1. In accordance with Rule 12b-1, any person
authorized to direct the disposition of monies paid or payable by the Fund
pursuant to this Section 9 shall provide the Fund's Board of Directors, and the
Directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made. (c) The
provisions of this Section 9 shall remain in effect for not more than a year and
thereafter for successive annual periods only so long as such continuance is
specifically approved at least annually in conformity with Rule 12b-1 and the
1940 Act. The provisions of this Section 9 shall automatically terminate in the
event of the assignment (as defined by the 1940 Act) of this Agreement, in the
event the Rule 12b-1 Plan terminates or is not continued or in the event this
Agreement terminates or ceases to remain in effect. In addition, the provisions
of this Section 9 may be terminated at any time, without penalty, by either the
Distributor or the Contracts Distributor with respect to any Portfolio on not
more than 60 days' nor less than 30 days' written notice delivered or mailed by
registered mail, postage prepaid, to the other party.
Section 10. Notices
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
Insurer
[address]
[Contracts Distributor]
[address]
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York NY 10105
Attn.: Edmund P. Bergan
FAX: (212) 969-2290
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York NY 10105
Attn: Edmund P. Bergan
FAX: (212) 969-2290
Section 11. Voting Procedures
Subject to the cost allocation procedures set forth in Section 3 hereof,
Insurer will distribute all proxy material furnished by the Fund to Participants
and will vote Fund shares in accordance with instructions received from
Participants. Insurer will vote Fund shares that are (a) not attributable to
Participants or (b) attributable to Participants, but for which no instructions
have been received, in the same proportion as Fund shares for which said
instructions have been received from Participants. Insurer agrees that it will
disregard Participant voting instructions only to the extent it would be
permitted to do so pursuant to Rule 6e-3 (T)(b)(15)(iii) under the 1940 Act if
the Contracts were variable life insurance policies subject to that rule. Other
participating life insurance companies utilizing the Fund will be responsible
for calculating voting privileges in a manner consistent with that of Insurer,
as prescribed by this Section 11.
Section 12. Foreign Tax Credits
The Adviser agrees to consult in advance with Insurer concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to the Fund's shareholders.
Section 13. Indemnification
13.1 Of Fund, Distributor and Adviser by Insurer.
(a) Except to the extent provided in Sections 13.1(b) and 13.1(c), below,
Insurer agrees to indemnify and hold harmless the Fund, Distributor and Adviser,
each of their directors and officers, and each person, if any, who controls the
Fund, Distributor or Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 13. 1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Insurer) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
actions are related to the sale, acquisition, or holding of the Fund's shares
and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate
Account's 1933 Act registration statement, the Separate Account
Prospectus, the Contracts or, to the extent prepared by Insurer
or Contracts Distributor, sales literature or advertising for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to Insurer or
Contracts Distributor by or on behalf of the Fund, Distributor or
Adviser for use in the Separate Account's 1933 Act registration
statement, the Separate Account Prospectus, the Contracts, or
sales literature or advertising (or any amendment or supplement
to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in the Fund's 1933 Act registration statement, Fund
Prospectus, sales literature or advertising of the Fund, or any
amendment or supplement to any of the foregoing, not supplied for
use therein by or on behalf of Insurer or Contracts Distributor)
or the negligent, illegal or fraudulent conduct of Insurer or
Contracts Distributor or persons under their control (including,
without limitation, their employees and "Associated Persons," as
that term is defined in paragraph (m) of Article I of the NASD's
By-Laws), in connection with the sale or distribution of the
Contracts or Fund shares; or
(iii)arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund's
1933 Act registration statement, Fund Prospectus, sales
literature or advertising of the Fund, or any amendment or
supplement to any of the foregoing, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund,
Adviser or Distributor by or on behalf of Insurer or Contracts
Distributor for use in the Fund's 1933 Act registration
statement, Fund Prospectus, sales literature or advertising of
the Fund, or any amendment or supplement to any of the foregoing;
or
(iv) arise as a result of any failure by Insurer or Contracts
Distributor to perform the obligations, provide the services and
furnish the materials required of them under the terms of this
Agreement.
(b) Insurer shall not be liable under this Section 13.1 with respect to any
losses, claims, damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of that Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to Distributor or to the Fund.
(c) Insurer shall not be liable under this Section 13.1 with respect to any
action against an Indemnified Party unless the Fund, Distributor or Adviser
shall have notified Insurer in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Insurer of any such action shall not relieve
Insurer from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 13. 1. In
case any such action is brought against an Indemnified Party, Insurer shall be
entitled to participate, at its own expense, in the defense of such action.
Insurer also shall be entitled to assume the defense thereof, with counsel
approved by the Indemnified Party named in the action, which approval shall not
be unreasonably withheld. After notice from Insurer to such Indemnified Party of
Insurer's election to assume the defense thereof, the Indemnified Party will
cooperate fully with Insurer and shall bear the fees and expenses of any
additional counsel retained by it, and Insurer will not be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
13.2 Indemnification of Insurer and Contracts Distributor by Adviser.
(a) Except to the extent provided in Sections 13.2(d) and 13.2(e), below,
Adviser agrees to indemnify and hold harmless Insurer and Contracts Distributor,
each of their directors and officers, and each person, if any, who controls
Insurer or Contracts Distributor within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section 13.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Adviser) or actions in respect thereof
(including, to the extent reasonable, legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions are
related to the sale, acquisition, or holding of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund's
1933 Act registration statement, Fund Prospectus, sales
literature or advertising of the Fund or, to the extent not
prepared by Insurer or Contracts Distributor, sales literature or
advertising for the Contracts (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
Distributor, Adviser or the Fund by or on behalf of Insurer or
Contracts Distributor for use in the Fund's 1933 Act registration
statement, Fund Prospectus, or in sales literature or advertising
(or any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in the Separate Account's 1933 Act registration
statement, Separate Account Prospectus, sales literature or
advertising for the Contracts, or any amendment or supplement to
any of the foregoing, not supplied for use therein by or on
behalf of Distributor, Adviser, or the Fund) or the negligent,
illegal or fraudulent conduct of the Fund, Distributor, Adviser
or persons under their control (including, without limitation,
their employees and Associated Persons), in connection with the
sale or distribution of the Contracts or Fund shares; or
(iii)arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate
Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with
information furnished to Insurer or Contracts Distributor by or
on behalf of the Fund, Distributor or Adviser for use in the
Separate Account's 1933 Act registration statement, Separate
Account Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to perform the obligations, provide the services and
furnish the materials required of them under the terms of this
Agreement;
(b) Except to the extent provided in Sections 13.2(d) and 13.2(e) hereof,
Adviser agrees to indemnify and hold harmless the Indemnified Parties from and
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement thereof with, except as set forth in Section 13.2(c) below, the
written consent of Adviser) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the Indemnified Parties
may become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Portfolio
to operate as a regulated investment company in compliance with (i) Subchapter M
of the Code and regulations thereunder and (ii) Section 817(h) of the Code and
regulations thereunder (except to the extent that such failure is caused by
Insurer), including, without limitation, any income taxes and related penalties,
rescission charges, liability under state law to Contract owners or Participants
asserting liability against Insurer or Contracts Distributor pursuant to the
Contracts, the costs of any ruling and closing agreement or other settlement
with the Internal Revenue Service, and the cost of any substitution by Insurer
of shares of another investment company or portfolio for those of any adversely
affected Portfolio as a funding medium for the Separate Account that Insurer
deems necessary or appropriate as a result of the noncompliance.
(c) The written consent of Adviser referred to in Section 13.2(b) above
shall not be required with respect to amounts paid in connection with any ruling
and closing agreement or other settlement with the Internal Revenue Service.
(d) Adviser shall not be liable under this Section 13.2 with respect to any
losses, claims; damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of such Indemnified Party's reckless disregard of its obligations and
duties under this Agreement or to Insurer, Contracts Distributor or the Separate
Account.
(e) Adviser shall not be liable under this Section 13.2 with respect to any
action against an Indemnified Party unless Insurer or Contracts Distributor
shall have notified Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Adviser of any such action shall not relieve
Adviser from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 13.2. In
case any such action is brought against an Indemnified Party, Adviser will be
entitled to participate, at its own expense, in the defense of such action.
Adviser also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the Internal Revenue Service),
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from Adviser to such
Indemnified Party of Adviser's election to assume the defense thereof, the
Indemnified Party will cooperate fully with Adviser and shall bear the fees and
expenses of any additional counsel retained by it, and Adviser will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
13.3 Effect of Notice.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Section 13.1(c) or 13.2(e) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
Section 13. Applicable Law
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with New York law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
Section 15. Severability
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
Section 17. Restrictions on Sales of Fund Shares
Insurer agrees that the Fund will be permitted (subject to the other terms
of this Agreement) to make its shares available to separate accounts of other
life insurance companies.
Section 18. Headings
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
[INSURANCE COMPANY,]
By:
Name:
Title:
[CONTRACTS DISTRIBUTOR,]
By:
Name:
Title:
ALLIANCE CAPITAL MANAGEMENT LP
By: Alliance Capital Management Corporation,
its General Partner
By:
Name:
Title:
ALLIANCE FUND DISTRIBUTORS, INC.
By:
Name:
Title:
<PAGE>
Exhibit 8(e)
PARTICIPATION AGREEMENT
Among
PUTNAM VARIABLE TRUST
PUTNAM MUTUAL FUNDS CORP.
and
NORTHBROOK LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this ____ day of January,
2000, among Northbrook Life Insurance Company (the "Company"), an Illinois
corporation, on its own behalf and on behalf of each separate account of the
Company set forth on Schedule A hereto, as such Schedule may be amended from
time to time (each such account hereinafter referred to as the "Account"),
PUTNAM VARIABLE TRUST (the "Trust"), a Massachusetts business trust, and PUTNAM
MUTUAL FUNDS CORP. (the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Trust is an open-end diversified management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into Participation Agreements with the Trust and
the Underwriter (the "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Trust has obtained an order from the Securities and
Exchange Commission ("SEC"), dated December 29, 1993 (File No. 812-8612),
granting the variable annuity and variable life insurance separate accounts
participating in the Trust exemptions from the provisions of sections 9(a),
13(a), 15(a) and 15(b) of the Investment Company Act of 1940, as amended (the
"1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Trust to be sold to and held by variable
annuity and variable life insurance separate accounts of the Participating
Insurance Companies (the "Shared Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the 1940 Act and the sale of its shares is registered under the
Securities Act of 1933, as amended (the " 1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
life and/or variable annuity contracts under the 1933 Act and any applicable
state securities and insurance law; and
WHEREAS, each Account is a duly organized, validly existing separate
account, established by resolution of the Board of Directors of the Company, on
the date shown for such Account on Schedule A hereto, to set aside and invest
assets attributable to one or more variable insurance contracts (the
"Contracts"); and
WHEREAS, the Company has registered or will register the Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in certain Funds
("Authorized Funds") on behalf of each Account to fund certain of the Contracts
and the Underwriter is authorized to sell such shares to unit investment trusts
such as each Account at net asset value;
NOW, THEREFORE, in consideration of the promises herein, the Company,
the Trust and the Underwriter agree as follows:
ARTICLE 1. Sale of Trust Shares
1.1 The Underwriter agrees, subject to the Trust's rights under Section
1.2 and otherwise under this Agreement, to sell to the Company those Trust
shares representing interests in Authorized Funds which each Account orders,
executing such orders on a daily basis at the net asset value next computed
after receipt by the Trust or its designee of the order for the shares of the
Trust. For purposes of this Section 1. 1, the Company shall be the designee of
the Trust for receipt of such orders from each Account and receipt by such
designee shall constitute receipt by the Trust; provided that the Trust
receives notice of such order by 8:30 a.m. Eastern time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Trust calculates its net asset
value pursuant to the rules of the SEC. The initial Authorized Funds are set
forth in Schedule B, as such schedule is amended from time to time.
1.2 The Trust agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall use reasonable efforts to
calculate such net asset value on each day on which the New York Stock Exchange
is open for trading. Notwithstanding the foregoing, the Trustees of the Trust
(the "Trustees") may refuse to sell shares of any Fund to the Company or any
other person, or suspend or terminate the offering of shares of any Fund if
such action is required by law or by regulatory authorities having jurisdiction
over the Trust or if the Trustees determine, in the exercise of their fiduciary
responsibilities, that to do so would be in the best interests of shareholders.
1.3 The Trust and the Underwriter agree that shares of the Trust will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Fund will be sold to the general public.
1.4 The Trust shall redeem its shares in accordance with the terms of
its then current prospectus. For purposes of this Section 1.4, the Company shall
be the designee of the Trust for receipt of requests for redemption from each
Account and receipt by such designee shall constitute receipt by the Trust;
provided that the Trust receives notice of such request for redemption by 8:30
a.m., Eastern time, on the next following Business Day.
1.5 The Company shall purchase and redeem the shares of Authorized Funds
offered by the then current prospectus of the Trust in accordance with the
provisions of such prospectus.
1.6 The Company shall pay for Trust shares on the next Business Day
after an order to purchase Trust shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire.
1.7 Issuance and transfer of the Trust's shares will be by book entry
only. Share certificates will not be issued to the Company or any Account.
Shares ordered from the Trust will be recorded as instructed by the Company to
the Underwriter in an appropriate title for each Account or the appropriate
sub-account of each Account.
1.8 The Underwriter shall furnish prompt notice (by wire or telephone,
followed by written confirmation) to the Company of the declaration of any
income, dividends or capital gain distributions payable on the Trust's shares.
The Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Fund shares in additional shares of that
Fund. The Company reserves the right to revoke this election and therefore to
receive all such income dividends and capital gain distributions in cash. The
Underwriter shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9 The Underwriter shall make the net asset value per share for each
Fund available to the Company on a daily basis as soon as reasonably practical
after the Trust calculates its net asset value per share and each of the Trust
and the Underwriter shall use its best efforts to make such net asset value per
share available by 7:00 p.m. Eastern time.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that
(a) at all times during the term of this Agreement the Contracts are or
will be registered under the 1933 Act; the Contracts will be issued and sold in
compliance in all material respects with all applicable laws and the sale of the
Contracts shall comply in all material respects with state insurance suitability
laws and regulations. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established each Account prior to any issuance
or sale thereof as a separate account under applicable law and has registered
or, prior to any issuance or sale of the Contracts, will register each Account
as a unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts; and
(b) the Contracts are currently treated as endowment, annuity or life
insurance contracts, under applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and that it will make every effort to maintain
such treatment and that it will notify the Trust and the Underwriter immediately
upon having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
2.2 The Trust represents and warrants that
(a) it is lawfully organized and validly existing under the laws of
the Commonwealth of Massachusetts and that it does and will comply in all
material respects with the 1940 Act.
(b) it is currently qualified as a Regulated Investment Company under
Subchapter M of the Code, and that it will use its best efforts to maintain such
qualification (under Subchapter M or any successor provision) and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future; and
(c) at all times during the term of this Agreement Trust shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold by the Trust to the Company in compliance with
all applicable laws, subject to the terms of Section 2.4 below, and the Trust is
and shall remain registered under the 1940 Act. The Trust shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Trust shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Trust or the Underwriter in connection with their sale by the Trust to
the Company and only as required by Section 2.4;
2.3 The Underwriter represents and warrants that
(a) it is a member in good standing of the
NASD;
(b) is registered as a broker-dealer with the
SEC; and
(c) it will sell and distribute the Trust shares in
accordance with all applicable securities laws, including without
limitation, the 1933 Act, the 1934 Act and the 1940 Act.
2.4 Notwithstanding any other provision of this Agreement, the Trust
shall be responsible for the registration and qualification of its shares and of
the Trust itself under the laws of any jurisdiction only in connection with the
sales of shares directly to the Company through the Underwriter. The Trust shall
not be responsible, and the Company shall take full responsibility, for
determining any jurisdiction in which any qualification or registration of Trust
shares or the Trust by the Trust may be required in connection with the sale of
the Contracts or the indirect interest of any Contract in any shares of the
Trust and advising the Trust thereof at such time and in such manner as is
necessary to permit the Trust to comply.
2.5 The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 The Trust shall provide such documentation (including a camera-ready
copy of its prospectus) and other assistance as is reasonably necessary in order
for the Company once each year (or more frequently if the prospectus for the
Trust is amended) to have the prospectus for the Contracts and the Trust's
prospectus printed together in one or more documents. The cost of printing
prospectuses for the Contracts and the Trust will be at the Company's expense.
3.2 The Trust's Prospectus shall state that the Statement of
Additional
Information for the Trust is available from the Underwriter or its designee (or
in the Trust's discretion, the Prospectus shall state that such Statement is
available from the Trust), and the Underwriter (or the Trust), at its expense,
shall print and provide such Statement free of charge to the Company and free of
charge to any owner of a Contract or prospective owner who requests such
Statement.
3.3 The Trust, at its expense, shall provide the Company with copies of
its reports to shareholders, proxy material and other communications to
shareholders in such quantity as the Company shall reasonably require for
distribution to the Contract owners, such distribution shall be at the expense
of the Company.
3.4 The Company shall vote all Trust shares as required by law and the
Shared Funding Exemptive Order. The Company reserves the right to vote Trust
shares held in any separate account in its own right, to the extent permitted by
law and the Shared Funding Exemptive Order. The Company shall be responsible for
assuring that each of its separate accounts participating in the Trust
calculates voting privileges in a manner consistent with all legal requirements
and the Shared Funding Exemptive Order.
3.5 The Trust will comply with all applicable provisions of
the 1940 Act
requiring voting by shareholders, and in particular the Trust will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Trust is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Trust will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 Without limiting the scope or effect of Section 4.2 hereof, the
Company shall furnish, or shall cause to be furnished, to the Underwriter each
piece of sales literature or other promotional material (as defined hereafter)
in which the Trust, its investment adviser or the Underwriter is named at least
10 days prior to its use. No such material shall be used if the Underwriter
objects to such use within five Business Days after receipt of such material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Trust shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in annual or semi-annual reports or proxy
statements for the Trust, or in sales literature or other promotional material
approved by the Trust or its designee or by the Underwriter, except with the
written permission of the Trust or the Underwriter or the designee of either or
as is required by law.
4.3 The Underwriter or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Underwriter in which the Company
and/or its separate account(s) is named at least 10 days prior to its use. No
such material shall be used if the Company or its designee objects to such use
within five Business Days after receipt of such material.
4.4 Neither the Trust nor the Underwriter shall give any information or
make any representations on behalf of the Company concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the written permission of the Company or as is required by
law.
4.5 For purposes of this Article IV, the phrase "sales
literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e. any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all registered representatives.
ARTICLE V. Fees and Expenses
5.1 Except as provided in Article VI, the Trust and Underwriter shall
pay no fee or other compensation to the Company under this agreement.
5.2 All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall bear the expenses for the
cost of registration and qualification of the Trust's shares, preparation and
filing of the Trust's prospectus and registration statement, proxy materials and
reports, setting the prospectus and shareholder reports in type, setting in type
and printing the proxy materials and the preparation of all statements and
notices required by any federal or state law, in each case as may reasonably be
necessary for the performance by it of its obligations under this Agreement.
5.3 The Company shall bear the expenses of printing and distributing the
Trust's prospectus and of distributing the Trust's reports and proxy materials
to Contract holders.
Article VI. Service Fees
6.1 The Underwriter shall pay the Company a service fee (the "Service
Fee") on shares of the Funds held in the Accounts at the annual rates specified
in Schedule B (excluding any accounts for the Company's own corporate retirement
plans), subject to Section 6.2 hereof.
6.2 The Company understands and agrees that all Service Fee payments are
subject to the limitations contained in each Fund's Distribution Plan, which may
be varied or discontinued at any time, and understands and agrees that it will
cease to receive such Service Fee payments with respect to a Fund if the Fund
ceases to pay fees to the Underwriter pursuant to its Distribution Plan.
6.3 (a) The Company's failure to provide the services described in
Section 6.4 will render it ineligible to receive Service Fees; and
(b) the Underwriter may, without the consent of the Company,
amend this Article VI to change the amount of Service Fees or the terms on which
Service Fees are paid or to terminate further payments of Service Fees upon
written notice to the Company.
6.4 The Company will provide the following services to the Contract
Owners purchasing Fund shares:
(i) Maintaining regular contact with Contract owners and
assisting in answering inquiries concerning the Funds;
(ii) Assisting in the process of printing and distributing shareholder
reports, prospectuses and other sale and service literature provided by the
Underwriter;
(iii) Assisting the Underwriter and its affiliates in the
establishment and maintenance of Contract owner and shareholder
accounts and records;
(iv) Assisting Contract owners in effecting administrative
changes, such as exchanging shares in or out of the Funds;
(v) Assisting in processing purchase and redemption
transactions; and
(vi) Providing any other information or services as the Contract owners
or the Underwriter may reasonably request.
The Company will support the Underwriter's marketing and servicing
efforts by granting reasonable requests for visits to the Company's offices by
representatives of the Underwriter.
6.5 The Company's performance under the service requirement set forth in
this Agreement will be evaluated from time to time by the Underwriter's
monitoring of redemption levels of Fund shares held in any Account and by such
other methods as the Underwriter deems appropriate.
ARTICLE VII. Diversification
7.1 The Trust shall cause each Authorized Fund to maintain a
diversified pool of investments that would, if such Fund were a
segregated asset account, satisfy the diversification provisions of
Treas. Reg.ss.1.817-5(b)(1) or (2).
7.2 The Trust shall annually send the Company a certificate, in the form
mutually agreed, certifying as to its compliance with Section 7.1.
ARTICLE VIII. Potential Conflicts
8.1 The Trustees will monitor the Trust for the existence of
any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Trust. A material irreconcilable conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities law or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Fund are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trust shall promptly inform the Company if the Trustees determine that a
material irreconcilable conflict exists and the implications thereof.
8.2 The Company will report any potential or existing conflicts of which
it is aware to the Trustees. The Company will assist the Trustees in carrying
out their responsibilities under the Shared Funding Exemptive Order, by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Trustees whenever Contract owner voting
instructions are disregarded.
8.3 If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists, the
Company shall to the extent reasonably practicable (as determined by a majority
of the disinterested Trustees), take, at the Company's expense, whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, up to
and including: (1) withdrawing the assets allocable to some or all of the
separate accounts from the Trust or any Fund and reinvesting such assets in a
different investment medium, including (but not limited to) another Fund of the
Trust, or submitting the question whether such segregation should be implemented
to a vote of all affected contract owners and, as appropriate, segregating the
assets of any appropriate group (i.e., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account.
8.4 If a material irreconcilable conflict arises because of a
decision by the
Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in one or more Authorized Funds of the Trust and terminate this
Agreement with respect to such Account; provided, however, that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested Trustees. No charge or penalty shall be imposed as a result of
such withdrawal. Any such withdrawal and termination must take place within six
(6) months after the Trust gives written notice that this provision is being
implemented, and until the end of that six month period the Underwriter and
Trust shall, to the extent permitted by law and any exemptive relief previously
granted to the Trust, continue to accept and implement orders by the Company for
the purchase (or redemption) of shares of the Trust.
8.5 If a material irreconcilable conflict arises because of a
particular state
insurance regulator's decision applicable to the Company to disregard Contract
owner voting instructions and that decision represents a minority position that
would preclude a majority vote, then the Company may be required, at the Trust's
direction, to withdraw the affected Account's investment in one or more
Authorized Funds of the Trust; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees. Any such withdrawal and termination must take place within six (6)
months after the Trust gives written notice that this provision is being
implemented, unless a shorter period is required by law, and until the end of
the foregoing six month period (or such shorter period if required by law), the
Underwriter and Trust shall, to the extent permitted by law and any exemptive
relief previously granted to the Trust, continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Trust. No
charge or penalty will be imposed as a result of such withdrawal.
8.6 For purposes of Sections 8.3 through 8.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict. Neither the
Trust nor the Underwriter shall be required to establish a new funding medium
for the Contracts, nor shall the Company be required to do so, if an offer to do
so has been declined by vote of a majority of Contract owners materially
adversely affected by the material irreconcilable conflict. In the event that
the Trustees determine that any proposed action does not adequately remedy any
material irreconcilable conflict, then the Company will withdraw the Account's
investment in one or more Authorized Funds of the Trust and terminate this
Agreement within six (6) months (or such shorter period as may be required by
law or any exemptive relief previously granted to the Trust) after the Trustees
inform the Company in writing of the foregoing determination; provided, however,
that such withdrawal and termination shall be limited to the extent required by
any such material irreconcilable conflict as determined by a majority of the
disinterested Trustees. No charge or penalty will be imposed as a result of such
withdrawal.
8.7 The responsibility to take remedial action in the event
of the Trustees'
determination of a material irreconcilable conflict and to bear the cost of such
remedial action shall be the obligation of the Company, and the obligation of
the Company set forth in this Article VIII shall be carried out with a view only
to the interests of Contract owners.
8.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 8.1, 8.2, 8.3, 8.4 and 8.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
8.9 The Company has reviewed the Shared Funding Exemption
Order and
hereby assumes all obligations referred to therein which are required,
including, without limitation, the obligation to provide reports, material or
data as the Trustees may request as conditions to such Order, to be assumed or
undertaken by the Company.
ARTICLE IX. Indemnification
9.1. Indemnification by the Company
9.1 (a). The Company shall indemnify and hold harmless the Trust and the
Underwriter and each of the Trustees, directors of the Underwriter, officers,
employees or agents of the Trust or the Underwriter and each person, if any, who
controls the Trust or the Underwriter within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
9.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company which consent may not
be unreasonably withheld) or litigation (including reasonable legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation or at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Trust's shares or the
Contracts or the performance by the parties of their obligations hereunder and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a Registration
Statement, Prospectus or Statement of Additional Information for the
Contracts or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Company by or on behalf of the Trust for use in the Registration
Statement, Prospectus or Statement of Additional Information for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or as a result of written statements or
representations (other than statements or representations contained in
the Trust's Registration Statement or Prospectus, or in sales literature
for Trust shares not supplied by the Company, or persons under its
control) or wrongful conduct of the Company or persons under its
control, with respect to the sale or distribution of the Contracts or
Trust shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, Prospectus, or
sales literature of the Trust or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Trust or the Underwriter by
or on behalf of the Company; or
(iv) arise out of or result from any breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or result
from any other breach of this Agreement by the Company, as limited by
and in accordance with the provisions of Sections 9.1(b) and 9.1(c)
hereof.
9.1 (b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party to the extent such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Trust, whichever is applicable.
9.1 (c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), on the basis of which the Indemnified
Party should reasonably know of the availability of indemnity hereunder in
respect of such claim but failure to notify the Company of any such claim shall
not relieve the Company from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the Indemnified Party
named in the action. After notice from the Company to such Indemnified Party of
the Company's election to assume the defense thereof the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
9.1 (d) The Underwriter shall promptly notify the Company of the
commencement of any litigation or proceedings against the Trust or the
Underwriter in connection with the issuance or sale of the Trust Shares or the
Contracts or the operation of the Trust.
9. 1 (e) The provisions of this Section 9.1 shall survive any
termination of this Agreement.
9.2 Indemnification by the Underwriter
9.2 (a) The Underwriter shall indemnify and hold harmless the Company
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act and any director, officer, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 9.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter which consent may not
be unreasonably withheld) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
regulation or at common law, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Trust's shares or the Contracts or the
performance by the parties of their obligations hereunder and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the sales literature
of the Trust prepared by or approved by the Trust or Underwriter (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement
or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter or
Trust by or on behalf of the Company for use in sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of written statements or
representations (other than statements or representations contained in
the Registration Statement, Prospectus, Statement of Additional
Information or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) of the Underwriter or persons
under its control, with respect to the sale or distribution of the
Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, Prospectus,
Statement of Additional Information or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of
the Underwriter; or
(iv) arise out of or result from any breach of any representation and/or
warranty made by the Underwriter in this Agreement or arise out of or
result from any other breach of this Agreement by the Underwriter or
result from a breach of Article VII; as limited by and in accordance
with the provisions of Sections 9.2(b) and 9.2(c) hereof.
9.2 (b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party for willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to each Company or the Account, whichever is
applicable.
9.2 (c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent) on the basis of which the Indemnified
Party should reasonably know of the availability of indemnity hereunder in
respect of such claim, but failure to notify the Underwriter of any such claim
shall not relieve the Underwriter from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against
the Indemnified Parties, the Underwriter will be entitled to participate, at its
own expense, in the defense thereof. The Underwriter also shall be entitled to
assume the defense thereof, with counsel satisfactory to the Indemnified Party
named in the action. After notice from the Underwriter to such Indemnified Party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof other
than reasonable costs of investigation.
9.2 (d) The Company shall promptly notify the Underwriter of the Trust
of the commencement of any litigation or proceedings against it or any of its
officers or directors, in connection with the issuance or sale of the Contracts
or the operation of each Account.
9.2 (e) The provisions of this Section 9.2 shall survive any termination
of this Agreement.
9.3 Indemnification by the Trust
9.3 (a) The Trust shall indemnify and hold harmless the Company, and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act and any director, officer, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 9.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Trust which consent may not be
unreasonably withheld) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
operations of the Trust and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in a Registration
Statement, Prospectus and Statement of Additional Information of the
Trust (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Underwriter or Trust by or on behalf of the Company for use in the
Registration Statement, Prospectus, or Statement of Additional
Information for the Trust (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Trust shares;
or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Trust (including Section 7.1 hereof), as limited by and in
accordance with the provisions of Sections 9.3(b) and 9.3(c) hereof.
9.3 (b) The Trust shall not be liable under the indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party for willful misfeasance, bad
faith, or gross negligence or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to the Company, the
Trust, the Underwriter or each Account, whichever is applicable.
9.3 (c) The Trust shall not be liable under this indemnification
provision with respect to any claim made against any Indemnified Party unless
such Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent) on the basis of which the Indemnified
Party should reasonably know of the availability of indemnity hereunder in
respect of such claim, but failure to notify the Trust of any such claim shall
not relieve the Trust from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Trust will be entitled to participate, at its own
expense, in the defense thereof. The Trust also shall be entitled to assume the
defense thereof, with counsel reasonably satisfactory to the Indemnified Party
named in the action. After notice from the Trust to such Indemnified Party of
the Trust's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Trust will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
9.3 (d) The Company agrees promptly to notify the Trust of the
commencement of any litigation or proceedings against it or any of its officers
or directors, in connection with this Agreement, the issuance or sale of the
Contracts or the sale or acquisition of shares of the Trust.
9.3 (e) The provisions of this Section 9.3 shall survive any termination
of this Agreement.
ARTICLE X. Applicable Law
10.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
10.2 This Agreement shall be subject to the provisions of the
1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE XI. Termination
11.1.This Agreement shall terminate:
(a) at the option of the any party upon 180 days prior
written notice; or
(b) with respect to any Account, upon requisite vote of the Contract
owners having an interest in such Account (or any subaccount) to substitute the
shares of another investment company for the corresponding Fund shares of the
Trust in accordance with the terms of the Contracts for which those Fund shares
had been selected to serve as the underlying investment media. The Company will
give 90 days' prior written notice to the Trust of the date of any proposed vote
to replace the Trust's shares; or
(c) with respect to any Authorized Fund, upon 60 days advance written
notice from the Underwriter to the Company, upon a decision by the Underwriter
to cease offering shares of the Fund for sale.
11.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1 (a) may be exercised for any
reason or for no reason.
11.3 No termination of this Agreement shall be effective
unless and until the
party terminating this Agreement gives prior written notice to all other parties
to this Agreement of its intent to terminate, which notice shall set forth the
basis for such termination. Such prior written notice shall be given in advance
of the effective date of termination as required by this Article XI.
11.4 Notwithstanding any termination of this Agreement, subject to
Section 1.2 of this Agreement, the Trust and the Underwriter shall, at the
option of the Company, continue to make available additional shares of the Trust
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, subject
to Section 1.2 of this Agreement, the owners of the Existing Contracts shall be
permitted to reallocate investments in the Trust, redeem investments in the
Trust and/or invest in the Trust upon the making of additional purchase payments
under the Existing Contracts. The parties agree that this Section 11.4 shall not
apply to any termination under Article VIII and the effect of such Article VIII
termination shall be governed by Article VIII of this Agreement.
11.5 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in either Account) except (i) as necessary to implement Contract owner initiated
transactions, or (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally required Redemption"). Upon request, the Company will promptly
furnish to the Trust and the Underwriter an opinion of counsel for the Company,
reasonably satisfactory to the Trust, to the effect that any redemption pursuant
to clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Contracts, subject to Section 1.2
of this Agreement, the Company shall not prevent Contract owners from allocating
payments to an Authorized Fund that was otherwise available under the Contracts
without first giving the Trust or the Underwriter 90 days notice of its
intention to do.
ARTICLE XII. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
One Post Office Square
Boston, MA 02109
Attention: John R. Verani
If to the Underwriter:
One Post Office Square
Boston, MA 02109
Attention: General Counsel
If to the Company:
Northbrook Life Insurance Company
3100 Sanders Road, Suite J5D
Northbrook, IL 60062
Attention: Michael J. Velotta, Esq.
ARTICLE XIII. Miscellaneous
13.1 A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of the Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the obligations
of or arising out of this instrument, including without limitation Article VII,
are not binding upon any of the Trustees or shareholders individually but
binding only upon the assets and property of the Trust.
13.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.4 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.5 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall pertmit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.6 The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.7 Notwithstanding any other provision of this Agreement, the
obligations of the Trust and the Underwriter are several and, without limiting
in any way the generality of the foregoing, neither such party shall have any
liability for any action or failure to act by the other party, or any person
acting on such other party's behalf.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
NORTHBROOK LIFE INSURANCE COMPANY
By its authorized officer,
Name:
Title:
PUTNAM VARIABLE TRUST
By its authorized officer,
Name:
Title:
PUTNAM MUTUAL FUNDS CORP.
By its authorized officer,
Name:
Title:
tonyr/pvtnorth2
<PAGE>
Schedule A
Separate Accounts
Northbrook Variable Annuity Account II
<PAGE>
Schedule B
Authorized Funds
Putnam VT Growth and Income Fund 0.15% per annum
Putnam VT International Growth Fund 0.15% per annum
Putnam VT Voyager Fund 0.15% per annum
<PAGE>
Exhibit 8(f)
PARTICIPATION AGREEMENT
Among
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST,
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.,
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.,
and
NORTHBROOK LIFE INSURANCE COMPANY
DATED AS OF
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I. Fund Shares 4
ARTICLE II Representations and Warranties 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements; Voting 7
ARTICLE IV. Sales Material and Information 9
ARTICLE V Reserved 10
ARTICLE VI. Diversification 10
ARTICLE VII. Potential Conflicts 10
ARTICLE VIII. Indemnification 12
ARTICLE IX. Applicable Law 16
ARTICLE X. Termination 17
ARTICLE XI. Notices 19
ARTICLE XII. Foreign Tax Credits 19
ARTICLE XIII. Miscellaneous 19
SCHEDULE A Separate Accounts and Contracts 23
SCHEDULE B Participating Life Investment Trust Portfolios 24
SCHEDULE C Proxy Voting Procedures 25
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PARTICIPATION AGREEMENT
Among
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST,
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.,
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.,
and
NORTHBROOK LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the _____ of ___________ by and
among NORTHBROOK LIFE INSURANCE COMPANY (hereinafter the "Company"), an Illinois
corporation, on its own behalf and on behalf of each separate account of the
Company set forth on Schedule A hereto as may be amended from time to time (each
such account hereinafter referred to as the "Account"), and VAN KAMPEN AMERICAN
CAPITAL LIFE INVESTMENT TRUST (hereinafter the "Fund"), a Delaware business
trust, VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC. (hereinafter the
"Underwriter"), a Delaware corporation, and VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC. (hereinafter the "Adviser"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established by insurance companies for individual and group life insurance
policies and annuity contracts with variable accumulation and/or pay-out
provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into
participation agreements with the Fund and the Underwriter (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule B (each such series hereinafter referred to as a "Portfolio") as may be
amended from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 19, 1990 (File No. 812-7552), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act") and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by Variable Annuity Product separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser is the investment adviser of the Portfolios of the
Fund; and
WHEREAS, the Underwriter is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a
member in good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD") and serves as principal underwriter of the shares of the
Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Products; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Underwriter and the Adviser agree as follows:
ARTICLE I. Fund Shares
1.1. The Fund and the Underwriter agree to make available for purchase by
the Company shares of the Portfolios and shall execute orders placed for each
Account on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of such order. For purposes of this Section 1.1, the
Company shall be the designee of the Fund and Underwriter for receipt of such
orders from each Account and receipt by such designee shall constitute receipt
by the Fund; provided that the Fund receives notice of such order by 10:00 a.m.
(CST) on the next following Business Day. Notwithstanding the foregoing, the
Company shall use its best efforts to provide the Fund with notice of such
orders by 9:15 a.m. (CST) on the next following Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which the Fund calculates its net asset value pursuant to the rules of the
Securities and Exchange Commission, as set forth in the Fund's prospectus and
statement of additional information. Notwithstanding the foregoing, the Board of
Trustees of the Fund (hereinafter the "Board") may refuse to permit the Fund to
sell shares of any Portfolio to any person, or suspend or terminate the offering
of shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.2. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies for their Variable Insurance
Products. No shares of any Portfolio will be sold to the general public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
which afford the Company substantially the same protections currently provided
by Sections 2.1, 2.4, 2.9, 3.4 and Article VII of this Agreement is in effect to
govern such sales.
1.4. The Fund and the Underwriter agree to redeem for cash, on the
Company's request, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt by the Fund or its designee of the request for
redemption. For purposes of this Section 1.4, the Company shall be the designee
of the Fund for receipt of requests for redemption from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the
Underwriter receives notice of such request for redemption on the next following
Business Day in accordance with the timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under which
amounts may be invested in the Fund are listed on Schedule A attached hereto and
incorporated herein by reference, as such Schedule A may be amended from time to
time by mutual written agreement of all of the parties hereto. The Company will
give the Fund and the Underwriter sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares of
each Portfolio. Each order shall describe the net amount of shares and dollar
amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem Portfolio shares is made in accordance with the provisions of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
Portfolio securities or otherwise incur substantial additional costs, and if the
Portfolio has determined to settle redemption transactions for all shareholders
on a delayed basis, proceeds shall be wired to the Company within seven (7) days
and the Portfolio shall notify in writing the person designated by the Company
as the recipient for such notice of such delay by 3:00 p.m. Houston time on the
same Business Day that the Company transmits the redemption order to the
Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry only.
Share certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.8. The Underwriter shall use its best efforts to furnish same day notice
by 6:00 p.m. Houston time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Fund's shares. The Company hereby elects to receive all such
dividends and capital gain distributions as are payable on the Portfolio shares
in additional shares of that Portfolio. The Company reserves the right to revoke
this election and to receive all such dividends and capital gain distributions
in cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Underwriter shall make the net asset value per share of each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:00 p.m.
Houston time. In the event that Underwriter is unable to meet the 6:00 p.m. time
stated immediately above, then Underwriter shall provide the Company with
additional time to notify Underwriter of purchase or redemption orders pursuant
to Sections 1.1 and 1.4, respectively, above. Such additional time shall be
equal to the additional time that Underwriter takes to make the net asset values
available to the Company; provided, however, that notification must be made by
10:00 a.m. Houston time on the Business Day such order is to be executed,
regardless of when net asset value is made available.
1.10. If Underwriter provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level pursuant to the SEC's recommended guidelines. Any material error
in the calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to the
Company.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the interests of the Accounts
(the "Contracts") are or will be registered and will maintain the registration
under the 1933 Act and the regulations thereunder to the extent required by the
1933 Act; that the Contracts will be issued and sold in compliance with all
applicable federal and state laws and regulations. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under the Illinois Insurance Code and the regulations thereunder
and has registered or, prior to any issuance or sale of the Contracts, will
register and will maintain the registration of each Account as a unit investment
trust in accordance with and to the extent required by the provisions of the
1940 Act and the regulations thereunder to serve as a segregated investment
account for the Contracts. The Company shall amend its registration statement
for its contracts under the 1933 Act and the 1940 Act from time to time as
required in order to effect the continuous offering of its Contracts.
2.2. The Fund and the Underwriter represent and warrant that Fund shares
sold pursuant to this Agreement shall be registered under the 1933 Act and the
regulations thereunder to the extent required by the 1933 Act, duly authorized
for issuance in accordance with the laws of the State of Delaware and sold in
compliance with all applicable federal and state securities laws and regulations
and that the Fund is and shall remain registered under the 1940 Act and the
regulations thereunder to the extent required by the 1940 Act. The Fund shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Fund.
2.3. The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") and that each will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provision) and that each will notify the Company immediately upon having
a reasonable basis for believing that the Fund has ceased to so qualify or that
the Fund might not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is duly organized and
validly existing under the laws of the State of Delaware and that the Fund does
and will comply in all material respects with the 1940 Act.
2.8. The Underwriter represents and warrants that it is and shall remain
duly registered under all applicable federal and state laws and regulations and
that it will perform its obligations for the Fund and the Company in compliance
with the laws and regulations of its state of domicile and any applicable state
and federal laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, and other individuals/entities dealing with the money
and/or securities of the Fund are covered by a blanket fidelity bond or similar
coverage, in an amount equal to the greater of $5 million or any amount required
by applicable federal or state law or regulation. The aforesaid includes
coverage for larceny and embezzlement is issued by a reputable bonding company.
The Company agrees to make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy Statements; Voting
3.1. The Fund shall provide the Company with as many printed copies of the
Fund's current prospectus and statement of additional information as the Company
may reasonably request. If requested by the Company in lieu of providing printed
copies the Fund shall provide camera-ready film or computer diskettes containing
the Fund's prospectus and statement of additional information, and such other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the prospectus and/or statement of additional information
for the Fund is amended during the year) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document or
separately. The Company may elect to print the Fund's prospectus and/or its
statement of additional information in combination with other fund companies'
prospectuses and statements of additional information.
3.2(a). Except as otherwise provided in this Section 3.2, all expenses of
preparing, setting in type and printing and distributing Fund prospectuses and
statements of additional information shall be the expense of the Company. For
prospectuses and statements of additional information provided by the Company to
its existing owners of Contracts in order to update disclosure as required by
the 1933 Act and/or the 1940 Act, the cost of setting in type, printing and
distributing shall be borne by the Fund. If the Company chooses to receive
camera-ready film or computer diskettes in lieu of receiving printed copies of
the Fund's prospectus and/or statement of additional information, the Fund shall
bear the cost of typesetting to provide the Fund's prospectus and/or statement
of additional information to the Company in the format in which the Fund is
accustomed to formatting prospectuses and statements of additional information,
respectively, and the Company shall bear the expense of adjusting or changing
the format to conform with any of its prospectuses and/or statements of
additional information. In such event, the Fund will reimburse the Company in an
amount equal to the product of x and y where x is the number of such
prospectuses distributed to owners of the Contracts, and y is the Fund's per
unit cost of printing the Fund's prospectuses. The same procedures shall be
followed with respect to the Fund's statement of additional information. The
Fund shall not pay any costs of typesetting, printing and distributing the
Fund's prospectus and/or statement of additional information to prospective
Contract owners. Such expenses shall be borne by the Company as provided in the
Company's General Agency Agreement with Dean Witter Reynolds Inc.
3.2(b). The Fund, at its expense, shall provide the Company with, and pay
the distribution costs of, copies of its proxy statements, reports to
shareholders, and other communications (except for prospectuses and statements
of additional information, which are covered in Section 3.2(a) above) to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners. The Fund shall not pay any costs of
distributing such proxy-related material, reports to shareholders, and other
communications to prospective Contract owners.
3.2(c). The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Contract owners.
3.2(d) The Fund shall pay no fee or other compensation to the Company under
this Agreement, except that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution expenses, then the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
3.2(e) All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Underwriter, the Company or such other person as the Fund may
designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Contract Owners to whom voting
privileges are required to be extended and shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii)vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund, the Underwriter or their designee, each piece of sales literature or other
promotional material prepared by the Company or any person contracting with the
Company in which the Fund, the Adviser or the Underwriter is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund, the
Adviser, the Underwriter or their designee reasonably objects to such use within
ten Business Days after receipt of such material.
4.2. Neither the Company nor any person contracting with the Company shall
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund in connection with the sale of the Contracts other
than the information or representations contained in the registration statement
or Fund prospectus, as such registration statement or Fund prospectus may be
amended or supplemented from time to time, or in reports to shareholders or
proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund or its designee.
4.3. The Fund shall furnish, or shall cause to be furnished, to the Company
or its designee, each piece of sales literature or other promotional material
prepared by the Fund in which the Company or its Accounts, are named at least
ten Business Days prior to its use. No such material shall be used if the
Company or its designee reasonably objects to such use within ten Business Days
after receipt of such material.
4.4. Neither the Fund nor the Underwriter shall give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement or prospectus may be amended or supplemented from time to
time, or in published reports or solicitations for voting instruction for each
Account which are in the public domain or approved by the Company for
distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract, contemporaneously with the filing of such document
with the Securities and Exchange Commission or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. [Reserved]
ARTICLE VI. Diversification
6.1. The Adviser will ensure that the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating exclusively
to the diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such Section or
Regulations. For purposes of this Section 6.1, non-compliance shall not be
deemed a breach of this provision provided compliance is achieved within the
grace period afforded by Regulation 1.817-5. In the event the Fund ceases to so
qualify, it will take all reasonable steps (a) to notify Company of such event
and (b) to adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 1.817-5.
6.2 The Adviser, upon the prior written request of the Company by February
1, shall provide written confirmation by no later than February 15, that the
Fund was adequately diversified within the meaning of Section 817(h) and
Regulation 1.817-5 as of December 31 of the prior year.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract owners and variable life insurance contract owners;
or (f) a decision by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflict of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever contract
owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
7.5. For purposes of Sections 7.3 through 7.4 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 through 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7 Each of the Company and the Adviser shall at least annually submit to
the Board such reports, materials or data as the Board may reasonably request so
that the Board may fully carry out the obligations imposed upon them by the
provisions hereof and in the Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if deemed appropriate by
the Board. All reports received by the Board of potential or existing conflicts,
and all Board action with regard to determining the existence of a conflict,
notifying Participating Insurance Companies of a conflict, and determining
whether any proposed action adequately remedies a conflict, shall be properly
recorded in the minutes of the Board or other appropriate records, and such
minutes or other records shall be made available to the Securities and Exchange
Commission upon request.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund, the
Underwriter and each member of their respective Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control
and other than statements or representations authorized by the
Fund or the Underwriter) or unlawful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii)arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such a statement or omission was made
in reliance upon and in conformity with information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense thereof. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by Underwriter
8.2(a). The Underwriter agrees, with respect to each Portfolio that it
distributes, to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal and other expenses),
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares that it distributes or
the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Fund or the
Underwriter by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Portfolio shares;
or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Underwriter or persons
under their respective control and other than statements or
representations authorized by the Company) or unlawful conduct of
the Fund or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Portfolio
shares; or
(iii)arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund
or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the Underwriter
to provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter; as limited by and in
accordance with the provisions of Section 8.2(b) and 8.2(c)
hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification by the Adviser
8.3(a). The Adviser agrees to indemnify and hold harmless the Company and
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the operations of the
Adviser or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Adviser, the
Fund or the Underwriter by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Portfolio shares;
or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Adviser or persons under
its control and other than statements or representations
authorized by the Company) or unlawful conduct of the Fund, the
Adviser or persons under their control, with respect to the sale
or distribution of the Contracts or Portfolio shares; or
(iii)arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the
Company by or on behalf of the Fund or the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or the Adviser in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Fund or the Adviser, including
without limitation any failure by the Fund to comply with the
conditions of Article VI hereof.
8.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process (including any
IRS administrative process) giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify the Adviser of any such claim shall not relieve the Adviser from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Adviser will be
entitled to participate, at its own expense, in the defense thereof. The Adviser
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action, except with respect to any claim or action
related to Section 817(h) of the Code or Regulation 1.817-5, Indemnified Party
shall permit the Adviser to attend and otherwise assist Indemnified Party with
respect to any conferences, settlement discussions, or other administrative or
judicial proceeding or contests (including judicial appeals thereof) with the
IRS or any other claimant regarding any claims that could give rise to liability
to Adviser, provided that Indemnified Party shall control, in good faith, the
conduct of such conferences, discussions, proceedings, or contests (or appeals
thereof). After notice from the Adviser to such party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company agrees to promptly notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of each Account, or the sale or
acquisition of shares of the Adviser.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Illinois.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Portfolio based
upon the Company's determination that shares of such Portfolio
are not reasonably available to meet the requirements of the
Contracts. Reasonable advance notice of election to terminate
shall be furnished by the Company, said termination to be
effective ten (10) days after receipt of notice unless the Fund
makes available a sufficient number of shares to reasonably meet
the requirements of the Account within said ten (10) day period;
or
(c) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered, issued or
sold in accordance with applicable state and/or federal law or
such law precludes the use of such shares as the underlying
investment medium of the Contracts issued or to be issued by the
Company. The terminating party shall give prompt notice to the
other parties of its decision to terminate; or
(d) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under any
successor or similar provision; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund, the Adviser or the Underwriter by
written notice to the Company, if either one or more of the Fund,
the Adviser or the Underwriter, shall determine, in its or their
sole judgment exercised in good faith, that the Company and/or
their affiliated companies has suffered a material adverse change
in its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity, provided that the Fund, the Adviser or the
Underwriter will give the Company sixty (60) days' advance
written notice of such determination of its intent to terminate
this Agreement, and provided further that after consideration of
the actions taken by the Company and any other changes in
circumstances since the giving of such notice, the determination
of the Fund, the Adviser or the Underwriter shall continue to
apply on the 60th day since giving of such notice, then such 60th
day shall be the effective date of termination; or
(g) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter, if the Company shall determine, in
its sole judgment exercised in good faith, that either the Fund,
the Adviser or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity, provided that the Company will give
the Fund, the Adviser and the Underwriter sixty (60) days'
advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Fund, the Adviser or
the Underwriter and any other changes in circumstances since the
giving of such notice, the determination of the Company shall
continue to apply on the 60th day since giving of such notice,
then such 60th day shall be the effective date of termination; or
(h) termination by the Fund, the Adviser or the Underwriter by
written notice to the Company, if the Company gives the Fund, the
Adviser and the Underwriter the written notice specified in
Section 1.5 hereof and at the time such notice was given there
was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination
under this Section 10.1(h) shall be effective sixty (60) days
after the notice specified in Section 1.5 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this
Agreement, which breach has not been cured to the satisfaction of
the terminating party within ten (10) days after written notice
of such breach is delivered to the Fund or the Company, as the
case may be; or
(j) termination by the Fund, Adviser or Underwriter by written notice
to the Company in the event an Account or Contract is not
registered or sold in accordance with applicable federal or state
law or regulation, or the Company fails to provide pass-through
voting privileges as specified in Section 3.4.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Adviser 90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Van Kampen American Capital Life Investment Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to Underwriter:
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to Adviser:
Van Kampen American Capital Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to the Company:
Allstate Life Insurance Company
3100 Sanders Road
Northbrook, Illinois 60062
Attention: Timothy N. Vander Pas
ARTICLE XII. Foreign Tax Credits
12.1. The Fund and Adviser agree to consult in advance with the Company
concerning whether any series of the Fund qualifies to provide a foreign tax
credit pursuant to Section 853 of the Code.
ARTICLE XIII. Miscellaneous
13.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund. Each of the Company, Adviser and
Underwriter acknowledges and agrees that, as provided by Article 8, Section 8.1,
of the Fund's Agreement and Declaration of Trust, the shareholders, trustees,
officers, employees and other agents of the Fund and its Portfolios shall not
personally be bound by or liable for matters set forth hereunder, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim hereunder. A Certificate of Trust referring to the Fund's Agreement and
Declaration of Trust is on file with the Secretary of State of Delaware.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory), as soon
as practical and in any event within 45 days following such
period;
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as practical
after the filing thereof;
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
as of the date specified above.
NORTHBROOK LIFE INSURANCE COMPANY on behalf of itself and each of its Accounts
named in Schedule A hereto, as amended from time to time
By: ________________________________________________
Timothy N. Vander Pas
Assistant Vice President
VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST
By: _______________________________________________
Dennis J. McDonnell
President
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By: ________________________________________________
John H. Zimmermann, III
President
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By: ________________________________________________
Dennis J. McDonnell
President
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account and Form Numbers and Names of Contracts
Date Established by Board of Directors Funded by Separate Account
<S> <C>
NORTHBROOK VARIABLE ANNUITY ACCOUNT II DEAN WITTER VARIABLE ANNUITY II
May 18, 1990 Group Master Policy NLU 437
Certificate Form NLU 438
NLU 654 (FL)
NLU 419 (CT, MD, ME, NC, OH, VT)
NLU 521 (ID)
NLU 783 (MN)
NLU 703 (SC)
NORTHBROOK VARIABLE ANNUITY II
NLU 419 (OR)
NLU 521 (TX)
</TABLE>
<PAGE>
SCHEDULE B
PARTICIPATING LIFE INVESTMENT TRUST PORTFOLIOS
Emerging Growth Portfolio
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of
voting instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will
inform the Company of the Record, Mailing and Meeting dates. This will
be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run,"
or other activity, which will generate the names, address and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting
instruction solicitation material. The Fund will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Fund or its affiliate must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units (or equivalent shares)
e. individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce, and the Fund will pay
for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid
for by the Company). Contents of envelope sent to Customers by the
Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is important.
One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be not received for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g.,
mutilated, illegible) of the procedure are "hand verified," (i.e.,
examined as to why they did not complete the system). Any questions on
those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
12. The actual tabulation of votes is done in units (or equivalent shares)
which is then converted to shares. (It is very important that the fund
receives the tabulations stated in terms of a percentage and the number
of shares.) The Fund must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 A.M. Houston time.
The Fund may request an earlier deadline if reasonable and if required
to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will
be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
NORTHBROOK LIFE INSURANCE COMPANY
LAW AND REGULATION DEPARTMENT
3100 Sanders Road, J5B
Northbrook, Illinois 60062
Direct Dial Number 847-402-2400
Facsimile 847-402-4371
Michael J. Velotta Please direct reply to:
Vice President, Secretary Post Office Box 3005
and General Counsel Northbrook, Illinois 60065-3005
January 27, 2000
TO: NORTHBROOK LIFE INSURANCE COMPANY
NORTHBROOK, ILLINOIS 60062
FROM: MICHAEL J. VELOTTA
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
RE: FORM N-4 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940
FILE NO. 333-93871; 811-6116
With reference to the Registration Statement on Form N-4 filed by Northbrook
Life Insurance Company (the "Company"), as depositor, and Northbrook Variable
Annuity Account II, as registrant, with the Securities and Exchange Commission
covering the Flexible Premium Deferred Variable Annuity Contracts (Preferred
Client Variable annuity), I have examined such documents and such law as I have
considered necessary and appropriate, and on the basis of such examination, it
is my opinion that as of January 27, 2000:
1. The Company is duly organized and existing under the laws of the State of
Arizona and has been duly authorized to do business by the Director of
Insurance of the State of Arizona.
2. The securities registered by the above Registration Statement when issued
will be valid, legal and binding obligations of the Company.
I hereby consent to the filing of this opinion as an exhibit to the above
referenced Registration Statement and to the use of my name under the caption
"Legal Matters" in the Prospectus constituting a part of the Registration
Statement.
Sincerely,
/s/ MICHAEL J. VELOTTA
- ------------------------
Michael J. Velotta
Vice President, Secretary and
General Counsel
Exhibit 10(a)
Independent Auditors' Consent
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 333-93871 of Northbrook Variable Annuity Account II of Northbrook
Life Insurance Company on Form N-4 of our report dated February 19, 1999
relating to the financial statements and the related financial statement
schedule of Northbrook Life Insurance Company and our report dated March 18,
1999 relating to the financial statements of Northbrook Variable Annuity Account
II, appearing 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 the
Statement of Additional Information.
/s/ DELOITTE & TOUCHE LLP
Chicago Illinois
January 28, 2000
<PAGE>
Exhibit 10(b)
Consent of Freedman, Levy, Kroll & Simonds
CONSENT OF
FREEDMAN, LEVY, KROLL & SIMONDS
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the prospectus contained in Post-Effective Amendment No. 1 to the
Form N-4 Registration Statement of Northbrook Variable Annuity Account II (File
No. 333-93871).
/s/FREEDMAN, LEVY, KROLL & SIMONDS
Washington, D.C.
January 28, 2000
Exhibit 13(b)
Performance data calculated using the following formula:
1000(1+T)n = ERV
where: T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made
at beginning of the periods shown.
<TABLE>
<CAPTION>
Today One Month Ago Three Months Ago Six Months Ago End of Last Year
12/31/99 11/30/99 9/30/99 6/30/99 12/31/98
One Year Ago Three Years Ago Five Years Ago Ten Years Ago
12/31/98 12/31/96 12/31/94 12/29/89
AUVs
Base Today One Month Ago Three Months Ago Six Months Ago End of Last Year One Year Ago
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIM Capital Appreciation 10 8.582905788 7.37793435 7.600258089 6.96346518 6.96346518
AIM Growth 10 9.084560431 8.175205984 8.354224273 7.446416017 7.446416017
AIM Value 10 9.431365777 8.508140742 8.841027978 7.752406925 7.752406925
Alliance Growth 10 9.100360922 7.909114686 8.586339889 7.48878183 7.48878183
Alliance Growth & Income 10 9.776343318 9.263677822 10.32550234 9.042258309 9.042258309
Alliance Premier Growth 10 9.173754029 8.247181188 #N/A #N/A #N/A
MSDW Aggressive Equity 10 8.426390549 7.109249062 7.025373539 #N/A #N/A
MSDW Capital Growth 10 8.770462907 7.847763782 8.094220019 7.554785015 7.554785015
MSDW Competitive Edge 10 9.059527101 8.446546175 8.453349284 7.98612453 7.98612453
MSDW Dividend Growth 10 9.903638631 10.0077525 11.26452002 10.31693998 10.31693998
MSDW Equity 10 8.378579524 7.226922211 7.411665894 6.349765337 6.349765337
MSDW European Growth 10 8.940774549 8.002613208 7.968897313 7.799536218 7.799536218
MSDW Global Dividend Growth 10 9.497529647 9.50865254 9.651428061 8.783268841 8.783268841
MSDW High Yield 10 9.809779282 9.967882584 10.59561964 10.20616443 10.20616443
MSDW Income Builder 10 9.552053556 9.476765853 10.21599712 9.405863572 9.405863572
MSDW Money Market 10 9.960827062 9.890204164 9.792259584 9.610713449 9.610713449
MSDW Pacific Growth 10 9.085567901 8.245634922 7.881479396 6.062886391 6.062886391
MSDW Quality Income Plus 10 10.07889996 10.07694292 10.06388892 10.52447027 10.52447027
MSDW S&P 500 10 9.454608048 8.734661396 9.3404226 8.413062006 8.413062006
MSDW Short-Term Bond 10 10.00045569 9.955811226 9.855076244 #N/A #N/A
MSDW Strategist 10 9.516480309 9.089318253 9.279159101 8.581289355 8.581289355
MSDW Utilities 10 9.607751446 9.027308418 9.479046976 8.93422078 8.93422078
MSDW Emerging Markets Equity 10 8.128425704 6.668756237 7.083060782 5.14613539 5.14613539
MSDW Equity Growth 10 9.107933145 8.223384795 8.302148258 7.221434703 7.221434703
MSDW International Magnum 10 9.331923709 8.934760108 8.494152004 8.043773582 8.043773582
MSDW Mid-Cap Value 10 9.156984328 8.847049005 9.468823636 8.350492359 8.350492359
MSDW U.S. Real Estate 10 9.59120312 10.11837077 11.04794013 10.22068336 10.22068336
Putnam Growth & Income 10 10.12192426 9.804211905 10.76694541 9.925054436 9.925054436
Putnam International Growth 10 8.663762922 7.399657369 7.050650237 6.29252656 6.29252656
Putnam Voyager 10 8.407624034 7.088519699 7.035772582 6.372883111 6.372883111
Van Kampen Emerging Growth 10 8.006009078 6.238487136 5.989016859 4.927198233 4.927198233
Portfolio Subaccount
Three Years Ago Five Years Ago Ten Years Ago Inception DateInception Date
--------------------------------------------------------------------------------
AIM Capital Appreciation 5.369666969 3.413176002 #N/A 2.819279071 #N/A
AIM Growth 4.759276879 3.032671849 #N/A 2.842860091 #N/A
AIM Value 5.043628299 3.263718747 #N/A 2.764002378 #N/A
Alliance Growth 4.537452088 2.647974265 #N/A 2.519788824 #N/A
Alliance Growth & Income 5.889322604 3.544769321 #N/A 2.930834541 #N/A
Alliance Premier Growth #N/A #N/A #N/A 8.870438235 #N/A
MSDW Aggressive Equity #N/A #N/A #N/A 6.877495321 6.877495321
MSDW Capital Growth 5.142047955 3.49995528 #N/A 3.014651955 3.014651955
MSDW Competitive Edge #N/A #N/A #N/A 8.176301622 8.176301622
MSDW Dividend Growth 7.288843297 4.396431813 #N/A 3.209691456 2.662375646
MSDW Equity 3.591689779 2.2495858 1.347755633 0.724736137 1.203413383
MSDW European Growth 5.496459757 3.41067536 #N/A 2.174563646 2.174563646
MSDW Global Dividend Growth 7.064587622 4.984082891 #N/A 5.008858681 5.008858681
MSDW High Yield 9.86365735 7.788441242 4.829885337 3.288595294 3.925271931
MSDW Income Builder #N/A #N/A #N/A 7.54814729 7.54814729
MSDW Money Market 8.805009278 8.044114683 6.6106862 4.63846016 6.999874991
MSDW Pacific Growth 11.01419847 10.06952047 #N/A 10.96689209 10.96689209
MSDW Quality Income Plus 8.838956748 7.080647896 5.081031748 4.164786109 5.17678335
MSDW S&P 500 #N/A #N/A #N/A 7.530961332 7.530961332
MSDW Short-Term Bond #N/A #N/A #N/A 9.892589624 9.892589624
MSDW Strategist 6.047052971 4.877806018 3.149064237 2.54180708 3.025566345
MSDW Utilities 5.757411012 4.179376183 #N/A 2.891239272 2.865892674
MSDW Emerging Markets Equity 6.896982554 #N/A #N/A 7.064422324 7.245673124
MSDW Equity Growth #N/A #N/A #N/A 4.613779092 7.109962419
MSDW International Magnum #N/A #N/A #N/A 7.000802347 8.203571393
MSDW Mid-Cap Value #N/A #N/A #N/A 5.324531025 5.324531025
MSDW U.S. Real Estate #N/A #N/A #N/A 10.07844336 11.50180036
Putnam Growth & Income 7.04236265 4.297561876 2.935674184 2.0496812 #N/A
Putnam International Growth #N/A #N/A #N/A 4.644989831 #N/A
Putnam Voyager 4.1193452 2.636591907 1.452304074 1.082524274 #N/A
Van Kampen Emerging Growth #N/A #N/A #N/A 4.085770105 4.085770105
Portfolio Subaccount
Inception Inception
Date Years Date Years
AIM Capital Appreciation 5/5/93 6.655715 N/A N/A
AIM Growth 5/5/93 6.655715 N/A N/A
AIM Value 5/5/93 6.655715 N/A N/A
Alliance Growth 9/15/94 5.292266 N/A N/A
Alliance Growth & Income 1/14/91 8.960986 N/A N/A
Alliance Premier Growth 7/14/99 0.465435 N/A N/A
MSDW Aggressive Equity 5/3/99 0.66256 5/3/99 0.66256
MSDW Capital Growth 3/1/91 8.835044 3/1/91 8.835044
MSDW Competitive Edge 5/18/98 1.620808 5/18/98 1.620808
MSDW Dividend Growth 3/1/90 9.83436 10/25/90 9.182752
MSDW Equity 3/9/84 15.81109 10/25/90 9.182752
MSDW European Growth 3/1/91 8.835044 3/1/91 8.835044
MSDW Global Dividend Growth 2/23/94 5.850787 2/23/94 5.850787
MSDW High Yield 3/9/84 15.81109 10/25/90 9.182752
MSDW Income Builder 1/21/97 2.940452 1/21/97 2.940452
MSDW Money Market 3/9/84 15.81109 10/25/90 9.182752
MSDW Pacific Growth 2/23/94 5.850787 2/23/94 5.850787
MSDW Quality Income Plus 3/2/87 12.83231 10/25/90 9.182752
MSDW S&P 500 5/18/98 1.620808 5/18/98 1.620808
MSDW Short-Term Bond 5/3/99 0.66256 5/3/99 0.66256
MSDW Strategist 3/2/87 12.83231 10/25/90 9.182752
MSDW Utilities 3/1/90 9.83436 10/25/90 9.182752
MSDW Emerging Markets Equity 10/1/96 3.247091 3/16/98 1.793292
MSDW Equity Growth 1/2/97 2.992471 3/16/98 1.793292
MSDW International Magnum 1/2/97 2.992471 3/16/98 1.793292
MSDW Mid-Cap Value 1/2/97 2.992471 1/2/97 2.992471
MSDW U.S. Real Estate 3/4/97 2.825462 5/18/98 1.620808
Putnam Growth & Income 2/1/88 11.91239 N/A N/A
Putnam International Growth 1/2/97 2.992471 N/A N/A
Putnam Voyager 2/1/88 11.91239 N/A N/A
Van Kampen Emerging Growth 3/16/98 1.793292 3/16/98 1.793292
</TABLE>
<TABLE>
<CAPTION>
Base Today One Month Ago Three Months Ago Six Months Ago End of Last Year One Year Ago
--------------------------------------------------------------------------------------------------
1 Rider
<S> <C> <C> <C> <C> <C>
AIM Capital Appreciation 10 8.583847852 7.380343807 7.60523416 6.972512118
AIM Growth 10 9.085559836 8.177879199 8.359696826 7.456090676
AIM Value 10 9.432406165 8.510925764 8.846822171 7.762479951
Alliance Growth 10 9.10136274 7.911700266 8.591964371 7.498516411
Alliance Growth & Income 10 9.777422035 9.266711364 10.33227272 9.0540181
Alliance Premier Growth 10 9.174764183 8.249878496 #N/A #N/A
MSDW Aggressive Equity 10 8.427315134 7.111568289 7.029967984 #N/A
MSDW Capital Growth 10 8.771426545 7.850329062 8.099520425 7.564596635
MSDW Competitive Edge 10 9.060523607 8.449308201 8.458884806 7.996502225
MSDW Dividend Growth 10 9.904733934 10.01103562 11.27191507 10.33036028
MSDW Equity 10 8.379498494 7.229280825 7.416515435 6.358006092
MSDW European Growth 10 8.941755565 8.005225769 7.974108517 7.809666983
MSDW Global Dividend Growth 10 9.498576875 9.511768383 9.657753243 8.794686052
MSDW High Yield 10 9.810861321 9.971148614 10.60256725 10.219439
MSDW Income Builder 10 9.55310724 9.479870286 10.222697 9.418095414
MSDW Money Market 10 9.961926636 9.893444679 9.798677553 9.623212868
MSDW Pacific Growth 10 9.086567273 8.248331181 7.886635628 6.070756418
MSDW Quality Income Plus 10 10.08001315 10.08024617 10.07048872 10.5381657
MSDW S&P 500 10 9.455650901 8.737520026 9.346545925 8.423996203
MSDW Short-Term Bond 10 10.00156001 9.959073804 9.861536303 #N/A
MSDW Strategist 10 9.51753036 9.092294506 9.285241213 8.5924438
MSDW Utilities 10 9.608812006 9.030263169 9.485261253 8.945836303
MSDW Emerging Markets Equity 10 8.129312568 6.670926753 7.087689377 5.152807141
MSDW Equity Growth 10 9.108935297 8.226073689 8.307586855 7.230815056
MSDW International Magnum 10 9.332950794 8.937683504 8.499711414 8.054227083
MSDW Mid-Cap Value 10 9.157992613 8.84994856 9.47503553 8.361351708
MSDW U.S. Real Estate 10 9.592260305 10.12168875 11.0551908 10.233979
Putnam Growth & Income 10 10.12304573 9.807427459 10.77401256 9.937971816
Putnam International Growth 10 8.66471293 7.402070201 7.05525604 6.300673269
Putnam Voyager 10 8.408545855 7.090831399 7.040375064 6.381146797
Van Kampen Emerging Growth 10 8.006884344 6.240519014 5.9929308 4.933589476
Three Years Ago Five Years Ago Ten Years Ago Inception DateInception Date
--------------------------------------------------------------------------------
AIM Capital Appreciation 6.972512118 5.390635582 3.435434926 #N/A 2.843773462 #N/A
AIM Growth 7.456090676 4.777855675 3.052443907 #N/A 2.867554967 #N/A
AIM Value 7.762479951 5.06331872 3.2849967 #N/A 2.788011034 #N/A
Alliance Growth 7.498516411 4.555171012 2.665162417 #N/A 2.537098412 #N/A
Alliance Growth & Income 9.0540181 5.912325695 3.56777328 #N/A 2.965032431 #N/A
Alliance Premier Growth #N/A #N/A #N/A #N/A 8.875807274 #N/A
MSDW Aggressive Equity #N/A #N/A #N/A #N/A 6.883414093 6.883414093
MSDW Capital Growth 7.564596635 5.162120611 3.522759079 #N/A 3.049460578 3.049460578
MSDW Competitive Edge 7.996502225 #N/A #N/A #N/A 8.193545418 8.193545418
MSDW Dividend Growth 10.33036028 7.317307232 4.425079458 #N/A 3.250968439 2.694328707
MSDW Equity 6.358006092 3.605703055 2.264239569 1.365389376 0.73978189 1.217856051
MSDW European Growth 7.809666983 5.517910793 3.432893027 #N/A 2.199668274 2.199668274
MSDW Global Dividend Growth 8.794686052 7.09217831 5.016566431 #N/A 5.047090873 5.047090873
MSDW High Yield 10.219439 9.902195098 7.839217159 4.893096674 3.356872206 3.972393978
MSDW Income Builder 9.418095414 #N/A #N/A #N/A 7.577062464 7.577062464
MSDW Money Market 9.623212868 8.839408107 8.096559458 6.697214763 4.734765047 7.083927365
MSDW Pacific Growth 6.070756418 11.05725627 10.13521097 #N/A 11.0506765 11.0506765
MSDW Quality Income Plus 10.5381657 8.873491321 7.126810495 5.147538062 4.234835532 5.238941526
MSDW S&P 500 8.423996203 #N/A #N/A #N/A 7.546843549 7.546843549
MSDW Short-Term Bond #N/A #N/A #N/A #N/A 9.90111939 9.90111939
MSDW Strategist 8.5924438 6.070661862 4.909594315 3.190270613 2.584548183 3.061883588
MSDW Utilities 8.945836303 5.779889364 4.206611867 #N/A 2.928426323 2.900294914
MSDW Emerging Markets Equity 5.152807141 6.923914849 #N/A #N/A 7.094302763 7.262581547
MSDW Equity Growth 7.230815056 #N/A #N/A #N/A 4.631751405 7.126551864
MSDW International Magnum 8.054227083 #N/A #N/A #N/A 7.028092116 8.222717945
MSDW Mid-Cap Value 8.361351708 #N/A #N/A #N/A 5.345287662 5.345287662
MSDW U.S. Real Estate 10.233979 #N/A #N/A #N/A 10.1155612 11.52608665
Putnam Growth & Income 9.937971816 7.069872922 4.325572 2.974092036 2.081655171 #N/A
Putnam International Growth 6.300673269 #N/A #N/A #N/A 4.663070206 #N/A
Putnam Voyager 6.381146797 4.135418414 2.653767628 1.471305826 1.09940963 #N/A
Van Kampen Emerging Growth 4.933589476 #N/A #N/A #N/A 4.095293418 4.095293418
Portfolio Subaccount
Inception Inception
Date Years Date Years
AIM Capital Appreciation 5/5/93 1/6/00 N/A N/A
AIM Growth 5/5/93 1/6/00 N/A N/A
AIM Value 5/5/93 1/6/00 N/A N/A
Alliance Growth 9/15/94 1/5/00 N/A N/A
Alliance Growth & Income 1/14/91 1/8/00 N/A N/A
Alliance Premier Growth 7/14/99 1/0/00 N/A N/A
MSDW Aggressive Equity 5/3/99 1/0/00 5/3/99 1/0/00
MSDW Capital Growth 3/1/91 1/8/00 3/1/91 1/8/00
MSDW Competitive Edge 5/18/98 1/1/00 5/18/98 1/1/00
MSDW Dividend Growth 3/1/90 1/9/00 10/25/90 1/9/00
MSDW Equity 3/9/84 1/15/00 10/25/90 1/9/00
MSDW European Growth 3/1/91 1/8/00 3/1/91 1/8/00
MSDW Global Dividend Growth 2/23/94 1/5/00 2/23/94 1/5/00
MSDW High Yield 3/9/84 1/15/00 10/25/90 1/9/00
MSDW Income Builder 1/21/97 1/2/00 1/21/97 1/2/00
MSDW Money Market 3/9/84 1/15/00 10/25/90 1/9/00
MSDW Pacific Growth 2/23/94 1/5/00 2/23/94 1/5/00
MSDW Quality Income Plus 3/2/87 1/12/00 10/25/90 1/9/00
MSDW S&P 500 5/18/98 1/1/00 5/18/98 1/1/00
MSDW Short-Term Bond 5/3/99 1/0/00 5/3/99 1/0/00
MSDW Strategist 3/2/87 1/12/00 10/25/90 1/9/00
MSDW Utilities 3/1/90 1/9/00 10/25/90 1/9/00
MSDW Emerging Markets Equity 10/1/96 1/3/00 3/16/98 1/1/00
MSDW Equity Growth 1/2/97 1/2/00 3/16/98 1/1/00
MSDW International Magnum 1/2/97 1/2/00 3/16/98 1/1/00
MSDW Mid-Cap Value 1/2/97 1/2/00 1/2/97 1/2/00
MSDW U.S. Real Estate 3/4/97 1/2/00 5/18/98 1/1/00
Putnam Growth & Income 2/1/88 1/11/00 N/A N/A
Putnam International Growth 1/2/97 1/2/00 N/A N/A
Putnam Voyager 2/1/88 1/11/00 N/A N/A
Van Kampen Emerging Growth 3/16/98 1/1/00 3/16/98 1/1/00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2 Rider
Base Today One Month Ago Three Months Ago Six Months Ago End of Last Year One Year Ago
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIM Capital Appreciation 10 8.584645069 7.382383206 7.609447254 6.98017645 6.98017645
AIM Growth 10 9.086405579 8.180141847 8.364330278 7.464286795 7.464286795
AIM Value 10 9.433286589 8.513283049 8.851727947 7.771013559 7.771013559
Alliance Growth 10 9.102210521 7.913888732 8.596726442 7.506763275 7.506763275
Alliance Growth & Income 10 9.778334892 9.269278991 10.33800499 9.06398067 9.06398067
Alliance Premier Growth 10 9.175619019 8.25216153 #N/A #N/A #N/A
MSDW Aggressive Equity 10 8.42809756 7.113531316 7.033857964 #N/A #N/A
MSDW Capital Growth 10 8.772242019 7.852500353 8.104008125 7.572908782 7.572908782
MSDW Competitive Edge 10 9.061366897 8.45164602 8.463571571 8.005293941 8.005293941
MSDW Dividend Growth 10 9.90566083 10.01381451 11.27817625 10.34172963 10.34172963
MSDW Equity 10 8.380276168 7.231277189 7.420621397 6.364987437 6.364987437
MSDW European Growth 10 8.942585745 8.007437077 7.978520688 7.818249503 7.818249503
MSDW Global Dividend Growth 10 9.499463086 9.514405681 9.663108593 8.804358425 8.804358425
MSDW High Yield 10 9.811776992 9.973913032 10.60844959 10.23068489 10.23068489
MSDW Income Builder 10 9.553998916 9.482497926 10.2283696 9.428457926 9.428457926
MSDW Money Market 10 9.962857146 9.896187501 9.804111463 9.633802065 9.633802065
MSDW Pacific Growth 10 9.087412986 8.250613335 7.891001257 6.077423694 6.077423694
MSDW Quality Income Plus 10 10.08095518 10.0830421 10.07607658 10.54976813 10.54976813
MSDW S&P 500 10 9.456533411 8.739939613 9.351730369 8.433259376 8.433259376
MSDW Short-Term Bond 10 10.00249454 9.9618353 9.86700585 #N/A #N/A
MSDW Strategist 10 9.518418961 9.094813652 9.290390762 8.601893563 8.601893563
MSDW Utilities 10 9.6097095 9.032764115 9.490522703 8.955676681 8.955676681
MSDW Emerging Markets Equity 10 8.130063072 6.672763906 7.091608267 5.158459261 5.158459261
MSDW Equity Growth 10 9.109783363 8.228349608 8.312191556 7.238761847 7.238761847
MSDW International Magnum 10 9.33381996 8.940157911 8.504418402 8.063083022 8.063083022
MSDW Mid-Cap Value 10 9.158845869 8.852402788 9.480294966 8.370551478 8.370551478
MSDW U.S. Real Estate 10 9.593154943 10.12449714 11.06132974 10.24524273 10.24524273
Putnam Growth & Income 10 10.12399477 9.810149155 10.77999612 9.948915281 9.948915281
Putnam International Growth 10 8.66551687 7.404112456 7.059155632 6.307575027 6.307575027
Putnam Voyager 10 8.409325942 7.092788054 7.044271849 6.388147669 6.388147669
Van Kampen Emerging Growth 10 8.007625033 6.242238823 5.996244616 4.939003962 4.939003962
Three Years Ago Five Years Ago Ten Years Ago Inception DateInception Date
--------------------------------------------------------------------------------
AIM Capital Appreciation 5.408442312 3.454382865 #N/A 2.864665767 #N/A
AIM Growth 4.793632934 3.069274871 #N/A 2.888618244 #N/A
AIM Value 5.080039985 3.303109553 #N/A 2.808488997 #N/A
Alliance Growth 4.570218032 2.679793649 #N/A 2.551838186 #N/A
Alliance Growth & Income 5.931860076 3.587355129 #N/A 2.994282187 #N/A
Alliance Premier Growth #N/A #N/A #N/A 8.880352861 #N/A
MSDW Aggressive Equity #N/A #N/A #N/A 6.888426297 6.888426297
MSDW Capital Growth 5.179166467 3.542170738 #N/A 3.079227961 3.079227961
MSDW Competitive Edge #N/A #N/A #N/A 8.20816482 8.20816482
MSDW Dividend Growth 7.34147906 4.449465685 #N/A 3.286309685 2.721665438
MSDW Equity 3.617603215 2.276713523 1.380490417 0.752756708 1.230212151
MSDW European Growth 5.536127163 3.451805719 #N/A 2.22113703 2.22113703
MSDW Global Dividend Growth 7.115608577 5.044217987 #N/A 5.079669245 5.079669245
MSDW High Yield 9.934921755 7.882440146 4.947229269 3.415751384 4.01270831
MSDW Income Builder #N/A #N/A #N/A 7.60161581 7.60161581
MSDW Money Market 8.868619943 8.141203071 6.771315755 4.817814429 7.155836898
MSDW Pacific Growth 11.09382148 10.19113022 #N/A 11.12207124 11.12207124
MSDW Quality Income Plus 8.902818441 7.166106401 5.204492476 4.295027967 5.292119834
MSDW S&P 500 #N/A #N/A #N/A 7.560308594 7.560308594
MSDW Short-Term Bond #N/A #N/A #N/A 9.908342676 9.908342676
MSDW Strategist 6.090710726 4.936654034 3.225558643 2.621274843 3.092954047
MSDW Utilities 5.798978166 4.229796178 #N/A 2.960265833 2.929727048
MSDW Emerging Markets Equity 6.946785989 #N/A #N/A 7.11968507 7.276919582
MSDW Equity Growth #N/A #N/A #N/A 4.647013516 7.140619408
MSDW International Magnum #N/A #N/A #N/A 7.051266682 8.238953878
MSDW Mid-Cap Value #N/A #N/A #N/A 5.362914271 5.362914271
MSDW U.S. Real Estate #N/A #N/A #N/A 10.14707555 11.54667677
Putnam Growth & Income 7.093235038 4.349415646 3.006992137 2.109099551 #N/A
Putnam International Growth #N/A #N/A #N/A 4.678424119 #N/A
Putnam Voyager 4.14906796 2.668388432 1.487578417 1.113902905 #N/A
Van Kampen Emerging Growth #N/A #N/A #N/A 4.103368995 4.103368995
Portfolio Subaccount
Inception Inception
Date Years Date Years
AIM Capital Appreciation 5/5/93 1/6/00 N/A N/A
AIM Growth 5/5/93 1/6/00 N/A N/A
AIM Value 5/5/93 1/6/00 N/A N/A
Alliance Growth 9/15/94 1/5/00 N/A N/A
Alliance Growth & Income 1/14/91 1/8/00 N/A N/A
Alliance Premier Growth 7/14/99 1/0/00 N/A N/A
MSDW Aggressive Equity 5/3/99 1/0/00 5/3/99 1/0/00
MSDW Capital Growth 3/1/91 1/8/00 3/1/91 1/8/00
MSDW Competitive Edge 5/18/98 1/1/00 5/18/98 1/1/00
MSDW Dividend Growth 3/1/90 1/9/00 10/25/90 1/9/00
MSDW Equity 3/9/84 1/15/00 10/25/90 1/9/00
MSDW European Growth 3/1/91 1/8/00 3/1/91 1/8/00
MSDW Global Dividend Growth 2/23/94 1/5/00 2/23/94 1/5/00
MSDW High Yield 3/9/84 1/15/00 10/25/90 1/9/00
MSDW Income Builder 1/21/97 1/2/00 1/21/97 1/2/00
MSDW Money Market 3/9/84 1/15/00 10/25/90 1/9/00
MSDW Pacific Growth 2/23/94 1/5/00 2/23/94 1/5/00
MSDW Quality Income Plus 3/2/87 1/12/00 10/25/90 1/9/00
MSDW S&P 500 5/18/98 1/1/00 5/18/98 1/1/00
MSDW Short-Term Bond 5/3/99 1/0/00 5/3/99 1/0/00
MSDW Strategist 3/2/87 1/12/00 10/25/90 1/9/00
MSDW Utilities 3/1/90 1/9/00 10/25/90 1/9/00
MSDW Emerging Markets Equity 10/1/96 1/3/00 3/16/98 1/1/00
MSDW Equity Growth 1/2/97 1/2/00 3/16/98 1/1/00
MSDW International Magnum 1/2/97 1/2/00 3/16/98 1/1/00
MSDW Mid-Cap Value 1/2/97 1/2/00 1/2/97 1/2/00
MSDW U.S. Real Estate 3/4/97 1/2/00 5/18/98 1/1/00
Putnam Growth & Income 2/1/88 1/11/00 N/A N/A
Putnam International Growth 1/2/97 1/2/00 N/A N/A
Putnam Voyager 2/1/88 1/11/00 N/A N/A
Van Kampen Emerging Growth 3/16/98 1/1/00 3/16/98 1/1/00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Returns
Base One Month Three Month Six Month YTD One Year Three Year
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIM Capital Appreciation 16.51% 35.54% 31.57% 43.61% 43.61% 23.03%
AIM Growth 10.08% 22.32% 19.70% 34.29% 34.29% 28.08%
AIM Value 6.03% 17.53% 13.11% 28.99% 28.99% 25.63%
Alliance Growth 9.89% 26.44% 16.46% 33.53% 33.53% 30.14%
Alliance Growth & Income 2.29% 7.95% -3.15% 10.59% 10.59% 19.30%
Alliance Premier Growth 9.01% 21.25% #N/A #N/A #N/A #N/A
MSDW Aggressive Equity 18.67% 40.66% 42.34% #N/A #N/A #N/A
MSDW Capital Growth 14.02% 27.42% 23.54% 32.37% 32.37% 24.82%
MSDW Competitive Edge 10.38% 18.39% 18.30% 25.22% 25.22% #N/A
MSDW Dividend Growth 0.97% -0.08% -11.23% -3.07% -3.07% 11.12%
MSDW Equity 19.35% 38.37% 34.92% 57.49% 57.49% 40.68%
MSDW European Growth 11.85% 24.96% 25.49% 28.21% 28.21% 22.08%
MSDW Global Dividend Growth 5.29% 5.17% 3.61% 13.85% 13.85% 12.28%
MSDW High Yield 1.94% 0.32% -5.62% -2.02% -2.02% 0.46%
MSDW Income Builder 4.69% 5.52% -2.11% 6.32% 6.32% #N/A
MSDW Money Market 0.39% 1.11% 2.12% 4.05% 4.05% 4.33%
MSDW Pacific Growth 10.06% 21.28% 26.88% 64.94% 64.94% -3.17%
MSDW Quality Income Plus -0.78% -0.76% -0.63% -4.98% -4.98% 4.20%
MSDW S&P 500 5.77% 14.49% 7.06% 18.86% 18.86% #N/A
MSDW Short-Term Bond 0.00% 0.44% 1.47% #N/A #N/A #N/A
MSDW Strategist 5.08% 10.02% 7.77% 16.53% 16.53% 18.25%
MSDW Utilities 4.08% 10.77% 5.50% 11.93% 11.93% 20.21%
MSDW Emerging Markets Equity 23.03% 49.95% 41.18% 94.32% 94.32% 13.18%
MSDW Equity Growth 9.79% 21.60% 20.45% 38.48% 38.48% #N/A
MSDW International Magnum 7.16% 11.92% 17.73% 24.32% 24.32% #N/A
MSDW Mid-Cap Value 9.21% 13.03% 5.61% 19.75% 19.75% #N/A
MSDW U.S. Real Estate 4.26% -1.17% -9.49% -2.16% -2.16% #N/A
Putnam Growth & Income -1.20% 2.00% -7.12% 0.76% 0.76% 12.40%
Putnam International Growth 15.42% 35.14% 41.83% 58.92% 58.92% #N/A
Putnam Voyager 18.94% 41.07% 42.13% 56.91% 56.91% 34.40%
Van Kampen Emerging Growth 24.91% 60.30% 66.97% 102.96% 102.96% #N/A
Since Inception Since Inception
Five Year Ten Year of Portfolio of Subaccount
------------------------------------------------------------------
AIM Capital Appreciation 23.98% #N/A 20.95% #N/A
AIM Growth 26.95% #N/A 20.80% #N/A
AIM Value 25.10% #N/A 21.31% #N/A
Alliance Growth 30.44% #N/A 29.75% #N/A
Alliance Growth & Income 23.05% #N/A 14.68% #N/A
Alliance Premier Growth #N/A #N/A 29.37% #N/A
MSDW Aggressive Equity #N/A #N/A 75.94% 75.94%
MSDW Capital Growth 23.36% #N/A 14.54% 14.54%
MSDW Competitive Edge #N/A #N/A 13.23% 13.23%
MSDW Dividend Growth 17.86% #N/A 12.25% 15.50%
MSDW Equity 34.77% 22.19% 18.06% 25.93%
MSDW European Growth 24.00% #N/A 18.85% 18.85%
MSDW Global Dividend Growth 14.94% #N/A 12.54% 12.54%
MSDW High Yield 5.13% 7.55% 7.29% 10.72%
MSDW Income Builder #N/A #N/A 10.04% 10.04%
MSDW Money Market 4.45% 4.23% 4.98% 3.96%
MSDW Pacific Growth -0.14% #N/A -1.57% -1.57%
MSDW Quality Income Plus 7.15% 7.01% 7.06% 7.43%
MSDW S&P 500 #N/A #N/A 19.12% 19.12%
MSDW Short-Term Bond #N/A #N/A 1.64% 1.64%
MSDW Strategist 15.44% 12.25% 11.26% 13.90%
MSDW Utilities 19.06% #N/A 13.45% 14.58%
MSDW Emerging Markets Equity #N/A #N/A 11.30% 19.68%
MSDW Equity Growth #N/A #N/A 29.50% 20.95%
MSDW International Magnum #N/A #N/A 12.65% 11.67%
MSDW Mid-Cap Value #N/A #N/A 23.44% 23.44%
MSDW U.S. Real Estate #N/A #N/A -0.28% -8.27%
Putnam Growth & Income 18.40% 13.04% 14.23% #N/A
Putnam International Growth #N/A #N/A 29.21% #N/A
Putnam Voyager 30.55% 21.28% 20.52% #N/A
Van Kampen Emerging Growth #N/A #N/A 64.73% 64.73%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1 Rider One Month Three Month Six Month YTD One Year Three Year
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIM Capital Appreciation 16.50% 35.50% 31.49% 43.42% 43.42% 22.87%
AIM Growth 10.06% 22.28% 19.62% 34.12% 34.12% 27.92%
AIM Value 6.02% 17.50% 13.03% 28.82% 28.82% 25.46%
Alliance Growth 9.87% 26.40% 16.39% 33.36% 33.36% 29.97%
Alliance Growth & Income 2.28% 7.91% -3.22% 10.45% 10.45% 19.15%
Alliance Premier Growth 8.99% 21.21% #N/A #N/A #N/A #N/A
MSDW Aggressive Equity 18.66% 40.62% 42.25% #N/A #N/A #N/A
MSDW Capital Growth 14.01% 27.38% 23.46% 32.19% 32.19% 24.66%
MSDW Competitive Edge 10.37% 18.35% 18.22% 25.05% 25.05% #N/A
MSDW Dividend Growth 0.96% -0.11% -11.28% -3.20% -3.20% 10.97%
MSDW Equity 19.34% 38.33% 34.83% 57.28% 57.28% 40.50%
MSDW European Growth 11.83% 24.92% 25.41% 28.05% 28.05% 21.92%
MSDW Global Dividend Growth 5.28% 5.13% 3.54% 13.71% 13.71% 12.13%
MSDW High Yield 1.93% 0.29% -5.68% -2.15% -2.15% 0.33%
MSDW Income Builder 4.68% 5.49% -2.18% 6.18% 6.18% #N/A
MSDW Money Market 0.38% 1.08% 2.05% 3.92% 3.92% 4.20%
MSDW Pacific Growth 10.05% 21.24% 26.80% 64.72% 64.72% -3.29%
MSDW Quality Income Plus -0.79% -0.80% -0.70% -5.11% -5.11% 4.06%
MSDW S&P 500 5.76% 14.45% 6.99% 18.71% 18.71% #N/A
MSDW Short-Term Bond -0.02% 0.41% 1.40% #N/A #N/A #N/A
MSDW Strategist 5.07% 9.98% 7.70% 16.38% 16.38% 18.10%
MSDW Utilities 4.07% 10.74% 5.43% 11.78% 11.78% 20.05%
MSDW Emerging Markets Equity 23.01% 49.90% 41.09% 94.07% 94.07% 13.04%
MSDW Equity Growth 9.78% 21.56% 20.37% 38.30% 38.30% #N/A
MSDW International Magnum 7.15% 11.89% 17.65% 24.16% 24.16% #N/A
MSDW Mid-Cap Value 9.19% 13.00% 5.54% 19.60% 19.60% #N/A
MSDW U.S. Real Estate 4.25% -1.20% -9.54% -2.29% -2.29% #N/A
Putnam Growth & Income -1.22% 1.96% -7.18% 0.62% 0.62% 12.25%
Putnam International Growth 15.41% 35.10% 41.74% 58.71% 58.71% #N/A
Putnam Voyager 18.93% 41.03% 42.04% 56.71% 56.71% 34.22%
Van Kampen Emerging Growth 24.89% 60.24% 66.86% 102.69% 102.69% #N/A
Since Inception Since Inception
Five Year Ten Year of Portfolio of Subaccount
------------------------------------------------------------------
AIM Capital Appreciation 23.82% #N/A 20.80% #N/A
AIM Growth 26.79% #N/A 20.64% #N/A
AIM Value 24.94% #N/A 21.16% #N/A
Alliance Growth 30.27% #N/A 29.58% #N/A
Alliance Growth & Income 22.89% #N/A 14.53% #N/A
Alliance Premier Growth #N/A #N/A 29.20% #N/A
MSDW Aggressive Equity #N/A #N/A 75.71% 75.71%
MSDW Capital Growth 23.20% #N/A 14.39% 14.39%
MSDW Competitive Edge #N/A #N/A 13.08% 13.08%
MSDW Dividend Growth 17.71% #N/A 12.10% 15.35%
MSDW Equity 34.59% 22.03% 17.90% 25.77%
MSDW European Growth 23.84% #N/A 18.70% 18.70%
MSDW Global Dividend Growth 14.79% #N/A 12.40% 12.40%
MSDW High Yield 4.99% 7.41% 7.15% 10.58%
MSDW Income Builder #N/A #N/A 9.90% 9.90%
MSDW Money Market 4.31% 4.09% 4.84% 3.83%
MSDW Pacific Growth -0.27% #N/A -1.69% -1.69%
MSDW Quality Income Plus 7.01% 6.87% 6.93% 7.29%
MSDW S&P 500 #N/A #N/A 18.96% 18.96%
MSDW Short-Term Bond #N/A #N/A 1.51% 1.51%
MSDW Strategist 15.29% 12.10% 11.12% 13.76%
MSDW Utilities 18.91% #N/A 13.30% 14.43%
MSDW Emerging Markets Equity #N/A #N/A 11.15% 19.53%
MSDW Equity Growth #N/A #N/A 29.33% 20.79%
MSDW International Magnum #N/A #N/A 12.51% 11.53%
MSDW Mid-Cap Value #N/A #N/A 23.28% 23.28%
MSDW U.S. Real Estate #N/A #N/A -0.41% -8.39%
Putnam Growth & Income 18.25% 12.89% 14.08% #N/A
Putnam International Growth #N/A #N/A 29.04% #N/A
Putnam Voyager 30.38% 21.12% 20.36% #N/A
Van Kampen Emerging Growth #N/A #N/A 64.51% 64.51%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2 Rider One Month Three Month Six Month YTD One Year Three Year
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AIM Capital Appreciation 16.49% 35.46% 31.42% 43.26% 43.26% 22.74%
AIM Growth 10.05% 22.25% 19.56% 33.97% 33.97% 27.77%
AIM Value 6.01% 17.46% 12.97% 28.68% 28.68% 25.33%
Alliance Growth 9.86% 26.36% 16.32% 33.21% 33.21% 29.82%
Alliance Growth & Income 2.27% 7.88% -3.27% 10.33% 10.33% 19.02%
Alliance Premier Growth 8.98% 21.18% #N/A #N/A #N/A #N/A
MSDW Aggressive Equity 18.65% 40.58% 42.17% #N/A #N/A #N/A
MSDW Capital Growth 14.00% 27.35% 23.40% 32.05% 32.05% 24.52%
MSDW Competitive Edge 10.36% 18.32% 18.15% 24.92% 24.92% #N/A
MSDW Dividend Growth 0.95% -0.14% -11.33% -3.30% -3.30% 10.85%
MSDW Equity 19.33% 38.29% 34.76% 57.11% 57.11% 40.34%
MSDW European Growth 11.82% 24.88% 25.34% 27.91% 27.91% 21.79%
MSDW Global Dividend Growth 5.27% 5.10% 3.49% 13.58% 13.58% 12.01%
MSDW High Yield 1.92% 0.26% -5.74% -2.25% -2.25% 0.22%
MSDW Income Builder 4.67% 5.46% -2.23% 6.06% 6.06% #N/A
MSDW Money Market 0.37% 1.05% 2.00% 3.80% 3.80% 4.08%
MSDW Pacific Growth 10.04% 21.20% 26.73% 64.54% 64.54% -3.40%
MSDW Quality Income Plus -0.80% -0.82% -0.76% -5.21% -5.21% 3.95%
MSDW S&P 500 5.75% 14.42% 6.93% 18.58% 18.58% #N/A
MSDW Short-Term Bond -0.02% 0.38% 1.35% #N/A #N/A #N/A
MSDW Strategist 5.06% 9.95% 7.64% 16.25% 16.25% 17.97%
MSDW Utilities 4.06% 10.71% 5.37% 11.66% 11.66% 19.92%
MSDW Emerging Markets Equity 23.00% 49.86% 41.01% 93.86% 93.86% 12.91%
MSDW Equity Growth 9.77% 21.53% 20.31% 38.15% 38.15% #N/A
MSDW International Magnum 7.14% 11.85% 17.59% 24.02% 24.02% #N/A
MSDW Mid-Cap Value 9.18% 12.96% 5.48% 19.47% 19.47% #N/A
MSDW U.S. Real Estate 4.24% -1.23% -9.59% -2.39% -2.39% #N/A
Putnam Growth & Income -1.22% 1.94% -7.24% 0.51% 0.51% 12.13%
Putnam International Growth 15.40% 35.06% 41.66% 58.54% 58.54% #N/A
Putnam Voyager 18.92% 40.99% 41.96% 56.54% 56.54% 34.08%
Van Kampen Emerging Growth 24.88% 60.20% 66.77% 102.47% 102.47% #N/A
Since Inception Since Inception
Five Year Ten Year of Portfolio of Subaccount
------------------------------------------------------------------
AIM Capital Appreciation 23.69% #N/A 20.66% #N/A
AIM Growth 26.65% #N/A 20.51% #N/A
AIM Value 24.80% #N/A 21.02% #N/A
Alliance Growth 30.13% #N/A 29.44% #N/A
Alliance Growth & Income 22.76% #N/A 14.40% #N/A
Alliance Premier Growth #N/A #N/A 29.06% #N/A
MSDW Aggressive Equity #N/A #N/A 75.52% 75.52%
MSDW Capital Growth 23.07% #N/A 14.26% 14.26%
MSDW Competitive Edge #N/A #N/A 12.96% 12.96%
MSDW Dividend Growth 17.58% #N/A 11.98% 15.22%
MSDW Equity 34.44% 21.90% 17.77% 25.63%
MSDW European Growth 23.71% #N/A 18.57% 18.57%
MSDW Global Dividend Growth 14.67% #N/A 12.27% 12.27%
MSDW High Yield 4.87% 7.29% 7.03% 10.46%
MSDW Income Builder #N/A #N/A 9.77% 9.77%
MSDW Money Market 4.20% 3.98% 4.73% 3.71%
MSDW Pacific Growth -0.38% #N/A -1.80% -1.80%
MSDW Quality Income Plus 6.89% 6.75% 6.81% 7.18%
MSDW S&P 500 #N/A #N/A 18.83% 18.83%
MSDW Short-Term Bond #N/A #N/A 1.40% 1.40%
MSDW Strategist 15.16% 11.98% 11.00% 13.63%
MSDW Utilities 18.78% #N/A 13.18% 14.30%
MSDW Emerging Markets Equity #N/A #N/A 11.03% 19.39%
MSDW Equity Growth #N/A #N/A 29.19% 20.66%
MSDW International Magnum #N/A #N/A 12.38% 11.41%
MSDW Mid-Cap Value #N/A #N/A 23.15% 23.15%
MSDW U.S. Real Estate #N/A #N/A -0.52% -8.49%
Putnam Growth & Income 18.12% 12.77% 13.96% #N/A
Putnam International Growth #N/A #N/A 28.90% #N/A
Putnam Voyager 30.24% 20.99% 20.23% #N/A
Van Kampen Emerging Growth #N/A #N/A 64.33% 64.33%
</TABLE>
