-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BVxIG01creJMWDwnhoBt+jC5kwbP9JfqJ4blr+ILjqpR2Rr8FD6XPVfPF4g/kEuV q5CTLpjm/Wl58HjD5SvWcw== 0000945094-00-000240.txt : 20000503 0000945094-00-000240.hdr.sgml : 20000503 ACCESSION NUMBER: 0000945094-00-000240 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20000502 EFFECTIVENESS DATE: 20000502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHBROOK VARIABLE ANNUITY ACCOUNT II CENTRAL INDEX KEY: 0000864922 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-35412 FILM NUMBER: 616246 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-06116 FILM NUMBER: 616247 BUSINESS ADDRESS: STREET 1: 3100 SANDERS RD STREET 2: C/O NORTHBROOK LIFE INSURANCE CO CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 8474022400 MAIL ADDRESS: STREET 1: 3100 SANDERS RD CITY: NORTHBROOK STATE: IL ZIP: 60062 485BPOS 1 NB VA II AND ASSETMANAGER AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 2000 -------------------------------------------------------------------------- FILE NOS. 033-35412 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. 27 /X/ AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 31 /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 May 1, 2000 pursuant to paragraph (b) of Rule 485 / / 60 days after filing 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. Explanatory Note Registrant is filing this post-effecitve amendment ("Amendment") for the purpose of updating the prospectus and statement of additional information and adding ten new variable sub-accounts that will be available under the Morgan Stanley Dean Witter Variable Anuity II contracts described in the registration statement, and for the purpose of updating the prospectus and statement of additional information for the Morgan Stanley Dean Witter Variable Annuity II AssetManager contracts described in the registration statement. This Amendment is not intended to amend or delete any part of the registration statement, except as specifically noted herein. Morgan Stanley Dean Witter Variable Annuity II Northbrook Life Insurance Company Prospectus dated May 1, 2000 P.O. Box 94040 Palatine, IL 60094 Telephone Number: 1-800-654-2397 Northbrook Life Insurance Company ("Northbrook") is offering the Morgan Stanley Dean Witter Variable Annuity II, 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 35 investment alternatives ("investment alternatives"). The investment alternatives include 4 fixed account options ("Fixed Account Options") 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"): o Morgan Stanley Dean Witter Variable Investment Series o The Universal Institutional Funds, Inc.* o Van Kampen Life Investment Trust o AIM Variable Insurance Funds o Alliance Variable Products Series Fund (Class B Shares) o Putnam Variable Trust (Class IB Shares) * Effective May 1, 2000 (formerly known as Morgan Stanley Dean Witter Universal Funds, Inc.) We (Northbrook) have filed a Statement of Additional Information, dated May 1, 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 B-1 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. The Securities and Exchange Commission has not IMPORTANT approved or disapproved the security described in NOTICES this prospectus, nor has it passed on the accuracy or the adequacy of this prospectus. Any one who tells you otherwise is committing a federal crime. Investment in the Contracts involves investment risks, including possible loss of principal. Overview Page Important Terms The Contract At A Glance How the Contract Works Expense Table Financial Information Contract Features The Contract Purchases Contract Value Investment Alternatives The Variable Sub-Accounts The Fixed Account Options Transfers Expenses Access To Your Money Income Payments Death Benefits Longevity Reward Rider Other Information More Information: Northbrook The Variable Account The Portfolios The Contract Qualified Plans Legal Matters Year 2000 Taxes Performance Information Appendix A - Accumulation Unit Values A-1 Statement of Additional Information Table of B-1 Contents Important Terms This prospectus uses a number of important terms with which you may not be familiar. . The index below identifies the page that describes each term. The first use of each term in this prospectus appears in highlighted text. Page Accumulation Phase 6 Accumulation Unit 11 Accumulation Unit Value 11 Annuitant 12 Automatic Portfolio Rebalancing Program 18 Automatic Additions Program 13 Beneficiary 12 Cancellation Period 4 Contract* 1 Contract Anniversary 5 Contract Owner ("You") 12 Contract Value 14 Contract Year 5 Death Benefit Anniversary 23 Death Benefit Combination Option 24 Dollar Cost Averaging Program 18 Dollar Cost Averaging Fixed Account Options 16 Due Proof of Death 23 Enhanced Death Benefit Option 23 Fixed Account Options 16 Free Withdrawal Amount 19 Funds 1 Guarantee Periods 16 Income Plan 21 Investment Alternatives 1 Issue Date 6 Longevity Reward Rider Northbrook ("We") 25 Payout Phase 6 Payout Start Date 6 Performance Benefit Combination Option 24 Performance Death Benefit Option 24 Performance Income Benefit Option 22 Portfolios 1 Qualified Contracts 12 Right to Cancel 4 SEC 1 Settlement Value 24 Systematic Withdrawal Program 20 Valuation Date 13 Variable Account 1 Variable Sub-Account 1 *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. The Contract at a Glance The following is a snapshot of the Contract. Please read the remainder of this prospectus for more information. Flexible Payments You can purchase a Contract with an initial purchase payment as little as $1,000 (we may increase this minimum to as much as to $4,000). You can add to your Contract as often and as much as you like. Each payment must be at least $25. You must maintain a minimum account size of $500. 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 applicable law permits, to reflect the investment experience of any amounts allocated to the Variable Account. Expenses You will bear the following expenses: o Total Variable Account annual fees equal to 1.35% of average daily net assets (1.48% if you select the Enhanced Death Benefit Option, the Performance Death Benefit Option, or the Performance Income Benefit Option, and 1.59% if you select the Performance Benefit Combination Option, or the Death Benefit Combination Option). If you qualify for and elect the Longevity Reward Rider, the annual fees are reduced by 0.07% under the basic policy or any Option listed above. See the description of each Option and the Rider for the availability of each. o Annual contract maintenance charge of $30 (waived in certain cases) o Withdrawal charges ranging from 0% to 6% of purchase payment(s) withdrawn (with certain exceptions) o Transfer fee of $25 after 12th transfer in any Contract Year (fee currently waived) o 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 35 investment alternatives including: o 4 Fixed Account Options (which credit interest at rates we guarantee) o 31 Variable Sub-Accounts investing in Portfolios offering professional money management by these investment advisers: o Morgan Stanley Dean Witter Advisors, Inc. o Morgan Stanley Asset Management o Van Kampen Asset Management Inc. o AIM Advisors, Inc. o Alliance Capital Management, L.P. o Putnam Investment Management Inc.
To find out current rates being paid on the Fixed Account Options, 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: o Automatic Additions Program o Automatic Portfolio Rebalancing Program o Dollar Cost Averaging Program o Systematic Withdrawal Program 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: o life income with payments guaranteed for 10 years o joint and survivor life income o 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 3 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 entire amount in the investment alternative, whichever is less. Transfers to the Guarantee Periods must be at least $500. 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 anytime during the Accumulation Phase. In general, you must withdraw at least $100 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. A withdrawal charge also may apply. 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 35 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 Options. If you invest in the Fixed Account Options, 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 __. 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. Issue Accumulation Phase Payout Start Payout Phase Date Date - ---------------------------------------------------------------------------------- | | | You buy You save for retirement You elect to You can Or you can a Contract receive income receive receive income payments or income payments for life receive a lump payments sum payment for a set period
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. 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. Contract Owner Transaction Expenses Withdrawal Charge (as a percentage of purchase payments withdrawn)* (Without the Longevity Reward Rider) Number of Complete Years Since We Received the Purchase Payment Being Withdrawn**: 0 1 2 3 4 5 6+ Applicable Charge: 6% 5% 4% 3% 2% 1% 0%
Annual Contract Maintenance Charge $30.00 *** Transfer Fee $25.00**** * During each Contract Year, you may withdraw up to 15% of the aggregate amount of your purchase payments as of the beginning of the Contract Year without incurring a withdrawal charge. ** If you qualify for and elect the Longevity Reward Rider, a withdrawal charge of up to 3% will apply to purchase payments received before or after the Rider date. See "Longevity Reward Rider" on page___for details. *** If you qualify for and elect the Longevity Reward Rider, we will waive the contract maintenance charge for the life of the Contract provided your total Contract Value is $40,000 or more on or after the date we issue the Rider ("Rider Date"). **** Applies solely to the thirteenth and subsequent transfers within a Contract Year excluding transfers due to dollar cost averaging and automaticportfolio 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) Mortality and Expense Risk Charge 1.25%* Administrative Expense Charge 0.10% Total Variable Account Annual Expense 1.35% *If you select the Enhanced Death Benefit Option, the Performance Death Benefit Option, or the Performance Income Benefit Option, the mortality and expense risk charge is 1.38%. If you select the Performance Benefit Combination Option, or the Death Benefit Combination Option, the mortality and expense risk charge is 1.49%. If you qualify for and elect the Longevity Reward Rider, the mortality and expense risk charge is reduced by 0.07% under the basic policy or any Option described above. Portfolio Annual Expenses (After Voluntary Reductions and Reimbursements)(as a percentage of Portfolio average daily net assets) (1) Portfolio Management Other Expenses Rule 12b-1 Total Portfolio Fees Fees Annual Expenses Morgan Stanley Dean Witter Variable Investment Series Aggressive Equity 0.42% 0.10% --- 0.52% Capital Growth 0.65% 0.07% --- 0.72% Competitive Edge "Best Ideas" 0.44% 0.12% --- 0.56% Dividend Growth 0.51% 0.01% --- 0.52% Equity 0.49% 0.02% --- 0.51% European Growth 0.95% 0.09% --- 1.04% Global Dividend Growth 0.75% 0.08% --- 0.83% High Yield 0.50% 0.03% --- 0.53% Income Builder 0.75% 0.06% --- 0.81% Money Market 0.50% 0.02% --- 0.52% Pacific Growth 0.95% 0.47% --- 1.42% Quality Income Plus 0.50% 0.02% --- 0.52% Short-Term Bond 0.45% 0.17% --- 0.62% Strategist 0.50% 0.02% --- 0.52% S&P 500 Index(2) 0.39% 0.09% --- 0.48% Utilities 0.64% 0.03% --- 0.67% The Universal Institutional Funds, Inc. (3) Mid-Cap Value 0.43% 0.62% --- 1.05% Emerging Markets Equity 0.42% 1.37% --- 1.79% Equity Growth 0.29% 0.56% --- 0.85% International Magnum 0.29% 0.87% --- 1.16% U.S. Real Estate 0.00% 1.10% --- 1.10% AIM Variable Insurance Funds AIM V.I. Capital Appreciation Fund 0.62% 0.11% --- 0.73% AIM V.I. Growth Fund 0.63% 0.10% --- 0.73% AIM V.I. Value Fund 0.61% 0.15% --- 0.76% Alliance Variable Products Series Fund (4) Growth Portfolio 0.75% 0.12% 0.25% 1.12% Growth and Income Portfolio 0.63% 0.09% 0.25% 0.97% Premier Growth Portfolio 1.00% 0.04% 0.25% 1.29% Putnam Variable Trust (Class IB Shares) Putnam VT Growth and Income Fund 0.46% 0.04% 0.15% 0.65% Putnam VT International Growth Fund 0.80% 0.22% 0.15% 1.17% Putnam VT Voyager Fund 0.53% 0.04% 0.15% 0.72% Van Kampen Life Investment Trust(5) Emerging Growth 0.67% 0.18% -- 0.85%
(1) Figures shown in the Table are for the year ended December 31, 1999, unless otherwise noted. (2) 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 .050% of the daily net assets of the S &P 500 Index Portfolio. (3) Morgan Stanley Asset Management has voluntarily agreed to a reduction in its management fees and to reimburse the Portfolios for which it acts as investment advisor for certain expenses of the Portfolios. The advisor may terminate this voluntary waiver at any time. Absent such reductions, the management fees, other expenses, and total annual Portfolio expenses would have been as follows: Equity Growth 0.55% 0.56% 1.11% U.S. Real Estate 0.80% 1.10% 1.90% International Magnum 0.80% 0.87% 1.67% Emerging Markets Equity 1.25% 1.37% 2.62% Mid-Cap Value 0.75% 0.62% 1.37% (4) 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. The Class B shares were first issued July 14, 1999. (5) 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%, 0.18% and 0.88%, respectively. Example 1 The example below shows the dollar amount of expenses that you would bear directly or indirectly if you: o invested $1,000 in a Variable Sub-Account, o earned a 5% annual return on your investment, o surrendered your Contract, or you began receiving income payments for a specified period of less than 120 months, at the end of each time period, and o elected the Performance Benefit Combination Option or the Income and 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. Sub-Account 1 Year 3 Years 5 Years 10 Years Morgan Stanley Dean Witter Variable Investment Series Aggressive Equity $65 $94 $126 $251 Capital Growth $67 $100 $136 $272 Competitive Edge "Best Ideas" $65 $95 $128 $255 Dividend Growth $65 $94 $126 $251 Equity $65 $94 $125 $250 European Growth $70 $110 $152 $304 Global Dividend Growth $68 $103 $141 $283 High Yield $65 $94 $126 $252 Income Builder $68 $103 $140 $281 Mid-Cap Value $70 $110 $153 $305 Money Market $65 $94 $126 $251 Pacific Growth $74 $121 $171 $341 Quality Income Plus $65 $94 $126 $251 Short-Term Bond $66 $97 $131 $261 Strategist $65 $94 $126 $251 S&P 500 Index $64 $93 $123 $247 Utilities $66 $98 $133 $267 The Universal Institutional Funds, Inc. Emerging Markets Equity $78 $133 $190 $376 Equity Growth $68 $104 $143 $285 International Magnum $71 $113 $158 $316 U.S. Real Estate $71 $112 $155 $310 AIM Variable Insurance Funds AIM V.I. Capital Appreciation $67 $100 $136 $273 AIM V.I. Growth $67 $100 $136 $273 AIM V.I. Value $67 $101 $138 $276 Alliance Variable Products Series Fund Growth $71 $112 $156 $312 Growth and Income $69 $108 $149 $297 Premier Growth $73 $117 $165 $329 Putnam Variable Trust (Class IB Shares) Putnam VT Growth and Income $66 $98 $132 $264 Putnam VT International Growth $71 $114 $159 $317 Putnam Voyager $67 $100 $136 $272 Van Kampen Life Investment Trust Emerging Growth $68 $104 $143 $285 Example 2 Same assumptions as Example 1 above, except that you decided not to surrender your Contract, or you began receiving income payments (for at least 120 months if under an Income Plan with a specified period), at the end of each period. Sub-Account 1 Year 3 Years 5 Years 10 Years Morgan Stanley Dean Witter Variable Investment Series Aggressive Equity $22 $68 $117 $251 Capital Growth $24 $74 $127 $272 Competitive Edge "Best Ideas" $23 $70 $119 $255 Dividend Growth $22 $68 $117 $251 Equity $22 $68 $117 $250 European Growth $27 $84 $144 $304 Global Dividend Growth $25 $78 $133 $283 High Yield $22 $69 $118 $252 Income Builder $25 $77 $132 $281 Mid-Cap Value $28 $85 $144 $305 Money Market $22 $68 $117 $251 Pacific Growth $31 $96 $163 $341 Quality Income Plus $22 $68 $117 $251 Short-Term Bond $23 $71 $122 $261 Strategist $22 $68 $117 $251 S&P 500 Index $22 $67 $115 $247 Utilities $24 $73 $125 $267 The Universal Institutional Funds, Inc. Emerging Markets Equity $35 $107 $181 $376 Equity Growth $26 $78 $134 $285 International Magnum $29 $88 $150 $316 U.S. Real Estate $28 $86 $147 $310 AIM Variable Products Series Fund AIM V.I. Capital Appreciation $24 $75 $128 $273 AIM V.I. Growth $24 $75 $128 $273 AIM V.I. Value $25 $76 $129 $276 Alliance Variable Products Series Fund Growth $28 $87 $148 $312 Growth and Income $27 $82 $140 $297 Premier Growth $30 $92 $156 $329 Putnam Variable Trust (Class IB Shares) Putnam VT Growth and Income $23 $72 $124 $264 Putnam VT International Growth $29 $88 $150 $317 Putnam VT Voyager $26 $78 $134 $285 Van Kampen Life Investment Trust Emerging Growth $26 $78 $134 $285 Please remember that you are looking at examples 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 1.49%. If those options were not elected, the expense figures shown above would be slightly lower. To reflect the contract maintenance charge in the examples, we estimated an equivalent percentage charge, based on an assumed average Contract size of $54,945. 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 "Accumulation Unit Value." Accumulation Unit Value is similar to, but not the same as, the share price of a mutual fund. Attached as Appendix A to this prospectus are tables showing the Accumulation Unit Values of each Variable Sub-Account since its inception. To obtain additional detail on each Variable Sub-Account's finances, please refer to the Variable Account's financial statements contained in the Statement of Additional Information. The financial statements of Northbrook also appear in the Statement of Additional Information. The Contract CONTRACT OWNER The Variable Annuity II 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): o the investment alternatives during the Accumulation and Payout Phases, o the amount and timing of your purchase payments and withdrawals, o the programs you want to use to invest or withdraw money, o the income payment plan you want to use to receive retirement income, o the Annuitant (either yourself or someone else) on whose life the income payments will be based, o the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract owner dies, and o 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. The maximum issue age for the Contract, without any riders, is age 90. 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 span we use to determine income payments as well as the latest Payout Start Date. You initially designate an Annuitant in your application. If the Contract owner is a natural person, you may change the Annuitant before the Payout Start Date. Before the Payout Start Date, you may also designate a joint Annuitant, who is a second person on whose life income payments depend. 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 while the Annuitant is living 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: o your spouse, if he or she is still alive, otherwise o your surviving children equally, or if you have no surviving children, o 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 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 you sign it and file 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. However, we reserve the right to raise that minimum to as much as $4,000. All subsequent purchase payments must be $25 or more. You may make purchase payments at any time prior to the Payout Start Date. We reserve the right to 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 $25 by automatically transferring amounts from your bank account or your Morgan Stanley Dean Witter Active Assets (TM) 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. The minimum amount that you may allocate to the Guarantee Periods is $500. 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 Options. We also will return your purchase payments allocated to the Variable Account after an adjustment, to the extent applicable law permits, 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. 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 Options. 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: o changes in the share price of the Portfolio in which the Variable Sub-Account invests, and o 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 contract maintenance charges, withdrawal charges, and 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 Enhanced Death Benefit Option, 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 the 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. We also determine separate sets of Accumulation Unit Values that reflect the costs under the Longevity Reward Rider with the basic policy and with each Option listed above. 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 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. Portfolio: Each Portfolio Seeks: Investment Adviser: Morgan Stanley Dean Witter Variable Investment Series Aggressive Equity Portfolio Capital growth Morgan Stanley Dean Witter Advisors, Inc. Capital Growth Portfolio Long-term capital growth Competitive Edge "Best Ideas" Portfolio Long-term capital growth Dividend Growth Portfolio Reasonable current income and long-term growth of income and capital Equity Portfolio Growth of capital and, as a secondary objective, income when consistent with its primary objective European Growth Portfolio To maximize the capital appreciation on its investments Global Dividend Growth Portfolio Reasonable current income and long-term growth of income and capital Income Builder Portfolio Reasonable income and, as a secondary objective, growth of capital High Yield Portfolio High current income and, as a secondary objective, capital appreciation when consistent with its primary objective Mid-Cap Value Above-average total return over a market cycle of three to five years Money Market Portfolio High current income, preservation of capital, and liquidity Pacific Growth Portfolio To maximize the capital appreciation on its investments 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 Strategist Portfolio High total investment return S&P 500 Index Portfolio Investment results that, before expenses, correspond to the total return of the Standard and Poor's 500 Composite Stock Price Index Utilities Portfolio Current income and long term growth of income and capital The Universal Institutional Funds, Inc. Emerging Markets Equity Portfolio Long-term capital appreciation Morgan Stanley Asset Management Equity Growth Portfolio Long-term capital appreciation International Magnum Portfolio Long-term capital appreciation U.S. Real Estate Portfolio Above-average current income and long-term capital appreciation Van Kampen Life Investment Trust Emerging Growth Portfolio Capital appreciation Van Kampen Asset Management Inc. AIM Variable Insurance Funds* AIM V.I. Capital Appreciation Fund Growth of capital AIM Advisors, Inc. AIM V.I. Growth Fund Growth of capital AIM V.I. Value Fund Long-term growth of capital Alliance Variable Products Series Fund Growth Portfolio Long-term growth of capital. Alliance Capital Management, Current income is incidental to L.P. 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 Putnam Variable Trust Putnam VT Growth and Income Fund Capital growth and current income Putnam Investment Management, Inc. Putnam VT International Growth Fund Capital appreciation Putnam VT Voyager Fund Capital appreciation
* A portfolios' investment objective may be changed by the Funds' Board of Directors without shareholder approval. 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. Investment Alternatives: The Fixed Account Options You may allocate all or a portion of your purchase payments to the Fixed Account Options. You may choose from among 4 Fixed Account Options including 3 dollar cost averaging options ("Dollar Cost Averaging Fixed Account Options") and the option to invest in one or more Guarantee Periods. The Fixed Account Options may not be available in all states. Northbrook may also limit the availability of the 6 and 12 Month Dollar Cost Averaging Options. 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 a Fixed Account Option does not entitle you to share in the investment experience of the Fixed Account. DOLLAR COST AVERAGING FIXED ACCOUNT OPTIONS Basic Dollar Cost Averaging Option. You may establish a Dollar Cost Averaging Program, as described on page 18, by allocating purchase payments to the Basic Dollar Cost Averaging Option. Purchase payments that you allocate to the Basic Dollar Cost Averaging Option will earn interest for 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. Rates may be different than those available for the Guarantee Periods described below. After the one year period, we will declare a renewal rate which we guarantee for a full year. Subsequent renewal dates will be every twelve months for each purchase payment. Renewal rates will not be less than the minimum guaranteed rate found in the Contract. You may not transfer funds from other investment alternatives to the Basic Dollar Cost Averaging Option. 6 and 12 Month Dollar Cost Averaging Options. You also may establish a Dollar Cost Averaging Program by allocating purchase payments to the Fixed Account either for 6 months (the "6 Month Dollar Cost Averaging Option") or for 12 months (the "12 Month Dollar Cost Averaging Option"). Your purchase payments will earn interest for the period you select at the current rates in effect at the time of allocation. Rates may differ from those available for the Guarantee Periods described below. However, the crediting rates for the 6 and 12 Month Dollar Cost Averaging Options will never be less than 3% annually. You must transfer all of your money out of the 6 or 12 Month Dollar Cost Averaging Options to the Variable Sub-Accounts in equal monthly installments. If you discontinue a 6 or 12 Month Dollar Cost Averaging Option prior to last scheduled transfer, we will transfer any remaining money immediately to the Money Market Variable Sub-Account, unless you request a different Variable Sub-Account. You may not transfer funds from other investment alternatives to the 6 or 12 Month Dollar Cost Averaging Options. Transfers out of the Dollar Cost Averaging Fixed Account Options do not count towards the 12 transfers you can make without paying a transfer fee. We may declare more than one interest rate for different monies based upon the date of allocation to the Dollar Cost Averaging Fixed Account Options. For current interest rate information, please contact your sales representative or our customer support unit at 1-800-654-2397. GUARANTEE PERIODS You may allocate purchase payments or transfers to one or more Guarantee Periods of the Fixed Account ("Guarantee Periods"). Each payment or transfer allocated to a Guarantee Period earns interest at a specified rate that we guarantee for a period of years. We will offer a 1 year Guarantee Period. We offer additional Guarantee Periods at our sole discretion. We currently offer a 1 year and a 6 year Guarantee Period. Interest Rates. We will tell you what interest rates and Guarantee Periods we are offering at a particular time. We will not change the interest rate that we credit to a particular allocation until the end of the relevant Guarantee Period. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. We have no specific formula for determining the rate of interest that we will declare initially or in the future. We will set those interest rates based on investment returns available at the time of the determination. In addition, we may consider various other factors in determining interest rates including regulatory and tax requirements, our sales commission and administrative expenses, general economic trends, and competitive factors. We determine the interest rates to be declared in our sole discretion. We can neither predict nor guarantee what those rates will be in the future. For current interest rate information, please contact your sales representative or Northbrook at 1-800-654-2397. The interest rate will never be less than the minimum guaranteed rate stated in the Contract. After the Guarantee Period, we will declare a renewal rate. Subsequent renewal dates will be on anniversaries of the first renewal date. On or about each renewal date, the Company will notify the owner of the interest rate(s) for the Contract Year then starting. Investment Alternatives: Transfers TRANSFERS DURING THE ACCUMULATION PHASE During the Accumulation Phase, you may transfer Contract Value among the investment alternatives. Transfers to any Guarantee Period must be at least $500. You may not, however, transfer Contract Value into any of the Dollar Cost Averaging Fixed Account Options. 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 limit the amount you may transfer from the Guarantee Periods to the Variable Account in any Contract Year to the greater of: 1. 25% of the aggregate value in the Guarantee Periods as of the most recent Contract Anniversary (if this amount is less than $1,000, then up to $1,00 may be transferred); or 2. 25% of the sum of all purchase payments and transfers to the Guarantee Periods as of the most recent Contract Anniversary. These restrictions do not apply to transfers pursuant to dollar cost averaging. If the first renewal interest rate is less than the current rate that was in effect at the time money was allocated or transferred to a Guarantee Period, we wil waive the transfer restriction for that money and the accumulated interest thereon during the 60-day period following the first renewal date. 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 written 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 Options for up to six 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. EXCESSIVE TRADING LIMITS For Contracts issued after May 2, 1999, 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: o imposing a minimum time period between each transfer, o refusing to accept transfer requests of an agent acting under a power of attorney on behalf of more than one Contract owner, or o limiting the dollar amount that a Contract owner may transfer between the Variable Sub-Accounts and the Fixed Account Options 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 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 Fixed Account Option(s) to any Variable Sub-Account. Transfers made through dollar cost averaging must be $100 or more. 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 Options 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 request. 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. Expenses As a Contract owner, you will bear, directly or indirectly, the charges and expenses described below. CONTRACT MAINTENANCE CHARGE During the Accumulation Phase, on each Contract Anniversary we will deduct a $30 contract maintenance charge from your Contract Value. This charge will be deducted on a pro rata basis from each investment alternative in the proportion that your investment in each bears to your Contract Value. We also will deduct a full contract maintenance charge if you withdraw your entire Contract Value. During the Payout Phase, we will deduct the charge proportionately from each income payment. The charge is to compensate us for the cost of administering the Contracts and the Variable Account. Maintenance costs include expenses we incur in billing and collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract owners and regulatory agencies. We cannot increase the charge. The contract maintenance charge is waived under certain circumstances if you qualify for and elect the Longevity Reward Rider. See "Longevity Reward Rider" on page __ for details. MORTALITY AND EXPENSE RISK CHARGE We deduct a mortality and expense risk charge daily at an annual rate of 1.25% of the average daily net assets you have invested in the Variable Sub-Accounts (1.38% if you select either the Enhanced Death Benefit Option, the Performance Death Benefit Option, or the Performance Income Benefit Option, and 1.49% 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 charges 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 intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. 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 $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. WITHDRAWAL CHARGE We may assess a withdrawal charge of up to 6% of the purchase payment(s) you withdraw. This charge declines to 0% after the expiration of 6 years from the day we receive the purchase payment being withdrawn. A schedule showing how the withdrawal charge declines over the 6-year period is shown on page 7. During each Contract Year, you can withdraw up to 15% of the aggregate amount of your purchase payments as of the Issue Date or the most recent Contract Anniversary, whichever is later without paying a withdrawal charge. Unused portions of this Free Withdrawal Amount are not carried forward to future Contract Years. If you qualify for and elect the Longevity Reward Rider, a withdrawal charge of up to 3% will apply to purchase payments received before or after the Rider Date. See "Longevity Reward Rider" on page __ for details. We will deduct withdrawal charges, if applicable, from the amount paid, unless you instruct otherwise. For purposes of the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings, which means you pay taxes on the earnings portion of your withdrawal. We do not apply a withdrawal charge in the following situations: o on the Payout Start Date (a withdrawal charge may apply if you elect to receive income payments for a specified period of less than 120 months); o the death of the Contract owner or Annuitant unless the Settlement Value is used; and o withdrawals taken to satisfy IRS minimum distribution rules for the Contract. We use the amounts obtained from the withdrawal charge to pay sales commissions and other promotional or distribution expenses associated with marketing the Contracts. To the extent that the withdrawal charge does not cover all sales commissions and other promotional or distribution expenses, we may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or any other charges or fee described above, to make up any difference. Withdrawals also may be subject to tax penalties or income tax. You should consult your own tax counsel or other tax advisers regarding any withdrawals. 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 from 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 it 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. 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. You can withdraw money from the Variable Account and/or the Fixed Account Options. 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 withdrawal charges, contract maintenance charges, 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 $100 at a time. You also may withdraw a lesser amount if you are withdrawing your entire interest in a Variable Sub-Account. Withdrawals also may be subject to income tax and a 10% penalty tax, as described below. The total amount paid at surrender may be more or less than the total purchase payments due to prior withdrawals, any deductions, and investment performance. 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 payments or transfers from the Fixed Account Options 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 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 Active Assets(TM) 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 Options, 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 $500, 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 withdrawal and other applicable charges, and applicable taxes. 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: o at least 30 days after the Issue Date; o the first day of a calendar month; and o no later than the first day of the calendar month after 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. 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: o fixed income payments; o variable income payments; or o a combination of the two. The three Income Plans are: Income Plan 1 - Life Income with Payments Guaranteed for 10 Years. 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. Under this plan, we make periodic income payments for the period you have chosen. These payments do not depend on the Annuitant's life. A withdrawal charge may apply if the specified period is less than 10 years. 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 guarantee periods result in lower income payments, all other things being equal. For example, if you 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 all or part of the 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 associated with the amount withdrawn. The minimum amount you may withdraw under this feature is $1,000. A withdrawal charge may apply. 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 Options 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 Options to fixed income payments. We deduct applicable premium taxes from the Contract Value at the Payout Start Date. 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: o pay you the Contract Value, less any applicable taxes, in a lump sum instead of the periodic payments you have chosen, or o 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. 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 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 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(s) or, if none, the Beneficiary(ies). 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: o a certified copy of a death certificate, o a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or o 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 withdrawal charges or 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 Enhanced Death Benefit, 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. Enhanced Death Benefit Option. 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 a year since the Rider Date. On each subsequent Contract Anniversary, but not beyond the Contract Anniversary preceding the oldest Contract owners' 75th birthdays, we will recalculate the Enhanced Death Benefit as follows: First, we multiply the Enhanced Death Benefit as of the prior Contract Anniversary by 1.05. This results in an increase of 5% annually. Further, for all ages, we will adjust the Enhanced Death Benefit on each Contract Anniversary, or upon receipt of a death claim, as follows: o We will reduce the Enhanced Death Benefit by the percentage of any Contract Value withdrawn since the prior Contract Anniversary; and o We will increase the Enhanced Death Benefit by any additional purchase payments since the prior Contract Anniversary. If you select the Enhanced Death Benefit Option, the maximum age of any owner on the date we issue the Contract Rider is 70. 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. If you select the Performance Death Benefit Option, the maximum age of any owner on the date we issue the Contract Rider is 80. 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 Enhanced Death Benefit or the Performance Death Benefit (both calculated until the oldest Contract owner, or Annuitant if the Contract owner is a non-natural person, attains age 85). After age 85, the death benefit payable will be adjusted to reflect purchase payments and withdrawals to the extent described under "Enhanced Death Benefit Option" and "Performance Death Benefit Option" above. We sometimes refer to the Death Benefit Combination Option as the "Best of the Best" death benefit option. If you select the Death Benefit Combination Option, the maximum age of any owner on the date we issue the Contract rider is 80. 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." If you select the Performance Benefit Combination Option, the maximum age of any owner on the date we issue the Contract rider is 75. None of the death benefits under the Enhanced Death Benefit, the Performance Death Benefit, the Performance Benefit Combination, or the Death Benefit Combination Option 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: o the life of the new Contract owner; or o for a guaranteed number of payments from 5 to 30 years, but not to exceed the life expectancy of the 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 any applicable withdrawal charge and 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 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. The Contract may only be continued once. If the surviving spouse continues the Contract in the Accumulation Phase, the surviving spouse may make a single withdrawal of any amount within 1 year of the date of death without incurring a withdrawal charge. If the surviving spouse is under age 59 1/2, a 10% penalty tax may apply to the withdrawal. If you qualify for and elect (before the date of death) the Longevity Reward Rider, on the date the Contract is continued, the Contract Value will equal the amount of the death benefit. See "Longevity Reward Rider" on page __ for details. 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. 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. LONGEVITY REWARD RIDER The Longevity Reward Rider, which is currently pending regulatory approval, is not yet available so please check with your Morgan Stanley Dean Witter Financial Advisor. In some states, the Longevity Reward Rider will be called the Long-Term Retention Rider. The Rider may not be appropriate for you if you expect to make a withdrawal within the first three years of the Rider Date. ELIGIBILITY You may elect the Longevity Reward Rider at any time during the Accumulation Phase if all purchase payments have a 0% early withdrawal charge. MORTALITY AND EXPENSE RISK CHARGE If you elect the Rider, then commencing on the Rider Date, we will reduce the maximum mortality and expense risk charge ("M&E charge") by 0.07%. That means your M&E charge will never be greater than 1.18% (1.31% if you select the Enhanced Death Benefit Option, the Performance Death Benefit Option, or the Performance Income Benefit Option, and 1.42% if you select the Performance Benefit Combination Option, or the Death Benefit Combination Otpion). The 0.10% administrative expense charge remains unchanged under the Rider. CONTRACT MAINTENANCE CHARGE If you elect the Rider, we will waive the contract maintenance charge for the life of the Contract, provided your total Contract Value is $40,000 or more on or after the Rider Date. CONTRACT CONTINUATION BY A SURVIVING SPOUSE If the surviving spouse continues the Contract as described under "Death Benefit Payments" on page __, the following provision applies: 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 3:00 p.m. Central Time). All ownership rights under the Contract will then be available to your spouse as the new Contract owner. NEW WITHDRAWAL CHARGE If you elect the Rider, we will apply the new withdrawal charge schedule set forth below. That means that we may assess a withdrawal charge of up to 3% of the amount of purchase payments you withdraw after the Rider Date. The withdrawal charge applies to purchase payments made both before the Rider Date ("existing payments"), as well as payments made on or after the Rider Date ("new purchase payments"). The withdrawal charge declines to 0% according to the following schedule: Existing Purchase Payments New Purchase Payments Number of Complete Years Since Withdrawal Charge Number of Complete Years We Received the New Purchase (as a Percentage of New or Since the Rider Date Payment Being Withdrawn Existing Purchase Payments Withdrawn) 0 0 3% 1 1 2% 2 2 1% 3+ 3+ 0%
Once all purchase payments have been withdrawn, additional withdrawals will not be assessed a withdrawal charge. The maximum aggregate early withdrawal charge on existing and new purchase payments withdrawn after the Rider Date is 3% of your purchase payments. FREE WITHDRAWAL AMOUNT If you elect the Rider, you will continue to have the option to make withdrawals of up to 15% of your purchase payments without paying a withdrawal charge. However, under the Rider, the Free Withdrawal Amount is 15% of the amount of purchase payments as of the Rider Date or the most recent Contract Year, whichever is later. As with all withdrawals, we will treat withdrwawals as coming from the oldest purchase payments first. Unused poritons of the Free Withdrawal Amount do not carry forward to future Contract Years. More Information NORTHBROOK Northbrook is the issuer of the Contract. Northbrook is a stock life insurance company organized in under the laws of the State of Arizona in 1998. Previously, from 1978 to 1998, Northbrook was organized under the laws of the State of Illinois. 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 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, 21 of which are available under the Contract. 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 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 rata 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. We may pay up to a maximum sales commission of 6.0% of purchase payments and an annual sales administration expense of up to 0.125% of the average net assets of the Fixed Account to Dean Witter. In addition, Dean Witter may pay annually to its representatives, from its profits, a persistency bonus that will take into account, among other things, the length of time purchase payments have been held under the Contract and Contract Values. Administration. We have primary responsibility for all administration of the Contracts and the Variable Account. We provide the following administrative services, among others: o issuance of the Contracts; o maintenance of Contract owner records; o Contract owner services; o calculation of unit values; o maintenance of the Variable Account; and o preparation of Contract owner reports. We will send you Contract statements at least annually prior to the Payout Start Date. Contract statements are currently mailed on a quarterly basis. 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, waivers of withdrawal charges, 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. YEAR 2000 Northbrook is heavily dependent upon complex computer systems for all phases of its operations, including customer service, and policy and contract administration. Since many of Northbrook's older computer software programs recognized only the last two digits of the year in any date, some software may have failed to operate properly after the year 1999 if the software had not been reprogrammed or replaced ("Year 2000 Issue"). Northbrook believes that many of its countrerparties and suppliers also had potential Year 2000 Issues which could have affected Northbrook. In 1995, Allstate Insurance Company commenced a four phase plan intended to mitigate and/or prevent the adverse effects of Year 2000 Issues. These strategies included normal development and enhancement of new and existing systems, to make them Year 2000 compliant. The plan also included Northbrook actively working with its major external counterparties and suppliers to assess their compliance efforts and Northbrook's exposure to them. As of the date of this prospectus, Northbrook believes that the Year 2000 Issue was successfully resolved and that such resolution will not materially affect its results of operations, liquidity or financial position. 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 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 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: o made on or after the date the individual attains age 59 1/2, o made to a Beneficiary after the Contract owner's death, o attributable to the Contract owner being disabled, or o 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 variable annuities held by such plans do 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. Northbrook reserves the right to limit the availability of the Contract for use with any of the Qualified Plans listed below. Contracts may be used as investments with certain qualified plans such as: o Individual Retirement Annuities or Accounts (IRAs) under Section 408 of the Internal Revenue Code ("Code"); o Roth IRAs under Section 408A of the Code; o Simplified Employee Pension Plans under Section 408(k) of the Code; o Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section 408(p) of the Code; o Tax Sheltered Annuities under Section 403(b) of the Code; o Corporate and Self Employed Pension and Profit Sharing Plans; and o State and Local Government and Tax-Exempt Organization Deferred Compensation Plans. 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 12/31/88, and all earnings on salary reduction contributions, may be made only: 1. on or after the date of employee o attains age 59 1/2, o separates from service, o dies, o 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, 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. 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, the contract maintenance charge, and withdrawal charge. Performance advertisements also may include total return figures that reflect the deduction of insurance charges, but not the contract maintenance or withdrawal charges. The deduction of such charges would reduce the performance shown. In addition, performance advertisements 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. Appendix A Accumulation Unit Values and Number of Accumulation Units Outstanding for Each Variable Sub-Account Since Inception VARIABLE SUB-ACCOUNT 1990 1991 1992 1993 1994 1995 For the Years Beginning January 1* and Ending December 31, - -------------------------------------------------------------------------------------------------------------------------------- AGGRESSIVE EQUITY Accumulation Unit Value, Beginning - - - - - - of Period Accumulation Unit Value, End of - - - - - - Period Number of Units Outstanding, End of - - - - - - Period - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL GROWTH Accumulation Unit Value, Beginning - $10.000 $12.697 $12.731 $11.682 $11.379 of Period Accumulation Unit Value, End of - $12.697 $12.731 $11.682 $11.379 $14.923 Period Number of Units Outstanding, End of - 901,617 2,655,336 3,556,779 3,411,788 3,917,752 Period - -------------------------------------------------------------------------------------------------------------------------------- COMPETITIVE EDGE "BEST IDEAS" Accumulation Unit Value, Beginning - - - - - - of Period Accumulation Unit Value, End of - - - - - - Period Number of Units Outstanding, End of - - - - - - Period - -------------------------------------------------------------------------------------------------------------------------------- DIVIDEND GROWTH Accumulation Unit Value, Beginning $10.000 $11.037 $13.911 $14.844 $16.746 $15.981 of Period Accumulation Unit Value, End of $11.037 $13.911 $14.844 $16.746 $15.981 $21.505 Period Number of Units Outstanding, End of 159,555 2,004,718 7,123,073 21,941,369 28,980,558 33,515,201 Period - -------------------------------------------------------------------------------------------------------------------------------- EMERGING GROWTH Accumulation Unit Value, Beginning - - - - - - of Period Accumulation Unit Value, End of - - - - - - Period Number of Units Outstanding, End of - - - - - - Period - -------------------------------------------------------------------------------------------------------------------------------- EMERGING MARKETS EQUITY Accumulation Unit Value, Beginning - - - - - - of Period Accumulation Unit Value, End of - - - - - - Period Number of Units Outstanding, End of - - - - - - Period - -------------------------------------------------------------------------------------------------------------------------------- EQUITY Accumulation Unit Value, Beginning $10.000 $10.706 $16.799 $16.599 $19.604 $18.392 of Period Accumulation Unit Value, End of $10.706 $16.799 $16.599 $19.604 $18.392 $25.864 Period Number of Units Outstanding, End of 15,701 369,133 1,417,732 5,917,819 8,914,107 10,835,413 Period - -------------------------------------------------------------------------------------------------------------------------------- EQUITY GROWTH Accumulation Unit Value, Beginning - - - - - - of Period Accumulation Unit Value, End of - - - - - - Period Number of Units Outstanding, End of - - - - - - Period - -------------------------------------------------------------------------------------------------------------------------------- EUROPEAN GROWTH Accumulation Unit Value, Beginning - $10.000 $10.020 $10.280 $14.290 $15.278 of Period Accumulation Unit Value, End of - $10.020 $10.280 $14.290 $15.278 $18.976 Period Number of Units Outstanding, End of - 248,922 719,495 4,448,126 8,491,681 8,587,679 Period - -------------------------------------------------------------------------------------------------------------------------------- GLOBAL DIVIDEND GROWTH Accumulation Unit Value, Beginning - - - - $10.000 $9.912 of Period Accumulation Unit Value, End of - - - - $9.912 $11.935 Period Number of Units Outstanding, End of - - - - 12,306,690 15,325,898 Period - -------------------------------------------------------------------------------------------------------------------------------- HIGH YIELD Accumulation Unit Value, Beginning $10.000 $8.932 $13.982 $16.336 $20.022 $19.264 of Period Accumulation Unit Value, End of $8.932 $13.982 $16.336 $20.022 $19.264 $21.859 Period Number of Units Outstanding, End of 1,574 64,097 377,434 2,451,231 4,082,485 5,536,230 Period - -------------------------------------------------------------------------------------------------------------------------------- INCOME BUILDER Accumulation Unit Value, Beginning - - - - - - of Period Accumulation Unit Value, End of - - - - - - Period Number of Units Outstanding, End of - - - - - - Period - -------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL MAGNUM Accumulation Unit Value, Beginning - - - - - - of Period Accumulation Unit Value, End of - - - - - - Period Number of Units Outstanding, End of - - - - - - Period - -------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET Accumulation Unit Value, Beginning $10.000 $10.111 $10.549 $10.765 $10.913 $11.178 of Period Accumulation Unit Value, End of $10.111 $10.549 $10.765 $10.913 $11.178 $11.653 Period Number of Units Outstanding, End of 345,667 1,864,548 3,481,984 7,643,579 19,047,342 17,483,665 Period - -------------------------------------------------------------------------------------------------------------------------------- PACIFIC GROWTH Accumulation Unit Value, Beginning - - - - $10.000 $9.221 of Period Accumulation Unit Value, End of - - - - $9.221 $9.619 Period Number of Units Outstanding, End of - - - - 7,080,863 8,865,898 Period - -------------------------------------------------------------------------------------------------------------------------------- QUALITY INCOME PLUS Accumulation Unit Value, Beginning $10.000 $10.403 $12.163 $12.993 $14.487 $13.344 of Period Accumulation Unit Value, End of $10.403 $12.163 $12.993 $14.487 $13.344 $16.373 Period Number of Units Outstanding, End of 175,839 1,221,348 6,701,534 26,314,453 25,348,646 26,735,500 Period - -------------------------------------------------------------------------------------------------------------------------------- SHORT TERM BOND Accumulation Unit Value, Beginning - - - - - - of Period Accumulation Unit Value, End of - - - - - - Period Number of Units Outstanding, End of - - - - - - Period - -------------------------------------------------------------------------------------------------------------------------------- STRATEGIST Accumulation Unit Value, Beginning $10.000 $10.483 $13.266 $14.035 $15.286 $15.675 of Period Accumulation Unit Value, End of $10.483 $13.266 $14.035 $15.286 $15.675 $16.919 Period Number of Units Outstanding, End of 5,854 778,440 3,385,842 11,837,077 18,218,900 17,717,645 Period - -------------------------------------------------------------------------------------------------------------------------------- S&P 500 INDEX Accumulation Unit Value, Beginning - - - - - - of Period Accumulation Unit Value, End of - - - - - - Period Number of Units Outstanding, End of - - - - - - Period - -------------------------------------------------------------------------------------------------------------------------------- U.S. REAL ESTATE Accumulation Unit Value, Beginning - - - - - - of Period Accumulation Unit Value, End of - - - - - - Period Number of Units Outstanding, End of - - - - - - Period - -------------------------------------------------------------------------------------------------------------------------------- UTILITIES Accumulation Unit Value, Beginning $10.000 $10.471 $12.454 $13.840 $15.798 $14.180 of Period Accumulation Unit Value, End of $10.471 $12.454 $13.840 $15.798 $14.180 $17.999 Period Number of Units Outstanding, End of 130,114 1,615,460 6,626,508 25,354,331 22,552,568 22,626,178 Period Continued 1996 through 1999 VARIABLE SUB-ACCOUNT 1996 1997 1998 1999 For the Years Beginning January 1* and Ending December 31, AGGRESSIVE EQUITY Accumulation Unit Value, Beginning - - - $10.000 of Period Accumulation Unit Value, End of - - - $14.447 Period Number of Units Outstanding, End of - - N/A 924,675 Period - ------------------------------------------------------------------------------------------------------ CAPITAL GROWTH Accumulation Unit Value, Beginning $14.923 $16.421 $20.177 $23.806 of Period Accumulation Unit Value, End of $16.421 $20.177 $23.806 $31.319 Period Number of Units Outstanding, End of 4,277,823 4,469,790 3,662,958 3,251,167 Period - ------------------------------------------------------------------------------------------------------ COMPETITIVE EDGE "BEST IDEAS" Accumulation Unit Value, Beginning - - $10.000 $9.728 of Period Accumulation Unit Value, End of - - $9.728 $12.177 Period Number of Units Outstanding, End of - - 1,432,745 1,766,647 Period - ------------------------------------------------------------------------------------------------------ DIVIDEND GROWTH Accumulation Unit Value, Beginning $21.505 $26.298 $32.590 $36.725 of Period Accumulation Unit Value, End of $26.298 $32.590 $36.725 $35.384 Period Number of Units Outstanding, End of 38,902,776 39,673,542 36,334,173 31,771,950 Period - ------------------------------------------------------------------------------------------------------ EMERGING GROWTH Accumulation Unit Value, Beginning - - $10.000 $11.997 of Period Accumulation Unit Value, End of - - $11.997 $24.191 Period Number of Units Outstanding, End of - - 254,704 1,761,875 Period - ------------------------------------------------------------------------------------------------------ EMERGING MARKETS EQUITY Accumulation Unit Value, Beginning - - $10.000 $7.102 of Period Accumulation Unit Value, End of - - $7.102 $13.643 Period Number of Units Outstanding, End of - - 82,002 609,573 Period - ------------------------------------------------------------------------------------------------------ EQUITY Accumulation Unit Value, Beginning $25.864 $28.669 $38.873 $50.025 of Period Accumulation Unit Value, End of $28.669 $38.873 $50.025 $78.284 Period Number of Units Outstanding, End of 13,438,192 13,511,972 12,608,741 13,033,466 Period - ------------------------------------------------------------------------------------------------------ EQUITY GROWTH Accumulation Unit Value, Beginning - - $10.000 $10.104 of Period Accumulation Unit Value, End of - - $10.104 $13.901 Period Number of Units Outstanding, End of - - 822,038 1,653,843 Period - ------------------------------------------------------------------------------------------------------ EUROPEAN GROWTH Accumulation Unit Value, Beginning $18.976 $24.335 $27.870 $34.083 of Period Accumulation Unit Value, End of $24.335 $27.870 $34.083 $43.419 Period Number of Units Outstanding, End of 10,006,937 9,765,284 8,967,887 7,442,535 Period - ------------------------------------------------------------------------------------------------------ GLOBAL DIVIDEND GROWTH Accumulation Unit Value, Beginning $11.935 $13.845 $15.304 $16.991 of Period Accumulation Unit Value, End of $13.845 $15.304 $16.991 $19.219 Period Number of Units Outstanding, End of 19,847,332 21,662,482 17,634,472 15,377,323 Period - ------------------------------------------------------------------------------------------------------ HIGH YIELD Accumulation Unit Value, Beginning $21.859 $24.148 $26.652 $24.658 of Period Accumulation Unit Value, End of $24.148 $26.652 $24.658 $24.009 Period Number of Units Outstanding, End of 7,988,916 8,797,892 8,199,142 6,186,696 Period - ------------------------------------------------------------------------------------------------------ INCOME BUILDER Accumulation Unit Value, Beginning - $10.000 $12.084 $12.297 of Period Accumulation Unit Value, End of - $12.084 $12.297 $12.997 Period Number of Units Outstanding, End of - 2,364,583 2,979,980 2,557,977 Period - ------------------------------------------------------------------------------------------------------ INTERNATIONAL MAGNUM Accumulation Unit Value, Beginning - - $10.000 $9.790 of Period Accumulation Unit Value, End of - - $9.790 $12.092 Period Number of Units Outstanding, End of - - 136,628 281,569 Period - ------------------------------------------------------------------------------------------------------ MONEY MARKET Accumulation Unit Value, Beginning $11.653 $12.084 $12.546 $12.979 of Period Accumulation Unit Value, End of $12.084 $12.546 $12.979 $13.46 Period Number of Units Outstanding, End of 21,476,904 18,625,330 21,159,031 17,541,394 Period - ------------------------------------------------------------------------------------------------------ QUALITY INCOME PLUS Accumulation Unit Value, Beginning $16.373 $16.404 $17.983 $19.265 of Period Accumulation Unit Value, End of $16.404 $17.983 $19.265 $18.200 Period Number of Units Outstanding, End of 24,233,104 20,839,536 20,312,197 16,872,144 Period - ------------------------------------------------------------------------------------------------------ SHORT TERM BOND Accumulation Unit Value, Beginning - - - $10.000 of Period Accumulation Unit Value, End of - - - $10.065 Period Number of Units Outstanding, End of - - - 127,159 Period - ------------------------------------------------------------------------------------------------------ STRATEGIST Accumulation Unit Value, Beginning $16.919 $19.199 $21.540 $26.875 of Period Accumulation Unit Value, End of $19.199 $21.540 $26.875 $31.136 Period Number of Units Outstanding, End of 17,132,441 16,153,105 14,574,012 13,273,409 Period - ------------------------------------------------------------------------------------------------------ S&P 500 INDEX Accumulation Unit Value, Beginning - - $10.000 $11.126 of Period Accumulation Unit Value, End of - (Y) $11.126 $13.198 Period Number of Units Outstanding, End of - - 1,722,709 4,729,418 Period - ------------------------------------------------------------------------------------------------------ U.S. REAL ESTATE Accumulation Unit Value, Beginning - - $10.000 $9.062 of Period Accumulation Unit Value, End of - - $9.062 $8.808 Period Number of Units Outstanding, End of - - 79,729 230,000 Period - ------------------------------------------------------------------------------------------------------ UTILITIES Accumulation Unit Value, Beginning $17.999 $19.298 $24.208 $29.461 of Period Accumulation Unit Value, End of $19.298 $24.208 $29.461 $32.870 Period Number of Units Outstanding, End of 19,259,329 15,172,387 13,541,542 11,688,649 Period
*The Money Market, Quality Income Plus, High Yield, Utilities, Dividend Growth, Equity and Strategist Sub-Accounts commenced operations on October 25, 1990. The Capital Growth and European Growth Sub-Accounts commenced operations on March 1, 1991. The Global Dividend Growth and Pacific Growth Sub-Accounts commenced operations on February 23, 1994. The Income Builder and the former Capital Appreciation Sub-Accounts commenced operations on January 21, 1997. The Equity Growth, International Magnum, Emerging Markets, and Emerging Growth Sub-Accounts commenced operations on March 16, 1998. The U.S. Real Estate, S&P 500 Index, and Competitive Edge "Best Ideas' Sub-Accounts commenced operations on May 18, 1998. The Short-Term Bond and Aggressive Equity Variable Sub-Accounts commenced operations on May 3, 1999. The Mid-Cap Value, Capital Appreciation, Growth (AIM Fund), Value, Growth (Alliance Fund), Growth and Income Alliance Fund), Premier Growth, Growth and Income (Putnam Fund), International Growth, and Voyager Variable Sub-Accounts ("New Sub-Accounts") commenced operations on January 31, 2000. No Accumulation Unit data is shown for the New Sub-Accounts. The Accumulation Unit Value for each of these Sub-Accounts was initially set at $10.000. The Accumulation UnitValues in this table reflect a mortality and expense risk charge of 1.25% and an administrative expense charge of 0.10%. Accumulation Unit Values and Number of Accumulation Units Outstanding for Each Sub-Account Since Inception for Contracts withn the Enhanced Death Benefit Option, the Performance Death Benefit Option or the Performance Income Benefit Option VARIABLE SUB-ACCOUNT 1995 1996 1997 1998 1999 For the Years Beginning January 1* and Ending December 31, AGGRESSIVE EQUITY Accumulation Unit Value, Beginning of Period - - - - $10.000 Accumulation Unit Value, End of Period - - - - $14.465 Number of Units Outstanding, End of Period - - - - 1,122,012 - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL GROWTH Accumulation Unit Value, Beginning of Period $13.895 $14.920 $16.397 $20.121 $23.717 Accumulation Unit Value, End of Period $14.920 $16.397 $20.121 $23.717 $31.150 Number of Units Outstanding, End of Period 36,005 509,094 1,365,427 1,687,847 1,636,053 - ----------------------------------------------------------------------------------------------------------------------------------- COMPETITIVE EDGE "BEST IDEAS" Accumulation Unit Value, Beginning of Period - - - $10.000 $9.720 Accumulation Unit Value, End of Period - - - $9.720 $12.152 Number of Units Outstanding, End of Period - - - 1,965,368 2,481,411 - ----------------------------------------------------------------------------------------------------------------------------------- DIVIDEND GROWTH Accumulation Unit Value, Beginning of Period $20.068 $21.500 $26.259 $32.498 $36.593 Accumulation Unit Value, End of Period $21.500 $26.259 $32.498 $36.593 $35.192 Number of Units Outstanding, End of Period 366,928 4,586,699 13,973,141 19,936,437 20,053,835 - ----------------------------------------------------------------------------------------------------------------------------------- EMERGING GROWTH Accumulation Unit Value, Beginning of Period - - - $10.000 $11.985 Accumulation Unit Value, End of Period - - - $11.985 $24.135 Number of Units Outstanding, End of Period - - - 402,082 2,522,689 - ----------------------------------------------------------------------------------------------------------------------------------- EMERGING MARKETS EQUITY Accumulation Unit Value, Beginning of Period - - - $10,000 $7.095 Accumulation Unit Value, End of Period - - - $7.095 $13.679 Number of Units Outstanding, End of Period - - - 94,600 689,216 - ---------------------------------------------------------------------------------------------------------------------------------- EQUITY Accumulation Unit Value, Beginning of Period $24.677 $25.858 $28.626 $38.764 $49.825 Accumulation Unit Value, End of Period $25.858 $28.626 $38.764 $49.825 $77.861 Number of Units Outstanding, End of Period 215,961 2,302,720 5,454,409 7,931,260 10,374,793 - ----------------------------------------------------------------------------------------------------------------------------------- EQUITY GROWTH Accumulation Unit Value, Beginning of Period - - - $10.000 $10.094 Accumulation Unit Value, End of Period - - - $10.094 $13.869 Number of Units Outstanding, End of Period - - - 1,530,819 2,952,648 - ----------------------------------------------------------------------------------------------------------------------------------- EUROPEAN GROWTH Accumulation Unit Value, Beginning of Period $18.486 $18.972 $24.298 $27.792 $33.944 Accumulation Unit Value, End of Period $18.972 $24.298 $27.792 $33.944 $43.185 Number of Units Outstanding, End of Period 62,011 1,143,635 3,091,981 4,668,539 4,444,148 - ----------------------------------------------------------------------------------------------------------------------------------- GLOBAL DIVIDEND GROWTH Accumulation Unit Value, Beginning of Period $11.250 $11.932 $13.824 $15.260 $16.291 Accumulation Unit Value, End of Period $11.932 $13.824 $15.260 $16.921 $19.115 Number of Units Outstanding, End of Period 155,023 2,364,163 7,789,952 8,929,904 8,775,455 - ----------------------------------------------------------------------------------------------------------------------------------- HIGH YIELD Accumulation Unit Value, Beginning of Period $21.462 $21.855 $24.112 $26.577 $24.563 Accumulation Unit Value, End of Period $21.855 $24.112 $26.577 $24.563 $23.879 Number of Units Outstanding, End of Period 66,987 1,462,866 8,797,892 5,304,510 4,203,079 - ----------------------------------------------------------------------------------------------------------------------------------- INCOME BUILDER Accumulation Unit Value, Beginning of Period - - $10.000 $12.069 $12.274 Accumulation Unit Value, End of Period - - $12.069 $12.274 $12.947 Number of Units Outstanding, End of Period - - 2,024,851 3,652,211 3,113,231 - ----------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL MAGNUM Accumulation Unit Value, Beginning of Period - - - $10.000 $9.780 Accumulation Unit Value, End of Period - - - $9.780 $12.063 Number of Units Outstanding, End of Period - - - 170,897 416,818 - ----------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET Accumulation Unit Value, Beginning of Period $11.579 $11.651 $12.065 $12.511 $12.963 Accumulation Unit Value, End of Period $11.651 $12.065 $12.511 $12.963 $13.390 Number of Units Outstanding, End of Period 511,096 3,424,292 5,406,175 8,938,860 10,276,270 - ----------------------------------------------------------------------------------------------------------------------------------- PACIFIC GROWTH Accumulation Unit Value, Beginning of Period $9.352 $9.617 $9.843 $6.042 $5.334 Accumulation Unit Value, End of Period $9.617 $9.843 $6.042 $5.334 $8.730 Number of Units Outstanding, End of Period 97,952 1,411,508 2,105,514 2,456,851 4,058,485 - ----------------------------------------------------------------------------------------------------------------------------------- QUALITY INCOME PLUS Accumulation Unit Value, Beginning of Period $15.746 $16.370 $16.379 $17.932 $19.200 Accumulation Unit Value, End of Period $16.370 $16.379 $17.932 $19.200 $18.101 Number of Units Outstanding, End of Period 142,004 1,095,796 3,843,253 5,109,593 5,167,349 - ----------------------------------------------------------------------------------------------------------------------------------- SHORT TERM BOND Accumulation Unit Value, Beginning of Period - - - - $10.000 Accumulation Unit Value, End of Period - - - - $10.056 Number of Units Outstanding, End of Period - - - - 121,549 - ----------------------------------------------------------------------------------------------------------------------------------- STRATEGIST Accumulation Unit Value, Beginning of Period $16.490 $16.915 $19.170 $21.479 $26.783 Accumulation Unit Value, End of Period $16.915 $19.170 $21.479 $26.783 $30.968 Number of Units Outstanding, End of Period 91,983 903,817 3,529,096 6,559,093 - ----------------------------------------------------------------------------------------------------------------------------------- S&P 500 INDEX Accumulation Unit Value, Beginning of Period - - - $10.000 $11.117 Accumulation Unit Value, End of Period - - - $11.117 $13.170 Number of Units Outstanding, End of Period - - - 2,003,301 6,209,831 - ----------------------------------------------------------------------------------------------------------------------------------- U.S. REAL ESTATE Accumulation Unit Value, Beginning of Period - - - $10.000 $9.054 Accumulation Unit Value, End of Period - - - $9.054 $8.790 Number of Units Outstanding, End of Period - - - 80,782 194,964 - ----------------------------------------------------------------------------------------------------------------------------------- UTILITIES Accumulation Unit Value, Beginning of Period $16.972 $17.995 $19.268 $24.140 $29.438 Accumulation Unit Value, End of Period $17.995 $19.268 $24.140 $29.438 $32.693 Number of Units Outstanding, End of Period 165,046 822,723 1,753,743 3,510,503 4,016,659 - -----------------------------------------------------------------------------------------------------------------------------------
*Contracts with the Enhanced Death Benefit Option, the Performance Death Benefit Option, or the Performance Income Benefit Option were first made available for all of the above Variable Sub-Accounts on October 30, 1995, except that they became available for the Income Builder Variable Sub-Account on January 21, 1997, and for the Equity Growth, International Magnum, Emerging Markets, Emerging Growth, U.S. Real Estate, S&P 500 Index, Competitive Edge "Best Ideas" , Short-Term Bond and Aggressive Equity Variable Sub- Accounts on the day those Variable Sub-Accounts commenced operations. The Accumulation Unit Value for each of these Variable Sub-Accounts was initially set at $10.000. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.38% and an administrative expense charge of .10%. The additional .13% mortality and expense risk charge is applicable to Contract owners who selected the Enhanced Death Benefit Option, the Performance Death Benefit Option or the Performance Income Benefit Option. No Accumulation Unit data is shown for the new Sub-Accounts which commenced operations as of the date of this prospectus. Accumulation Unit Values and Number of Accumulation Units Outstanding for Each Sub-Account Since Inception for Contracts with the Performance Benefit Combination Option or the Death Benefit Combination Option VARIABLE SUB-ACCOUNT 1998 1999 For the Period Beginning January 20 and Ending December 31, - ----------------------------------------------------------------------------------------------------------------------------------- AGGRESSIVE EQUITY Accumulation Unit Value, Beginning of Period - $10.000 Accumulation Unit Value, End of Period - $14.454 Number of Units Outstanding, End of Period - 458,487 - ----------------------------------------------------------------------------------------------------------------------------------- CAPITAL GROWTH Accumulation Unit Value, Beginning of Period $19.356 $23.373 Accumulation Unit Value, End of Period $23.373 $30.663 Number of Units Outstanding, End of Period 41,885 128,657 - ----------------------------------------------------------------------------------------------------------------------------------- COMPETITIVE EDGE "BEST IDEAS" Accumulation Unit Value, Beginning of Period $10.000 $9.714 Accumulation Unit Value, End of Period $9.714 $12.130 Number of Units Outstanding, End of Period 178,762 489,657 - ----------------------------------------------------------------------------------------------------------------------------------- DIVIDEND GROWTH Accumulation Unit Value, Beginning of Period $32.096 $36.031 Accumulation Unit Value, End of Period $36.031 $34.614 Number of Units Outstanding, End of Period 528,141 1,434,477 - ----------------------------------------------------------------------------------------------------------------------------------- EMERGING GROWTH Accumulation Unit Value, Beginning of Period $10.000 $12.590 Accumulation Unit Value, End of Period $12.590 $24.088 Number of Units Outstanding, End of Period 82,427 818,855 - ----------------------------------------------------------------------------------------------------------------------------------- EMERGING MARKETS EQUITY Accumulation Unit Value, Beginning of Period $10.000 $7.089 Accumulation Unit Value, End of Period $7.089 $13.584 Number of Units Outstanding, End of Period 19,500 210,592 - ------------------------------------------------------------------------------------------------------------------------------------ EQUITY Accumulation Unit Value, Beginning of Period $38.177 $49.060 Accumulation Unit Value, End of Period $49.060 $76.581 Number of Units Outstanding, End of Period 221,631 950,293 - ------------------------------------------------------------------------------------------------------------------------------------ EQUITY GROWTH Accumulation Unit Value, Beginning of Period $10.000 $10.370 Accumulation Unit Value, End of Period $10.370 $13.842 Number of Units Outstanding, End of Period 154,201 495,861 - ----------------------------------------------------------------------------------------------------------------------------------- EUROPEAN GROWTH Accumulation Unit Value, Beginning of Period $27.627 $33.452 Accumulation Unit Value, End of Period $33.452 $42.510 Number of Units Outstanding, End of Period 175,357 392,050 - ---------------------------------------------------------------------------------------------------------------------------------- GLOBAL DIVIDEND GROWTH Accumulation Unit Value, Beginning of Period $15.193 $16.794 Accumulation Unit Value, End of Period $16.794 $18.951 Number of Units Outstanding, End of Period 156,429 488,336 - ------------------------------------------------------------------------------------------------------------------------------------ HIGH YIELD Accumulation Unit Value, Beginning of Period $26.463 $24.176 Accumulation Unit Value, End of Period $24.176 $23.477 Number of Units Outstanding, End of Period 137,884 290,136 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME BUILDER Accumulation Unit Value, Beginning of Period $12.036 $12.248 Accumulation Unit Value, End of Period $12.248 $12.906 Number of Units Outstanding, End of Period 164,457 270,771 - ----------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL MAGNUM Accumulation Unit Value, Beginning of Period $10.000 $9.771 Accumulation Unit Value, End of Period $9.771 $12.040 Number of Units Outstanding, End of Period 31,933 172,588 - ----------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET Accumulation Unit Value, Beginning of Period $12.355 $12.766 Accumulation Unit Value, End of Period $12.766 $13.166 Number of Units Outstanding, End of Period 673,034 1,263,421 - ----------------------------------------------------------------------------------------------------------------------------------- PACIFIC GROWTH Accumulation Unit Value, Beginning of Period $5.587 $5.294 Accumulation Unit Value, End of Period $5.294 $8.655 Number of Units Outstanding, End of Period 52,484 390,608 - ----------------------------------------------------------------------------------------------------------------------------------- QUALITY INCOME PLUS Accumulation Unit Value, Beginning of Period $17.841 $18.906 Accumulation Unit Value, End of Period $18.906 $17.804 Number of Units Outstanding, End of Period 169,761 328,139 - --------------------------------------------------------------------------------------------------------------------------------- SHORT TERM BOND Accumulation Unit Value, Beginning of Period - $10.000 Accumulation Unit Value, End of Period - $10.049 Number of Units Outstanding, End of Period - 34,942 - ---------------------------------------------------------------------------------------------------------------------------------- STRATEGIST Accumulation Unit Value, Beginning of Period $21.497 $26.371 Accumulation Unit Value, End of Period $26.371 $30.459 Number of Units Outstanding, End of Period 472,816 1,004,838 - ---------------------------------------------------------------------------------------------------------------------------------- S&P 500 INDEX Accumulation Unit Value, Beginning of Period $10.000 $11.110 Accumulation Unit Value, End of Period $11.110 $13.146 Number of Units Outstanding, End of Period 283,511 1,877,442 - ---------------------------------------------------------------------------------------------------------------------------------- U.S. REAL ESTATE Accumulation Unit Value, Beginning of Period $10.000 $9.048 Accumulation Unit Value, End of Period $9.048 $8.774 Number of Units Outstanding, End of Period 37,193 93,827 - ---------------------------------------------------------------------------------------------------------------------------------- UTILITIES Accumulation Unit Value, Beginning of Period $23.622 $28.985 Accumulation Unit Value, End of Period $28.985 $32.155 Number of Units Outstanding, End of Period 159,860 340,744 - ----------------------------------------------------------------------------------------------------------------------------------
*Contracts with the Performance Benefit Combination Option were first made available for all of the above Variable Sub-Accounts on December 7, 1998, except that they first became available for the Short-Term Bond and Aggressive Equity Variable Sub-Accounts on May 2, 1999, and for the Equity Growth, International Magnum, Emerging Markets, Emerging Growth, U.S. Real Estate, S&P 500 Index, and Competitive Edge "Best Ideas" Variable Sub-Accounts on the day those Variable Sub-Accounts commenced operations. Contracts with the Death Benefit Combination Option were first made available for all of the above Variable Sub-Accounts on May 2, 1999. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.49% and an administrative expense Charge of .10%. The additional 24% mortality and expense risk charge is applicable to Contract owners who selected either the Performance Benefit Combination Option or the Death Benefit Combination Option. Statement of Additional Information Table of Contents Description Page Additions, Deletions or Substitutions of Investments 2 The Contract 3 Purchases 3 Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers) 3 Performance Information 4 Calculation of Accumulation Unit Values 17 Calculation of Variable Income Payments 18 General Matters 19 Incontestability 19 Settlements 19 Safekeeping of the Variable Account's Assets 19 Premium Taxes 19 Tax Reserves 19 Federal Tax Matters 20 Qualified Plans 21 Experts 22 Financial Statements 23 ----------- 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. Morgan Stanley Dean Witter Variable Annuity II AssetManager Northbrook Life Insurance Company Prospectus dated May 1, 2000 P.O. Box 94040 Palatine, IL 60094 Telephone Number: 1-800-654-2397 Northbrook Life Insurance Company ("Northbrook") is offering the Morgan Stanley Dean Witter Variable Annuity II AssetManager, 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 24 investment alternatives ("investment alternatives"). The investment alternatives include 3 fixed account options ("Fixed Account Options") and 21 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"): o Morgan Stanley Dean Witter Variable Investment Series o The Universal Institutional Funds, Inc.* o Van Kampen Life Investment Trust *Effective May 1, 2000 (formerly know as Morgan Stanley Dean Witter Universal Funds, Inc.) We (Northbrook) have filed a Statement of Additional Information, dated May 1, 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 B-1 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. IMPORTANT The Securities and Exchange Commission has not approved or NOTICES disapproved the securities described in this prospectus, nor has it passed on the accuracy or the adequacy of this prospectus. Any one who tells you otherwise is committing a federal crime. Investment in the Contracts involves investment risks, including possible loss of principal.
Table of Contents Page Page Overview Important Terms Income Payments The Contract at a Glance Death Benefits How the Contract Works Expense Table Other Information Financial Information More Information: Northbrook The Variable Account Contract Features The Portfolios The Contract The Contract Qualified Plans Purchases Legal Matters Contract Value Year 2000 Investment Alternatives Taxes The Variable Sub-Accounts Performance Information The Fixed Account Options Appendix A - Accumulation Unit Values Transfers Statement of Additional Information Table of Contents Expenses Access To Your Money
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. Page Accumulation Phase Accumulation Unit Accumulation Unit Value Annuitant Automatic Additions Program Automatic Portfolio Rebalancing Program Beneficiary Cancellation Period *Contract Contract Anniversary Contract Owner ("You") Contract Value Contract Year Death Benefit Anniversary Death Benefit Combination Option Dollar Cost Averaging Fixed Account Options Dollar Cost Averaging Program Due Proof of Death Enhanced Death Benefit Option Fixed Account Options Free Withdrawal Amount Funds Income Plan Investment Alternatives Issue Date Northbrook ("We") Payout Phase Payout Start Date Performance Benefit Combination Option Performance Death Benefit Option Performance Income Benefit Option Portfolios Qualified Contracts Right to Cancel SEC Settlement Value Systematic Withdrawal Program Valuation Date Variable Account Variable Sub-Account * In certain states the Contract is available only as a group Contract. In these states, 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.
The Contract at a Glance The following is a snapshot of the Contract. Please read the remainder of this prospectus for more information. Flexible Payments You can purchase a Contract with an initial purchase payment of $10,000 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 $500. 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 applicable law permits, to reflect the investment experience of any amounts allocated to the Variable Account. Expenses o You will bear the following expenses: o Total Variable Account annual fees equal to 1.59% of average daily net assets (1.72% if you select the Enhanced Death Benefit Option, the Performance Death Benefit Option, or the Performance Income Benefit Option, and 1.83% if you select the Performance Benefit Combination Option, or the Death Benefit Combination Option) o Annual contract maintenance charge of $35(waived in certain cases) o Withdrawal charges not to exceed 1% of purchase payment(s) withdrawn (with certain exceptions) o Transfer fee of $10 after 12th transfer in any Contract Year (fee currently waived) o 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 24 investment alternatives including: o 3 Fixed Account Options (which credit interest at rates we guarantee) o 21 Variable Sub-Accounts investing in Portfolios offering professional money management by these investment advisers: o Morgan Stanley Dean Witter Advisors, Inc. o Morgan Stanley Asset Management o Van Kampen Asset ManagementInc. To find out current rates being paid on the Fixed Account Options, 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: o Automatic Additions Program o Automatic Portfolio Rebalancing Program o Dollar Cost Averaging Program o Systematic Withdrawal Program 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: o life income with payments guaranteed for 10 years o joint and survivor life income o 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 3 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 $10 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 anytime during the Accumulation Phase. In general, you must withdraw at least $100 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. A withdrawal charge also may apply.
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 24 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 Options. If you invest in the Fixed Account Options, 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 __. 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.
ISSUE ACCUMULATION PHASE PAYOUT START PAYOUT PHASE DATE DATE - ---------------------------------------------------------------------------------------------------------------------------------- | | | You buy You save for retirement You elect to You can receive Or you can a Contract receive income income payments receive income payments or for a set period payments for life receive a lump sum payment
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. 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. Contract Owner Transaction Expenses Withdrawal Charge (as a percentage of purchase payments withdrawn)*
Number of Complete Years Since We Received the Purchase Payment Being Withdrawn: 0 1 Applicable Charge: 1% 0% Annual Contract Maintenance Charge $35.00** Transfer Fee $10.00***
* Each Contract Year, you may withdraw up to 15% of the aggregate amount of your purchase payments as of the beginning of the Contract Year without incurring a withdrawal charge. ** We will waive this charge in certain cases. See "Expenses." *** 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) Mortality and Expense Risk Charge 1.49%* Administrative Expense Charge 0.10% Total Variable Account Annual Expenses 1.59% * If you select the Enhanced Death Benefit Option, the Performance Death Benefit Option or the Performance Income Benefit Option, the mortality and expense risk charge is 1.62%. If you select the Performance Benefit Combination Option, or the Death Benefit Combination Option, the mortality and expense risk charge is 1.73%. Portfolio Annual Expenses (After Voluntary Reductions and Reimbursements) (as a percentage of Portfolio average daily net assets)
Portfolio Management Other Total Portfolio Fees Expenses Annual Expenses Morgan Stanley Dean Witter Variable Investment Series Aggressive Equity 0.42% 0.10% 0.52% Capital Growth 0.65% 0.07% 0.72% Competitive Edge "Best Ideas" 0.44% 0.12% 0.56% Dividend Growth 0.51% 0.10% 0.52% Equity 0.49% 0.02% 0.51% European Growth 0.95% 0.09% 1.04% Global Dividend Growth 0.75% 0.08% 0.83% High Yield 0.50% 0.03% 0.53% Income Builder 0.75% 0.06% 0.81% Money Market 0.50% 0.02% 0.52% Pacific Growth 0.95% 0.47% 1.42% Quality Income Plus 0.50% 0.02% 0.52% Short-Term Bond 0.45% 0.17% 0.62% Strategist 0.50% 0.02% 0.52% S&P 500 Index(2) 0.39% 0.09% 0.48% Utilities 0.64% 0.03% 0.67% The Universal Institutional Fund, Inc.(3) Emerging Markets Equity 0.42% 1.37% 1.79% Equity Growth 0.29% 0.56% 0.85% International Magnum 0.29% 0.87% 1.16% U.S. Real Estate 0.00% 1.10% 1.10% Van Kampen Life Investment Trust(4) Emerging Growth 0.32% 0.53% 0.85% (1) Figures shown in the Table are for the year ended December 31, 1999, unless otherwise noted. (2) 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 .050% of the daily net assets of the S&P 500 Index Portfolio. (3) Morgan Stanley Asset Management has voluntarily agreed to a reduction in its management fees and to reimburse the Portfolios 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 as follows: Equity Growth 0.55% 0.56% 1.11% U.S. Real Estate 0.80% 1.10% 1.90% International Magnum 0.80% 0.87% 1.67% Emerging Markets Equity 1.25% 1.10% 2.62% (4) 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%, 0.18, and 0.88%, respectively.
Example 1 The example below shows the dollar amount of expenses that you would bear directly or indirectly if you: o invested $1,000 in a Variable Sub-Account, o earned a 5% annual return on your investment, o surrendered your Contract, or you began receiving income payments for a specified period of less than 120 months, at the end of each time period, and o 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.
Sub-Account 1 Year 3 Years 5 Years 10 Years Aggressive Equity $25 $76 $129 $276 Capital Growth $27 $82 $140 $296 Competitive Edge "Best Ideas" $25 $77 $131 $280 Dividend Growth $25 $76 $129 $276 Emerging Growth $28 $86 $146 $309 Emerging Markets Equity $38 $114 $193 $398 Equity Growth $28 $86 $146 $309 Equity $25 $75 $129 $275 European Growth $31 $94 $160 $335 Global Dividend Growth $28 $85 $145 $307 High Yield $25 $76 $130 $277 Income Builder $28 $85 $144 $305 International Magnum $31 $95 $162 $339 Money Market $25 $76 $129 $276 Pacific Growth $34 $103 $175 $364 Quality Income Plus $25 $76 $129 $276 Short-Term Bond $26 $79 $135 $286 Strategist $25 $76 $129 $276 S&P 500 Index $24 $74 $127 $272 U.S. Real Estate $31 $93 $159 $333 Utilities $26 $80 $137 $291
Example 2 Same assumptions as Example 1 above, except that you decided not to surrender your Contract, or you began receiving income payments (for at least 120 months if under an Income Plan with a specified period), at the end of each period.
Sub-Account 1 Year 3 Years 5 Years 10 Years Aggressive Equity $25 $76 $129 $276 Capital Growth $27 $82 $140 $296 Competitive Edge "Best Ideas" $25 $77 $131 $280 Dividend Growth $25 $76 $129 $276 Emerging Growth $28 $86 $146 $309 Emerging Markets Equity $38 $114 $193 $398 Equity Growth $28 $86 $146 $309 Equity $25 $75 $129 $275 European Growth $30 $92 $156 $328 Global Dividend Growth $28 $85 $145 $307 High Yield $25 $76 $130 $277 Income Builder $28 $85 $144 $305 International Magnum $31 $95 $162 $339 Money Market $25 $76 $129 $276 Pacific Growth $34 $103 $175 $364 Quality Income Plus $25 $76 $129 $276 Short-Term Bond $26 $79 $135 $286 Strategist $25 $76 $129 $276 S&P 500 Index $24 $74 $127 $272 U.S. Real Estate $31 $93 $159 $334 Utilities $26 $80 $137 $291
Please remember that you are looking at examples 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 1.73%. If those options were not elected, the expense figures shown above would be slightly lower. To reflect the contract maintenance charge in the examples, we estimated an equivalent percentage charge, based on an assumed average Contract size of $54,945. 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 similar to, but not the same as, the share price of a mutual fund. Attached as Appendix A to this prospectus are tables showing the Accumulation Unit Values of each Variable Sub-Account since the date we first offered the Contracts. To obtain additional detail on each Variable Sub-Account's finances, please refer to the Variable Account's financial statements contained in the Statement of Additional Information. The financial statements of Northbrook also appear in the Statement of Additional Information. The Contract CONTRACT OWNER The Variable Annuity II AssetManager 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): o the investment alternatives during the Accumulation and Payout Phases, o the amount and timing of your purchase payments and withdrawals, o the programs you want to use to invest or withdraw money, o the income payment plan you want to use to receive retirement income, o the Annuitant (either yourself or someone else) on whose life the income payments will be based, o the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract owner dies, and o 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. The maximum issue age for the Contract without any rider is age 90. 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: o your spouse, if he or she is still alive, otherwise o your surviving children equally, or if you have no surviving children, o 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 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 $10,000. 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 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 Active Assets 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 Options. We also will return your purchase payments allocated to the Variable Account after an adjustment, to the extent applicable law permits, 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. 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 Options. 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: o changes in the share price of the Portfolio in which the Variable Sub-Account invests, and o 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 contract maintenance charges, withdrawal charges, and 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 second set of Accumulation Unit Values that reflect the cost of the Enhanced Death Benefit Option, 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. Investment Alternatives: The Variable Sub-Accounts You may allocate your purchase payments to up to 21 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 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.
Portfolio: Each Portfolio Seeks: Investment Adviser: Morgan Stanley Dean Witter Variable Investment Series Aggressive Equity Portfolio Capital growth Morgan Stanley Dean Witter Advisors, Inc. Capital Growth Portfolio Long-term capital growth Competitive Edge "Best Ideas" Long-term capital growth Portfolio Dividend Growth Portfolio Reasonable current income and long-term growth of income and capital Equity Portfolio Growth of capital and, as a secondary objective, income when consistent with its primary objective. European Growth Portfolio Maximum capital appreciation on its investments Global Dividend Growth Portfolio Reasonable current income and long-term growth of income and capital High Yield Portfolio High current income and, as a secondary objective, capital appreciation when consistent with its primary objective Income Builder Portfolio Reasonable income and, as a secondary objective, growth of capital Money Market Portfolio High current income, preservation of capital, and liquidity Pacific Growth Portfolio Maximum capital appreciation on its investments 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 Strategist Portfolio High total investment return S&P 500 Index Portfolio Investment results that, before expenses, correspond to the total return of the Standard and Poor's 500 Composite Stock Price Index Utilities Portfolio Current income and long-term growth of income and capital The Universal Institutional Fund, Inc. Emerging Markets Equity Portfolio Long-term capital appreciation Morgan Stanley Asset Management Equity Growth Portfolio Long-term capital appreciation International Magnum Portfolio Long-term capital appreciation U.S. Real Estate Portfolio Above-average current income and long-term capital appreciation Van Kampen Life Investment Trust Emerging Growth Portfolio Capital appreciation Van Kampen Asset Management Inc.
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. Investment Alternatives: The Fixed Account You may allocate all or a portion of your purchase payments to the Fixed Account Options. We currently offer 3 dollar cost averaging options ("Dollar Cost Averaging Fixed Account Options"). The Fixed Account Options may not be available in all states. Northbrook may also limit the availability of the 6 and 12 Month Dollar Cost Averaging Options. 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 a Fixed Account Option does not entitle you to share in the investment experience of the Fixed Account. DOLLAR COST AVERAGING FIXED ACCOUNT OPTIONS Basic Dollar Cost Averaging Option. You may establish a Dollar Cost Averaging Program, as described on page __, by allocating purchase payments to the Basic Dollar Cost Averaging Option. Purchase payments that you allocate to the Basic Dollar Cost Averaging Option will earn interest for 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. After the one year period, we will declare a renewal rate which we guarantee for a full year. Subsequent renewal dates will be every twelve months for each purchase payment. Renewal rates will not be less than the minimum guaranteed rate found in the Contract. You may not transfer funds from other investment alternatives to the Basic Dollar Cost Averaging Option. 6 and 12 Month Dollar Cost Averaging Options. You also may establish a Dollar Cost Averaging Program by allocating purchase payments to the Fixed Account either for 6 months (the "6 Month Dollar Cost Averaging Option") or for 12 months (the "12 Month Dollar Cost Averaging Option"). Your purchase payments will earn interest for the period you select at the current rates in effect at the time of allocation. The crediting rates for the 6 and 12 Month Dollar Cost Averaging Options will never be less than 3% annually. You must transfer all of your money out of the 6 or 12 Month Dollar Cost Averaging Options to the Variable Sub-Accounts in equal monthly installments. If you discontinue a 6 or 12 Month Dollar Cost Averaging Option prior to last scheduled transfer, we will transfer any remaining money immediately to the Money Market Variable Sub-Account, unless you request a different Variable Sub-Account. You may not transfer funds from other investment alternatives to the 6 or 12 Month Dollar Cost Averaging Options. Transfers out of the Dollar Cost Averaging Fixed Account Options do not count towards the 12 transfers you can make without paying a transfer fee. We may declare more than one interest rate for different monies based upon the date of allocation to the Dollar Cost Averaging Fixed Account Options. 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 any of the Dollar Cost Averaging Fixed Account Options. 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 $10 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 Options 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. EXCESSIVE TRADING LIMITS For Contracts issued after May 2, 1999, 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: o imposing a minimum time period between each transfer, o refusing to accept transfer requests of an agent acting under a power of attorney on behalf of more than one Contract owner, or o limiting the dollar amount that a Contract owner may transfer between the Variable Sub-Accounts and the Fixed Account Options 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 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. 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 Fixed Account Options 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 Options 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 request. 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. Expenses As a Contract owner, you will bear, directly or indirectly, the charges and expenses described below. CONTRACT MAINTENANCE CHARGE During the Accumulation Phase, on each Contract Anniversary, we will deduct a $35 contract maintenance charge from your Contract Value. This charge will be deducted on a pro-rata basis from each investment alternative in the proportion that your investment in each bears to your Contract Value. We also will deduct a full contract maintenance charge if you withdraw your entire Contract Value. During the Payout Phase, we will deduct the charge proportionately from each income payment. The charge is to compensate us for the cost of administering the Contracts and the Variable Account. Maintenance costs include expenses we incur in billing and collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract owners and regulatory agencies. We cannot increase the charge. We will waive this charge if: o total purchase payments equal $50,000 or more, or o all of your money is allocated to the Fixed Account Options, as of the Contract Anniversary. o After the Payout Start Date, we will waive this charge if: o the Contract Value is $50,000 or more as of the Payout Start Date, or o all income payments are fixed amount income payments. MORTALITY AND EXPENSE RISK CHARGE We deduct a mortality and expense risk charge daily at an annual rate of 1.49% of the average daily net assets you have invested in the Variable Sub-Accounts (1.62% if you select either the Enhanced Death Benefit Option, the Performance Death Benefit Option or the Performance Income Benefit Option, and 1.73% 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 charges 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 Income Benefit Options 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 intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. 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 $10 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. WITHDRAWAL CHARGE We may assess a withdrawal charge of 1% of the purchase payment(s) you withdraw if the amount being withdrawn has been invested in the Contract for less than 1 year. However, during each Contract Year, you can withdraw up to 15% of the aggregate amount of your purchase payments as of the beginning of the Contract Year without paying the charge. Unused portions of this Free Withdrawal Amount are not carried forward to future Contract Years. We will deduct withdrawal charges, if applicable, from the amount paid, unless you instruct otherwise. For purposes of the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings, which means you pay taxes on the earnings portion of your withdrawal. We do not apply a withdrawal charge in the following situations: o on the Payout Start Date (a withdrawal charge may apply if you elect to receive income payments for a specified period of less than 120 months); o the death of the Contract owner or Annuitant(unless the Settlement Value is used); and o withdrawals taken to satisfy IRS minimum distribution rules for the Contract. This waiver does not apply to Contracts owned by an Individual Retirement Account. We use the amounts obtained from the withdrawal charge to pay sales commissions and other promotional or distribution expenses associated with marketing the Contracts. To the extent that the withdrawal charge does not cover all sales commissions and other promotional or distribution expenses, we may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or any other charges or fee described above, to make up any difference. Withdrawals also may be subject to tax penalties or income tax. You should consult your own tax counsel or other tax advisers regarding any withdrawals. 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 from 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 it 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. 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 __. You can withdraw money from the Variable Account and/or the Fixed Account Options. 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 withdrawal charges, contract maintenance charges, 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 $100 at a time. You also may withdraw a lesser amount if you are withdrawing your entire interest in a Variable Sub-Account. Withdrawals also may be subject to income tax and a 10% penalty tax, as described below. The total amount paid at surrender may be more or less than the total purchase payments due to prior withdrawals, any deductions, and investment performance. 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 payments or transfers from the Fixed Account Options 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 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 Active Assets 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 Options, 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 $500, 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 withdrawal and other applicable charges, and applicable taxes. 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: o at least 30 days after the Issue Date; o the first day of a calendar month; and o no later than the first day of the calendar month after 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. 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: o fixed income payments; o variable income payments; or o a combination of the two. The three Income Plans are: Income Plan 1 Life. Income with Payments Guaranteed for 10 Years. 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 . Guaranteed Payments for a Specified Period. Under this plan, we make periodic income payments for the period you have chosen. These payments do not depend on the Annuitant's life. A withdrawal charge may apply if the specified period is less than 10 years. 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 guarantee periods result in lower income payments, all other things being equal. For example, if you 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 all or part of 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 associated with the amount withdrawn. The minimum amount you may withdraw under this feature is $1,000. A withdrawal charge may apply. You may apply your Contract Value to an Income Plan. If you elected the Performance Income Benefit Option or the Performance Benefit Combination 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 Options on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account Options 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 Options to fixed income payments. We deduct applicable premium taxes from the Contract Value at the Payout Start Date. 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: o pay you the Contract Value, less any applicable taxes, in a lump sum instead of the periodic payments you have chosen, or o 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. We reserve the right to make other annual investment rates available under the Contract. 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. 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 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 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(s)or, if none, the Beneficiary(ies). 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: o a certified copy of a death certificate, o a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or o 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 withdrawal charges or 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 Enhanced Death Benefit, 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. Enhanced Death Benefit Option. 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, but not beyond the Contract Anniversary preceding the oldest Contract owners' 75th birthdays, we will recalculate the Enhanced Death Benefit as follows: First, we multiply the Enhanced Death Benefit as of the prior Contract Anniversary by 1.05. This results in an increase of 5% annually. Further, for all ages, we will adjust the Enhanced Death Benefit on each Contract Anniversary, or upon receipt of a death claim, as follows: o We will reduce the Enhanced Death Benefit by the percentage of any Contract Value withdrawn since the prior Contract Anniversary; and o We will increase the Enhanced Death Benefit by any additional purchase payments since the prior Contract Anniversary. If you select the Enhanced Death Benefit Option, the maximum age of any owner on the date we issue the Contract rider is 70. 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. If you select the Performance Death Benefit Option, the maximum age of any owner on the date we issue the Contract rider is 80. 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 Enhanced Death Benefit or the Performance Death Benefit (both calculated until the oldest Contract owner, or Annuitant if the Contract owner is a non-natural person, attains age 85). After age 85, the death benefit payable will be adjusted to reflect purchase payments and withdrawals to the extent described under "Enhanced Death Benefit Option" and "Performance Death Benefit Option" above. We sometimes refer to the Death Benefit Combination Option as the "Best of the Best" death benefit option. If you select the Death Benefit Combination Option, the maximum age of any owner on the date we issue the Contract rider is 80. 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." If you select the Performance Benefit Combination Option, the maximum age of any owner on the date we issue the Contract rider is 75. None of the death benefits under the Enhanced Death Benefit, the Performance Death Benefit, the Performance Benefit Combination, or the Death Benefit Combination Option 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: o the life of the new Contract owner; or o for a guaranteed number of payments from 5 to 30 years, but not to exceed the life expectancy of the 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 any applicable withdrawal charge and 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 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. The Contract may only be continued once. If the surviving spouse continues the Contract in the Accumulation Phase, the surviving spouse may make a single withdrawal of any amount within 1 year of the date of death without incurring a withdrawal charge. If the surviving spouse is under age 59 1/2, a 10% penalty tax may apply to the withdrawal. 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. 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 NORTHBROOK Northbrook is the issuer of the Contract. Northbrook is a stock life insurance company organized under the laws of the State of Arizona in 1998. Previously, from 1978 to 1998, Northbrook was organized under the laws of the State of Illinois. 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 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, 21 of which are available under the Contract. 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 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 rata 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. We may pay up to a maximum sales commission of 2.0% of purchase payments and an annual sales administration expense of up to 1.5% of the average net assets of the Contracts to Dean Witter. In addition, Dean Witter may pay annually to its representatives, from its profits a persistency bonus that will take into account among other things, the length of time purchase payments have been held under the Contract and Contract Values. Administration. We have primary responsibility for all administration of the Contracts and the Variable Account. We provide the following administrative services, among others: o issuance of the Contracts; o maintenance of Contract owner records; o Contract owner services; o calculation of unit values; o maintenance of the Variable Account; and o preparation of Contract owner reports. We will send you Contract statements at least annually prior to the Payout Start Date. Contract statements are currently being sent on a quarterly basis. 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 also 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, waivers of withdrawal charges, 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. 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. YEAR 2000 Northbrook is heavily dependent upon complex computer systems for all phases of its operations, including customer service, and policy and contract administration. Since many of Northbrook's older computer software programs recognized only the last two digits of the year in any date, some software may have failed to operate properly after the year 1999 if the software had not been reprogrammed or replaced ("Year 2000 Issue"). Northbrook believes that many of its counterparties and suppliers also had potential Year 2000 Issues which could have affected Northbrook. In 1995, Allstate Insurance Company commenced a four phase plan intended to mitigate and/or prevent the adverse effects of Year 2000 Issues. These strategies included normal development and enhancement of new and existing systems, to make them Year 2000 compliant. The plan also included Northbrook actively working with its major external counterparties and suppliers to assess their compliance efforts and Northbrook's exposure to them. As of the date of this prospectus, Northbrook believes that the Year 2000 Issue was successfully resolved and that such resolution will not materially affect its results of operations, liquidity or financial position. Taxes 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 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: o made on or after the date the individual attains age 59 1/2, o made to a Beneficiary after the Contract owner's death, o attributable to the Contract owner being disabled, or o 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 ditional 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 Contracts may be used as investments with certain qualified plans such as: o Individual Retirement Annuities or Accounts (IRAs) under Section 408 of the Internal Revenue Code ("Code"); o Roth IRAs under Section 408A of the Code; o Simplified Employee Pension Plans under Section 408(k) of the Code; o Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section 408(p) of the Code; o Tax Sheltered Annuities under Section 403(b) of the Code; o Corporate and Self Employed Pension and Profit Sharing Plans; and o State and Local Government and Tax-Exempt Organization Deferred Compensation Plans. The income on qualified plan and IRA investments is tax deferred and variable annuities held by such plans do 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. 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 12/31/88, and all earnings on salary reduction contributions, may be made only: 1. on or after the date of employee o 1/3ttains age 59 1/2, o separates from service, o dies, o becomes disabled, or 2. on account of hardship (earnings on salary reduction contributions may 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, 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. 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, the contract maintenance charge, and withdrawal charge. Performance advertisements also may include total return figures that reflect the deduction of insurance charges, but not the contract maintenance or withdrawal charges. The deduction of such charges would reduce the performance shown. In addition, performance advertisements 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. Appendix A
Accumulation Unit Value and Number of Accumulation Units Outstanding for Each Variable Sub-Account Since Contracts Were First Offered Base Policy For the Years Beginning January *1, and Ending December 31. Sub-Account 1998 1999 AGGRESSIVE EQUITY VARIABLE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period --- $10.000 Accumulation Unit Value, End of Period --- $14.450 Number of Units Outstanding, End of Period --- 11,455 CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.710 Accumulation Unit Value, End of Period $9.710 $12.738 Number of Units Outstanding, End of Period 6,192 27,471 COMPETITIVE EDGE "BEST IDEAS" SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.568 Accumulation Unit Value, End of Period $9.568 $11.948 Number of Units Outstanding, End of Period 17,570 59,367 EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.510 Accumulation Unit Value, End of Period $10.510 $21.141 Number of Units Outstanding, End of Period 10,947 90,139 EMERGING MARKETS EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $8.119 Accumulation Unit Value, End of Period $8.119 $15.558 Number of Units Outstanding, End of Period 123 8,933 EQUITY GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.883 Accumulation Unit Value, End of Period $9.883 $13.564 Number of Units Outstanding, End of Period 14,358 48,641 EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.273 Accumulation Unit Value, End of Period $10.273 $16.035 Number of Units Outstanding, End of Period 34,510 277,235 EUROPEAN GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.014 Accumulation Unit Value, End of Period $9.014 $11.454 Number of Units Outstanding, End of Period 22,053 84,846 GLOBAL DIVIDEND GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.886 Accumulation Unit Value, End of Period $9.886 $11.156 Number of Units Outstanding, End of Period 15,232 80,482 INCOME BUILDER SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.685 Accumulation Unit Value, End of Period $9.685 $10.205 Number of Units Outstanding, End of Period 18,227 38,046 INTERNATIONAL MAGNUM SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $8.763 Accumulation Unit Value, End of Period $8.763 $10.797 Number of Units Outstanding, End of Period 6,589 25,209 MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.153 Accumulation Unit Value, End of Period $10.153 $10.470 Number of Units Outstanding, End of Period 81,705 326,539 PACIFIC GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.994 Accumulation Unit Value, End of Period $10.994 $17.972 Number of Units Outstanding, End of Period 1,450 16,849 QUALITY INCOME PLUS SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.359 Accumulation Unit Value, End of Period $10.359 $9.755 Number of Units Outstanding, End of Period 178,028 353,126 SHORT-TERM BOND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period --- $10.000 Accumulation Unit Value, End of Period --- $10.050 Number of Units Outstanding, End of Period --- 11,170 STRATEGIST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.343 Accumulation Unit Value, End of Period $10.343 $11.946 Number of Units Outstanding, End of Period 70,036 198,638 S&P 500 INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.382 Accumulation Unit Value, End of Period $10.382 $12.286 Number of Units Outstanding, End of Period 35,394 167,065 U.S. REAL ESTATE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.115 Accumulation Unit Value, End of Period $9.115 $8.839 Number of Units Outstanding, End of Period 3,294 13,344 UTILITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.904 Accumulation Unit Value, End of Period $10.904 $12.096 Number of Units Outstanding, End of Period 46,349 137,439 * The Contracts were first offered on July 20, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.49% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before July 20, 1998, except the Short-Term Bond and Aggressive Equity Variable Sub-Accounts, which commenced operations on May 3, 1999. Appendix A Accumulation Unit Value and Number of Accumulation Units Outstanding for Each Variable Sub-Account Since Contracts Were First Offered With the Enhanced or Performance Death Benefit Option or the Performance Income Benefit For the Years Beginning January 1*, and Ending December 31. Sub-Account 1998 1999 AGGRESSIVE EQUITY VARIABLE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period --- $10.000 Accumulation Unit Value, End of Period --- $14.440 Number of Units Outstanding, End of Period --- 40,515 CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.704 Accumulation Unit Value, End of Period $9.704 $12.714 Number of Units Outstanding, End of Period 5,153 30,798 COMPETITIVE EDGE "BEST IDEAS" SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.562 Accumulation Unit Value, End of Period $9.562 $11.926 Number of Units Outstanding, End of Period 24,807 72,820 DIVIDEND GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.095 Accumulation Unit Value, End of Period $10.095 $9.685 Number of Units Outstanding, End of Period 165,990 662,841 EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.504 Accumulation Unit Value, End of Period $10.504 $21.101 Number of Units Outstanding, End of Period 31,051 108,684 EMERGING MARKETS EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $8.114 Accumulation Unit Value, End of Period $8.114 $15.529 Number of Units Outstanding, End of Period 3,925 16,698 EQUITY GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.877 Accumulation Unit Value, End of Period $9.877 $13.539 Number of Units Outstanding, End of Period 17,925 104,259 EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.267 Accumulation Unit Value, End of Period $10.267 $16.005 Number of Units Outstanding, End of Period 80,117 471,331 EUROPEAN GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.008 Accumulation Unit Value, End of Period $9.008 $11.432 Number of Units Outstanding, End of Period 206,430 194,903 GLOBAL DIVIDEND GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.881 Accumulation Unit Value, End of Period $9.881 $11.135 Number of Units Outstanding, End of Period 39,311 128,434 HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $8.861 Accumulation Unit Value, End of Period $8.861 $8.593 Number of Units Outstanding, End of Period 38,215 123,235 INCOME BUILDER SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.679 Accumulation Unit Value, End of Period $9.679 $10.186 Number of Units Outstanding, End of Period 16,832 52,500 INTERNATIONAL MAGNUM SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $8.758 Accumulation Unit Value, End of Period $8.758 $10.777 Number of Units Outstanding, End of Period 9,575 30,807 MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.147 Accumulation Unit Value, End of Period $10.147 $10.450 Number of Units Outstanding, End of Period 85,827 436,501 QUALITY INCOME PLUS SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.353 Accumulation Unit Value, End of Period $10.353 $9.737 Number of Units Outstanding, End of Period 52,778 249,824 PACIFIC GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.987 Accumulation Unit Value, End of Period $10.987 $17.938 Number of Units Outstanding, End of Period 1,623 38,449 S&P 500 INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.376 Accumulation Unit Value, End of Period $10.376 $12.263 Number of Units Outstanding, End of Period 104,952 349,707 SHORT-TERM BOND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period --- $10.000 Accumulation Unit Value, End of Period --- $10.040 Number of Units Outstanding, End of Period --- 11,485 STRATEGIST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.337 Accumulation Unit Value, End of Period $10.337 $11.920 Number of Units Outstanding, End of Period 24,056 162,824 U.S. REAL ESTATE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.110 Accumulation Unit Value, End of Period $9.110 $8.822 Number of Units Outstanding, End of Period 17,463 33,042 UTILITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.898 Accumulation Unit Value, End of Period $10.898 $12.073 Number of Units Outstanding, End of Period 33,289 165,102 * The Contracts including the Enhanced Death Benefit Option, the Performance Death Benefit Option, and the Performance Income Benefit Option were first offered on July 20, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.62% and an administrative expense charge of 0.10%. Appendix A Accumulation Unit Value and Number of Accumulation Units Outstanding for Each Variable Sub-Account Since Contracts Were First Offered With the Performance Benefit Combination Option or the Death Benefit Combination Option For the Years Beginning January 1*, and Ending December 31. Sub-Account 1998 1999 AGGRESSIVE EQUITY VARIABLE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period --- $10.000 Accumulation Unit Value, End of Period --- $14.430 Number of Units Outstanding, End of Period --- 44,292 CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.699 Accumulation Unit Value, End of Period $9.699 $12.694 Number of Units Outstanding, End of Period 12,464 27,483 COMPETITIVE EDGE "BEST IDEAS" SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.557 Accumulation Unit Value, End of Period $9.557 $11.906 Number of Units Outstanding, End of Period 12,369 23,894 DIVIDEND GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.090 Accumulation Unit Value, End of Period $10.090 $9.670 Number of Units Outstanding, End of Period 58,954 256,374 EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.498 Accumulation Unit Value, End of Period $10.498 $21.066 Number of Units Outstanding, End of Period 27,030 129,629 EMERGING MARKETS EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $8.109 Accumulation Unit Value, End of Period $8.109 $15.503 Number of Units Outstanding, End of Period 4,235 51,240 EQUITY GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.872 Accumulation Unit Value, End of Period $9.872 $13.516 Number of Units Outstanding, End of Period --- 16,474 EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.262 Accumulation Unit Value, End of Period $10.262 $15.980 Number of Units Outstanding, End of Period 30,606 323,544 EUROPEAN GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.004 Accumulation Unit Value, End of Period $9.004 $11.414 Number of Units Outstanding, End of Period 10,221 75,890 GLOBAL DIVIDEND GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.876 Accumulation Unit Value, End of Period $9.876 $11.117 Number of Units Outstanding, End of Period 14,652 62,965 HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $8.857 Accumulation Unit Value, End of Period $8.857 $8.580 Number of Units Outstanding, End of Period 11,399 38,054 INCOME BUILDER SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.674 Accumulation Unit Value, End of Period $9.674 $10.169 Number of Units Outstanding, End of Period 3,158 20,223 INTERNATIONAL MAGNUM SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $8.753 Accumulation Unit Value, End of Period $8.753 $10.759 Number of Units Outstanding, End of Period --- 21,796 MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.142 Accumulation Unit Value, End of Period $10.142 $10.440 Number of Units Outstanding, End of Period 15,056 123,921 PACIFIC GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.982 Accumulation Unit Value, End of Period $10.982 $17.910 Number of Units Outstanding, End of Period 4,550 73,243 QUALITY INCOME PLUS SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.348 Accumulation Unit Value, End of Period $10.348 $9.721 Number of Units Outstanding, End of Period 81,071 172,419 SHORT-TERM BOND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period --- $10.000 Accumulation Unit Value, End of Period --- $10.030 Number of Units Outstanding, End of Period --- 5,436 STRATEGIST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.332 Accumulation Unit Value, End of Period $10.332 $11.904 Number of Units Outstanding, End of Period 18,089 68,969 S&P 500 INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.371 Accumulation Unit Value, End of Period $10.371 $12.242 Number of Units Outstanding, End of Period 41,697 168,103 U.S. REAL ESTATE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $9.105 Accumulation Unit Value, End of Period $9.105 $8.807 Number of Units Outstanding, End of Period --- 30,211 UTILITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.892 Accumulation Unit Value, End of Period $10.892 $12.054 Number of Units Outstanding, End of Period 19,644 100,464 * The Contracts including the Death Benefit Combination Option were first offered on May 3, 1999. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.73% and an administrative expense charge of 0.10%.
Statement of Additional Information Table of Contents Description Page Additions, Deletions or Substitutions of Investments The Contract Purchases Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers) Performance Information Calculation of Accumulation Unit Values Calculation of Variable Income Payments General Matters Incontestability Settlements Safekeeping of the Variable Account's Assets Premium Taxes Tax Reserves Federal Tax Matters Qualified Plans Experts Financial Statements ----------- 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. THE MORGAN STANLEY DEAN WITTER VARIABLE ANNUITY II Northbrook Life and Annuity Company Statement of Additional Information Northbrook Variable Annuity Account II dated May 1, 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 Morgan Stanley Dean Witter Variable Annuity II Contracts ("VAII Contracts") and the Morgan Stanley Dean Witter Variable Annuity II AssetManager Contracts ("AssetManager Contracts"). This Statement of Additional Information is not a prospectus. You should read it in conjunction with the prospectus, dated May 1, 2000, for each form of 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 each form of Contract desribed above. TABLE OF CONTENTS Description Page Additions, Deletions or Substitutions of Investments The Contract Purchases Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers) Performance Information Calculation of Accumulation Unit Values Calculation of Variable Income Payments General Matters Incontestability Settlements Safekeeping of the Variable Account's Assets Premium Taxes Tax Reserves Federal Tax Matters Qualified Plans Experts Financial Statements 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. 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. PURCHASES Dean Witter Reynolds Inc., is the principal underwriter and distributor of the Contracts. The offering of the Contracts is continuous. We reserve the right to stop offering the Contracts 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. 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. Also, please note that the performance figures do not reflect any applicable taxes. 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 When factoring in the withdrawal charge assessed upon redemption, we exclude the Free Withdrawal Amount, which is the amount you can withdraw from the Contract without paying a withdrawal charge. We also use the withdrawal charge that would apply upon redemption at the end of each period. Thus, for example, when factoring in the withdrawal charge for a one year standardized total return calculation, we would use the withdrawal charge that applies to a withdrawal of a purchase payment made one year prior. When factoring in the contract maintenance charge, we pro rate the charge by dividing (i) the contract maintenance charge by (ii) the average contract size of $54,945. We then multiply the resulting percentage by a hypothetical $1,000 investment. The standardized total returns for the Variable Sub-Accounts available under each form of Contract for the periods ended December 31, 1999 are set out below. No standardized total returns are shown for Money Market Variable Sub-Account. The AssetManager Contracts were first offered to the public on July 20, 1998. Accordingly, performance figures for certain 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 AssetManager Contracts, as well as the withdrawal and contract maintenance charges described above. In addition, performance figures for periods prior to the availability of an optional death benefit, the Performance Income Benefit Option, the Performance Benefit Combination Option, or the Death Benefit Combination Option, have been adjusted to reflect the current charge for such features as if they had been available throughout the periods shown. Variable Sub-Account Inception Dates: The Money Market, Quality Income Plus, High Yield, Utilities, Dividend Growth, Equity and Strategist Variable Sub-Accounts commenced operations on October 25, 1990. The Capital Growth and European Growth Variable Sub-Accounts commenced operations on March 1, 1991. The Global Dividend Growth and Pacific Growth Variable Sub-Accounts commenced operations on February 23, 1994. The Income Builder Variable Sub-Account commenced operation on January 21, 1997. The Equity Growth, , International Magnum, Emerging Markets Equity, and Emerging Growth Variable Sub-Accounts commenced operation on March 16, 1998. The S&P 500 Index, Competitive Edge ("Best Ideas") and U.S. Real Estate Variable Sub-Accounts commenced operations of May 18, 1998. The Short-Term Bond and Aggressive Equity Variable Sub-Accounts commenced operations on May 3, 1999. The Mid-Cap Value Sub-Account, the AIM V.I. Capital Appreciation, Growth and Value Variable Sub-Accounts, the Alliance Growth, Growth and Income, and Premier Growth Variable Sub-Accounts, and the Putnam VT Growth and Income, International Growth and Voyager Variable Sub-Accounts which are available under Variable Annuity II Contracts only commenced operations on January 31, 2000.
VARIABLE ANNUITY II CONTRACTS (WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION OR PERFORMANCE INCOME BENEFIT OPTION ) 10 Years or Variable Sub-Account One Year Five Years Since Inception -------- ---------- --------------- Aggressive Equity* N/A N/A 39.62% Capital Growth 27.21% 22.45% 13.75% Competitive Edge ("Best 20.88% N/A 10.41% Ideas") Dividend Growth -8.00% 16.98% 14.72% Emerging Growth 97.34% N/A 61.99% Emerging Markets Equity 88.76% N/A 17.10% Equity 52.17% 33.81% 25.09% Equity Growth 33.28% N/A 18.04% European Growth 23.08% 23.09% 18.04% Global Dividend Growth 8.81% 14.06% 11.68% High Yield -6.96% 4.26% 9.98% Income Builder 1.32% N/A 8.29% International Magnum 19.21% N/A 8.92% Pacific Growth 59.57% -1.03% -2.44% Quality Income Plus -9.90% 6.28% 6.70% Short Term Bond* N/A N/A -4.50% Strategist 11.47% 14.55% 13.13% S&P 500 Index 14.32% N/A 16.24% U.S. Real Estate -7.10% N/A -10.38% Utilities 6.90% 18.17% 13.80% *Performance shown is not annualized.
(WITH AN OPTIONAL DEATH BENEFIT PROVISION OR THE PERFORMANCE INCOME BENEFIT OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception -------- ---------- --------------- Aggressive Equity* 27.03% 22.29% 13.61% Competitive Edge ("Best 20.72% N/A 10.26% Ideas") Dividend Growth -8.13% 16.82% 14.57% Emerging Growth 97.08% N/A 38.36% Emerging Markets Equity 88.51% N/A 9.89% Equity 51.96% 33.63% 24.93% Equity Growth 33.10% N/A 27.75% European Growth 22.91% 22.93% 17.89% Global Dividend Growth 8.66% 13.91% 11.53% High Yield -7.09% 4.12% 9.83% Income Builder 1.19% N/A 8.15% International Magnum 19.05% N/A 10.95% Pacific Growth 59.35% -1.16% -2.57% Quality Income Plus -10.03% 6.14% 6.56% Short Term Bond* N/A N/A -4.59% Strategist 11.32% 14.40% 12.98% S&P 500 Index 14.16% N/A 16.08% U.S. Real Estate -7.22% N/A -1.50% Utilities 6.76% 18.01% 13.66% *Performance shown is not annualized. (WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception -------- ---------- --------------- Aggressive Equity* N/A N/A 39.39% Capital Growth 26.89% 22.16% 13.48% Competitive Edge 20.58% N/A 10.13% ("Best Ideas") Dividend Growth -8.24% 16.69% 14.45% Emerging Growth 96.86% N/A 38.20% Emerging Markets 88.30% N/A 9.77% Equity 51.79% 33.48% 24.79% Equity Growth 32.95% N/A 27.61% European Growth 22.77% 22.79% 17.76% Global Dividend Growth 8.54% 13.78% 11.41% High Yield -7.19% 4.00% 9.71% Income Builder 1.07% N/A 8.03% International Magnum 18.91% N/A 10.82% Pacific Growth 59.18% -1.27% -2.67% Quality Income Plus -10.13% 6.02% 6.44% Short Term Bond* N/A N/A -4.66% Strategist 11.20% 14.27% 12.86% S&P 500 Index 14.03% N/A 15.95% U.S. Real Estate -7.33% N/A -1.61% Utilities 6.63% 17.88% 13.53% * Performance shown is not annualized. ASSETMANAGER CONTRACTS (WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION OR PERFORMANCE INCOME BENEFIT OPTION ) 10 Years or Variable Sub-Account One Year Five Years Since Inception* -------- ---------- ---------------- Aggressive Equity* N/A N/A 43.64% Capital Growth 31.14% 22.23% 13.48% Competitive Edge ("Best 24.83% N/A 12.59% Ideas") Dividend Growth -3.99% 16.78% 14.45% Emerging Growth 101.11% N/A 63.21% Emerging Markets Equity 92.55% N/A 18.89% Equity 56.04% 33.54% 24.79% Equity Growth 37.20% N/A 19.82% European Growth 27.02% 22.87% 17.76% Global Dividend Growth 12.79% 13.88% 11.49% High Yield -2.94% 4.15% 9.71% Income Builder 5.32% N/A 9.01% International Magnum 23.16% N/A 10.85% Pacific Growth 63.43% -1.09% -2.51% Quality Income Plus -5.88% 6.15% 6.44% Short Term Bond* N/A N/A -0.41% Strategist 15.45% 14.37% 12.86% S&P 500 Index 18.28% N/A 18.33% U.S. Real Estate -3.08% N/A -7.82% Utilities 10.88% 17.97% 13.53% *Performance shown is not annualized. (WITH AN OPTIONAL DEATH BENEFIT OR THE PERFORMANCE INCOME BENEFIT OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception -------- ---------- --------------- Aggressive Equity* N/A N/A 43.52% Capital Growth 30.97% 22.07% 13.33% Competitive Edge ("Best 24.67% N/A 12.44% Ideas") Dividend Growth -4.11% 16.63% 14.30% Emerging Growth 100.85% N/A 63.00% Emerging Markets Equity 92.30% N/A 18.73% Equity 55.84% 33.36% 24.63% Equity Growth 37.02% N/A 19.66% European Growth 26.86% 22.71% 17.61% Global Dividend Growth 12.64% 13.74% 11.35% High Yield -3.07% 4.01% 9.56% Income Builder 5.18% N/A 8.87% International Magnum 23.01% N/A 10.70% Pacific Growth 63.21% -1.22% -2.64% Quality Income Plus -6.00% 6.02% 6.30% Short Term Bond* N/A N/A -5.09% Strategist 15.30% 14.22% 12.71% S&P 500 Index 18.13% N/A 18.17% U.S. Real Estate -3.21% N/A -7.94% Utilities 10.74% 17.82% 13.38% *Performance shown is not annualized. (WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception Aggressive Equity* N/A N/A 43.41% Capital Growth 30.83% 21.94% 13.21% Competitive Edge ("Best 24.52% N/A 12.31% Ideas") Dividend Growth -4.22% 16.50% 14.17% Emerging Growth 100.62% N/A 62.81% Emerging Markets Equity 92.08% N/A 18.60% Equity 55.67% 33.22% 24.49% Equity Growth 36.86% N/A 19.52% European Growth 26.72% 22.57% 17.48% Global Dividend Growth 12.52% 13.61% 11.23% High Yield -3.18% 3.90% 9.44% Income Builder 5.07% N/A 8.75% International Magnum 22.86% N/A 10.57% Pacific Growth 63.03% -1.33% -2.74% Quality Income Plus -6.11% 5.90% 6.18% Short Term Bond* N/A N/A -0.57% S&P 500 Index 17.99% N/A 18.04% Strategist 15.17% 14.10% 12.59% U.S. Real Estate -3.32% N/A -8.04% Utilities 10.62% 17.69% 13.25% *Performance shown is not annualized.
NON-STANDARDIZED TOTAL RETURNS From time to time, we also may quote rates of return that reflect changes in the values of each Variable Sub-Account's accumulation units. We may quote these "non-standardized total returns" on an annualized, cumulative, year-by-year, or other basis. These rates of return take into account asset-based charges, such as the mortality and expense risk charge and administration charge. However, these rates of return do not reflect withdrawal charges, contract maintenance charges, or any taxes. Such charges, if reflected, would reduce the performance shown. Annualized returns reflect the rate of return that, when compounded annually, would equal the cumulative rate of return for the period shown. We compute annualized returns according to the following formula: Annualized Return = (1 = r)1/n - 1 where r = cumulative rate of return for the period shown, and n = number of years in period. The method of computing annualized rates of return is similar to that for computing standardized performance, described above, except that rather than using a hypothetical $1,000 investment and the ending redeemable value thereof, we use the changes in value of an accumulation unit. Cumulative rates of return reflect the cumulative change in value of an accumulation unit over a period shown. Year-by-year rates of return reflect the change in value of accumulation unit during the course of each year shown. We compute these returns by dividing the accumulation unit value at the end of each period shown, by the accumulation unit value at the beginning of that period, and subtracting one. We compute other total returns on a similar basis. We may quote non-standardized total returns for 1, 3, 5 and 10 year periods, or period since inception of the Variable Sub-Account's operations, as well as other periods, such as "year-to-date" (prior calendar year end to the day stated in the advertisement); "year to most recent quarter" (prior calendar year end to the end of the most recent quarter); the prior calendar year; and the "n" most recent calendar years. The non-standardized annualized total returns for the Variable Sub-Accounts for the period ended December 31, 1999 are set out below. The AssetManager Contracts were first offered to the public on July 20, 1998. Accordingly, performance figures for certain Variable Sub-Accounts prior to those dates reflect the historical performance of the Variable Sub-Accounts, adjusted to reflect the current asset-based charges (but not the withdrawal charge, contract maintenance charge, or taxes) under the AssetManager Contracts that would have applied had it been available during the period shown. In addition, performance figures for periods prior to the availability of an optional death benefit, the Performance Income Benefit Option, the Performance Benefit Combination Option or the Death Benefit Combination Option have been adjusted to reflect the current charge for such features as if they had been available throughout the periods shown. The inception date of each Variable Sub-Account appears under "Standardized Total Returns," above. VARIABLE ANNUITY II CONTRACTS
(WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION OR THE PERFORMANCE INCOME BENEFIT OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception -------- ---------- --------------- Aggressive Equity* N/A N/A 44.78% Capital Growth 31.51% 22.57% 13.78% Competitive Edge 25.18% N/A 12.92% ("Best Ideas") Dividend Growth -3.70% 17.10% 14.74% Emerging Growth 101.64% N/A 63.61% Emerging Markets Equity 93.07% N/A 19.23% Equity 56.47% 33.90% 25.10% Equity Growth 37.58% N/A 20.15% European Growth 27.38% 23.20% 18.07% Global Dividend Growth 13.12% 14.20% 11.80% High Yield -2.65% 4.45% 10.00% Income Builder 5.63% N/A 9.32% International Magnum 23.52% N/A 11.17% Pacific Growth 63.87% -0.78% -2.20% Quality Income Plus -5.60% 6.46% 6.73% Short Term Bond* N/A N/A 0.56% Strategist 15.78% 14.69% 13.16% S&P 500 Index 18.62% N/A 18.66% U.S. Real Estate -2.79% N/A -7.52% Utilities 11.20% 18.29% 13.83% *Performance shown is not annualized. (WITH AN OPTIONAL DEATH BENEFIT PROVISION OR THE PERFORMANCE INCOME BENEFIT OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception -------- ---------- --------------- Aggressive Equity* N/A N/A 44.65% Capital Growth 31.34% 22.41% 13.64% Competitive Edge 25.02% N/A 12.77% ("Best Ideas") Dividend Growth -3.83% 16.95% 14.59% Emerging Growth 101.38% N/A 38.49% Emerging Markets Equity 92.82% N/A 10.60% Equity 56.72% 33.72% 24.94% Equity Growth 37.40% N/A 28.47% European Growth 27.22% 23.04% 17.91% Global Dividend Growth 12.97% 14.05% 11.65% High Yield -2.78% 4.31% 9.85% Income Builder 5.49% N/A 9.18% International Magnum 23.35% N/A 11.91% Pacific Growth 63.66% -0.91% -2.33% Quality Income Plus -5.72% 6.32% 6.60% Short Term Bond* N/A N/A 0.56% Strategist 15.63% 14.54% 13.01% S&P 500 Index 18.47% N/A 18.51% U.S. Real Estate -2.92% N/A -0.22% Utilities 11.06% 18.14% 13.68% *Performance shown is not annualized. (WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception -------- ---------- --------------- Aggressive Equity* N/A N/A 44.55% Capital Growth 31.20% 22.27% 13.51% Competitive Edge 24.88% N/A 12.65% ("Best Ideas") Dividend Growth -3.93% 16.82% 14.47% Emerging Growth 101.16% N/A 38.34% Emerging Markets Equity 92.60% N/A 10.48% Equity 56.10% 33.57% 24.80% Equity Growth 37.25% N/A 28.33% European Growth 27.08% 22.91% 17.78% Global Dividend Growth 12.84% 13.93% 11.53% High Yield -2.89% 4.19% 9.73% Income Builder 5.37% N/A 9.06% International Magnum 23.22% N/A 11.78% Pacific Growth 63.48% -1.02% -2.44% Quality Income Plus -5.83% 6.20% 6.48% Short Term Bond* N/A N/A 0.49% Strategist 15.50% 14.42% 12.89% S&P 500 Index 18.34% N/A 18.38% U.S. Real Estate -3.03% N/A -0.33% Utilities 10.94% 18.01% 13.55% *Performance shown is not annualized. ASSETMANAGER CONTRACTS (WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION OR PERFORMANCE INCOME BENEFIT OPTION ) 10 Years or Variable Sub-Account One Year Five Years Since Inception -------- ---------- --------------- Aggressive Equity* N/A N/A 44.55% Capital Growth 31.20% 22.27% 13.51% Competitive Edge 24.88% N/A 12.65% ("Best Ideas") Dividend Growth -3.93% 16.82% 14.47% Emerging Growth 101.16% N/A 63.22% Emerging Markets Equity 92.60% N/A 18.95% Equity 56.10% 33.57% 24.80% Equity Growth 37.25% N/A 19.86% European Growth 27.08% 22.91% 17.78% Global Dividend Growth 12.84% 13.93% 11.53% High Yield -2.89% 4.19% 9.73% Income Builder 5.37% N/A 9.06% International Magnum 23.22% N/A 10.90% Pacific Growth 63.48% -1.02% -2.44% Quality Income Plus -5.83% 6.20% 6.48% Short Term Bond* N/A N/A 0.49% Strategist 15.50% 14.42% 12.89% S&P 500 Index 18.34% N/A 18.38% U.S. Real Estate -3.03% N/A -7.75% Utilities 10.94% 18.01% 13.55% *Performance shown is not annualized. (WITH AN OPTIONAL DEATH BENEFIT PROVISION OR THE PERFORMANCE INCOME BENEFIT OPTION ) 10 Years or Variable Sub-Account One Year Five Years Since Inception -------- ---------- --------------- Aggressive Equity* N/A N/A 44.42% Capital Growth 31.03% 22.11% 13.36% Competitive Edge 24.72% N/A 12.50% ("Best Ideas") Dividend Growth -4.06% 16.67% 14.32% Emerging Growth 100.90% N/A 63.00% Emerging Markets Equity 92.36% N/A 18.79% Equity 55.90% 33.40% 24.64% Equity Growth 37.07% N/A 19.71% European Growth 26.91% 22.75% 17.63% Global Dividend Growth 12.70% 13.78% 11.39% High Yield -3.01% 4.06% 9.59% Income Builder 5.24% N/A 8.92% International Magnum 23.06% N/A 10.76% Pacific Growth 63.27% -1.15% -2.56% Quality Income Plus -5.95% 6.06% 6.34% Short Term Bond* N/A N/A 0.40% Strategist 15.35% 14.27% 12.74% S&P 500 Index 18.18% N/A 18.22% U.S. Real Estate -3.15% N/A -7.87% Utilities 10.79% 17.86% 13.41% *Performance shown is not annulaized. (WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception -------- ---------- --------------- Aggressive Equity* N/A N/A 44.32% Capital Growth 30.88% 21.98% 13.24% Competitive Edge 24.58% N/A 12.37% ("Best Ideas") Dividend Growth -4.16% 16.54% 14.19% Emerging Growth 100.67% N/A 62.82% Emerging Markets Equity 92.14% N/A 18.66% Equity 55.72% 33.25% 24.50% Equity Growth 36.92% N/A 19.57% European Growth 26.77% 22.61% 17.50% Global Dividend Growth 12.57% 13.65% 11.26% High Yield -3.12% 3.95% 9.47% Income Builder 5.12% N/A 8.80% International Magnum 22.92% N/A 10.63% Pacific Growth 63.09% -1.26% -2.67% Quality Income Plus -6.05% 5.94% 6.22% Short Term Bond* N/A N/A 0.33% Strategist 15.22% 14.14% 12.62% S&P 500 Index 18.05% N/A 18.09% U.S. Real Estate -3.26% N/A -7.97% Utilities 10.67% 17.73% 13.28% *Performance shown is not annualized.
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 as well as the contract maintenance charge and the withdrawal charge. 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. Where the returns included in the following tables give effect to one or more of the optional death benefit provisions, the Performance Income Benefit Option, the Performance Benefit Combination Option, or the Death Benefit Combination Option, the performance figures have been adjusted to reflect the current charge for the feature as if that feature had been available throughout the periods shown. The following list provides the inception date for the Portfolio corresponding to each of the Variable Sub-Accounts included in the tables. Variable Annuity II and AssetManager Variable Annuity II Contracts Inception Date of Corresponding Variable Sub-Account 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 Emerging Growth July 3, 1995 U.S. Real Estate March 4, 1997 Competitive Edge May 18, 1998 ("Best Ideas") S&P 500 Index May 18, 1998 Short Term Bond May 2, 1999 Aggressive Equity May 1, 1999 Variable Annuity II Contracts Only Mid-Cap Value January 2, 1997 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 * The Portfolios' Class B shares ("12b-1 class") corresponding to the Alliance Growth and Alliance Growth and Income Variable Sub-Accounts were first offered on May 3, 1999. For periods prior to these dates, the performance shown is based on the historical performance of the Portfolios' Class A shares ("non-12b-1 class"), adjusted to reflect the current expenses of the Portfolios' 12b-1 class. The inception dates for the Portfolios are as shown above. ** The Portfolios' Class IB shares ("12b-1 class") corresponding to the Putnam VT Growth and Income, International Growth, and voyager Variable Sub-Accounts ere first offered on April 6, 1998, April 30, 198 and April 30, 1998 respectively. For periods prior to these dates, the performance shown is based on the historical performance of the Portfolios' Class IA shares ("non-12-b-1 class"), adjusted to reflect the current expenses of the Portfolios' 12b-1 class. The inception dates for the Portfolios are shown as above. VARIABLE ANNUITY II CONTRACTS (WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION OR PERFORMANCE INCOME BENEFIT OPTION )
10 Years or Variable Sub-Account One Year Five Years Since Inception+ -------- ---------- ----------------- Aggressive Equity** N/A N/A 39.62% AIM V.I. Capital Appreciation 38.37% 23.07% 20.13% AIM V.I. Growth 29.12% 26.02% 19.98% AIM V.I Value 23.85% 24.18% 20.49% Alliance Growth* 28.36% 29.51% 28.82% Alliance Growth and Income* 5.57% 22.15% 13.90% Alliance Premier Growth* N/A N/A 16.20% Capital Growth 27.21% 22.45% 13.77% Competitive Edge ("Best Ideas") 20.88% N/A 10.41% Dividend Growth -8.00% 16.98% 11.48% Emerging Growth 97.34% N/A 38.54% Emerging Markets Equity 88.76% N/A 10.04% Equity 52.17% 33.81% 21.21% Equity Growth 33.28% N/A 27.92% European Growth 23.08% 23.09% 18.04% Global Dividend Growth 8.81% 14.06% 11.68% High Yield -6.96% 4.26% 6.80% Income Builder 1.32% N/A 8.29% International Magnum 19.21% N/A 11.09% Mid-Cap Value 14.67% N/A 21.84% Pacific Growth 59.57% -1.03% -2.44% Putnam VT Growth and Income* -4.20% 17.51% 12.27% Putnam VT International Growth* 53.59% N/A 27.63% Putnam VT Voyager* 51.60% 29.61% 20.46% Quality Income Plus -9.90% 6.28% 6.30% Short Term Bond** N/A N/A -4.50% Strategist 11.47% 14.55% 11.43% S&P 500 Index 14.32% N/A 16.24% U.S. Real Estate -7.10% N/A -1.37% Utilities 6.90% 18.17% 12.68% + Please refer to the table at the beginning of this section for the inception dates of the Portfolios. * The performance shown for the Portfolios' 12b-1 class is based on the performance of the non 12b-1 class, as described in the table at the beginning of this section. ** Performance shown is not annualized. (WITH AN OPTIONAL DEATH BENEFIT PROVISION OR THE PERFORMANCE INCOME BENEFIT OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception+ -------- ---------- ----------------- Aggressive Equity** N/A N/A 39.50% AIM V.I. Capital Appreciation 38.19% 22.91% 19.98% AIM V.I. Growth 28.95% 25.86% 19.82% AIM V.I Value 23.69% 24.02% 20.33% Alliance Growth* 28.19% 29.34% 28.65% Alliance Growth and Income * 5.43% 21.99% 13.75% Alliance Premier Growth* N/A N/A 16.02% Capital Growth 27.03% 22.29% 13.61% Competitive Edge 20.72% N/A 10.26% ("Best Ideas") Dividend Growth -8.13% 16.82% 11.41% Emerging Growth 97.08% N/A 38.36% Emerging Markets Equity 88.51% N/A 9.89% Equity 51.96% 33.63% 21.13% Equity Growth 33.10% N/A 27.75% European Growth 22.91% 22.93% 17.89% Global Dividend Growth 8.66% 13.91% 11.53% High Yield -7.09% 4.12% 6.73% Income Builder 1.19% N/A 8.15% International Magnum 19.05% N/A 10.95% Mid-Cap Value 14.52% N/A 21.68% Pacific Growth 59.35% -1.16% -2.57% Putnam VT Growth and Income* -4.33% 17.36% 12.12% Putnam VT International Growth* 53.59% N/A 27.46% Putnam VT Voyager* 51.39% 29.44% 20.30% Quality Income Plus -10.03% 6.14% 6.23% Short Term Bond** N/A N/A -4.59% Strategist 11.32% 14.40% 11.36% S&P 500 Index 14.16% N/A 16.08% U.S. Real Estate -7.22% N/A -1.50% Utilities 6.76% 18.01% 12.60% + Please refer to the table at the beginning of this section for the inception dates of the Portfolios. * The performance shown for the Portfolios' 12b-1 class is based on the performance of the non 12b-1 class, as described in the table at the beginning of this section. **Performance shown is not annualized. (WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception+ -------- ---------- ----------------- Aggressive Equity** N/A N/A 39.39% AIM V.I. Capital Appreciation 38.03% 22.77% 19.84% AIM V.I. Growth 28.80% 25.72% 19.69% AIM V.I Value 23.55% 23.88% 20.20% Alliance Growth* 28.05% 29.20% 28.52% Alliance Growth and Income * 5.31% 21.85% 13.63% Alliance Premier Growth* N/A N/A 15.91% Capital Growth 26.89% 22.16% 13.48% Competitive Edge 20.58% N/A 10.13% ("Best Ideas") Dividend Growth -8.24% 16.69% 11.22% Emerging Growth 96.86% N/A 38.20% Emerging Markets Equity 88.30% N/A 9.77% Equity 51.79% 33.48% 20.92% Equity Growth 32.95% N/A 27.61% European Growth 22.77% 22.79% 17.76% Global Dividend Growth 8.54% 13.78% 11.41% High Yield -7.19% 4.00% 6.54% Income Builder 1.07% N/A 8.03% International Magnum 18.91% N/A 10.82% Mid-Cap Value 14.39% N/A 21.54% Pacific Growth 59.18% -1.27% -2.67% Putnam VT Growth and Income* -4.44% 17.23% 12.00% Putnam VT International Growth* 53.21% N/A 27.32% Putnam VT Voyager* 51.22% 29.30% 20.17% Quality Income Plus -10.13% 6.02% 6.04% Short Term Bond** N/A N/A -4.66% Strategist 11.20% 14.27% 11.16% S&P 500 Index 14.03% N/A 15.95% U.S. Real Estate -7.33% N/A -1.61% Utilities 6.63% 17.88% 12.41% + Please refer to the table at the beginning of this section for the inception dates of the Portfolios. * The performance shown for the Portfolios' 12b-1 class is based on the performance of the non 12b-1 class, as described in the table at the beginning of this section. **Performance shown is not annualized. ASSETMANAGER CONTRACTS (WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION OR PERFORMANCE INCOME BENEFIT OPTION ) 10 Years or Variable Sub-Account One Year Five Years Since Inception + -------- ---------- ----------------- Aggressive Equity* N/A N/A 43.64% Capital Growth 31.14% 22.23% 13.48% Competitive Edge 24.83% N/A 12.59% ("Best Ideas") Dividend Growth -3.99% 16.78% 11.22% European Growth 27.02% 22.87% 17.76% Emerging Growth 101.11% N/A 38.33% Emerging Markets Equity 92.55% N/A 10.40% Equity 56.04% 33.54% 20.92% Equity Growth 37.20% N/A 28.31% Global Dividend Growth 12.79% 13.88% 11.49% High Yield -2.94% 4.15% 6.54% Income Builder 5.32% N/A 9.01% International Magnum 23.16% N/A 11.74% Pacific Growth 63.43% -1.09% -2.51% Quality Income Plus -5.88% 6.15% 6.04% Short Term Bond* N/A N/A -0.41% Strategist 15.45% 14.37% 11.16% S&P 500 Index 18.28% N/A 18.33% U.S. Real Estate -3.08% N/A -0.39% Utilities 10.88% 17.97% 12.41% *Performance shown is not annualized. +Please refer to the table at the beginning of this section for the inception dates of the Portfolios. (WITH AN OPTIONAL DEATH BENEFIT PROVISION OR THE PERFORMANCE INCOME BENEFIT OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception+ -------- ---------- ----------------- Aggressive Equity* N/A N/A 43.41% Capital Growth 30.97% 22.07% 13.33% Competitive Edge 24.67% N/A 6.96% ("Best Ideas") Dividend Growth -4.11% 16.63% 11.07% Emerging Growth 100.85% N/A 38.15% Emerging Markets Equity 92.30% N/A 10.26% Equity 55.84% 33.36% 16.84% Equity Growth 37.02% N/A 28.14% European Growth 26.86% 22.71% 17.61% Global Dividend Growth 12.64% 13.74% 11.35% High Yield -3.07% 4.01% 6.17% Income Builder 5.18% N/A 8.87% International Magnum 23.01% N/A 11.59% Pacific Growth 63.21% -1.22% -2.64% Quality Income Plus -6.00% 6.02% 5.94% Short Term Bond* N/A N/A 0.57% Strategist 15.30% 14.22% 10.10% S&P 500 Index 18.13% N/A 10.05% U.S. Real Estate -3.21% N/A -0.52% Utilities 10.74% 17.82% 12.26% + Please refer to the table at the beginning of this section for the inception dates of the Portfolios. * Performance shown is not annualized. (WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION OPTION) 10 Years or Variable Sub-Account One Year Five Years Since Inception+ -------- ---------- ----------------- Aggressive Equity* N/A N/A 43.41% Capital Growth 30.83% 21.94% 13.21% Competitive Edge 24.52% N/A 6.89% ("Best Ideas") Dividend Growth -4.22% 16.50% 10.95% Emerging Growth 100.62% N/A 37.99% Emerging Markets Equity 92.08% N/A 10.14% Equity 55.67% 33.22% 20.63% Equity Growth 36.86% N/A 28.00% European Growth 26.72% 22.57% 17.48% Global Dividend Growth 12.52% 13.61% 11.23% High Yield -3.18% 3.90% 6.29% Income Builder 5.07% N/A 8.75% International Magnum 22.86% N/A 11.47% Pacific Growth 63.03% -1.33% -2.74% Quality Income Plus -6.11% 5.90% 5.79% Strategist 15.17% 14.10% 10.90% S&P 500 Index 17.99% N/A 9.98% U.S. Real Estate -3.32% N/A -0.63% Utilities 10.62% 17.69% 12.14% Short Term Bond* N/A N/A 0.57%
+ Please refer to the table at the beginning of this section for the inception dates of the Portfolios. * Performance shown is not annualized. CALCULATION OF ACCUMULATION 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 365 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. 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. 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. INDIVIDUAL RETIREMENT ANNUITIES Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity (IRA). Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence. Certain distributions from other types of qualified plans may be "rolled over" on a tax-deferred basis into an Individual Retirement Annuity. 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 INDIVIDUAL RETIREMENT ANNUITIES Section 408A of the Code permits eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth Individual Retirement Annuity. Roth Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence. "Qualified distributions" from Roth Individual Retirement Annuities 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 Individual Retirement Annuity, 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 Individual Retirement Annuity. 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 Individual Retirement Annuity. 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' individual retirement annuities if certain criteria are met. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employees to their individual retirement annuities. 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 of Northbrook as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 and the related financial statement schedule 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, 1999 and for each of the periods in the two years then ended 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. FINANCIAL STATEMENTS The financial statements of the Variable Account as of December 31, 1999 and for each of the periods in the two years then ended, the financial statements of Northbrook as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 and related financial statement schedule and the accompanying Independent Auditors' Reports appear in the pages that follow. The financial statements and schedule of Northbrook included herein should be considered only as bearing upon the ability of Northbrook to meet its obligations under the Contracts. 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 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 25, 2000
NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF FINANCIAL POSITION December 31, ----------------------------- 1999 1998 ------------- ------------ ($ in thousands, except par value data) ASSETS Investments Fixed income securities, at fair value (amortized cost $89,205 and $81,156) $ 86,998 $ 86,336 Short-term 3,170 5,083 ------------ ------------ Total investments 90,168 91,419 Cash 21 -- Reinsurance recoverable from Allstate Life Insurance Company 2,022,502 2,148,091 Other assets 5,997 6,705 Separate Accounts 8,211,996 7,031,083 ------------ ------------ TOTAL ASSETS $ 10,330,684 $ 9,277,298 ============ ============ LIABILITIES Reserve for life-contingent contract benefits $ 150,587 $ 145,055 Contractholder funds 1,871,933 2,003,122 Current income taxes payable 2,171 1,830 Deferred income taxes 746 3,316 Payable to affiliates, net 5,990 5,085 Separate Accounts 8,211,996 7,031,083 ------------ ------------ TOTAL LIABILITIES 10,243,423 9,189,491 ============ ============ Commitments and Contingent Liabilities (Note 12) 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 29,596 25,340 Accumulated other comprehensive (loss) income: Unrealized net capital (losses) gains (1,435) 3,367 ------------ ------------ TOTAL ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (1,435) 3,367 ------------ ------------ TOTAL SHAREHOLDER'S EQUITY 87,261 87,807 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 10,330,684 $ 9,277,298 ============ ============
See notes to financial statements. 2 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31, ---------------------------- ($ in thousands) 1999 1998 1997 ------- ------- ------- REVENUES Net investment income $ 6,010 $ 5,691 $ 5,146 Realized capital gains and losses 510 2 (68) ------- ------- ------- Income from operations before income tax expense 6,520 5,693 5,078 Income tax expense 2,264 1,995 1,756 ------- ------- ------- NET INCOME 4,256 3,698 3,322 ------- ------- ------- Other comprehensive (loss) income, after-tax Change in unrealized net capital gains and losses (4,802) 825 1,256 ------- ------- ------- COMPREHENSIVE (LOSS) INCOME $ (546) $ 4,523 $ 4,578 ======= ======= =======
See notes to financial statements. 3 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF SHAREHOLDER'S EQUITY
December 31, -------------------------------- 1999 1998 1997 --------- --------- ---------- ($ in thousands) COMMON STOCK $ 2,500 $ 2,500 $ 2,500 -------- -------- -------- ADDITIONAL CAPITAL PAID-IN $ 56,600 $ 56,600 $ 56,600 -------- -------- -------- RETAINED INCOME Balance, beginning of year $ 25,340 $ 21,642 $ 18,320 Net income 4,256 3,698 3,322 -------- -------- -------- Balance, end of year 29,596 25,340 21,642 -------- -------- -------- ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME Balance, beginning of year $ 3,367 $ 2,542 $ 1,286 Change in unrealized net capital gains and losses (4,802) 825 1,256 -------- -------- -------- Balance, end of year (1,435) 3,367 2,542 -------- -------- -------- TOTAL SHAREHOLDER'S EQUITY $ 87,261 $ 87,807 $ 83,284 ======== ======== ========
See notes to financial statements. 4 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS
Year Ended December 31, -------------------------------- ($ in thousands) 1999 1998 1997 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,256 $ 3,698 $ 3,322 Adjustments to reconcile net income to net cash provided by operating activities Amortization and other non-cash items 559 518 516 Realized capital gains and losses (510) (2) 68 Changes in: Life-contingent contract benefits and contractholder funds (68) 273 205 Income taxes payable 355 1,866 (480) Other operating assets and liabilities 924 4,126 (264) -------- -------- -------- Net cash provided by operating activities 5,516 10,479 3,367 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Fixed income securities Proceeds from sales 17,992 1,922 1,606 Investment collections 6,555 10,253 10,036 Investment purchases (32,050) (20,690) (18,568) Change in short-term investments, net 2,008 (1,964) 3,559 -------- -------- -------- Net cash used in investing activities (5,495) (10,479) (3,367) -------- -------- -------- NET INCREASE IN CASH 21 -- -- CASH AT THE BEGINNING OF YEAR -- -- -- -------- -------- -------- CASH AT END OF YEAR $ 21 $ -- $ -- ======== ======== ========
See notes to financial statements. 5 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 1999 presentation, certain amounts in the prior years' financial statements and notes have been reclassified. NATURE OF OPERATIONS The Company markets savings and life insurance products exclusively through Dean Witter Reynolds, Inc. ("Dean Witter") (see Note 4), a wholly owned subsidiary of Morgan Stanley Dean Witter & Co. Savings products include deferred annuities and immediate annuities without life contingencies. Deferred annuities include fixed rate, market value adjusted, and variable annuities. Life insurance consists of interest-sensitive life, immediate annuities with life contingencies, and variable life insurance. In 1999, substantially all of the Company's statutory premiums and deposits were from annuities. Annuity contracts and life insurance policies issued by the Company are subject to discretionary surrender 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. Recently enacted federal legislation will allow for banks and other financial organizations to have greater participation in the securities and insurance businesses. This legislation may 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 were California, Florida, and Texas for the year ended December 31, 1999. 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. 6 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands) 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 short-term investment dividends. 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 RECOVERABLE 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. 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 terms of 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 INSURANCE REVENUE AND RELATED BENEFITS AND INTEREST CREDITED Interest-sensitive life contracts are insurance contracts whose terms are not fixed and guaranteed. The terms that may be changed include premiums paid by the contractholder, interest credited to the contractholder account balance and one or more amounts assessed against the contractholder. Premiums from these contracts are reported as deposits to contractholder funds. Contract charge revenue consists of fees assessed against the contractholder account balance for cost of insurance (mortality risk), contract administration and surrender charges. Contract benefits include interest credited to contracts and claims incurred in excess of the related contractholder account balance. Contracts that do not subject the Company to significant risk arising from mortality or morbidity are referred to as investment contracts. Fixed rate annuities, market value adjusted annuities and immediate annuities without life contingencies are considered investment contracts. Deposits received for such contracts are reported as deposits to contractholder funds. Contract charge revenue for investment contracts consists of charges assessed against the contractholder account balance for contract 7 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands) administration and surrender charges. Contract benefits include interest credited and claims incurred in excess of the related contractholder account balance. Crediting rates for fixed rate annuities and interest-sensitive life contracts are adjusted periodically by the Company to reflect current market conditions. Investment contracts also include variable annuity and variable life contracts which are sold as Separate Accounts products. The assets supporting these products are legally segregated and available only to settle Separate Accounts contract obligations. Deposits received are reported as Separate Accounts liabilities. The Company's contract charge revenue for these contracts consists of charges assessed against the Separate Accounts fund balances for contract maintenance, administration, mortality, expense and surrenders. All premiums, contract charges, contract benefits and interest credited are reinsured. 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 primarily from unrealized capital gains and losses on fixed income securities carried at fair value and differences in the tax bases of investments. SEPARATE ACCOUNTS The Company issues deferred variable annuity and variable life contracts, the assets and liabilities of which are legally segregated and recorded as assets and liabilities of the Separate Accounts. Absent any contract provisions wherein the Company contractually guarantees either a minimum return or account value to the beneficiaries of the contractholders in the form of a death benefit, the contractholders bear the investment risk that the Separate Accounts' funds may not meet their stated investment objectives. The assets of the Separate Accounts are carried at fair value. Separate Accounts liabilities represent the contractholders' claims to the related assets and are carried at the fair value of the assets. In the event that the asset value of certain contractholder accounts are projected to be below the value guaranteed by the Company, a liability is established through a charge to earnings. 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 Separate Accounts consist of contract maintenance and administration fees, and mortality, surrender and expense charges. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS The reserve for life-contingent contract benefits, which relates to immediate annuities with life contingencies and certain variable annuity contract guarantees, is computed on the basis of assumptions as to mortality, future investment yields, terminations and expenses at the time the policy is issued. These assumptions include provisions for adverse deviation and generally vary by such characteristics as type of coverage, year 8 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands) of issue and policy duration. Detailed reserve assumptions and reserve interest rates are outlined in Note 7. CONTRACTHOLDER FUNDS Contractholder funds arise from the issuance of interest-sensitive life and certain investment contracts. Deposits received are recorded as interest-bearing liabilities. Contractholder funds are equal to deposits received, net of commissions, and interest credited to the benefit of the contractholder less withdrawals, mortality charges and administrative expenses. Detailed information on crediting rates and surrender and withdrawal protection on contractholder funds are outlined in Note 7. 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 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. Adoption of this statement was not material to the Company's results of operations or financial position. 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. 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 the reinsurance agreements. The following amounts were ceded to ALIC under reinsurance agreements. 9 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands)
YEAR ENDED DECEMBER 31, ----------------------- 1999 1998 1997 ---- ---- ---- Premiums $ 2,966 $ 2,528 $ 1,979 Contract charges 118,290 102,218 83,559 Credited interest, policy benefits, and certain expenses 222,513 217,428 201,526
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 Company is charged for the cost of these operating expenses based on the level of services provided. Operating expenses, including compensation and retirement and other benefit programs, allocated to the Company were $33,892, $26,230 and $23,978 in 1999, 1998 and 1997, respectively. Of these costs, the Company retains investment related expenses. All other costs are ceded to ALIC under reinsurance agreements. 4. EXCLUSIVE DISTRIBUTION AGREEMENT The Company has a strategic alliance with Dean Witter to develop, market and distribute proprietary savings and life insurance products through Morgan Stanley Dean Witter Financial Advisors. Affiliates of Dean Witter are the investment managers for the Morgan Stanley Dean Witter Variable Investment Series, Morgan Stanley Universal Funds, Inc. and the Van Kampen American Capital Life Investment Trust, the funds in which certain assets of the Separate Accounts products are invested. Under the terms of the alliance, the Company has agreed to use Dean Witter as an exclusive distribution channel for the Company's products. In addition to the Company's products, Dean Witter markets other products which compete with those of the Company. Pursuant to the alliance agreement, Dean Witter provides approximately half of the statutory capital necessary to maintain these products on the Company's books through loans to a subsidiary of AIC. AIC unconditionally guarantees the repayment of these loans. The Company shares approximately half the net profits with Dean Witter on contracts written under the alliance. The strategic alliance is cancelable for new business by either party by giving 30 days written notice, however, the Company believes the benefits derived by Dean Witter will preserve the alliance. 10 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands) 5. INVESTMENTS FAIR VALUES The amortized cost, gross unrealized gains and losses, and fair value for fixed income securities are as follows:
GROSS UNREALIZED AMORTIZED --------------------------- FAIR COST GAINS LOSSES VALUE --------------- ----------- ------------- ------------- AT DECEMBER 31, 1999 U.S. government and agencies $ 8,660 $ 131 $ (57) $ 8,734 Municipal 1,155 6 (108) 1,053 Corporate 61,049 26 (2,541) 58,534 Mortgage-backed securities 18,341 822 (486) 18,677 ------- ------- ------- ------- Total fixed income securities $89,205 $ 985 $(3,192) $86,998 ======= ======= ======= ======= 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 ======= ======= ======= =======
SCHEDULED MATURITIES The scheduled maturities for fixed income securities are as follows at December 31, 1999:
AMORTIZED FAIR COST VALUE ---- ----- Due in one year or less $ 50 $ 50 Due after one year through five years 16,690 16,538 Due after five years through ten years 46,933 44,542 Due after ten years 7,191 7,191 ------- ------ 70,864 68,321 Mortgage-backed securities 18,341 18,677 ------- ------- Total $89,205 $86,998 ======= =======
Actual maturities may differ from those scheduled as a result of prepayments by the issuers. 11 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands)
NET INVESTMENT INCOME YEAR ENDED DECEMBER 31, 1999 1998 1997 ---- ---- ---- Fixed income securities $ 5,881 $ 5,616 $ 5,364 Short-term investments 261 190 84 ------- ------- ------- Investment income, before expense 6,142 5,806 5,448 Investment expense 132 115 302 ------- ------- ------- Net investment income $ 6,010 $ 5,691 $ 5,146 ======= ======= ======= REALIZED CAPITAL GAINS AND LOSSES YEAR ENDED DECEMBER 31, 1999 1998 1997 ------- ------- ------- Fixed income securities $ 510 $ 2 $ (70) Short-term investments -- -- 2 ------- ------- ------- Realized capital gains and losses 510 2 (68) Income taxes (178) (1) 24 ------- ------- ------- Realized capital gains and losses, after tax $ 332 $ 1 $ (44) ======= ======= =======
Excluding calls and prepayments, gross gains of $629 were realized on sales of fixed income securities during 1999 and gross losses of $119, $9 and $70 were realized on sales of fixed income securities during 1999, 1998 and 1997, respectively. There were no gross gains realized on sales of fixed income securities during 1998 and 1997. UNREALIZED NET CAPITAL GAINS AND LOSSES Unrealized net capital gains on fixed income securities included in shareholder's equity at December 31, 1999 are as follows:
COST/ FAIR GROSS UNREALIZED UNREALIZED AMORTIZED COST VALUE GAINS LOSSES NET LOSSES -------------- ----- ----- ------ ---------- Fixed income securities $ 89,205 $ 86,998 $ 985 $ (3,192) $ (2,207) ======== ======== ======== ======== Deferred income taxes 772 -------- Unrealized net capital losses $ (1,435) ======== CHANGE IN UNREALIZED NET CAPITAL GAINS YEAR ENDED DECEMBER 31, 1999 1998 1997 -------- -------- -------- Fixed income securities $ (7,387) $ 1,269 $ 1,932 Deferred income taxes 2,585 (444) (676) -------- -------- -------- (Decrease) increase in unrealized net capital gains $ (4,802) $ 825 $ 1,256 ======== ======== ========
SECURITIES ON DEPOSIT At December 31, 1999, fixed income securities with a carrying value of $7,856 were on deposit with regulatory authorities as required by law. 12 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands) 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 interest-sensitive life 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 and cash 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:
1999 1998 ---- ---- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ----- ----- ----- ----- Fixed income securities $ 86,998 $ 86,998 $ 86,336 $ 86,336 Short-term investments 3,170 3,170 5,083 5,083 Separate Accounts 8,211,996 8,211,996 7,031,083 7,031,083
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 are deemed to approximate 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:
1999 1998 ---- ---- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- Contractholder funds on investment contracts $1,735,843 $1,675,910 $1,839,114 $1,814,684 Separate Accounts 8,211,996 8,211,996 7,031,083 7,031,083
The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts. Reserves on investment contracts with no stated maturities (single premium and flexible premium deferred annuities) are valued at the account balance less surrender charges. The fair value of immediate annuities and annuities without life contingencies with fixed terms is estimated using discounted cash flow calculations based on interest rates currently offered for contracts with similar terms and durations. Separate Accounts liabilities are carried at the fair value of the underlying assets. 13 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands) 7. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS At December 31, the reserve for life-contingent contract benefits consists of the following:
1999 1998 ---- ---- Immediate annuities: Structured settlement annuities $109,907 $108,215 Other immediate annuities 40,680 36,840 -------- -------- Total life-contingent contract benefits $150,587 $145,055 ======== ========
The assumptions for mortality generally utilized in calculating reserves include, the U.S. population with projected calendar year improvements and age setbacks for impaired lives for structured settlement annuities; and the 1983 group annuity mortality table for other immediate annuities. Interest rate assumptions vary from 3.5% to 10.0% for immediate annuities. Other estimation methods used include the present value of contractually fixed future benefits for structured settlement annuities and other immediate annuities. Premium deficiency reserves are established, if necessary, for the structured settlement annuity business, to the extent the unrealized gains on fixed income securities would result in a premium deficiency had those gains actually been realized. The Company did not have a premium deficiency reserve at December 31, 1999 and 1998. At December 31, contractholder funds consists of the following:
1999 1998 ---- ---- Interest-sensitive life $ 173,867 $ 178,589 Fixed annuities: Immediate annuities 78,197 77,291 Deferred annuities 1,619,869 1,747,242 ---------- ---------- Total contractholder funds $1,871,933 $2,003,122 ========== ==========
Contractholder funds are equal to deposits received net of commissions and interest credited to the benefit of the contractholder less withdrawals, mortality charges and administrative expenses. Interest rates credited range from 4.0% to 7.2% for interest-sensitive life contracts; 3.5% to 10.2% for immediate annuities and 3.4% to 8.0% for deferred annuities. Withdrawal and surrender charge protection includes: i) for interest- sensitive life, either a percentage of account balance or dollar amount grading off generally over 20 years; and, ii) for deferred annuities not subject to a market value adjustment, either a declining or a level percentage charge generally over nine years or less. Approximately 25% of deferred annuities are subject to a market value adjustment. 14 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands) 8. CORPORATION RESTRUCTURING On November 10, 1999, the Corporation announced a series of strategic initiatives to aggressively expand its selling and service capabilities. The Corporation also announced that it is implementing a program to reduce expenses by approximately $600 million. The reduction will result in the elimination of approximately 4,000 current non-agent positions, across all employment grades and categories by the end of 2000, or approximately 10% of the Corporation's non-agent work force. The impact of the reduction in employee positions is not expected to materially impact the results of operations of the Company. These cost reductions are part of a larger initiative to redeploy the cost savings to finance new initiatives including investments in direct access and internet channels for new sales and service capabilities, new competitive pricing and underwriting techniques, new agent and claim technology and enhanced marketing and advertising. As a result of the cost reduction program, the Corporation recorded restructuring and related charges of $81 million pretax during the fourth quarter of 1999. The Corporation anticipates that additional pretax restructuring related charges of approximately $100 million will be expensed as incurred throughout 2000. The Company's allocable share of these expenses were immaterial in 1999 and are expected to be immaterial in 2000. 9. INCOME TAXES The Company joins the Corporation and its other eligible domestic subsidiaries (the "Allstate Group") in the filing of a consolidated federal income tax return and is party to a federal income tax allocation agreement (the "Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the Company pays to or receives from the Corporation the amount, if any, by which the Allstate Group's federal income tax liability is affected by virtue of inclusion of the Company in the consolidated federal income tax return. Effectively, this results in the Company's annual income tax provision being computed, with adjustments, as if the Company filed a separate return. Prior to June 30, 1995, the Corporation was a subsidiary of Sears Roebuck & Co. ("Sears") and, with its eligible domestic subsidiaries, was included in the Sears consolidated federal income tax return and federal income tax allocation agreement. Effective June 30, 1995, the Corporation and Sears entered into a new tax sharing agreement, which governs their respective rights and obligations with respect to federal income taxes for all periods during which the Corporation was a subsidiary of Sears, including the treatment of audits of tax returns for such periods. The Internal Revenue Service ("IRS") has completed its review of the Allstate Group's federal income tax returns through the 1993 tax year. Any adjustments that may result from IRS examinations of tax returns are not expected to have a material impact on the financial position, liquidity or results of operations of the Company. 15 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands) The components of the deferred income tax assets and liabilities at December 31, are as follows:
1999 1998 ---- ---- DEFERRED ASSETS Unrealized net capital losses $ 772 $ -- ------- ------- Total deferred assets 772 -- DEFERRED LIABILITIES Difference in tax bases of investments (1,518) (1,503) Unrealized net capital gains -- (1,813) ------- ------- Total deferred liabilities (1,518) (3,316) ------- ------- Net deferred liability $ (746) $(3,316) ======= =======
The components of income tax expense for the year ended December 31, are as follows:
1999 1998 1997 ---- ---- ---- Current $ 2,249 $ 1,797 $ 1,843 Deferred 15 198 (87) ------- ------- ------- Total income tax expense $ 2,264 $ 1,995 $ 1,756 ======= ======= =======
The Company paid income taxes of $1,908, $129 and $2,236 in 1999, 1998 and 1997, respectively. 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:
1999 1998 1997 ---- ---- ---- Statutory federal income tax rate 35.0% 35.0% 35.0% Tax-exempt income (0.1) (0.2) (0.4) Other (0.2) 0.2 -- ----- ----- ----- Effective income tax rate 34.7% 35.0% 34.6% ===== ===== =====
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, 1999, 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. 10. STATUTORY FINANCIAL INFORMATION The Company's statutory capital and surplus was $83,746 and $68,883 at December 31, 1999 and 1998, respectively. The Company's statutory net income was $4,840, $3,518 and $2,908 for the years ended December 31, 1999, 1998 and 1997, respectively. 16 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands) PERMITTED STATUTORY ACCOUNTING PRACTICES The Company prepares its statutory financial statements in accordance with accounting 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 statutory accounting principles, which the Company will implement in January 2001. The Company's state of domicile, Arizona, has passed legislation revising various statutory accounting requirements to conform to codification. These requirements are not expected to have a material impact on the statutory surplus of the Company. 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 2000 without prior approval of the Arizona Department of Insurance is $4,840. RISKED-BASED CAPITAL The NAIC has a standard for assessing the solvency of insurance companies, which is referred to as risk-based capital ("RBC"). The requirement consists of a formula for determining each insurer's RBC and a model law specifying regulatory actions if an insurer's RBC falls below specified levels. The RBC formula for life insurance companies establishes capital requirements relating to insurance, business, asset and interest rate risks. At December 31, 1999, RBC for the Company was significantly above levels that would require regulatory action. 17 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ in thousands) 11. 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:
1999 1998 1997 -------------------------- ---------------------------- ----------------------------- After- After- After- PRETAX TAX TAX PRETAX TAX TAX PRETAX TAX TAX ------- ------- ------- ------- ------- ------- ------- ------- ------- UNREALIZED CAPITAL GAINS AND LOSSES: - -------------------------------- Unrealized holding (losses) gains arising during the period $(6,877) $ 2,407 $(4,470) $ 1,271 $ (445) $ 826 $ 1,862 $ (652) $ 1,210 Less: reclassification adjustments 510 (178) 332 2 (1) 1 (70) 24 (46) ------- ------- ------- ------- ------- ------- ------- ------- ------- Unrealized net capital (losses) gains (7,387) 2,585 (4,802) 1,269 (444) 825 1,932 (676) 1,256 ------- ------- ------- ------- ------- ------- ------- ------- ------- Other comprehensive (loss) income $(7,387) $ 2,585 $(4,802) $ 1,269 $ (444) $ 825 $ 1,932 $ (676) $ 1,256 ======= ======= ======= ======= ======= ======= ======= ======= =======
12. 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. GUARANTY FUNDS Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, for certain obligations of insolvent insurance companies to policyholders and claimants. The Company's expenses related to these funds have been immaterial. These expenses are ceded to ALIC under reinsurance agreements. MARKETING AND COMPLIANCE ISSUES Companies operating in the insurance and financial services markets have come under the scrutiny of regulators with respect to market conduct and compliance issues. Under certain circumstances, companies have been held responsible for providing incomplete or misleading sales materials and for replacing existing policies with policies that were less advantageous to the policyholder. The Company monitors its sales materials and 18 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ IN THOUSANDS) enforces compliance procedures to mitigate any exposure to potential litigation. The Company is a member of the Insurance Marketplace Standards Association, an organization which advocates ethical market conduct. 19 NORTHBROOK LIFE INSURANCE COMPANY SCHEDULE IV--REINSURANCE ($ IN THOUSANDS)
GROSS NET YEAR ENDED DECEMBER 31, 1999 AMOUNT CEDED AMOUNT - ---------------------------- ------ ----- ------ Life insurance in force $ 474,824 $ 474,824 $ - ========= ========= ======= Premiums and contract charges: Life and annuities $ 121,351 $ 121,351 $ - ========= ========= ======= 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, 1997 AMOUNT CEDED AMOUNT - ---------------------------- ------ ----- ------ Life insurance in force $ 515,890 $515,890 $ - ========= ======== ======= Premiums and contract charges: Life and annuities $ 85,538 $ 85,538 $ - ========= ======== =======
20 ------------------------------------------------- NORTHBROOK VARIABLE ANNUITY ACCOUNT II FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND FOR THE PERIODS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998, AND INDEPENDENT AUDITORS' REPORT INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholder of Northbrook Life Insurance Company: We have audited the accompanying statement of net assets of Northbrook Variable Annuity Account II as of December 31, 1999 (including the assets of each of the individual sub-accounts which comprise the Account as disclosed in Note 1), and the related statements of operations for the period then ended and the statements of changes in net assets for each of the periods in the two year period then ended for each of the individual sub-accounts which comprise the Account. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 1999 by correspondence with the account custodians. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Northbrook Variable Annuity Account II as of December 31, 1999 (including the assets of each of the individual sub-accounts which comprise the Account), and the results of operations for each of the individual sub-accounts for the period then ended and the changes in their net assets for each of the periods in the two year period then ended in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Chicago, Illinois March 27, 2000 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF NET ASSETS DECEMBER 31, 1999 - ----------------------------------------------------------------------------------------------------------------- ASSETS Allocation to Sub-Accounts investing in the Morgan Stanley Dean Witter Variable Investment Series: Money Market, 399,687,085 shares (cost $399,687,085) $ 399,687,085 Quality Income Plus, 41,997,297 shares (cost $446,990,830) 414,093,354 Short-term Bond, 317,419 shares (cost $3,155,163) 3,136,095 High Yield, 59,754,185 shares (cost $345,269,007) 258,735,614 Utilities, 23,208,039 shares (cost $363,178,521) 531,464,073 Income Builder, 6,835,266 shares (cost $78,259,417) 78,195,436 Dividend Growth, 103,340,027 shares (cost $1,935,635,044) 1,893,189,362 Aggressive Equity, 2,583,544 shares (cost $31,052,866) 37,642,241 Capital Growth, 6,653,311 shares (cost $111,603,872) 157,855,670 Global Dividend Growth, 32,940,470 shares (cost $415,892,581) 475,660,390 European Growth, 17,029,397 shares (cost $373,802,190) 535,915,110 Pacific Growth, 12,523,323 shares (cost $90,737,991) 106,197,769 Equity, 35,605,525 shares (cost $1,143,964,322) 1,918,425,656 S&P 500 Index, 13,203,522 shares (cost $152,388,943) 177,323,303 Competitive Edge, "Best Ideas", 4,808,606 shares (cost $47,697,008) 59,482,451 Strategist, 34,150,688 shares (cost $483,599,787) 652,278,152 Allocation to Sub-Accounts investing in the Morgan Stanley Dean Witter Universal Funds, Inc.: Equity Growth, 3,599,965 shares (cost $58,801,975) 73,115,278 U.S. Real Estate, 575,145 shares (cost $5,616,194) 5,239,570 International Magnum, 817,294 shares (cost $10,124,267) 11,352,212 Emerging Markets Equity, 1,571,876 shares (cost $16,495,581) 21,754,769 Allocation to Sub-Accounts investing in the Van Kampen Life Investment Trust: Emerging Growth, 2,816,146 shares (cost $82,270,389) 130,190,408 ------------------ Total Assets 7,940,933,998 LIABILITIES Payable to Northbrook Life Insurance Company: Accrued contract maintenance charges 1,585,863 ------------------ Net Assets $7,939,348,135 ==================
See notes to financial statements. 2 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS - ----------------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------------------ For the Period Ended December 31, 1999 ------------------------------------------------------------------------------ Quality Money Income Short-term High Market Plus Bond (a) Yield Utilities ------------- -------------- ------------ -------------- ------------- INVESTMENT INCOME Dividends $18,792,485 $29,581,022 $ 57,480 $43,293,002 $23,117,286 Charges from Northbrook Life Insurance Company: Mortality and expense risk (5,174,278) (5,889,185) (16,208) (4,018,180) (6,616,560) Administrative expense (397,391) (458,506) (1,199) (307,202) (514,744) ------------- -------------- ------------ -------------- ------------- Net investment income (loss) 13,220,816 23,233,331 40,073 38,967,620 15,985,982 ------------- -------------- ------------ -------------- ------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 450,473,606 91,452,155 2,359,119 120,337,868 77,317,835 Cost of investments sold 450,473,606 93,902,304 2,359,900 151,639,171 53,406,420 ------------- -------------- ------------ -------------- ------------- Net realized gains (losses) - (2,450,149) (781) (31,301,303) 23,911,415 ------------- -------------- ------------ -------------- ------------- Change in unrealized gains (losses) - (47,274,110) (19,068) (15,834,237) 14,087,560 ------------- -------------- ------------ -------------- ------------- Net gains (losses) on investments - (49,724,259) (19,849) (47,135,540) 37,998,975 ------------- -------------- ------------ -------------- ------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $13,220,816 $(26,490,928) $ 20,224 $ (8,167,920) $53,984,957 ============= ============== ============ ============== =============
(a) For the Period Beginning May 3, 1999 and Ending December 31, 1999 See notes to financial statements. 3 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------------------ For the Period Ended December 31, 1999 ------------------------------------------------------------------------------ Global Income Dividend Aggressive Capital Dividend Builder Growth Equity (a) Growth Growth ------------- -------------- ------------ -------------- ------------- INVESTMENT INCOME Dividends $5,656,529 $ 344,715,375 $ 8,016 $16,465,625 $42,276,039 Charges from Northbrook Life Insurance Company: Mortality and expense risk (1,074,813) (27,635,413) (90,882) (1,704,240) (5,962,699) Administrative expense (80,797) (2,120,551) (6,625) (131,437) (459,161) ------------- -------------- ------------ -------------- ------------- Net investment income (loss) 4,500,919 314,959,411 (89,491) 14,629,948 35,854,179 ------------- -------------- ------------ -------------- ------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 22,078,410 271,852,893 9,380,824 25,783,061 67,497,277 Cost of investments sold 21,966,313 143,156,159 8,818,400 20,761,201 58,495,694 ------------- -------------- ------------ -------------- ------------- Net realized gains (losses) 112,097 128,696,734 562,424 5,021,860 9,001,583 ------------- -------------- ------------ -------------- ------------- Change in unrealized gains (losses) (428,270) (523,069,735) 6,589,375 18,225,024 11,267,752 ------------- -------------- ------------ -------------- ------------- Net gains (losses) on investments (316,173) (394,373,001) 7,151,799 23,246,884 20,269,335 ------------- -------------- ------------ -------------- ------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $4,184,746 $ (79,413,590) $7,062,308 $37,876,832 $56,123,514 ============= ============== ============ ============== =============
(a) For the Period Beginning May 3, 1999 and Ended December 31, 1999 See notes to financial statements. 4 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ---------------------------------------------------------------------------- For the Period Ended December 31, 1999 ---------------------------------------------------------------------------- Competitive European Pacific S&P 500 Edge Growth Growth Equity Index "Best Ideas" -------------- ------------- --------------- ------------- ------------- INVESTMENT INCOME Dividends $ 46,726,748 $ 708,269 $ 162,022,502 $ 505,872 $ 256,310 Charges from Northbrook Life Insurance Company: Mortality and expense risk (6,021,308) (942,881) (17,504,413) (1,480,933) (571,765) Administrative expense (462,358) (72,239) (1,335,632) (110,039) (42,508) -------------- ------------- --------------- ------------- ------------- Net investment income (loss) 40,243,082 (306,851) 143,182,457 (1,085,100) (357,963) -------------- ------------- --------------- ------------- ------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 166,759,231 204,696,580 71,908,669 10,680,473 8,151,769 Cost of investments sold 134,216,170 199,030,079 51,120,136 9,714,922 7,482,882 -------------- ------------- --------------- ------------- ------------- Net realized gains (losses) 32,543,061 5,666,501 20,788,533 965,551 668,887 -------------- ------------- --------------- ------------- ------------- Change in unrealized gains (losses) 43,557,813 34,854,630 497,325,723 20,320,510 10,507,911 -------------- ------------- --------------- ------------- ------------- Net gains (losses) on investments 76,100,874 40,521,131 518,114,256 21,286,061 11,176,798 -------------- ------------- --------------- ------------- ------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $116,343,956 $40,214,280 $ 661,296,713 $20,200,961 $10,818,835 ============== ============= =============== ============= =============
See notes to financial statements. 5 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS - ----------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Morgan Stanley Dean Witter Series Sub-Accounts Universal Funds, Inc. Sub-Accounts --------------------------- ------------------------------------------- For the Period Ended December 31, 1999 ------------------------------------------------------------------------ Capital Equity U.S. Real International Strategist Appreciation Growth Estate Magnum ------------- ------------ ------------- ------------ ------------- INVESTMENT INCOME Dividends $13,525,693 $ 431,345 $2,304,285 $ 268,634 $ 98,917 Charges from Northbrook Life Insurance Company: Mortality and expense risk (7,823,773) (93,215) (554,937) (55,126) (80,070) Administrative expense (602,540) (7,030) (40,931) (4,034) (5,870) ------------- ------------ ------------- ------------ ------------- Net investment income (loss) 5,099,380 331,100 1,708,417 209,474 12,977 ------------- ------------ ------------- ------------ ------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 65,492,020 36,005,812 5,611,630 3,634,072 9,573,057 Cost of investments sold 50,460,560 35,960,809 4,973,147 3,714,989 9,327,204 ------------- ------------ ------------- ------------ ------------- Net realized gains (losses) 15,031,460 45,003 638,483 (80,917) 245,853 ------------- ------------ ------------- ------------ ------------- Change in unrealized gains (losses) 68,404,657 1,824,853 12,913,775 (365,102) 1,391,382 ------------- ------------ ------------- ------------ ------------- Net gains (losses) on investments 83,436,117 1,869,856 13,552,258 (446,019) 1,637,235 ------------- ------------ ------------- ------------ ------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $88,535,497 $2,200,956 $15,260,675 $ (236,545) $ 1,650,212 ============= ============ ============= ============ =============
See notes to financial statements. 6 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------------ Morgan Stanley Van Kampen Dean Witter Life Universal Funds Investment Inc. Sub-Accounts Trust Sub-Account ------------------- ------------------- For the Period Ended December 31, 1999 ------------------------------------------ Emerging Markets Emerging Equity Growth ------------------- ------------------- INVESTMENT INCOME Dividends $ 1,768 $ - Charges from Northbrook Life Insurance Company: Mortality and expense risk (116,835) (600,044) Administrative expense (8,607) (43,889) ------------------- ------------------- Net investment income (loss) (123,674) (643,933) ------------------- ------------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 24,519,251 8,038,290 Cost of investments sold 22,217,514 6,791,472 ------------------- ------------------- Net realized gains (losses) 2,301,737 1,246,818 ------------------- ------------------- Change in unrealized gains (losses) 5,429,367 46,420,306 ------------------- ------------------- Net gains (losses) on investments 7,731,104 47,667,124 ------------------- ------------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,607,430 $ 47,023,191 =================== ===================
See notes to financial statements. 7 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, - --------------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ----------------------------------------------------------------------------- Money Quality Income Short-term Market Plus Bond ------------------------------ ------------------------------ ------------ 1999 1998 1999 1998 1999 (a) -------------- -------------- -------------- -------------- ------------ FROM OPERATIONS Net investment income (loss) $ 13,220,816 $ 12,548,671 $ 23,233,331 $ 21,956,967 $ 40,073 Net realized gains (losses) - - (2,450,149) 882,678 (781) Change in unrealized gains (losses) - - (47,274,110) 7,935,179 (19,068) -------------- -------------- -------------- -------------- ------------ Change in net assets resulting from operations 13,220,816 12,548,671 (26,490,928) 30,774,824 20,224 -------------- -------------- -------------- -------------- ------------ FROM CAPITAL TRANSACTIONS Deposits 75,959,488 129,304,408 29,984,131 61,783,024 930,037 Benefit payments (12,372,372) (10,995,208) (7,891,742) (7,284,535) - Payments on termination (112,272,629) (87,146,553) (52,572,327) (51,273,025) (114,564) Contract maintenance charges (128,006) (141,332) (161,057) (198,787) (754) Transfers among the sub-accounts and with the Fixed Account - net 34,266,127 56,130,115 (24,709,758) 38,983,496 2,300,526 -------------- -------------- -------------- -------------- ------------ Change in net assets resulting from capital transactions (14,547,392) 87,151,430 (55,350,753) 42,010,173 3,115,245 -------------- -------------- -------------- -------------- ------------ INCREASE (DECREASE) IN NET ASSETS (1,326,576) 99,700,101 (81,841,681) 72,784,997 3,135,469 NET ASSETS AT BEGINNING OF PERIOD 400,933,840 301,233,739 495,852,338 423,067,341 - -------------- -------------- -------------- -------------- ------------ NET ASSETS AT END OF PERIOD $399,607,264 $400,933,840 $414,010,657 $495,852,338 $3,135,469 ============== ============== ============== ============== ============
(a) For the Period Beginning May 3, 1999 and Ended December 31, 1999 See notes to financial statements 8 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts -------------------------------------------------------------------------------------------- High Income Yield Utilities Builder ------------------------------ ------------------------------ ---------------------------- 1999 1998 1999 1998 1999 1998 -------------- -------------- -------------- -------------- ------------- ------------- FROM OPERATIONS Net investment income (loss) $ 38,967,620 $ 38,496,771 $ 15,985,982 $ 28,487,796 $ 4,500,919 $ 3,508,026 Net realized gains (losses) (31,301,303) (9,716,192) 23,911,415 19,386,662 112,097 (141,151) Change in unrealized gains (losses) (15,834,237) (58,494,693) 14,087,560 41,968,561 (428,270) (3,233,777) -------------- -------------- -------------- -------------- ------------- ------------- Change in net assets resulting from operations (8,167,920) (29,714,114) 53,984,957 89,843,019 4,184,746 133,098 -------------- -------------- -------------- -------------- ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 26,101,041 89,840,399 39,072,264 58,090,579 7,989,151 34,230,388 Benefit payments (4,009,045) (6,104,964) (8,484,832) (7,223,282) (1,104,145) (920,343) Payments on termination (35,111,312) (37,590,732) (50,808,054) (56,602,582) (5,408,027) (5,562,637) Contract maintenance charges (104,889) (129,431) (201,221) (207,332) (31,269) (31,038) Transfers among the sub-accounts and with the Fixed Account - net (57,088,792) (15,774,631) (10,204,178) 14,560,699 (11,305,739) 3,007,479 -------------- -------------- -------------- -------------- ------------- ------------- Change in net assets resulting from capital transactions (70,212,997) 30,240,641 (30,626,021) 8,618,082 (9,860,029) 30,723,849 -------------- -------------- -------------- -------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS (78,380,917) 526,527 23,358,936 98,461,101 (5,675,283) 30,856,947 NET ASSETS AT BEGINNING OF PERIOD 337,064,860 336,538,333 507,998,999 409,537,898 83,855,103 52,998,156 -------------- -------------- -------------- -------------- ------------- ------------- NET ASSETS AT END OF PERIOD $258,683,943 $337,064,860 $531,357,935 $507,998,999 $78,179,820 $83,855,103 ============== ============== ============== ============== ============= =============
See notes to financial statements 9 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, - --------------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts --------------------------------------------------------------------------------- Dividend Aggressive Capital Growth Equity Growth ---------------------------------- ------------- ------------------------------ 1999 1998 1999 (a) 1999 1998 ---------------- ---------------- ------------- -------------- -------------- FROM OPERATIONS Net investment income (loss) $ 314,959,411 $ 182,347,531 $ (89,491) $ 14,629,948 $ 7,626,924 Net realized gains (losses) 128,696,734 50,981,189 562,424 5,021,860 4,423,808 Change in unrealized gains (losses) (523,069,735) (11,845,338) 6,589,375 18,225,024 6,984,723 ---------------- ---------------- ------------- -------------- -------------- Change in net assets resulting from operations (79,413,590) 221,483,382 7,062,308 37,876,832 19,035,455 ---------------- ---------------- ------------- -------------- -------------- FROM CAPITAL TRANSACTIONS Deposits 188,251,624 365,505,119 12,119,932 9,505,220 17,877,989 Benefit payments (22,608,692) (20,959,842) (8,280) (1,116,070) (964,822) Payments on termination (178,336,682) (208,789,814) (180,619) (12,938,058) (15,020,571) Contract maintenance charges (827,903) (877,968) (8,488) (54,380) (50,900) Transfers among the sub-accounts and with the Fixed Account - net (100,954,098) (16,303,049) 18,649,870 (3,891,813) (10,068,182) ---------------- ---------------- ------------- -------------- -------------- Change in net assets resulting from capital transactions (114,475,751) 118,574,446 30,572,415 (8,495,101) (8,226,486) ---------------- ---------------- ------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS (193,889,341) 340,057,828 37,634,723 29,381,731 10,808,969 NET ASSETS AT BEGINNING OF PERIOD 2,086,700,619 1,746,642,791 - 128,442,414 117,633,445 ---------------- ---------------- ------------- -------------- -------------- NET ASSETS AT END OF PERIOD $1,892,811,278 $2,086,700,619 $37,634,723 $157,824,145 $128,442,414 ================ ================ ============= ============== ==============
(a) For the Period Beginning May 3, 1999 and Ended December 31, 1999 See notes to financial statements 10 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------------------------------------- Global Dividend European Pacific Growth Growth Growth ------------------------------- -------------------------------- ------------------------------ 1999 1998 1999 1998 1999 1998 -------------- --------------- --------------- --------------- --------------- ------------- FROM OPERATIONS Net investment income (loss) $ 35,854,179 $ 50,158,952 $ 40,243,082 $ 26,853,320 $ (306,851) $1,965,499 Net realized gains (losses) 9,001,583 9,838,298 32,543,061 24,492,627 5,666,501 (23,716,625) Change in unrealized gains (losses) 11,267,752 (15,619,557) 43,557,813 25,369,951 34,854,630 14,937,413 -------------- --------------- --------------- --------------- --------------- ------------- Change in net assets resulting from operations 56,123,514 44,377,693 116,343,956 76,715,898 40,214,280 (6,813,713) -------------- --------------- --------------- --------------- --------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 24,612,447 54,785,412 33,605,981 77,755,711 12,935,903 5,413,539 Benefit payments (5,520,386) (4,782,958) (3,672,213) (4,657,657) (522,120) (480,704) Payments on termination (36,599,848) (45,079,876) (44,372,248) (44,010,271) (5,927,181) (5,342,736) Contract maintenance charges (198,686) (209,379) (186,281) (196,986) (41,208) (24,050) Transfers among the sub-accounts and with the Fixed Account - net (16,822,685) (45,403,643) (38,047,377) 8,524,933 12,162,641 (7,740,250) -------------- --------------- --------------- --------------- --------------- ------------- Change in net assets resulting from capital transactions (34,529,158) (40,690,444) (52,672,138) 37,415,730 18,608,035 (8,174,201) -------------- --------------- --------------- --------------- --------------- ------------- INCREASE (DECREASE) IN NET ASSETS 21,594,356 3,687,249 63,671,818 114,131,628 58,822,315 (14,987,914) NET ASSETS AT BEGINNING OF PERIOD 453,971,041 450,283,792 472,136,266 358,004,638 47,354,245 62,342,159 -------------- --------------- --------------- --------------- --------------- ------------- NET ASSETS AT END OF PERIOD $475,565,397 $ 453,971,041 $ 535,808,084 $ 472,136,266 $ 106,176,560 $47,354,245 ============== =============== =============== =============== =============== =============
See notes to financial statements 11 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ----------------------------------------------------------------------------------------------- S&P 500 Competitive Edge Equity Index "Best Ideas" ---------------------------------- ----------------------------- ---------------------------- 1999 1998 1999 1998 (b) 1999 1998 (b) ---------------- ---------------- -------------- ------------- ------------- ------------- FROM OPERATIONS Net investment income (loss) $ 143,182,457 $ 97,599,586 $ (1,085,100) $ (170,910) $ (357,963) $ (214,440) Net realized gains (losses) 20,788,533 21,891,916 965,551 (34,337) 668,887 (346,888) Change in unrealized gains (losses) 497,325,723 101,407,443 20,320,510 4,613,850 10,507,911 1,277,534 ---------------- ---------------- -------------- ------------- ------------- ------------- Change in net assets resulting from operations 661,296,713 220,898,945 20,200,961 4,408,603 10,818,835 716,206 ---------------- ---------------- -------------- ------------- ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 167,149,976 172,405,792 62,363,357 20,590,308 14,308,748 19,126,765 Benefit payments (11,678,201) (8,143,648) (364,932) (59,990) (385,715) (167,624) Payments on termination (109,621,629) (87,506,544) (6,958,805) (592,621) (3,208,126) (422,743) Contract maintenance charges (626,104) (380,694) (52,042) (11,823) (20,818) (10,074) Transfers among the sub-accounts and with the Fixed Account - net 173,235,007 4,499,209 55,622,169 22,142,705 2,656,267 16,058,851 ---------------- ---------------- -------------- ------------- ------------- ------------- Change in net assets resulting from capital transactions 218,459,049 80,874,115 110,609,747 42,068,579 13,350,356 34,585,175 ---------------- ---------------- -------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS 879,755,762 301,773,060 130,810,708 46,477,182 24,169,191 35,301,381 NET ASSETS AT BEGINNING OF PERIOD 1,038,286,770 736,513,710 46,477,182 - 35,301,381 - ---------------- ---------------- -------------- ------------- ------------- ------------- NET ASSETS AT END OF PERIOD $1,918,042,532 $1,038,286,770 $177,287,890 $46,477,182 $59,470,572 $35,301,381 ================ ================ ============== ============= ============= =============
(b) For the Period Beginning May 18, 1998 and Ended December 31, 1998 See notes to financial statements 12 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Morgan Stanley Dean Witter Variable Investment Universal Funds, Inc. Series Sub-Accounts Sub-Accounts ------------------------------------------------------------ ----------------------------- Capital Equity Strategist Appreciation Growth ------------------------------ ---------------------------- ---------------------------- 1999 1998 1999 1998 1999 1998 (c) -------------- -------------- ------------- ------------- ------------- ------------- FROM OPERATIONS Net investment income (loss) $ 5,099,380 $ 49,765,425 $ 331,100 $ (251,058) $ 1,708,417 $ (78,711) Net realized gains (losses) 15,031,460 9,013,062 45,003 (47,279) 638,483 (211,792) Change in unrealized gains (losses) 68,404,657 48,207,735 1,824,853 (2,968,573) 12,913,775 1,399,530 -------------- -------------- ------------- ------------- ------------- ------------- Change in net assets resulting from operations 88,535,497 106,986,222 2,200,956 (3,266,910) 15,260,675 1,109,027 -------------- -------------- ------------- ------------- ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 53,336,082 73,192,883 1,292,309 12,585,227 18,427,169 21,346,469 Benefit payments (7,657,772) (6,681,194) (57,970) (277,813) (284,465) (354,060) Payments on termination (54,083,482) (53,776,482) (647,504) (2,046,795) (3,119,435) (593,813) Contract maintenance charges (236,109) (220,828) 3,365 (12,735) (21,923) (6,896) Transfers among the sub-accounts and with the Fixed Account - net 15,905,456 13,210,961 (34,073,925) (6,495,400) 17,161,540 4,176,388 -------------- -------------- ------------- ------------- ------------- ------------- Change in net assets resulting from capital transactions 7,264,175 25,725,340 (33,483,725) 3,752,484 32,162,886 24,568,088 -------------- -------------- ------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS 95,799,672 132,711,562 (31,282,769) 485,574 47,423,561 25,677,115 NET ASSETS AT BEGINNING OF PERIOD 556,348,215 423,636,653 31,282,769 30,797,195 25,677,115 - -------------- -------------- ------------- ------------- ------------- ------------- NET ASSETS AT END OF PERIOD $652,147,887 $556,348,215 $ - $31,282,769 $73,100,676 $25,677,115 ============== ============== ============= ============= ============= =============
(c) For the Period Beginning March 16, 1998 and Ended December 31, 1998 See notes to financial statements 13 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Universal Funds, Inc. Sub-Accounts ------------------------------------------------------------------------------------ Emerging Markets U.S. Real Estate International Magnum Equity -------------------------- --------------------------- --------------------------- 1999 1998 (b) 1999 1998 (c) 1999 1998 (c) ------------ ------------ ------------- ------------ ------------- ------------ FROM OPERATIONS Net investment income (loss) $ 209,474 $ 43,330 $ 12,977 $ (6,800) $ (123,674) $ (2,522) Net realized gains (losses) (80,917) (29,879) 245,853 (74,905) 2,301,737 (66,221) Change in unrealized gains (losses) (365,102) (56,788) 1,391,382 (175,857) 5,429,367 (177,275) ------------ ------------ ------------- ------------ ------------- ------------ Change in net assets resulting from operations (236,545) (43,337) 1,650,212 (257,562) 7,607,430 (246,018) ------------ ------------ ------------- ------------ ------------- ------------ FROM CAPITAL TRANSACTIONS Deposits 2,256,539 1,559,058 4,195,250 2,610,252 5,860,089 1,113,998 Benefit payments (18,349) - (11,957) (11,092) (4,713) - Payments on termination (219,432) (35,109) (236,057) (167,597) (593,151) (6,515) Contract maintenance charges (1,904) (537) (3,349) (1,018) (6,183) (407) Transfers among the sub-accounts and with the Fixed Account - net 1,478,675 499,465 2,293,294 1,289,569 7,427,993 597,902 ------------ ------------ ------------- ------------ ------------- ------------ Change in net assets resulting from capital transactions 3,495,529 2,022,877 6,237,181 3,720,114 12,684,035 1,704,978 ------------ ------------ ------------- ------------ ------------- ------------ INCREASE (DECREASE) IN NET ASSETS 3,258,984 1,979,540 7,887,393 3,462,552 20,291,465 1,458,960 NET ASSETS AT BEGINNING OF PERIOD 1,979,540 - 3,462,552 - 1,458,960 - ------------ ------------ ------------- ------------ ------------- ------------ NET ASSETS AT END OF PERIOD $5,238,524 $1,979,540 $11,349,945 $3,462,552 $21,750,425 $1,458,960 ============ ============ ============= ============ ============= ============
(b) For the Period Beginning May 18, 1998 and Ended December 31, 1998 (c) For the Period Beginning March 16, 1998 and Ended December 31, 1998 See notes to financial statements 14 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS For the Year Ended December 31, - ----------------------------------------------------------------------------------------------------------- Van Kampen Life Investement Trust Sub-Account --------------------------------------------- Emerging Growth --------------------------------------------- 1999 1998 (a) --------------------- --------------------- FROM OPERATIONS Net investment income (loss) $ (643,933) $ (47,552) Net realized gains (losses) 1,246,818 (51,808) Change in unrealized gains (losses) 46,420,306 1,499,714 --------------------- --------------------- Change in net assets resulting from operations 47,023,191 1,400,354 --------------------- --------------------- FROM CAPITAL TRANSACTIONS Deposits 27,759,585 5,513,918 Benefit payments (201,304) - Payments on termination (3,202,433) (271,704) Contract maintenance charges (35,203) (2,526) Transfers among the sub-accounts and with the Fixed Account - net 49,182,955 2,997,575 --------------------- --------------------- Change in net assets resulting from capital transactions 73,503,600 8,237,263 --------------------- --------------------- INCREASE (DECREASE) IN NET ASSETS 120,526,791 9,637,617 NET ASSETS AT BEGINNING OF PERIOD 9,637,617 - --------------------- --------------------- NET ASSETS AT END OF PERIOD $ 130,164,408 $ 9,637,617 ===================== =====================
(a) For the Period Beginning March 16, 1998 and Ended December 31, 1998 See notes to financial statements 15 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 the Morgan Stanley Dean Witter Variable Annuity II and the Morgan Stanley Dean Witter Variable Annuity II AssetManager, the deposits of which are invested at the direction of the contractholders in the sub-accounts that comprise the Account. Absent any contract provisions wherein Northbrook Life contractually guarantees either a minimum return or account value to the beneficiaries of the contractholders in the form of a death benefit, the contractholders bear the investment risk that the sub-accounts may not meet their stated objectives. The sub-accounts invest in the following underlying mutual fund portfolios (collectively the "Funds"): MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES Money Market Capital Growth Quality Income Plus Global Dividend Growth Short-term Bond European Growth High Yield Pacific Growth Utilities Equity Income Builder S&P 500 Index Dividend Growth Competitive Edge "Best Ideas" Aggressive Equity Strategist MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. Equity Growth International Magnum U.S. Real Estate Emerging Markets Equity VAN KAMPEN LIFE INVESTMENT TRUST Emerging Growth Northbrook Life provides insurance and administrative services to the contractholders for a fee. Northbrook Life also maintains a fixed account ("Fixed Account"), to which contractholders may direct their deposits and receive a fixed rate of return. Northbrook Life has sole discretion to invest the assets of the Fixed Account, subject to applicable law. 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, 1999. INVESTMENT INCOME - Investment income consists of dividends declared by the Funds and is recognized on the ex-dividend date. 16 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 allocable to the Account as the Account did not generate taxable income. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. EXPENSES ADMINISTRATIVE EXPENSE CHARGE - Northbrook Life deducts an administrative expense charge daily at a rate equal to .10% per annum of the average daily net assets of the Account for both Morgan Stanley Dean Witter Variable Annuity II and Morgan Stanley Dean Witter Variable Annuity II AssetManager. CONTRACT MAINTENANCE CHARGE - Northbrook Life deducts an annual contract maintenance charge of $30 on each Morgan Stanley Dean Witter Variable Annuity II and $35 on each Morgan Stanley Dean Witter Variable Annuity II AssetManager contract anniversary and guarantees that this charge will not increase over the life of the contract. If certain conditions are met, this charge will be waived for Morgan Stanley Dean Witter Variable Annuity II AssetManager. MORTALITY AND EXPENSE RISK CHARGE - Northbrook Life assumes mortality and expense risks related to the operations of the Account and deducts charges daily based on the average daily net assets of the Account. The mortality and expense risk charge covers insurance benefits available with the contract and certain expenses of the contract. It also covers the risk that the current charges will not be sufficient in the future to cover the cost of administering the contract. Northbrook Life guarantees that the amount of this charge will not increase over the life of the contract. At the contractholder's discretion, additional options, primarily death benefits, may be purchased for an additional charge. 17 4. UNITS ISSUED AND REDEEMED (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II ----------------------------------------------------------------------------------------- Unit activity during 1999: ------------------------------------------------ Accumulated Units Outstanding Units Units Units Outstanding Unit Value December 31, 1998 Issued Redeemed December 31, 1999 December 31,1999 ------------------- ------------ ------------- ------------------- ------------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Money Market 21,159,031 14,889,251 (18,506,888) 17,541,394 $ 13.46 Quality Income Plus 20,312,197 1,033,305 (4,473,358) 16,872,144 18.20 Short-term Bond - 347,635 (220,476) 127,159 10.07 High Yield 8,199,142 636,275 (2,648,721) 6,186,696 24.01 Utilities 13,541,542 727,904 (2,580,797) 11,688,649 32.87 Income Builder 2,979,980 562,566 (984,569) 2,557,977 13.00 Dividend Growth 36,334,173 1,704,445 (6,266,668) 31,771,950 35.38 Aggressive Equity - 1,736,286 (811,611) 924,675 14.48 Capital Growth 3,662,958 327,971 (739,762) 3,251,167 31.32 Global Dividend Growth 17,634,472 913,941 (3,171,090) 15,377,323 19.22 European Growth 8,967,887 1,483,799 (3,009,151) 7,442,535 43.42 Pacific Growth 6,325,967 8,987,636 (7,901,427) 7,412,176 8.78 Equity 12,608,741 2,288,532 (1,863,807) 13,033,466 78.28 S&P 500 Index 1,722,709 3,752,288 (745,579) 4,729,418 13.20 Competitive Edge, "Best Ideas" 1,432,745 764,913 (431,011) 1,766,647 12.18 Strategist 14,574,012 1,101,779 (2,402,382) 13,273,409 31.14 Captial Appreciation 1,440,936 89,955 (1,530,891) - - Investments in the Morgan Stanley Dean Witter Universal Funds, Inc. Sub-Accounts: Equity Growth 822,038 1,142,895 (311,090) 1,653,843 13.90 U.S. Real Estate 79,729 487,659 (337,388) 230,000 8.81 International Magnum 136,628 972,988 (828,047) 281,569 12.09 Emerging Markets Equity 82,002 2,454,699 (1,927,128) 609,573 13.64 Investments in the Van Kampen Life Investment Trust Sub-Account: Emerging Growth 254,704 1,931,376 (424,205) 1,761,875 24.19 Units relating to accrued contract maintenance charges are included in units redeemed.
18 4. UNITS ISSUED AND REDEEMED (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Enhanced Death Benefit Option, Performance Death Benefit Option or Performance Income Benefit Option ----------------------------------------------------------------------------------------- Unit activity during 1999: ------------------------------------------------ Accumulated Units Outstanding Units Units Units Outstanding Unit Value December 31, 1998 Issued Redeemed December 31, 1999 December 31,1999 ------------------- ------------ ------------- ------------------- ------------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Money Market 8,938,860 19,548,212 (18,210,802) 10,276,270 $ 13.39 Quality Income Plus 5,109,593 1,234,183 (1,176,427) 5,167,349 18.10 Short-term Bond - 132,480 (10,931) 121,549 10.06 High Yield 5,304,510 1,595,314 (2,696,745) 4,203,079 23.88 Utilities 3,510,503 1,138,744 (632,588) 4,016,659 32.69 Income Builder 3,652,211 427,013 (965,993) 3,113,231 12.95 Dividend Growth 19,936,437 3,725,192 (3,607,794) 20,053,835 35.19 Aggressive Equity - 1,151,589 (29,577) 1,122,012 14.47 Capital Growth 1,687,847 394,284 (446,078) 1,636,053 31.15 Global Dividend Growth 8,929,904 1,233,435 (1,387,884) 8,775,455 19.12 European Growth 4,668,539 1,860,406 (2,084,797) 4,444,148 43.19 Pacific Growth 2,456,851 21,494,013 (19,892,379) 4,058,485 8.73 Equity 7,931,260 3,545,573 (1,102,040) 10,374,793 77.86 S&P 500 Index 2,003,301 4,944,770 (738,240) 6,209,831 13.17 Competitive Edge, "Best Ideas" 1,965,368 1,055,127 (539,084) 2,481,411 12.15 Strategist 5,639,152 1,686,811 (766,870) 6,559,093 30.97 Captial Appreciation 1,527,337 141,243 (1,668,580) - - Investments in the Morgan Stanley Dean Witter Universal Funds, Inc. Sub-Accounts: Equity Growth 1,530,819 1,779,604 (357,775) 2,952,648 13.87 U.S. Real Estate 80,782 158,681 (44,499) 194,964 8.79 International Magnum 170,897 282,082 (36,161) 416,818 12.06 Emerging Markets Equity 94,600 1,011,314 (416,698) 689,216 13.61 Investments in the Van Kampen Life Investment Trust Sub-Account: Emerging Growth 402,082 2,363,234 (242,627) 2,522,689 24.14 Units relating to accrued contract maintenance charges are included in units redeemed.
19 4. UNITS ISSUED AND REDEEMED (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Performance Benefit Combination Option or the Death Benefit Combination Option ----------------------------------------------------------------------------------------- Unit activity during 1999: ------------------------------------------------ Accumulated Units Outstanding Units Units Units Outstanding Unit Value December 31, 1998 Issued Redeemed December 31, 1999 December 31,1999 ------------------- ------------ ------------- ------------------- ------------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Money Market 673,034 1,866,416 (1,276,029) 1,263,421 $ 13.17 Quality Income Plus 169,761 243,839 (85,461) 328,139 17.80 Short-term Bond - 41,250 (6,308) 34,942 10.05 High Yield 137,884 200,592 (48,340) 290,136 23.48 Utilities 159,860 243,466 (62,582) 340,744 32.16 Income Builder 164,457 165,256 (58,942) 270,771 12.91 Dividend Growth 528,141 1,129,219 (222,883) 1,434,477 34.61 Aggressive Equity - 478,757 (20,270) 458,487 14.45 Capital Growth 41,885 109,033 (22,261) 128,657 30.66 Global Dividend Growth 156,429 370,289 (38,382) 488,336 18.95 European Growth 175,357 306,278 (89,585) 392,050 42.51 Pacific Growth 52,484 567,553 (229,429) 390,608 8.66 Equity 221,631 797,425 (68,763) 950,293 76.58 S&P 500 Index 283,511 1,682,096 (88,165) 1,877,442 13.15 Competitive Edge, "Best Ideas" 178,762 367,543 (56,648) 489,657 12.13 Strategist 472,816 660,323 (128,301) 1,004,838 30.46 Captial Appreciation 77,885 24,001 (101,886) - Investments in the Morgan Stanley Dean Witter Universal Funds, Inc. Sub-Accounts: Equity Growth 154,201 385,914 (44,254) 495,861 13.84 U.S. Real Estate 37,193 78,203 (21,569) 93,827 8.77 International Magnum 31,933 168,374 (27,719) 172,588 12.04 Emerging Markets Equity 19,500 262,216 (71,124) 210,592 13.58 Investments in the Van Kampen Life Investment Trust Sub-Account: Emerging Growth 82,427 795,728 (59,300) 818,855 24.09 Units relating to accrued contract maintenance charges are included in units redeemed.
20 4. UNITS ISSUED AND REDEEMED (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II AssetManager ----------------------------------------------------------------------------------------- Unit activity during 1999: ------------------------------------------------ Accumulated Units Outstanding Units Units Units Outstanding Unit Value December 31, 1998 Issued Redeemed December 31, 1999 December 31,1999 ------------------- ------------ ------------- ------------------- ------------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Money Market 81,705 547,117 (302,283) 326,539 $ 10.47 Quality Income Plus 178,028 261,748 (86,650) 353,126 9.76 Short-term Bond - 12,183 (1,013) 11,170 10.05 High Yield 93,600 198,142 (108,204) 183,538 8.61 Utilities 46,349 126,846 (35,756) 137,439 12.10 Income Builder 18,227 26,379 (6,560) 38,046 10.21 Dividend Growth 147,314 407,993 (113,515) 441,792 9.70 Aggressive Equity - 12,092 (637) 11,455 14.45 Capital Growth 6,192 25,144 (3,865) 27,471 12.74 Global Dividend Growth 15,232 73,526 (8,276) 80,482 11.16 European Growth 22,053 76,602 (13,809) 84,846 11.45 Pacific Growth 1,450 15,964 (565) 16,849 17.97 Equity 34,510 315,147 (72,422) 277,235 16.04 S&P 500 Index 35,394 164,599 (32,928) 167,065 12.29 Competitive Edge, "Best Ideas" 17,570 57,902 (16,105) 59,367 11.95 Strategist 70,036 157,240 (28,638) 198,638 11.95 Captial Appreciation 7,593 2,639 (10,232) - - Investments in the Morgan Stanley Dean Witter Universal Funds, Inc. Sub-Accounts: Equity Growth 14,358 48,936 (14,653) 48,641 13.56 U.S. Real Estate 3,294 12,931 (2,881) 13,344 8.84 International Magnum 6,589 31,388 (12,768) 25,209 10.80 Emerging Markets Equity 123 14,262 (5,452) 8,933 15.56 Investments in the Van Kampen Life Investment Trust Sub-Account: Emerging Growth 10,947 108,275 (29,083) 90,139 21.14 Units relating to accrued contract maintenance charges are included in units redeemed.
21 4. UNITS ISSUED AND REDEEMED (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II AssetManager with Death Benefit Option, Performance Death Benefit Option or Performance Income Benefit Option ----------------------------------------------------------------------------------------- Unit activity during 1999: ------------------------------------------------ Accumulated Units Outstanding Units Units Units Outstanding Unit Value December 31, 1998 Issued Redeemed December 31, 1999 December 31,1999 ------------------- ------------ ------------- ------------------- ------------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Money Market 85,827 3,539,643 (3,188,969) 436,501 $ 10.45 Quality Income Plus 52,778 231,640 (34,594) 249,824 9.74 Short-term Bond - 11,499 (14) 11,485 10.04 High Yield 38,215 483,447 (398,427) 123,235 8.59 Utilities 33,289 144,058 (12,245) 165,102 12.07 Income Builder 16,832 39,978 (4,310) 52,500 10.19 Dividend Growth 165,990 572,766 (75,915) 662,841 9.69 Aggressive Equity 43,817 (3,302) 40,515 14.44 Capital Growth 5,153 27,978 (2,333) 30,798 12.71 Global Dividend Growth 38,311 96,752 (6,629) 128,434 11.14 European Growth 206,430 1,082,402 (1,093,929) 194,903 11.43 Pacific Growth 1,623 1,984,601 (1,947,775) 38,449 17.94 Equity 80,117 413,296 (22,082) 471,331 16.01 S&P 500 Index 104,952 278,154 (33,399) 349,707 12.26 Competitive Edge, "Best Ideas" 24,807 53,580 (5,567) 72,820 11.93 Strategist 24,056 159,660 (20,892) 162,824 11.92 Captial Appreciation 28,412 7,569 (35,981) - - Investments in the Morgan Stanley Dean Witter Universal Funds, Inc. Sub-Accounts: Equity Growth 17,925 101,942 (15,608) 104,259 13.54 U.S. Real Estate 17,463 15,867 (288) 33,042 8.82 International Magnum 9,575 21,239 (7) 30,807 10.78 Emerging Markets Equity 3,925 19,204 (6,431) 16,698 15.53 Investments in the Van Kampen Life Investment Trust Sub-Account: Emerging Growth 31,051 92,816 (15,183) 108,684 21.10 Units relating to accrued contract maintenance charges are included in units redeemed.
22 4. UNITS ISSUED AND REDEEMED (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II AssetManager with Performance Benefit Combination Option or the Death Benefit Combination Option ----------------------------------------------------------------------------------------- Unit activity during 1999: ------------------------------------------------ Accumulated Units Outstanding Units Units Units Outstanding Unit Value December 31, 1998 Issued Redeemed December 31, 1999 December 31,1999 ------------------- ------------ ------------- ------------------- ------------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Money Market 15,056 187,536 (78,671) 123,921 $ 10.44 Quality Income Plus 81,071 114,629 (23,281) 172,419 9.72 Short-term Bond - 5,437 (1) 5,436 10.03 High Yield 11,399 31,391 (4,736) 38,054 8.58 Utilities 19,644 89,175 (8,355) 100,464 12.05 Income Builder 3,158 17,284 (219) 20,223 10.17 Dividend Growth 58,954 239,272 (41,852) 256,374 9.67 Aggressive Equity 45,639 (1,347) 44,292 14.43 Capital Growth 12,464 22,290 (7,271) 27,483 12.69 Global Dividend Growth 14,652 49,253 (940) 62,965 11.12 European Growth 10,221 74,577 (8,908) 75,890 11.41 Pacific Growth 4,550 83,644 (14,951) 73,243 17.91 Equity 30,606 315,914 (22,976) 323,544 15.98 S&P 500 Index 41,697 154,928 (28,522) 168,103 12.24 Competitive Edge, "Best Ideas" 12,369 19,922 (8,397) 23,894 11.91 Strategist 18,089 60,405 (9,525) 68,969 11.90 Captial Appreciation 11,985 454 (12,439) - - Investments in the Morgan Stanley Dean Witter Universal Funds, Inc. Sub-Accounts: Equity Growth - 16,478 (4) 16,474 13.52 U.S. Real Estate - 30,217 (6) 30,211 8.81 International Magnum - 21,800 (4) 21,796 10.76 Emerging Markets Equity 4,235 52,543 (5,538) 51,240 15.50 Investments in the Van Kampen Life Investment Trust Sub-Account: Emerging Growth 27,030 125,530 (22,931) 129,629 21.07 Units relating to accrued contract maintenance charges are included in units redeemed.
23 PART C OTHER INFORMATION 24. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS Northbrook Life Insurance Company Financial Statements and Northbrook Variable Annuity Account II Financial Statements are included in the 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 (Previously filed in 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 (Previously filed in Post-Effective Amendment No. 13 to registrant's registration statement, File No. 033-35412, dated December 31, 1996) (b) Form of General Agency Agreement (Previously filed in Post-Effective Amendment No. 13 to registrant's registration statement, File No. 033-35412, dated December 31, 1996) (4)(a) Form of Contract, Riders and Amendments for the Morgan Stanley Dean Witter Variable Annuity II (Previously filed in Post-Effective Amendment Nos. 13, 14, 20, 23 and 25 to this Registration Statement (File No. 033-35412) dated December 31, 1996 and February 28, 1997, March 3, 1999, February 15, 2000 and March 3, 2000 respectively. (4)(b) Form of Contract and Certificate Amendments for the Morgan Stanley Dean Witter Variable Annuity II Asset Manager (Previously filed in Post-Effective Amendment Nos. 19, and 20 to this Registration Statement (File No. 033-35412) dated June 5, 1998 and March 3, 1999 respectively. (4)(c) Form of Contract and Amendments for the Morgan Stanley Dan Witter Variable Annuity 3 (Previously filed in Post-Effective Amendment No. 24 to this Registration Statement (File No. 033-35412) dated March 2, 2000. (5))(a) Form of Application for the Morgan Stanley Dean Witter Variable Annuity II(Previously filed in Post-Effective Amendment No. 13 to this Registration Statement (File No. 033-35412) dated December 31, 1996) (b) Form of Application for the Morgan Stanley Dean Witter Variable Annuity II AssetManager (Previously filed in Post-Effective Amendment No. 19 to this Registration Statement (File No. 033-35412) dated June 5, 1998) (c) Form of Application for the Morgan Stanley Dean Witter Variable Annuity 3 (Previously filed in Post-Effective amendment No. 24 to this Registration Statement (File No. 033-35412) dated March 2, 2000). (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 (Previously filed in 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. (Incorporated herein by reference to Post-Effective Amendment No. 1 to registrant's registration statement (File No. 333-93871 dated January 28, 2000) (c) AIM Variable Insurance Funds (Incorporated herein by reference to Post-Effective Amendment No. 1 to registrant's registration statement (File No. 333-93871 dated January 28, 2000) (d) Alliance Variable Products Series Fund(Incorporated herein by reference to Post-Effective Amendment No. 1 to registrant's registration statement (File No. 333-93871 dated January 28, 2000) (e) Putnam Variable Trust(Incorporated herein by reference to Post-Effective Amendment No. 1 to registrant's registration statement (File No. 333-93871 dated January 28, 2000) (f) Van Kampen Life Investment Trust (Incorporated herein by reference to Post-Effective Amendment No. 1 to registrant's registration statement (File No. 333-93871 dated January 28, 2000) (9)(a)Opinion and Consent of General Counsel (Previously filed in Post-Effective Amendment Nos 19, 21 and 24 to this Registration Statement (File No. 033-35412) dated June 5, 1998, April 30, 1999 and March 2, 2000.) 9(b) Opinion and Consent of General Counsel (10)(a) Independent Auditors' Consent (b) Consent of Attorneys (11) Not applicable (12) Not applicable (13) Performance Data Calculations (a) Morgan Stanley Dean Witter Variable Annuity II (previously filed in Post effective amendment No. 17 to this Registration Statement (File No. 033-3542) dated March 5, 1998) (b) Morgan Stanley Dean Witter Variable Annuity II (Alliance, Puntam and AIM Portfolios) (14) Not applicable (99) Powers of Attorney for Thomas J. Wilson, II, Michael J. Velotta, Sarah R. Donahue, John R. Hunter, Kevin R. Slawin, Casey J. Sylla, Timothy N. Vander Pas and Samuel H. Pilch. 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR, NORTHBROOK LIFE INSURANCE COMPANY NAME AND PRINCIPAL POSITION AND OFFICE WITH BUSINESS ADDRESS DEPOSITOR OF THE ACCOUNT Thomas J. Wilson, II Director, President and Chief Operating Officer (Principal Executive Officer) Michael J. Velotta Director, Vice President, Secretary and General Counsel John R. Hunter Director and Vice President Kevin R. Slawin Director and Vice President (Principal Financial Officer) Timothy N. Vander Pas Director and Assistant Vice President Sarah R. Donahue Director and Assistant Vice President Casey J. Sylla Director and Chief Investment Officer Marla G. Friedman Vice President Karen C. Gardner Vice President Samuel H. Pilch Controller (Principal Accounting Officer) James P. Zils Treasurer Ronald A. 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 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
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 28, 2000 (File No. 1-11840). 27. NUMBER OF CONTRACT OWNERS VARIABLE ANNUITY II ------------------- As of February 15 ,2000 there were 87,973 non-qualified contracts and 15, 587 qualified contracts. VARIABLE ANNUITY II ASSETMANAGER - ------------------------------------- As of February 15 ,2000 there were 1,257 non-qualified contracts and 209 qualified contracts. 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: Name and Principal Business Positions and Offices Address* of Each Such Person with Underwriter 29. PRINCIPAL UNDERWRITERS (a) Registrant's principal underwriter, Dean Witter Reynolds Inc., is also the principal underwriter for the following investment companies: Northbrook Variable Annuity Account II Northbrook Life Variable Life Separate Acount A Allstate Life of New York Variable Annuity Account II Allstate Life of New York Variable Annuity Account (b) The directors and principal officers of the principal underwriter are:
Name and Principal Business Positions and Officers Address* of Each Such Person with Principal Underwriter Bruce F. Alonso Director Donald G. Kempf, Jr. Director John J. Mack Director Alan A. Schroder Director Robert G. Scott Director 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, Senior Executive Vice President Mitchell M. Merin Director, Executive Vice President and Chief Administrative Officer Michael H. Stone Executive Vice President, General Counsel and Secretary Raymond J. Drop Director, Executive Vice President Frederick 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 Thomas C. Schneider Director, Executive Vice President Robert B. Sculthorpe 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 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
* 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. Name of Principal Net Underwriting Compensation on Brokerage Compensation Underwriter Discounts and Redemption Commissions Commissions - ----------------- ---------------- -------------- ----------- ------------ Dean Witter N/A N/A $49,299,644.67 N/A Reynolds Inc.
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. 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 Contracts described in 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 Compay under the Contracts. Northbrook Life Insurance Company bases its representation on its assessment of all of the facts and circumstances, including such relevant factors as: the nature and extent of such services, expenses and risks; the need for Northbrook Life Insurance Company to earn a profit; the degree to which the Contracts include innovative features; and the regulatory standards for exemptive relief under the Investment Company Act of 1940 used prior to October 1996, including the range of industry practice. This representation applies to all Contracts sold pursuant to the Registraiton Statement, including those sold on the terms specifically described in the prospectus(es) contained herein, or any variations therein, based on supplements, endorsements, or riders to any Contracts or prospectus(es), or otherwise. 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, all in the Township of Northfield, State of Illinois, on the 25th day of April, 2000. NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) BY: NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) 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 25th day of April, 2000. */THOMAS J. WILSON, II President, Chief Operating Officer Thomas J. Wilson, II and Director, (Principal Executive Officer) /s/MICHAEL J. VELOTTA Vice President, Secretary, Michael J. Velotta General Counsel and Director */JOHN R. HUNTER Vice President and 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 Case J. Sylla */SARAH R. DONAHUE Assistant Vice President and Director Sarah R. Donahue */TIMOTHY N. VANDER PAS Assistant Vice President and Director Timothy N. Vander Pas */SAMUEL H. PILCH Controller (Principal Accounting Officer) Samuel H. Pilch */By Michael J. Velotta, pursuant to Powers of Attorney filed herewith
EXHIBIT INDEX Exhibit Description (9)(b) Opinion and Consent of General Counsel (10)(a) Independent Auditors' Consent (10)(b) Consent of Attorneys (13)(b) Performance Data Calculations (99)(b) Power of Attorney for Thomas J. Wilson, II EX-9 2 (9)(B) OPINION AND CONSENT OF GENERAL COUNSEL LIFE LAW AND REGULATION 3100 Sanders Road, J5B Northbrook, Illinois 60062 Direct Dial Number 847-402-2400 Facsimile 847-402-4371 Michael J. Velotta Vice President, Secretary and General Counsel May 1, 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 NOS. 333-35412 and 811-06116 With reference to the above-mentioned Registration Statement on Form N-4 ("Registration Statement") 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 individual and group Flexible Premium Deferred Variable Annuity Contracts described therein, 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 May 1, 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 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 Registration Statement and to the use of my name under the caption "Legal Matters" in the Prospectuses constituting a part of the Registration Statement. Sincerely, /s/ Michael J. Velotta ---------------------- Michael J. Velotta Vice President, Secretary and General Counsel EX-10 3 CONSENTS 10(a) Consnet of Auditors INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 26 to Registration Statement No. 033-35412 of Northbrook Variable Annuity Account II of Northbrook Life Insurance Company on Form N-4 of our report dated February 25, 2000 relating to the financial statements and the related financial statement schedule of Northbrook Life Insurance Company, and our report dated March 27, 2000 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 a part of such Registration Statement, and to the reference to us under the heading "Experts" in such Statement of Additional Information. Chicago, Illinois May 1, 2000 10 (b)Consent of Attorneys 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. 26 to the Form N-4 Registration Statement of Northbrook Variable Annuity Account II (File No. 033-35412). /s/ Freedman, Levy, Kroll & Simonds - ----------------------------------- FREEDMAN, LEVY, KROLL & SIMONDS Washington, D.C. April 30, 2000 EX-13 4 PERFORMANCE DATA CALCULATIONS STANDARDIZED - BASE CONTRACT
NLIC VAII AGGRESSIVE EQUITY 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 14.477763 0.03771 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 14.477763 99.96229 1447.2303 0.663 FORMULA: 1000*(1+T)= 1447.2303 = 1396.2303 T = 65.49% R = 39.62% NLIC VAII SHORT TERM BOND 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 10.065113 0.05425 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.065113 99.94575 1005.9653 0.663 FORMULA: 1000*(1+T)= 1005.9653 = 954.9653 T = -6.72% R = -4.50% NON-STANDARDIZED BASE CONTRACT - ------------------------------------------------------------------------------- Dates: Current: 12/31/99 3 Months Ago: 09/30/99 End of Last Year: 12/31/98 One Yr Ago: 12/31/98 Two Yrs Ago: 12/31/97 Three Yrs Ago: 12/31/96 Five Yrs Ago: 12/31/94 Ten Yrs Ago: 12/31/89 Inception Inception Ten Yr Five Yr Three Two One Yr YTD 3 Months Today's Fund Date AUV AUV AUV AUV AUV AUV AUV AUV AUV Aggressive Equity 05/03/99 10 N/A N/A N/A N/A N/A 10 10.309408 14.477763 Short Term Bond 05/03/99 10 N/A N/A N/A N/A N/A 10 10.037067 10.065113 Non-Standardized Performance Inception Ten Years Five Years Three Years Two Years One Year YTD Three Months Total Average Total Average Total AverageTotal Average Total Average 44.78% 74.74% N/A N/A N/A N/A N/A N/A N/A N/A N/A 44.78% 40.43% 0.65% 0.98% N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.65% 0.28% NBVA II Conract - ADJUSTED HISTORICAL BASE CONTRACT - ------------------------------------------------------------------------------- NLIC VAII AGGRESSIVE EQUITY 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 14.477763 0.03771 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 14.477763 99.96229 1447.2303 0.663 FORMULA: 1000*(1+T)= 1447.2303 = 1396.2303 T = 65.49% R = 39.62% NLIC VAII SHORT TERM BOND 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 10.065113 0.05425 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.065113 99.94575 1005.9653 0.663 FORMULA: 1000*(1+T)= 1005.9653 = 954.9653 T = -6.72% R = -4.50% STANDARDIZED - ------------------------------------------------------------------------------- NLIC VAII AGGRESSIVE EQUITY 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUENO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 14.454787 0.03777 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 14.454787 99.96223 1444.9327 0.663 FORMULA: 1000*(1+T)= 1444.9327 = 1393.9327 T = 65.08% R = 39.39% NLIC VAII SHORT TERM BOND 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUENO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 10.049101 0.05433 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.049101 99.94567 1004.3641 0.663 FORMULA: 1000*(1+T)= 1004.3641 = 953.3641 T = -6.95% R = -4.66% NON-STANDARDIZED - ------------------------------------------------------------------------------- Non-Standardized Calculations Dates: Current: 12/31/99 3 Months Ago: 09/30/99 End of Last Year 12/31/98 One Yr Ago: 12/31/98 Two Yrs Ago: 12/31/97 Three Yrs Ago: 12/31/96 Five Yrs Ago: 12/31/94 Ten Yrs Ago: 12/31/89 InceptionInceptionTen Yr Five Yr Three Two One Yr YTD 3 Months Today's Fund Date AUV AUV AUV AUV AUV AUV AUV AUV AUV Aggressive Equity5/3/99 10 N/A N/A N/A N/A N/A 10 10.29925114.454787 Short Term Bond 5/3/99 10 N/A N/A N/A N/A N/A 10 10.02716310.049101 Non-Standardized Performance Inception Ten Years Five Years Three Years Two Years One Year YTD Three Months Total Average Total Average Total Average Total Average Total Average 44.55% 74.32% N/A N/A N/A N/A N/A N/A N/A N/A N/A 44.55% 40.35% 0.49% 0.74% N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.49% 0.22% ADJUSTED HISTORICAL - ------------------------------------------------------------------------------- NLIC VAII AGGRESSIVE EQUITY 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUENO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 14.454787 0.03777 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 14.454787 99.96223 1444.9327 0.663 FORMULA: 1000*(1+T)= 1444.9327 = 1393.9327 T = 65.08% R = 39.39% NLIC VAII SHORT TERM BOND 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUENO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 10.049101 0.05433 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.049101 99.94567 1004.3641 0.663 FORMULA: 1000*(1+T)= 1004.3641 = 953.3641 T = -6.95% R = -4.66% STANDARDIZED - ------------------------------------------------------------------------------- NLIC VAII AGGRESSIVE EQUITY 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 14.465302 0.03775 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 14.465302 99.96225 1445.9842 0.663 FORMULA: 1000*(1+T)= 1445.9842 = 1394.9842 T = 65.27% R = 39.50% NLIC VAII SHORT TERM BOND 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 10.056436 0.05429 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.056436 99.94571 1005.0976 0.663 FORMULA: 1000*(1+T)= 1005.0976 = 954.0976 T = -6.85% R = -4.59% NON-STANDARDIZED - ------------------------------------------------------------------------------- Non-Standardized Calculations Dates: Current: 12/31/99 3 Months Ago: 09/30/99 End of Last Year 12/31/98 One Yr Ago: 12/31/98 Two Yrs Ago: 12/31/97 Three Yrs Ago: 12/31/96 Five Yrs Ago: 12/31/94 Ten Yrs Ago: 12/31/89 InceptionInceptionTen Yr Five Yr Three Two One Yr YTD 3 Months Today's Fund Date AUV AUV AUV AUV AUV AUV AUV AUV AUV Aggressive Equity 05/03/99 10 N/A N/A N/A N/A N/A 10 #VALUE! 14.465302 Short Term Bond 05/03/99 10 N/A N/A N/A N/A N/A 10 10.0317 10.056436 Non-Standardized Performance Inception Ten Years Five Years Three Years Two Years One Year YTD Three Months Total Average Total Average Total Average Total Average Total Average 44.65% 74.51% N/A N/A N/A N/A N/A N/A N/A N/A N/A 44.65% #VALUE! 0.56% 0.85% N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.56% 0.25% ADJUSTED HISTORICAL - ------------------------------------------------------------------------------- NLIC VAII AGGRESSIVE EQUITY 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 14.465302 0.03775 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 14.465302 99.96225 1445.9842 0.663 FORMULA: 1000*(1+T)= 1445.9842 = 1394.9842 T = 65.27% R = 39.50% NLIC VAII SHORT TERM BOND 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 10.056436 0.05429 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.056436 99.94571 1005.0976 0.663 FORMULA: 1000*(1+T)= 1005.0976 = 954.0976 T = -6.85% R = -4.59%
Northbrook VA II - ------------------------------------------------------------------------------- ONE YEAR
Alliance Premier Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 #VALUE! #VALUE! FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 1 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.05) = #VALUE! T = N/A R = N/A Alliance Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.555681 132.3507 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 132.2961 1322.961 1 FORMULA: 1000*(1+T)= 1322.961 - (0.85 * 1000 * 0.05) = 1280.461 T = 28.05% R = 28.05% Alliance Growth and Income 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 9.123075 109.6122 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 109.5576 1095.576 1 FORMULA: 1000*(1+T)= 1095.576 - (0.85 * 1000 * 0.05) = 1053.076 T = 5.31% R = 5.31% Aim Cap App 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.025639 142.3358 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 142.2812 1422.812 1 FORMULA: 1000*(1+T)= 1422.812 - (0.85 * 1000 * 0.05) = 1380.312 T = 38.03% R = 38.03% Aim Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.512904 133.1043 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 133.0497 1330.497 1 FORMULA: 1000*(1+T)= 1330.497 - (0.85 * 1000 * 0.05) = 1287.997 T = 28.80% R = 28.80% Aim Value 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.821632 127.8506 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 127.796 1277.96 1 FORMULA: 1000*(1+T)= 1277.96 - (0.85 * 1000 * 0.05) = 1235.46 T = 23.55% R = 23.55% Putnam International Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 6.348516 157.5171 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 157.4625 1574.625 1 FORMULA: 1000*(1+T)= 1574.625 - (0.85 * 1000 * 0.05) = 1532.125 T = 53.21% R = 53.21% Putnam Voyager 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 6.429676 155.5288 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 155.4742 1554.742 1 FORMULA: 1000*(1+T)= 1554.742 - (0.85 * 1000 * 0.05) = 1512.242 T = 51.22% R = 51.22% Putnam Growth & Income 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 10.01383 99.86187 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 99.80727 998.0727 1 FORMULA: 1000*(1+T)= 998.0727 - (0.85 * 1000 * 0.05) = 955.5727 T = -4.44% R = -4.44% MSDW Mid Cap 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 8.425122 118.6926 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 118.638 1186.38 1 FORMULA: 1000*(1+T)= 1186.38 - (0.85 * 1000 * 0.05) = 1143.88 T = 14.39% R = 14.39% 5 YEAR Alliance Premier Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 #VALUE! #VALUE! FEE 12/31/98 0.546 #VALUE! #VALUE! FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A Alliance Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 2.767911 361.2833 FEE 12/31/95 0.546 3.685042 0.148167 FEE 12/31/96 0.546 4.660153 0.117164 FEE 12/31/97 0.546 5.96361 0.091555 FEE 12/31/98 0.546 7.555681 0.072264 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 360.7995 3607.995 5 FORMULA: 1000*(1+T)= 3607.995 - (0.85 * 1000 * 0.01) = 3599.495 T = 29.20% R = 259.95% Alliance Growth and Income 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.705287 269.8846 FEE 12/31/95 0.546 4.952505 0.110247 FEE 12/31/96 0.546 6.048616 0.090269 FEE 12/31/97 0.546 7.667529 0.071209 FEE 12/31/98 0.546 9.123075 0.059848 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 269.4984 2694.984 5 FORMULA: 1000*(1+T)= 2694.984 - (0.85 * 1000 * 0.01) = 2686.484 T = 21.85% R = 168.65% Aim Cap App 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.568503 280.2296 FEE 12/31/95 0.546 4.765839 0.114565 FEE 12/31/96 0.546 5.514873 0.099005 FEE 12/31/97 0.546 6.160931 0.088623 FEE 12/31/98 0.546 7.025639 0.077715 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 279.795 2797.95 5 FORMULA: 1000*(1+T)= 2797.95 - (0.85 * 1000 * 0.01) = 2789.45 T = 22.77% R = 178.95% Aim Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.170644 315.3933 FEE 12/31/95 0.546 4.205844 0.129819 FEE 12/31/96 0.546 4.887933 0.111704 FEE 12/31/97 0.546 6.103476 0.089457 FEE 12/31/98 0.546 7.512904 0.072675 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 314.9351 3149.351 5 FORMULA: 1000*(1+T)= 3149.351 - (0.85 * 1000 * 0.01) = 3140.851 T = 25.72% R = 214.09% Aim Value 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.4122 293.0661 FEE 12/31/95 0.546 4.575979 0.119319 FEE 12/31/96 0.546 5.179983 0.105406 FEE 12/31/97 0.546 6.306036 0.086584 FEE 12/31/98 0.546 7.821632 0.069806 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 292.6304 2926.304 5 FORMULA: 1000*(1+T)= 2926.304 - (0.85 * 1000 * 0.01) = 2917.804 T = 23.88% R = 191.78% Putnam International Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 5.444387 0.100287 FEE 12/31/98 0.546 6.348516 0.086004 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A Putnam Voyager 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 2.756446 362.786 FEE 12/31/95 0.546 3.810702 0.143281 FEE 12/31/96 0.546 4.230652 0.129058 FEE 12/31/97 0.546 5.260125 0.1038 FEE 12/31/98 0.546 6.429676 0.084919 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 362.2703 3622.703 5 FORMULA: 1000*(1+T)= 3622.703 - (0.85 * 1000 * 0.01) = 3614.203 T = 29.30% R = 261.42% Putnam Growth & Income 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 4.493022 222.5674 FEE 12/31/95 0.546 6.036663 0.090447 FEE 12/31/96 0.546 7.232874 0.075489 FEE 12/31/97 0.546 8.824721 0.061872 FEE 12/31/98 0.546 10.01383 0.054525 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 222.2304 2222.304 5 FORMULA: 1000*(1+T)= 2222.304 - (0.85 * 1000 * 0.01) = 2213.804 T = 17.23% R = 121.38% MSDW Mid Cap 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 7.585646 0.071978 FEE 12/31/98 0.546 8.425122 0.064806 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII CAPITAL APPRECIATION 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 11.1517 0.048961 FEE 12/31/98 0.546 10.10222 0.054048 FEE 12/31/99 0.546 10.8153 0.050484 RESULTING VALUE 12/31/99 10.8153 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII INCOME BUILDER 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 12.05646 0.045287 FEE 12/31/98 0.546 12.24769 0.04458 FEE 12/31/99 0.546 12.90598 0.042306 RESULTING VALUE 12/31/99 12.90598 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII EQUITY GROWTH 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 8.589754 0.063564 FEE 12/31/98 0.546 10.08524 0.054139 FEE 12/31/99 0.546 13.84209 0.039445 RESULTING VALUE 12/31/99 13.84209 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII INTERNATIONAL MAGNUM 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 9.11102 0.059927 FEE 12/31/98 0.546 9.77135 0.055878 FEE 12/31/99 0.546 12.04019 0.045348 RESULTING VALUE 12/31/99 12.04019 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII EMERGING MARKETS 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 9.621393 0.056749 FEE 12/31/97 0.546 9.498769 0.057481 FEE 12/31/98 0.546 7.088517 0.077026 FEE 12/31/99 0.546 13.5841 0.040194 RESULTING VALUE 12/31/99 13.5841 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII EMERGING GROWTH 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 6.50021 0.083997 FEE 12/31/96 0.546 7.462035 0.07317 FEE 12/31/97 0.546 8.844423 0.061734 FEE 12/31/98 0.546 11.97452 0.045597 FEE 12/31/99 0.546 24.08814 0.022667 RESULTING VALUE 12/31/99 24.08814 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII REAL ESTATE 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 10.31342 0.052941 FEE 12/31/98 0.546 9.048169 0.060344 FEE 12/31/99 0.546 8.77436 0.062227 RESULTING VALUE 12/31/99 8.77436 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII COMPETITIVE EDGE 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 #VALUE! #VALUE! FEE 12/31/98 0.546 9.71351 0.05621 FEE 12/31/99 0.546 12.13055 0.04501 RESULTING VALUE 12/31/99 12.13055 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII S&P 500 INDEX 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 #VALUE! #VALUE! FEE 12/31/98 0.546 11.10968 0.049146 FEE 12/31/99 0.546 13.14698 0.04153 RESULTING VALUE 12/31/99 13.14698 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII AGGRESSIVE EQUITY 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 #VALUE! #VALUE! FEE 12/31/98 0.546 #VALUE! #VALUE! FEE 12/31/99 0.546 14.45479 0.037773 RESULTING VALUE 12/31/99 14.45479 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A NLIC VAII SHORT TERM BOND 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 #VALUE! #VALUE! FEE 12/31/98 0.546 #VALUE! #VALUE! FEE 12/31/99 0.546 10.0491 0.054333 RESULTING VALUE 12/31/99 10.0491 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A Alliance Premier Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 #VALUE! #VALUE! FEE 12/31/98 0.546 #VALUE! #VALUE! FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A Alliance Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 2.767911 361.2833 FEE 12/31/95 0.546 3.685042 0.148167 FEE 12/31/96 0.546 4.660153 0.117164 FEE 12/31/97 0.546 5.96361 0.091555 FEE 12/31/98 0.546 7.555681 0.072264 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 360.7995 3607.995 5 FORMULA: 1000*(1+T)= 3607.995 - (0.85 * 1000 * 0.01) = 3599.495 T = 0.291958 R = 2.599495 Alliance Growth and Income 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.705287 269.8846 FEE 12/31/95 0.546 4.952505 0.110247 FEE 12/31/96 0.546 6.048616 0.090269 FEE 12/31/97 0.546 7.667529 0.071209 FEE 12/31/98 0.546 9.123075 0.059848 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 269.4984 2694.984 5 FORMULA: 1000*(1+T)= 2694.984 - (0.85 * 1000 * 0.01) = 2686.484 T = 0.218532 R = 1.686484 Aim Cap App 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.568503 280.2296 FEE 12/31/95 0.546 4.765839 0.114565 FEE 12/31/96 0.546 5.514873 0.099005 FEE 12/31/97 0.546 6.160931 0.088623 FEE 12/31/98 0.546 7.025639 0.077715 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 279.795 2797.95 5 FORMULA: 1000*(1+T)= 2797.95 - (0.85 * 1000 * 0.01) = 2789.45 T = 0.227732 R = 1.78945 Aim Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.170644 315.3933 FEE 12/31/95 0.546 4.205844 0.129819 FEE 12/31/96 0.546 4.887933 0.111704 FEE 12/31/97 0.546 6.103476 0.089457 FEE 12/31/98 0.546 7.512904 0.072675 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 314.9351 3149.351 5 FORMULA: 1000*(1+T)= 3149.351 - (0.85 * 1000 * 0.01) = 3140.851 T = 0.257215 R = 2.140851 Aim Value 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.4122 293.0661 FEE 12/31/95 0.546 4.575979 0.119319 FEE 12/31/96 0.546 5.179983 0.105406 FEE 12/31/97 0.546 6.306036 0.086584 FEE 12/31/98 0.546 7.821632 0.069806 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 292.6304 2926.304 5 FORMULA: 1000*(1+T)= 2926.304 - (0.85 * 1000 * 0.01) = 2917.804 T = 0.238829 R = 1.917804 Putnam International Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 5.444387 0.100287 FEE 12/31/98 0.546 6.348516 0.086004 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A Putnam Voyager 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 2.756446 362.786 FEE 12/31/95 0.546 3.810702 0.143281 FEE 12/31/96 0.546 4.230652 0.129058 FEE 12/31/97 0.546 5.260125 0.1038 FEE 12/31/98 0.546 6.429676 0.084919 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 362.2703 3622.703 5 FORMULA: 1000*(1+T)= 3622.703 - (0.85 * 1000 * 0.01) = 3614.203 T = 0.293012 R = 2.614203 Putnam Growth & Income 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 4.493022 222.5674 FEE 12/31/95 0.546 6.036663 0.090447 FEE 12/31/96 0.546 7.232874 0.075489 FEE 12/31/97 0.546 8.824721 0.061872 FEE 12/31/98 0.546 10.01383 0.054525 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 222.2304 2222.304 5 FORMULA: 1000*(1+T)= 2222.304 - (0.85 * 1000 * 0.01) = 2213.804 T = 0.172271 R = 1.213804 MSDW Mid Cap 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 7.585646 0.071978 FEE 12/31/98 0.546 8.425122 0.064806 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A SINCE INCEPTION Alliance Premier Growth 07/14/99 TO NO. YEARS 0.465435 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 07/14/99 1000 8.907261 112.268 1 FEE 12/31/99 0.546 10 0.0546 0.06 2 FEE N/A 0 N/A 0 0.05 3 FEE N/A 0 N/A 0 0.04 4 N/A 0 N/A 0 0.03 5 N/A 0 N/A 0 0.02 6 N/A 0 N/A 0 0.01 7 N/A 0 N/A 0 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 112.2134 1122.134 0.465435 FORMULA: 1000*(1+T)= 1122.134 = 1071.134 T = 15.91% R = 7.11% Alliance Growth 09/15/94 TO NO. YEARS 5.292266 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 09/15/94 1000 2.640709 378.6862 1 FEE 09/15/95 0.546 3.54837 0.153873 0.06 2 FEE 09/15/96 0.546 4.122737 0.132436 0.05 3 FEE 09/15/97 0.546 5.61198 0.097292 0.04 4 09/15/98 0.546 5.902797 0.092499 0.03 5 09/15/99 0.546 8.156346 0.066942 0.02 6 12/31/99 0.546 10 0.0546 0.01 7 N/A 0 N/A 0 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 378.0886 3780.886 5.292266 FORMULA: 1000*(1+T)= 3780.886 = 3772.386 T = 28.52% R = 277.24% Alliance Growth and Income 01/14/91 TO NO. YEARS 8.960986 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 01/14/91 1000 3.173139 315.1453 1 FEE 01/14/92 0.546 3.234479 0.168806 0.06 2 FEE 01/14/93 0.546 3.436258 0.158894 0.05 3 FEE 01/14/94 0.546 3.777962 0.144522 0.04 4 01/14/95 0.546 3.705287 0.147357 0.03 5 01/14/96 0.546 4.802162 0.113699 0.02 6 01/14/97 0.546 6.192372 0.088173 0.01 7 01/14/98 0.546 7.489826 0.072899 0 8 01/14/99 0.546 8.979742 0.060804 0 9 12/31/99 0.546 10 0.0546 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 314.1355 3141.355 8.960986 FORMULA: 1000*(1+T)= 3141.355 = 3141.355 T = 13.63% R = 214.14% Aim Cap App 05/05/93 TO NO. YEARS 6.655715 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 05/05/93 1000 2.991294 334.3035 1 FEE 05/05/94 0.546 3.520954 0.155072 0.06 2 FEE 05/05/95 0.546 3.918423 0.139342 0.05 3 FEE 05/05/96 0.546 5.292593 0.103163 0.04 4 05/05/97 0.546 5.538535 0.098582 0.03 5 05/05/98 0.546 6.978315 0.078242 0.02 6 05/05/99 0.546 7.209373 0.075735 0.01 7 12/31/99 0.546 10 0.0546 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 333.5987 3335.987 6.655715 FORMULA: 1000*(1+T)= 3335.987 = 3335.987 T = 19.84% R = 233.60% Aim Growth 05/05/93 TO NO. YEARS 6.655715 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 05/05/93 1000 3.016282 331.534 1 FEE 05/05/94 0.546 3.163393 0.172599 0.06 2 FEE 05/05/95 0.546 3.529815 0.154682 0.05 3 FEE 05/05/96 0.546 4.449399 0.122713 0.04 4 05/05/97 0.546 5.229369 0.10441 0.03 5 05/05/98 0.546 7.028539 0.077683 0.02 6 05/05/99 0.546 8.008517 0.068177 0.01 7 12/31/99 0.546 10 0.0546 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 330.7791 3307.791 6.655715 FORMULA: 1000*(1+T)= 3307.791 = 3307.791 T = 19.69% R = 230.78% Aim Value 05/05/93 TO NO. YEARS 6.655715 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 05/05/93 1000 2.932605 340.9937 1 FEE 05/05/94 0.546 3.400915 0.160545 0.06 2 FEE 05/05/95 0.546 3.838173 0.142255 0.05 3 FEE 05/05/96 0.546 4.615976 0.118285 0.04 4 05/05/97 0.546 5.54386 0.098487 0.03 5 05/05/98 0.546 7.117914 0.076708 0.02 6 05/05/99 0.546 8.502378 0.064217 0.01 7 12/31/99 0.546 10 0.0546 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 340.2786 3402.786 6.655715 FORMULA: 1000*(1+T)= 3402.786 = 3402.786 T = 20.20% R = 240.28% Putnam International Growth 01/02/97 TO NO. YEARS 2.992471 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 01/02/97 1000 4.770193 209.6351 1 FEE 01/02/98 0.546 5.472447 0.099773 0.06 2 FEE 01/02/99 0.546 6.348516 0.086004 0.05 3 FEE 12/31/99 0.546 10 0.0546 0.04 4 N/A 0 N/A 0 0.03 5 N/A 0 N/A 0 0.02 6 N/A 0 N/A 0 0.01 7 N/A 0 N/A 0 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 209.3948 2093.948 2.992471 FORMULA: 1000*(1+T)= 2093.948 = 2059.948 T = 27.32% R = 105.99% Putnam Voyager 12/30/89 TO NO. YEARS 10 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/89 1000 1.587327 629.9899 FEE 12/31/90 0.546 1.528278 0.357265 FEE 12/31/91 0.546 2.194171 0.248841 FEE 12/31/92 0.546 2.379707 0.22944 FEE 12/31/93 0.546 2.776007 0.196685 FEE 12/31/94 0.546 2.756446 0.198081 FEE 12/31/95 0.546 3.810702 0.143281 FEE 12/31/96 0.546 4.230652 0.129058 FEE 12/31/97 0.546 5.260125 0.1038 FEE 12/31/98 0.546 6.429676 0.084919 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 628.244 6282.44 10 FORMULA: 1000*(1+T)= 6282.44 - (0.85 * 1000 * 0) = 6282.44 T = 20.17% R = 528.24% Putnam Growth & Income 12/30/89 TO NO. YEARS 10 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/89 1000 3.208666 311.656 FEE 12/31/90 0.546 3.215172 0.16982 FEE 12/31/91 0.546 3.761527 0.145154 FEE 12/31/92 0.546 4.05718 0.134576 FEE 12/31/93 0.546 4.555997 0.119842 FEE 12/31/94 0.546 4.493022 0.121522 FEE 12/31/95 0.546 6.036663 0.090447 FEE 12/31/96 0.546 7.232874 0.075489 FEE 12/31/97 0.546 8.824721 0.061872 FEE 12/31/98 0.546 10.01383 0.054525 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 310.6281 3106.281 10 FORMULA: 1000*(1+T)= 3106.281 - (0.85 * 1000 * 0) = 3106.281 T = 12.00% R = 210.63% MSDW Mid Cap 01/02/97 TO NO. YEARS 2.992471 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 01/02/97 1000 5.468267 182.8733 1 FEE 01/02/98 0.546 7.550815 0.07231 0.06 2 FEE 01/02/99 0.546 8.385094 0.065116 0.05 3 FEE 12/31/99 0.546 10 0.0546 0.04 4 N/A 0 N/A 0 0.03 5 N/A 0 N/A 0 0.02 6 N/A 0 N/A 0 0.01 7 N/A 0 N/A 0 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 182.6813 1826.813 2.992471 FORMULA: 1000*(1+T)= 1826.813 = 1792.813 T = 21.54% R = 79.28% ONE YEAR Alliance Premier Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 #VALUE! #VALUE! FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 1 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.05) = #VALUE! T = N/A R = N/A Alliance Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.54738 132.4963 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 132.4417 1324.417 1 FORMULA: 1000*(1+T)= 1324.417 - (0.85 * 1000 * 0.05) = 1281.917 T = 28.19% R = 28.19% Alliance Growth and Income 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 9.113047 109.7328 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 109.6782 1096.782 1 FORMULA: 1000*(1+T)= 1096.782 - (0.85 * 1000 * 0.05) = 1054.282 T = 5.43% R = 5.43% Aim Cap App 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.017924 142.4923 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 142.4377 1424.377 1 FORMULA: 1000*(1+T)= 1424.377 - (0.85 * 1000 * 0.05) = 1381.877 T = 38.19% R = 38.19% Aim Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.504654 133.2506 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 133.196 1331.96 1 FORMULA: 1000*(1+T)= 1331.96 - (0.85 * 1000 * 0.05) = 1289.46 T = 28.95% R = 28.95% Aim Value 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.813043 127.9911 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 127.9365 1279.365 1 FORMULA: 1000*(1+T)= 1279.365 - (0.85 * 1000 * 0.05) = 1236.865 T = 23.69% R = 23.69% Putnam International Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 6.341568 157.6897 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 157.6351 1576.351 1 FORMULA: 1000*(1+T)= 1576.351 - (0.85 * 1000 * 0.05) = 1533.851 T = 53.39% R = 53.39% Putnam Voyager 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 6.422629 155.6995 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 155.6449 1556.449 1 FORMULA: 1000*(1+T)= 1556.449 - (0.85 * 1000 * 0.05) = 1513.949 T = 51.39% R = 51.39% Putnam Growth & Income 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 10.00282 99.97185 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 99.91725 999.1725 1 FORMULA: 1000*(1+T)= 999.1725 - (0.85 * 1000 * 0.05) = 956.6725 T = -4.33% R = -4.33% MSDW Mid Cap 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 8.415862 118.8232 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 118.7686 1187.686 1 FORMULA: 1000*(1+T)= 1187.686 - (0.85 * 1000 * 0.05) = 1145.186 T = 14.52% R = 14.52% 5 YEAR Alliance Premier Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 #VALUE! #VALUE! FEE 12/31/98 0.546 #VALUE! #VALUE! FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A Alliance Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 2.752797 363.2669 FEE 12/31/95 0.546 3.669171 0.148807 FEE 12/31/96 0.546 4.64481 0.117551 FEE 12/31/97 0.546 5.950512 0.091757 FEE 12/31/98 0.546 7.54738 0.072343 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 362.7818 3627.818 5 FORMULA: 1000*(1+T)= 3627.818 - (0.85 * 1000 * 0.01) = 3619.318 T = 29.34% R = 261.93% Alliance Growth and Income 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.68506 271.366 FEE 12/31/95 0.546 4.931171 0.110724 FEE 12/31/96 0.546 6.028697 0.090567 FEE 12/31/97 0.546 7.650684 0.071366 FEE 12/31/98 0.546 9.113047 0.059914 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 270.9789 2709.789 5 FORMULA: 1000*(1+T)= 2709.789 - (0.85 * 1000 * 0.01) = 2701.289 T = 21.99% R = 170.13% Aim Cap App 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.548928 281.7752 FEE 12/31/95 0.546 4.744896 0.115071 FEE 12/31/96 0.546 5.496716 0.099332 FEE 12/31/97 0.546 6.147403 0.088818 FEE 12/31/98 0.546 7.017924 0.077801 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 281.3396 2813.396 5 FORMULA: 1000*(1+T)= 2813.396 - (0.85 * 1000 * 0.01) = 2804.896 T = 22.91% R = 180.49% Aim Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.153257 317.1324 FEE 12/31/95 0.546 4.187367 0.130392 FEE 12/31/96 0.546 4.871845 0.112073 FEE 12/31/97 0.546 6.090078 0.089654 FEE 12/31/98 0.546 7.504654 0.072755 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 316.673 3166.73 5 FORMULA: 1000*(1+T)= 3166.73 - (0.85 * 1000 * 0.01) = 3158.23 T = 25.86% R = 215.82% Aim Value 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 3.393488 294.6821 FEE 12/31/95 0.546 4.555875 0.119845 FEE 12/31/96 0.546 5.162932 0.105754 FEE 12/31/97 0.546 6.292192 0.086774 FEE 12/31/98 0.546 7.813043 0.069883 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 294.2452 2942.452 5 FORMULA: 1000*(1+T)= 2942.452 - (0.85 * 1000 * 0.01) = 2933.952 T = 24.02% R = 193.40% Putnam International Growth 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 5.432455 0.100507 FEE 12/31/98 0.546 6.341568 0.086099 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A Putnam Voyager 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 2.741342 364.7848 FEE 12/31/95 0.546 3.793988 0.143912 FEE 12/31/96 0.546 4.216733 0.129484 FEE 12/31/97 0.546 5.248587 0.104028 FEE 12/31/98 0.546 6.422629 0.085012 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 364.2678 3642.678 5 FORMULA: 1000*(1+T)= 3642.678 - (0.85 * 1000 * 0.01) = 3634.178 T = 29.44% R = 263.42% Putnam Growth & Income 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 4.468389 223.7943 FEE 12/31/95 0.546 6.010169 0.090846 FEE 12/31/96 0.546 7.20905 0.075738 FEE 12/31/97 0.546 8.805326 0.062008 FEE 12/31/98 0.546 10.00282 0.054585 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 223.4565 2234.565 5 FORMULA: 1000*(1+T)= 2234.565 - (0.85 * 1000 * 0.01) = 2226.065 T = 17.36% R = 122.61% MSDW Mid Cap 12/30/94 TO NO. YEARS 5 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/94 1000 #VALUE! #VALUE! FEE 12/31/95 0.546 #VALUE! #VALUE! FEE 12/31/96 0.546 #VALUE! #VALUE! FEE 12/31/97 0.546 7.568979 0.072137 FEE 12/31/98 0.546 8.415862 0.064877 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 5 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A SINCE INCEPTION Alliance Premier Growth 07/14/99 TO NO. YEARS 0.465435 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 07/14/99 1000 8.90270155 112.32545 1 FEE 12/31/99 0.634 10 0.0634 0.06 2 FEE N/A 0 N/A 0 0.05 3 FEE N/A 0 N/A 0 0.04 4 N/A 0 N/A 0 0.03 5 N/A 0 N/A 0 0.02 6 N/A 0 N/A 0 0.01 7 N/A 0 N/A 0 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 112.26205 1122.6205 0.465435 FORMULA: 1000*(1+T)= 1122.62055 = 1071.62055 T = 16.02% R= 7.16% Alliance Growth 09/15/94 TO NO. YEARS 5.292266 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 09/15/94 1000 2.62545345 380.88658 1 FEE 09/15/95 0.546 2.75279713 0.1983437 0.06 2 FEE 09/15/96 0.546 3.66917093 0.1488075 0.05 3 FEE 09/15/97 0.546 4.58222856 0.119156 0.04 4 09/15/98 0.546 5.95051237 0.0917568 0.03 5 09/15/99 0.546 8.78012814 0.0621859 0.02 6 12/31/99 0.546 10 0.0546 0.01 7 N/A 0 N/A 0 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 380.21173 3802.1173 5.292266 FORMULA: 1000*(1+T)= 3802.11735 = 3793.61735 T = 28.65% R = 279.36% Alliance Growth and Income 01/14/91 TO NO. YEARS 8.960986 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 01/14/91 1000 3.14213348 318.2551 1 FEE 01/14/92 0.546 3.14213348 0.1737673 0.06 2 FEE 01/14/93 0.546 3.14213348 0.1737673 0.05 3 FEE 01/14/94 0.546 3.14213348 0.1737673 0.04 4 01/14/95 0.546 3.68505967 0.1481659 0.03 5 01/14/96 0.546 4.93117092 0.1107242 0.02 6 01/14/97 0.546 5.96939415 0.0914666 0.01 7 01/14/98 0.546 7.6506841 0.0713662 0 8 01/14/99 0.546 9.1130475 0.0599141 0 9 12/31/99 0.546 10 0.0546 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 317.19756 3171.9756 8.960986 FORMULA: 1000*(1+T)= 3171.9756 = 3171.9756 T = 13.75% R = 217.20% Aim Cap App 05/05/93 TO NO. YEARS 6.655715 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 05/05/93 1000 2.96947751 336.75958 1 FEE 05/05/94 0.546 3.4991187 0.1560393 0.06 2 FEE 05/05/95 0.546 3.8984083 0.1400572 0.05 3 FEE 05/05/96 0.546 5.27132858 0.1035792 0.04 4 05/05/97 0.546 5.52238112 0.0988704 0.03 5 05/05/98 0.546 6.96561323 0.0783851 0.02 6 05/05/99 0.546 7.20416588 0.0757895 0.01 7 12/31/99 0.546 10 0.0546 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 336.05226 3360.5226 6.655715 FORMULA: 1000*(1+T)= 3360.52259 = 3360.52259 T = 19.98% R = 236.05% Aim Growth 05/05/93 TO NO. YEARS 6.655715 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 05/05/93 1000 2.99428731 333.96929 1 FEE 05/05/94 0.546 3.1437802 0.1736763 0.06 2 FEE 05/05/95 0.546 3.51179051 0.1554762 0.05 3 FEE 05/05/96 0.546 4.43152952 0.123208 0.04 4 05/05/97 0.546 5.21412065 0.1047156 0.03 5 05/05/98 0.546 7.01574879 0.0778249 0.02 6 05/05/99 0.546 8.00272962 0.0682267 0.01 7 12/31/99 0.546 10 0.0546 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 333.21156 3332.1156 6.655715 FORMULA: 1000*(1+T)= 3332.1156 = 3332.1156 T = 19.82% R = 233.21% Aim Value 05/05/93 TO NO. YEARS 6.655715 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 05/05/93 1000 2.91122158 343.49842 1 FEE 05/05/94 0.546 3.37983003 0.1615466 0.06 2 FEE 05/05/95 0.546 3.81857402 0.1429853 0.05 3 FEE 05/05/96 0.546 4.59743713 0.1187618 0.04 4 05/05/97 0.546 5.52769196 0.0987754 0.03 5 05/05/98 0.546 7.10495971 0.0768477 0.02 6 05/05/99 0.546 8.49623176 0.0642638 0.01 7 12/31/99 0.546 10 0.0546 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 342.78063 3427.8063 6.655715 FORMULA: 1000*(1+T)= 3427.80635 = 3427.80635 T = 20.33% R = 242.78% Putnam International Growth 01/02/97 TO NO. YEARS 2.992471 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 01/02/97 1000 4.75453667 210.32544 1 FEE 01/02/98 0.546 5.46048674 0.0999911 0.06 2 FEE 01/02/99 0.546 6.3415682 0.0860986 0.05 3 FEE 12/31/99 0.546 10 0.0546 0.04 4 N/A 0 N/A 0 0.03 5 N/A 0 N/A 0 0.02 6 N/A 0 N/A 0 0.01 7 N/A 0 N/A 0 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 210.08475 2100.8475 2.992471 FORMULA: 1000*(1+T)= 2100.84747 = 2066.84747 T = 27.46% R = 106.68% Putnam Voyeger 14-Jul-99 TO NO. YEARS 10.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-89 1000.00 1.569972 636.95405 FEE 31-Dec-90 0.634 1.513232 0.41897 FEE 31-Dec-91 0.634 2.174958 0.29150 FEE 31-Dec-92 0.634 2.361466 0.26848 FEE 31-Dec-93 0.634 2.757761 0.22990 FEE 31-Dec-94 0.634 2.741342 0.23127 FEE 31-Dec-95 0.634 3.793988 0.16711 FEE 31-Dec-96 0.634 4.216733 0.15035 FEE 31-Dec-97 0.634 5.248587 0.12079 FEE 31-Dec-98 0.634 6.422629 0.09871 FEE 31-Dec-99 0.634 10.000000 0.06340 RESULTING VALUE 31-Dec-99 10.000000 634.91357 6349.1357 10.000 FORMULA: 1000*(1+T)= 6349.1357 - (0.85 * 1000 * 0) = 6349.13567 T = 20.30% R = 534.91% Putnam Growth & Income 30-Dec-89 TO NO. YEARS 10.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-89 1000.00 3.173577 315.10182 FEE 31-Dec-90 0.634 3.183511 0.19915 FEE 31-Dec-91 0.634 3.728584 0.17004 FEE 31-Dec-92 0.634 4.026071 0.15747 FEE 31-Dec-93 0.634 4.526038 0.14008 FEE 31-Dec-94 0.634 4.468389 0.14189 FEE 31-Dec-95 0.634 6.010169 0.10549 FEE 31-Dec-96 0.634 7.209050 0.08795 FEE 31-Dec-97 0.634 8.805326 0.07200 FEE 31-Dec-98 0.634 10.002816 0.06338 FEE 31-Dec-99 0.634 10.000000 0.06340 RESULTING VALUE 31-Dec-99 10.000000 313.90098 3139.0098 10.000 FORMULA: 1000*(1+T)= 3139.0098 - (0.85 * 1000 * 0) = 3139.00979 T = 12.12% R = 213.90% MSDW Mid Cap 01/02/97 TO NO. YEARS 2.992471 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 01/02/97 1000 5.45029312 183.47637 1 FEE 01/02/98 0.546 7.53427098 0.0724689 0.06 2 FEE 01/02/99 0.546 8.37590321 0.065187 0.05 3 FEE 12/31/99 0.546 10 0.0546 0.04 4 N/A 0 N/A 0 0.03 5 N/A 0 N/A 0 0.02 6 N/A 0 N/A 0 0.01 7 N/A 0 N/A 0 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 183.28411 1832.8411 2.992471 FORMULA: 1000*(1+T)= 1832.84115 = 1798.84115 T = 21.68% R = 79.88% ONE YEAR Alliance Premier Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 #VALUE! #VALUE! FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 #VALUE! #VALUE! 1 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.05) = #VALUE! T = N/A R = N/A Alliance Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.537581791 132.6685438 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 132.6139438 1326.139438 1 FORMULA: 1000*(1+T)= 1326.139438 - (0.85 * 1000 * 0.05) = 1283.639438 T = 28.36% R = 28.36% Alliance Growth and Income 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 9.101210824 109.8754901 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 109.8208901 1098.208901 1 FORMULA: 1000*(1+T)= 1098.208901 - (0.85 * 1000 * 0.05) = 1055.708901 T = 5.57% R = 5.57% Aim Cap App 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.008818204 142.6774059 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 142.6228059 1426.228059 1 FORMULA: 1000*(1+T)= 1426.228059 - (0.85 * 1000 * 0.05) = 1383.728059 T = 38.37% R = 38.37% Aim Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.494915855 133.4237794 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 133.3691794 1333.691794 1 FORMULA: 1000*(1+T)= 1333.691794 - (0.85 * 1000 * 0.05) = 1291.191794 T = 29.12% R = 29.12% Aim Value 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 7.802903822 128.1574171 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 128.1028171 1281.028171 1 FORMULA: 1000*(1+T)= 1281.028171 - (0.85 * 1000 * 0.05) = 1238.528171 T = 23.85% R = 23.85% Putnam International Growth 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 6.33336765 157.8938813 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 157.8392813 1578.392813 1 FORMULA: 1000*(1+T)= 1578.392813 - (0.85 * 1000 * 0.05) = 1535.892813 T = 53.59% R = 53.59% Putnam Voyager 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 6.41431081 155.9013945 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 155.8467945 1558.467945 1 FORMULA: 1000*(1+T)= 1558.467945 - (0.85 * 1000 * 0.05) = 1515.967945 T = 51.60% R = 51.60% Putnam Growth & Income 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 9.989812816 100.1019757 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 100.0473757 1000.473757 1 FORMULA: 1000*(1+T)= 1000.473757 - (0.85 * 1000 * 0.05) = 957.9737573 T = -4.20% R = -4.20% MSDW Mid Cap 12/31/98 NO. YEARS 1 TO 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/98 1000 8.40493129 118.9777722 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 118.9231722 1189.231722 1 FORMULA: 1000*(1+T)= 1189.231722 - (0.85 * 1000 * 0.05) = 1146.731722 T = 14.67% R = 14.67% 5 YEAR Alliance Premier Growth 30-Dec-94 TO NO. YEARS 5.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-94 1000.00 #VALUE! #VALUE! FEE 31-Dec-95 0.546 #VALUE! #VALUE! FEE 31-Dec-96 0.546 #VALUE! #VALUE! FEE 31-Dec-97 0.546 #VALUE! #VALUE! FEE 31-Dec-98 0.546 #VALUE! #VALUE! FEE 31-Dec-99 0.546 10.000000 0.05460 RESULTING VALUE 31-Dec-99 10.000000 #VALUE! #VALUE! 5.000 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A Alliance Growth 30-Dec-94 TO NO. YEARS 5.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-94 1000.00 2.735042 365.62512 FEE 31-Dec-95 0.546 3.649857 0.14959 FEE 31-Dec-96 0.546 4.626742 0.11801 FEE 31-Dec-97 0.546 5.935071 0.09200 FEE 31-Dec-98 0.546 7.537582 0.07244 FEE 31-Dec-99 0.546 10.000000 0.05460 RESULTING VALUE 31-Dec-99 10.000000 365.13848 3651.3848 5.000 FORMULA: 1000*(1+T)= 3651.3848 - (0.85 * 1000 * 0.01) = 3642.884791 T = 29.51% R = 264.29% Alliance Growth and Income 30-Dec-94 TO NO. YEARS 5.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-94 1000.00 3.661297 273.12726 FEE 31-Dec-95 0.546 4.905209 0.11131 FEE 31-Dec-96 0.546 6.005241 0.09092 FEE 31-Dec-97 0.546 7.630825 0.07155 FEE 31-Dec-98 0.546 9.101211 0.05999 FEE 31-Dec-99 0.546 10.000000 0.05460 RESULTING VALUE 31-Dec-99 10.000000 272.73889 2727.3889 5.000 FORMULA: 1000*(1+T)= 2727.3889 - (0.85 * 1000 * 0.01) = 2718.88889 T = 22.15% R = 171.89% Aim Cap App 30-Dec-94 TO NO. YEARS 5.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-94 1000.00 3.525933 283.61285 FEE 31-Dec-95 0.546 4.720264 0.11567 FEE 31-Dec-96 0.546 5.475334 0.09972 FEE 31-Dec-97 0.546 6.131454 0.08905 FEE 31-Dec-98 0.546 7.008818 0.07790 FEE 31-Dec-99 0.546 10.000000 0.05460 RESULTING VALUE 31-Dec-99 10.000000 283.17591 2831.7591 5.000 FORMULA: 1000*(1+T)= 2831.7591 - (0.85 * 1000 * 0.01) = 2823.259071 T = 23.07% R = 182.33% Aim Growth 30-Dec-94 TO NO. YEARS 5.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-94 1000.00 3.132831 319.20010 FEE 31-Dec-95 0.546 4.165636 0.13107 FEE 31-Dec-96 0.546 4.852900 0.11251 FEE 31-Dec-97 0.546 6.074281 0.08989 FEE 31-Dec-98 0.546 7.494916 0.07285 FEE 31-Dec-99 0.546 10.000000 0.05460 RESULTING VALUE 31-Dec-99 10.000000 318.73918 3187.3918 5.000 FORMULA: 1000*(1+T)= 3187.3918 - (0.85 * 1000 * 0.01) = 3178.891837 T = 26.02% R = 217.89% Aim Value 30-Dec-94 TO NO. YEARS 5.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-94 1000.00 3.371506 296.60333 FEE 31-Dec-95 0.546 4.532231 0.12047 FEE 31-Dec-96 0.546 5.142854 0.10617 FEE 31-Dec-97 0.546 6.275869 0.08700 FEE 31-Dec-98 0.546 7.802904 0.06997 FEE 31-Dec-99 0.546 10.000000 0.05460 RESULTING VALUE 31-Dec-99 10.000000 296.16512 2961.6512 5.000 FORMULA: 1000*(1+T)= 2961.6512 - (0.85 * 1000 * 0.01) = 2953.151166 T = 24.18% R = 195.32% Putnam International Growth 30-Dec-94 TO NO. YEARS 5.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-94 1000.00 #VALUE! #VALUE! FEE 31-Dec-95 0.546 #VALUE! #VALUE! FEE 31-Dec-96 0.546 #VALUE! #VALUE! FEE 31-Dec-97 0.546 5.418389 0.10077 FEE 31-Dec-98 0.546 6.333368 0.08621 FEE 31-Dec-99 0.546 10.000000 0.05460 RESULTING VALUE 31-Dec-99 10.000000 #VALUE! #VALUE! 5.000 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A Putnam Voyager 30-Dec-94 TO NO. YEARS 5.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-94 1000.00 2.723599 367.16131 FEE 31-Dec-95 0.546 3.774330 0.14466 FEE 31-Dec-96 0.546 4.200343 0.12999 FEE 31-Dec-97 0.546 5.234983 0.10430 FEE 31-Dec-98 0.546 6.414311 0.08512 FEE 31-Dec-99 0.546 10.000000 0.05460 RESULTING VALUE 31-Dec-99 10.000000 366.64264 3666.4264 5.000 FORMULA: 1000*(1+T)= 3666.4264 - (0.85 * 1000 * 0.01) = 3657.926384 T = 29.61% R = 265.79% Putnam Growth & Income 30-Dec-94 TO NO. YEARS 5.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-94 1000.00 4.439453 225.25298 FEE 31-Dec-95 0.546 5.979007 0.09132 FEE 31-Dec-96 0.546 7.180996 0.07603 FEE 31-Dec-97 0.546 8.782460 0.06217 FEE 31-Dec-98 0.546 9.989813 0.05466 FEE 31-Dec-99 0.546 10.000000 0.05460 RESULTING VALUE 31-Dec-99 10.000000 224.91420 2249.1420 5.000 FORMULA: 1000*(1+T)= 2249.1420 - (0.85 * 1000 * 0.01) = 2240.641967 T = 17.51% R = 124.06% MSDW Mid Cap 30-Dec-94 TO NO. YEARS 5.000 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 31-Dec-94 1000.00 #VALUE! #VALUE! FEE 31-Dec-95 0.546 #VALUE! #VALUE! FEE 31-Dec-96 0.546 #VALUE! #VALUE! FEE 31-Dec-97 0.546 7.549330 0.07232 FEE 31-Dec-98 0.546 8.404931 0.06496 FEE 31-Dec-99 0.546 10.000000 0.05460 RESULTING VALUE 31-Dec-99 10.000000 #VALUE! #VALUE! 5.000 FORMULA: 1000*(1+T)= #VALUE! - (0.85 * 1000 * 0.01) = #VALUE! T = N/A R = N/A SINCE INCEPTION Alliance Premier Growth 14-Jul-99 TO NO. YEARS 0.465 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 14-Jul-99 1000.00 8.897316 112.39344 1 FEE 31-Dec-99 0.546 10.000000 0.05460 0.06 2 FEE N/A 0 N/A 0.00000 0.05 3 FEE N/A 0 N/A 0.00000 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.000000 112.33884 1123.3884 0.465 FORMULA: 1000*(1+T)= 1123.3884 = 1072.388436 T = 16.20% R = 7.24% Alliance Growth 09/15/94 TO NO. YEARS 5.292265572 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 09/15/94 1000 2.607538715 383.5034142 1 FEE 09/15/95 0.546 3.511685966 0.155480873 0.06 2 FEE 09/15/96 0.546 4.09031 0.133486183 0.05 03-Jan-00 FEE 09/15/97 0.546 5.58120 0.097828458 0.04 4 09/15/98 0.546 5.884525312 0.092785734 0.03 05-Jan-00 09/15/99 0.546 8.15062 0.066988766 0.02 6 12/31/99 0.546 10.00000 0.0546 0.01 7 N/A 0 N/A 0 0 8 N/A 0.00 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.000000 382.90224 3829.022442 5.292265572 FORMULA: 1000*(1+T)= 3829.022442 = 3820.522442 T = 28.82% R = 282.05% Alliance Growth and Income 01/14/91 TO NO. YEARS 8.960985626 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 01/14/91 1000 3.105882347 321.9696976 1 FEE 01/14/92 0.546 3.173224024 0.17206475 0.06 2 FEE 01/14/93 0.546 3.379247376 0.161574439 0.05 3 FEE 01/14/94 0.546 3.724152776 0.146610527 0.04 4 01/14/95 0.546 3.661296885 0.149127486 0.03 5 01/14/96 0.546 4.756739699 0.114784503 0.02 6 01/14/97 0.546 6.148530826 0.088801702 0.01 7 01/14/98 0.546 7.454660059 0.073242776 0 8 01/14/99 0.546 8.959046885 0.060943983 0 9 12/31/99 0.546 10 0.0546 0 10 N/A 0 N/A 0 0 11-Jan-00 N/A 0 N/A 0 0 12 N/A 0.000 N/A 0 0 13-Jan-00 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10.000000 320.94795 3209.479474 8.960985626 FORMULA: 1000*(1+T)= 3209.479474 = 3209.479474 T = 13.90% R = 220.95% Aim Cap App 05/05/93 TO NO. YEARS 6.655715264 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 05/05/93 1000 2.943899 339.6855093 1 FEE 05/05/94 0.546 3.473488 0.15719 0.06 2 FEE 05/05/95 0.546 3.87489 0.140907354 0.05 3 FEE 05/05/96 0.546 5.24631 0.104073176 0.04 4 05/05/97 0.546 5.5034 0.099212279 0.03 5 05/05/98 0.546 6.9506324 0.078554003 0.02 6 05/05/99 0.54600 719.80% 0.075854224 0.01 7 12/31/99 0.54600 1000.00% 0.0546 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0 0 10 N/A 0 N/A 0 0 11 N/A 0 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0 N/A 0 0 15 FEE N/A 0 N/A 0 0 RESULTING VALUE 12/31/99 10 338.9751176 3389.751176 6.655715264 FORMULA: 1000*(1+T)= 3389.751176 = 3389.75118 T = 20.13% R = 238.98% Aim Growth 05/05/93 TO NO. YEARS 6.655715264 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 05-May-93 1000 2.968500 336.87046 1 FEE 05-May-94 0.546 3.120758 0.17496 0.06 2 FEE 05-May-95 0.546 3.490607 0.15642 0.05 3 FEE 05-May-96 0.546 4.410503 0.12380 0.04 4 05-May-97 0.546 5.196157 0.10508 0.03 5 05-May-98 0.546 7.000663 0.07799 0.02 6 05-May-99 0.546 7.995896 0.06829 0.01 7 31-Dec-99 0.546 10.000000 0.05460 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0 0 11 N/A 0.000 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0.00000 N/A 0 0 15 FEE N/A 0.00000 N/A 0 0 RESULTING VALUE 12/31/99 10 336.10933 3361.0933 6.655715264 FORMULA: 1000*(1+T)= 3361.0933 = 3361.0933 T = 19.98% R = 236.11% Aim Value 05-May-93 TO NO. YEARS 6.656 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 05-May-93 1000.00 2.886151 346.48221 1 FEE 05-May-94 0.546 3.355080 0.16274 0.06 2 FEE 05-May-95 0.546 3.795540 0.14385 0.05 3 FEE 05-May-96 0.546 4.575624 0.11933 0.04 4 05-May-97 0.546 5.508646 0.09912 0.03 5 05-May-98 0.546 7.089681 0.07701 0.02 6 05-May-99 0.546 8.488974 0.06432 0.01 7 31-Dec-99 0.546 10.000000 0.05460 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.000000 345.76125 3457.6125 6.656 FORMULA: 1000*(1+T)= 3457.6125 = 3457.612453 T = 20.49% R = 245.76% Putnam International Growth 01/02/97 TO NO. YEARS 2.99247091 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 01/02/97 1000 4.736100505 211.1441678 1 FEE 01/02/98 0.546 5.446386227 0.10024996 0.06 2 FEE 01/02/99 0.546 6.33337 0.086210059 0.05 03-Jan-00 FEE 12/31/99 0.546 10.00000 0.0546 0.04 4 N/A 0.000 N/A 0 0.03 05-Jan-00 N/A 0 N/A 0 0.02 6 N/A 0 N/A 0 0.01 7 N/A 0 N/A 0 0 8 N/A 0.00 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.000000 210.90311 2109.031078 2.99247091 FORMULA: 1000*(1+T)= 2109.031078 = 2075.031078 T = 27.63% R = 107.50% Putnam Voyager 12/30/89 TO NO. YEARS 10 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/89 1000 1.549706114 645.2836387 FEE 12/31/90 0.546 1.49564152 0.36506074 FEE 12/31/91 0.546 2.152468273 0.253662275 FEE 12/31/92 0.546 2.340088771 0.233324482 FEE 12/31/93 0.546 2.736351023 0.199535803 FEE 12/31/94 0.546 2.723598521 0.200470075 FEE 12/31/95 0.546 3.774329921 0.14466144 FEE 12/31/96 0.546 4.200342925 0.129989387 FEE 12/31/97 0.546 5.234983495 0.104298323 FEE 12/31/98 0.546 6.41431081 0.085122161 FEE 12/31/99 0.546 10.00000 0.0546 RESULTING VALUE 12/31/99 10 643.512914 6435.12914 10 FORMULA: 1000*(1+T)= 6435.12914 - (0.85 * 1000 * 0) = 6435.129140 T = 20.46% R = 543.51% Putnam Growth & Income 12/30/89 TO NO. YEARS 10 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE INIT DEPOSIT 12/31/89 1000 3.132603 319.2233242 FEE 12/31/90 0.546 3.146496 0.17353 FEE 12/31/91 0.546 3.69002 0.147966579 FEE 12/31/92 0.546 3.98961 0.136855333 FEE 12/31/93 0.546 4.4909 0.121579545 FEE 12/31/94 0.546 4.439453014 0.122988124 FEE 12/31/95 0.54600 597.90% 0.091319508 FEE 12/31/96 0.54600 718.10% 0.076034017 FEE 12/31/97 0.546 8.782460194 0.062169368 FEE 12/31/98 0.546 9.989812816 0.054655679 FEE 12/31/99 0.546 10 0.0546 RESULTING VALUE 12/31/99 10 318.1816297 3181.816297 10 FORMULA: 1000*(1+T)= 3181.816297 - (0.85 * 1000 * 0) = 3181.816297 T = 12.27% R = 218.18% MSDW Mid Cap 01/02/97 TO NO. YEARS 2.99247091 12/31/99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 02-Jan-97 1000 5.429128 184.19164 1 FEE 02-Jan-98 0.546 7.514766 0.07266 0.06 2 FEE 02-Jan-99 0.546 8.365055 0.06527 0.05 3 FEE 31-Dec-99 0.546 10.000000 0.05460 0.04 4 N/A 0 N/A 0.00000 0.03 5 N/A 0 N/A 0.00000 0.02 6 N/A 0 N/A 0.00000 0.01 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0 0 11 N/A 0.000 N/A 0 0 12 N/A 0 N/A 0 0 13 N/A 0 N/A 0 0 14 FEE N/A 0.00000 N/A 0 0 15 FEE N/A 0.00000 N/A 0 0 RESULTING VALUE 12/31/99 10 183.9991135 1839.991135 2.99247091 FORMULA: 1000*(1+T)= 1839.991135 = 1805.991135 T = 21.84% R = 80.60%
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ AssetManager - Standardized - -------------------------------------------------------------------------------
Aggressive Equity 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 14.454787 0.03777 0.01 2 FEE N/A 0 N/A 0.00000 0 3 FEE N/A 0 N/A 0.00000 0 4 N/A 0 N/A 0.00000 0 5 N/A 0 N/A 0.00000 0 6 N/A 0 N/A 0.00000 0 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 14.454787 99.96223 1444.9327 0.663 FORMULA: 1000*(1+T)= 1444.9327 = 1436.4327 T = 72.74% R = 43.64% Short Term Bond 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 10.049101 0.05433 0.01 2 FEE N/A 0 N/A 0.00000 0 3 FEE N/A 0 N/A 0.00000 0 4 N/A 0 N/A 0.00000 0 5 N/A 0 N/A 0.00000 0 6 N/A 0 N/A 0.00000 0 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.049101 99.94567 1004.3641 0.663 FORMULA: 1000*(1+T)= 1004.3641 = 995.8641 T = -0.62% R = -0.41% AssetManager - NON-Standardized - ------------------------------------------------------------------------------- Non-Standardized Calculations Dates: Current: 12/31/99 3 Months Ago: 09/30/99 End of Last Year 12/31/98 One Yr Ago: 12/31/98 Two Yrs Ago: 12/31/97 Three Yrs Ago: 12/31/96 Five Yrs Ago: 12/31/94 Ten Yrs Ago: 12/31/89 InceptionInceptionTen Yr Five Yr Three Two One Yr YTD 3 Months Today's Fund Date AUV AUV AUV AUV AUV AUV AUV AUV AUV Aggressive Equity5/3/99 10 N/A N/A N/A N/A N/A 10 10.29925114.454787 Short Term Bond 5/3/99 10 N/A N/A N/A N/A N/A 10 10.02716310.049101 Inception Ten Years Five Years Three Years Two Years One Year YTD Three Months Fund Total Average Total Average Total Average Total Average Total Average Aggressive Equity44.55% 74.32% N/A N/A N/A N/A N/A N/A N/A N/A N/A 44.55% 40.35% Short Term Bond 0.49% 0.74% N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.49% 0.22% AssetManager - Adjusted Historical - ------------------------------------------------------------------------------- Aggressive Equity 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 14.454787 0.03777 0.01 2 FEE N/A 0 N/A 0.00000 0 3 FEE N/A 0 N/A 0.00000 0 4 N/A 0 N/A 0.00000 0 5 N/A 0 N/A 0.00000 0 6 N/A 0 N/A 0.00000 0 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 14.454787 99.96223 1444.9327 0.663 FORMULA: 1000*(1+T)= 1444.9327 = 1436.4327 T = 72.74% R = 43.64% Short Term Bond 03-May-99 TO NO. YEARS 0.663 31-Dec-99 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES 0 INIT DEPOSIT 03-May-99 1000.00 10.000000 100.00000 1 FEE 31-Dec-99 0.546 10.049101 0.05433 0.01 2 FEE N/A 0 N/A 0.00000 0 3 FEE N/A 0 N/A 0.00000 0 4 N/A 0 N/A 0.00000 0 5 N/A 0 N/A 0.00000 0 6 N/A 0 N/A 0.00000 0 7 N/A 0 N/A 0.00000 0 8 N/A 0 N/A 0.00000 0 9 N/A 0 N/A 0.00000 0 10 N/A 0 N/A 0.00000 0 11 N/A 0 N/A 0.00000 0 12 N/A 0 N/A 0.00000 0 13 N/A 0 N/A 0.00000 0 14 FEE N/A 0 N/A 0.00000 0 15 FEE N/A 0 N/A 0.00000 0 RESULTING VALUE 31-Dec-99 10.049101 99.94567 1004.3641 0.663 FORMULA: 1000*(1+T)= 1004.3641 = 995.8641 T = -0.62% R = -0.41%
EX-99 5 POWERS OF ATTORNEY POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) Know all men by these presents that Thomas J. Wilson, II, whose signature appears below, constitutes and appoints Michael J. Velotta, his attorney-in-fact, with power of substitution in any and all capacities, to sign any Form N-4 Registration Statements and amendments thereto for the Northbrook Variable Annuity Account II (Registrant) and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. April 25, 2000 Date /s/THOMAS J. WILSON, II Thomas J. Wilson, II President, Chief Operating Officer, (Principal Executive Officer) and Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) Know all men by these presents that Michael J. Velotta, whose signature appears below, constitutes and appoints Thomas J. Wilson, II, his attorney-in-fact, with power of substitution in any and all capacities, to sign any Form N-4 Registration Statements and amendments thereto for the Northbrook Variable Annuity Account II (Registrant) and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. April 25, 2000 Date /s/MICHAEL J. VELOTTA Michael J. Velotta Vice President, Secretary, General Counsel, and Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) Know all men by these presents that John R. Hunter, whose signature appears below, constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them, his attorney-in-fact, with power of substitution, and him in any and all capacities, to sign any Form N-4 Registration Statements and amendments thereto for the Northbrook Variable Annuity Account II (Registrant) and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. April 25, 2000 Date /s/JOHN R. HUNTER John R. Hunter Vice President and Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) Know all men by these presents that Samuel H. Pilch, whose signature appears below, constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them, his attorney-in-fact, with power of substitution, and him in any and all capacities, to sign any Form N-4 Registration Statements and amendments thereto for the Northbrook Variable Annuity Account II (Registrant) and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. April 25, 2000 Date /s/SAMUEL H. PILCH Samuel H. Pilch Controller POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) Know all men by these presents that Kevin R. Slawin, whose signature appears below, constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them, his attorney-in-fact, with power of substitution, and him in any and all capacities, to sign any Form N-4 Registration Statements and amendments thereto for the Northbrook Variable Annuity Account II (Registrant) and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. April 25, 2000 Date /s/KEVIN R. SLAWIN Kevin R. Slawin Vice President and Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) Know all men by these presents that Casey J. Sylla, whose signature appears below, constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them, his attorney-in-fact, with power of substitution, and him in any and all capacities, to sign any Form N-4 Registration Statements and amendments thereto for Northbrook Variable Annuity Account II (Registrant) and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. April 25, 2000 Date /s/CASEY J. SYLLA Casey J. Sylla Chief Investment Officer and Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) Know all men by these presents that Sarah R. Donahue, whose signature appears below, constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them, his attorney-in-fact, with power of substitution, and him in any and all capacities, to sign any Form N-3 Registration Statements and amendments thereto for the Northbrook Variable Annuity Account II (Registrant) and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. April 25, 2000 Date /s/SARAH R. DONAHUE Sarah R. Donahue Assistant Vice President and Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) Know all men by these presents that Timothy N. Vander Pas, whose signature appears below, constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them, his attorney-in-fact, with power of substitution, and him in any and all capacities, to sign any Form N-4 Registration Statements and amendments thereto for the Northbrook Variable Annuity Account II (Registrant) and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. April 25, 2000 Date /s/TIMOTHY N. VANDER PAS Timothy N. Vander Pas Assistant Vice President and Director -----END PRIVACY-ENHANCED MESSAGE-----