-----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, HqdaG2my/TjaI5eCM7CTc9Jw3Soay8XMAgNroE4YIhYXZRQAWJDFF0LVkgUb56uG 1mIr33g//vJpJ2INVkjd6A== /in/edgar/work/20000804/0000945094-00-000334/0000945094-00-000334.txt : 20000921 0000945094-00-000334.hdr.sgml : 20000921 ACCESSION NUMBER: 0000945094-00-000334 CONFORMED SUBMISSION TYPE: N-4 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20000804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHBROOK VARIABLE ANNUITY ACCOUNT II CENTRAL INDEX KEY: 0000864922 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-4 SEC ACT: SEC FILE NUMBER: 333-43086 FILM NUMBER: 686560 FILING VALUES: FORM TYPE: N-4 SEC ACT: SEC FILE NUMBER: 811-06116 FILM NUMBER: 686561 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 N-4 1 0001.txt ONLINE VA REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on August 4, 2000 - ------------------------------------------------------------------------------- File Nos. 333-_____ 811-6116 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No.___ Post-effective Amendment No.___ and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 33 /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 of all communications to: BRUCE A. TEICHNER, ESQ. TERRY YOUNG, ESQ. ALLSTATE LIFE INSURANCE COMPANY ALFS, INC. 3100 SANDERS ROAD, SUITE J5B 3100 SANDERS ROAD, SUITE J5B NORTHBROOK, ILLINOIS 60062 NORTHBROOK, ILLINOIS 60062 Approximate date of proposed public offering: As soon as practicable after the effective date of the registration statement. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. MORGAN STANLEY DEAN WITTER ONLINE VARIABLE ANNUITY NORTHBROOK LIFE INSURANCE COMPANY P.O. BOX 80469 LINCOLN, NE 68501 TELEPHONE NUMBER: 1-877-801-7157 PROSPECTUS DATED ______, 2000 E-MAIL ADDRESS: MSDWONLINEVA@NORTHBROOKLIFE.COM Northbrook Life Insurance Company ("Northbrook") is offering the Morgan Stanley Dean Witter Online Variable Annuity, an individual and group flexible premium deferred variable annuity contract ("Contract"). The Contract currently is available for purchase by individuals that have opened a Morgan Stanley Dean Witter Online Account. The purchase of this Contract as well as most Contract transactions currently may be performed electronically through your Morgan Stanley Dean Witter Online account. This prospectus contains information about the Contract that you should know before investing. Please keep it for future reference. The Contract currently offers 21 variable sub-accounts ("Variable Sub-Accounts") of the Northbrook Variable Annuity Account II ("Variable Account"). At present, there is no fixed account ("Fixed Account") investment alternative ("investment alternative") available during the accumulation phase, although Northbrook will offer a Fixed Account immediately duringthe payout phase. Each Variable Sub-Account invests exclusively in shares of portfolios ("Portfolios") of the following mutual funds ("Funds"): |X| JANUS ASPEN SERIES |X| THE STRONG GROWTH FUNDS |X| SCUDDER VARIABLE LIFE INSURANCE FUND |X| THE UNIVERSAL INSTITUTIONAL FUNDS, INC. |X| VAN KAMPEN LIFE INVESTMENT TRUST |X| WARBURG PINCUS FUNDS We (Northbrook) have filed a Statement of Additional Information, dated _______, 2000, with the Securities and Exchange Commission ("SEC "). It contains more information about the Contract and is incorporated herein by reference, which means that it is legally a part of this prospectus. Its table of contents appears on page __ of this prospectus. For a free copy, please write, call or e-mail us at the addresses or telephone number above, or you may 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 APPROVED OR 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. IMPORTANT NOTICES INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
TABLE OF CONTENTS PAGE OVERVIEW - ---------------------------------------------------------------------------- Important Terms - ---------------------------------------------------------------------------- The Contract At A Glance - ---------------------------------------------------------------------------- How the Contract Works - ---------------------------------------------------------------------------- Expense Table - ---------------------------------------------------------------------------- Financial Information - ---------------------------------------------------------------------------- CONTRACT FEATURES - ---------------------------------------------------------------------------- The Contract - ---------------------------------------------------------------------------- Purchase of Contracts - ---------------------------------------------------------------------------- Contract Value - ---------------------------------------------------------------------------- Investment Alternatives - ---------------------------------------------------------------------------- The Variable Sub-Accounts - ---------------------------------------------------------------------------- The Fixed Account - ---------------------------------------------------------------------------- Transfers - ---------------------------------------------------------------------------- Expenses - ---------------------------------------------------------------------------- Access to Your Money - ---------------------------------------------------------------------------- Income Payments - ---------------------------------------------------------------------------- Death Benefits - ---------------------------------------------------------------------------- OTHER INFORMATION - ---------------------------------------------------------------------------- More Information: - ---------------------------------------------------------------------------- Northbrook - ---------------------------------------------------------------------------- The Variable Account - ---------------------------------------------------------------------------- The Portfolios - ---------------------------------------------------------------------------- The Contract - ---------------------------------------------------------------------------- Qualified Plans - ---------------------------------------------------------------------------- Legal Matters - ---------------------------------------------------------------------------- Year 2000 - ---------------------------------------------------------------------------- Taxes - ---------------------------------------------------------------------------- Performance Information - ---------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS - ----------------------------------------------------------------------------
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 - ----------------------------------------------------------------------------- Dollar Cost Averaging - ----------------------------------------------------------------------------- Due Proof of Death - ----------------------------------------------------------------------------- Fixed Account - ----------------------------------------------------------------------------- Funds - ----------------------------------------------------------------------------- Income Plans - ----------------------------------------------------------------------------- Investment Alternatives - ----------------------------------------------------------------------------- Issue Date - ----------------------------------------------------------------------------- Northbrook ("We") - ----------------------------------------------------------------------------- Payout Phase - ----------------------------------------------------------------------------- Payout Start Date - ----------------------------------------------------------------------------- Portfolios - ----------------------------------------------------------------------------- Qualified Contracts - ----------------------------------------------------------------------------- Right to Cancel - ----------------------------------------------------------------------------- SEC - ----------------------------------------------------------------------------- Settlement Value - ----------------------------------------------------------------------------- Systematic Withdrawal Program - ----------------------------------------------------------------------------- Valuation Date - ----------------------------------------------------------------------------- Variable Account - ----------------------------------------------------------------------------- Variable Sub-Account - -----------------------------------------------------------------------------
*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 of $1,000 or more. You can add to your Contract as often and as much as you like, but each payment must be at least $100. - -------------------------------------------------------------------------------- RIGHT TO CANCEL You may cancel your Contract within 20 days of receipt or any longer period as your state may require ("Cancellation Period"). Upon cancellation, we will return your purchase payments adjusted, to the extent state and federal law permit, to reflect the investment experience of any amounts allocated to the Variable Account. - -------------------------------------------------------------------------------- EXPENSES You will bear the following expenses: - Total Variable Account annual fees equal to 0.60% of average daily net assets. - Transfer fee of $10 after the 12th transfer in any Contract Year (fee currently waived). - State premium tax (if your state imposes one). In addition, each Portfolio pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. INVESTMENT ALTERNATIVES The Contract currently offers 21 Variable Sub-Accounts investing in Portfolios offering professional money management by these investment advisers: Credit Suisse Asset Management, LLC Janus Capital Miller Anderson & Sherred, LLP Morgan Stanley Asset Management Scudder Kemper Investments, Inc. Strong Capital Management, Inc. Van Kampen Asset Management, Inc. To find out how the Variable Sub-Accounts have performed, call us at 1-877-801-7157. SPECIAL SERVICES For your convenience, we offer these special services: - Automatic Portfolio Rebalancing Program - Dollar Cost Averaging Program - Systematic Withdrawals INCOME PAYMENTS You can choose fixed amount income payments, variable amount income payments or a combination of the two. You can receive your income payments in one of the following ways: - life income with guaranteed payments - joint and survivor life income with guaranteed payments - 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. TRANSFERS Before the Payout Start Date, you may transfer your Contract value ("Contract Value") among the Variable Sub-Accounts, 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. We, however, 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 any time during the Accumulation Phase and during the Payout Phase in certain cases. In general, you must withdraw at least $50 at a time or the total amount in the Variable Sub-Account, if less. A federal tax penalty may apply if you make a withdrawal before you are 59 1/2 years old. 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 21 Variable Sub-Accounts 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. 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 amount income payment option, we guarantee the amount of your payments, which will remain fixed. If you select a variable amount 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 DATE PAYOUT PHASE 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 1-877-801-7157 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 None - -------------------------------------------------------------------------------- Annual Contract Maintenance Charge None - -------------------------------------------------------------------------------- Transfer Fee $10* - -------------------------------------------------------------------------------- * Applies solely to the thirteenth and all 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 0.50% - ---------------------------------------------------------------------- Administrative Expense Charge 0.10% - ---------------------------------------------------------------------- Total Variable Account Annual Expenses 0.60% - ---------------------------------------------------------------------- PORTFOLIO ANNUAL EXPENSES (After Voluntary Reductions And Reimbursements) (As A Percentage Of Portfolio Average Daily Net Assets)
JANUS ASPEN SERIES (1) - ------------------------------- ------------------------------------------------------------------------------------------------- Portfolio Management Fee 12b-1 Other Expenses Total Expenses after Fee Waiver* after Fee Waiver* - ------------------------------- ---------------------------- ------------------------------------------------------------------ Capital Appreciation 0.65% .25 0.04% 0.94% - ------------------------------- ---------------------------- ------------------------------------------------------------------- - ------------------------------- ---------------------------- ------------------------------------------------------------------- Worldwide Growth 0.65% .25 0.05% 0.95% - ------------------------------- ---------------------------- ------------------------------------------------------------------- SCUDDER VARIABLE LIFE INVESTMENT FUND (2) - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Portfolio Management Fee Other Expenses Total Expenses after Fee Waiver* after Fee Waiver* - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Scudder International 0.85% 0.18% 1.03% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Scudder VLIF Bond 0.47% 0.08% 0.55% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- THE STRONG GROWTH FUNDS (3) - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Portfolio Management Fee Other Expenses Total Expenses after Fee Waiver* after Fee Waiver* - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Mid Cap Growth 1.00% 0.15% 1.15% Fund II - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Opportunity 1.00% 0.14% 1.14% Fund II - ------------------------------- ---------------------------- ---------------------------- ---------------------------- THE UNIVERSAL INSTITUTIONAL FUNDS, INC. (4) - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Portfolio Management Fee Other Expenses Total Expenses after Fee Waiver* after Fee Waiver* - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Value 0.18% 0.67% 0.85% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Equity Growth 0.29% 0.56% 0.85% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Mid Cap Value 0.43% 0.62% 1.05% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Mid Cap Growth* 0.00% 1.05% 1.05% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- U.S. Real Estate 0.00% 1.10% 1.10% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- International Magnum 0.29% 0.87% 1.16% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Emerging Markets Equity 0.42% 1.37% 1.79% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Global Equity 0.47% 0.68% 1.15% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Fixed Income 0.14% 0.56% 0.70% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- High Yield 0.19% 0.61% 0.80% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Technology* 0.00% 1.15% 1.15% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- *Annulaized VAN KAMPEN LIFE INVESTMENT TRUST (5) - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Portfolio Management Fee Other Expenses Total Expenses after Fee Waiver* after Fee Waiver* - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Comstock 0.00% 0.95% 0.95% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- - ------------------------------- ---------------------------- ---------------------------- ---------------------------- Emerging Growth 0.67% 0.18% 0.85% - ------------------------------- ---------------------------- ---------------------------- ---------------------------- WARBURG PINCUS TRUST (6) - ------------------------------- ------------------------- ---------- -------------------- ---------------------------- Portfolio Management Fee after 12b-1 Other Expenses Total Expenses Fee Waiver* Fees after Fee Waiver* after Fee Waiver* - ------------------------------- ------------------------- ---------- -------------------- ---------------------------- Emerging Growth 0.72% 0.00% .53% 1.25% - ------------------------------- ------------------------- ---------- -------------------- ---------------------------- - ------------------------------- ------------------------- ---------- -------------------- ---------------------------- Global Post-Venture Capital 1.07% .25% .33% 1.40% - ------------------------------- ------------------------- ---------- -------------------- ----------------------------
(1) [Janus Aspen Series] (2) [Scudder Variable Life Investment Fund] (3) The expenses shown are for the fiscal year ended 12/31/99. For the Mid Cap Growth Fund II, Strong has voluntarily agreed to waive the management fee and/or absorb the Mid Cap Growth Fund's other expenses so that the total annual fund operating expenses are capped at 1.20%. Strong has no current intention to, but may in the future, discontinue or modify any fee waivers or expense absorptions after any appropriate notice to the fund's shareholders. (4) 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 for certain expenses of the Portfolios. Absent such reductions, the management fees, other expenses, and total annual Portfolio expenses would have been as follows:
- ----------------------- --------------------- -------------------- --------------------- Management Fees Other Expenses Total Annual Portfolio Expenses - ----------------------- --------------------- -------------------- --------------------- - ----------------------- --------------------- -------------------- --------------------- Fixed Income 0.40% 0.56% 0.96% - ----------------------- --------------------- -------------------- --------------------- - ----------------------- --------------------- -------------------- --------------------- Global Equity 0.80% 0.68% 1.48% - ----------------------- --------------------- -------------------- --------------------- High Yield 0.50% 0.61% 1.11% - ----------------------- --------------------- -------------------- --------------------- - ----------------------- --------------------- -------------------- --------------------- Mid Cap Growth 0.75% 7.31% 8.06% - ----------------------- --------------------- -------------------- --------------------- - ----------------------- --------------------- -------------------- --------------------- Technology 0.80% 11.77% 12.57% - ----------------------- --------------------- -------------------- --------------------- - ----------------------- --------------------- -------------------- --------------------- Emerging Markets 1.25% 1.37% 2.62% Equity - ----------------------- --------------------- -------------------- --------------------- - ----------------------- --------------------- -------------------- --------------------- Equity Growth 0.55% 0.56% 1.11% - ----------------------- --------------------- -------------------- --------------------- - ----------------------- --------------------- -------------------- --------------------- International Magnum 0.80% 0.87% 1.67% - ----------------------- --------------------- -------------------- --------------------- - ----------------------- --------------------- -------------------- --------------------- Mid-Cap Value 0.75% 0.62% 1.37% - ----------------------- --------------------- -------------------- --------------------- - ----------------------- --------------------- -------------------- --------------------- U.S. Real Estate 0.80% 1.10% 1.90% - ----------------------- --------------------- -------------------- --------------------- - ----------------------- --------------------- -------------------- --------------------- Value 0.55% .67% 1.22% - ----------------------- --------------------- -------------------- ---------------------
(5) Van Kampen Asset Management Inc. has voluntarily agreed to a reduction in its management fees and to reimburse the Comstock Portfolio and 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 0.60%, 9.76% and 10.36% for the Comstock Portfolio, and 0.70%, 0.18%, and .88% for Emerging Growth Portfolio. (6) Credit Suisse Asset Management, LLC, the investment adviser for the Warburg Pincus Trust has voluntarily agreed to a reduction in its management fees and to reimburse the Portfolios for which it acts as investment adviser for certain expenses of the Portfolios. Absent such reductions, the management fees, other expenses, and total annual Portfolio expenses would have been as follows: Emerging Growth Portfolio .90% .63% 1.53% Global Post-Venture Capital Portfolio 1.25% .33% 1.58% EXAMPLE The example below shows the dollar amount of expenses that you would bear directly or indirectly if you: - invested $1,000 in a Variable Sub-Account, - earned a 5% annual return on your investment, and - you surrendered your Contract or you decided not to surrender you Contract at the end of each time period. The example assumes that any portfolio expense waivers or reimbursement arrangements described in the footnotes above are in effect for the time periods presented below. The example does not include any taxes or tax penalties you may be required to pay if you surrender your contract.
JANUS ASPEN SERIES Fund portfolio 1 Year 3 Years 5 Years 10 Years -------------- ------ ------- ------- -------- Aggressive Growth Worldwide Growth SCUDDER VARIABLE LIFE INVESTMENT FUND Fund portfolio 1 Year 3 Years 5 Years 10 Years -------------- ------ ------- ------- -------- International VLIF Bond THE STRONG GROWTH FUNDS Fund portfolio 1 Year 3 Years 5 Years 10 Years -------------- ------ ------- ------- -------- Mid Cap Growth Fund II Opportunity Fund II THE UNIVERSAL INSTITUTIONAL FUNDS, INC. Fund portfolio 1 Year 3 Years 5 Years 10 Years -------------- ------ ------- ------- -------- Value Equity Growth Mid Cap Value Mid Cap Growth U.S. Real Estate International Magnum Emerging Markets Equity Global Equity Fixed Income High Yield Technology VAN KAMPEN LIFE INESTMENT TRUST Fund portfolio 1 Year 3 Years 5 Years 10 Years -------------- ------ ------- ------- -------- Comstock Emerging Growth WARBURG PINCUS TRUST Fund portfolio 1 Year 3 Years 5 Years 10 Years -------------- ------ ------- ------- -------- Emerging Growth Global Post-Venture Capital
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. FINANCIAL INFORMATION To measure the value of your investment in the Variable Sub-Accounts during the Accumulation Phase we use a unit of measure we call the "Accumulation Unit." Each Variable Sub-Account has a separate value for its Accumulation Units we call the "Accumulation Unit Value." Accumulation Unit Value is analogous to, but not the same as, the share price of a mutual fund. There are no Accumulation Unit Values to report because the Contracts were first offered as of the date of this prospectus. The financial statements of the Variable Account and Northbrook appear in the Statement of Additional Information. THE CONTRACT CONTRACT OWNER The Morgan Stanley Dean Witter Online Variable Annuity is a contract between you, the Contract owner, and Northbrook, a life insurance company. As the Contract owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted): - the investment alternatives during the Accumulation and Payout Phases, - the amount and timing of your purchase payments and withdrawals, - the programs you want to use to invest or withdraw money, - the income payment plan you want to use to receive retirement income, - the Annuitant (either yourself or someone else) on whose life the income payments will be based, - the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract owner dies, and - any other rights that the Contract provides. If you die, any surviving Contract owner or, if none, the Beneficiary, will exercise the rights and privileges provided to them by the Contract. The Contract cannot be jointly owned by both a non-natural person and a natural person. The maximum owner issue age 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 informing us in writing, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be completed 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 appropriate notice. Accordingly, if you wish to change your Beneficiary, you should deliver your notice to us promptly. If you did not name a Beneficiary or, if the named Beneficiary is no longer living and there are no other surviving Beneficiaries, the new Beneficiary will be: - your spouse, if he or she is still alive, otherwise - your surviving children equally, or if you have no surviving children, - your estate. If more than one Beneficiary survives you, (or the Annuitant, if the Contract owner is not a natural person) we will divide the death benefit among your Beneficiaries according to your most recent instructions. If you have not given us appropriate 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 $1,000. We may increase or decrease this minimum in the future. You may make additional purchase payments of at least $100 at any time prior to the Payout Start Date. We reserve the right to lower the minimum and limit the maximum amount of purchase payments we will accept. We also reserve the right to reject any application. ALLOCATION OF PURCHASE PAYMENTS At the time you apply for a Contract, you must decide how to allocate your purchase payments among the Variable Sub-Accounts. 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 or by e-mail. We will allocate your purchase payments to the Variable Sub-Accounts according to your most recent instructions on file with us. Unless you notify us in writing or by e-mail 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 or e-mail 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 Northbrook 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 return your purchase payments allocated to the Variable Account after an adjustment, to the extent state or federal law permit, to reflect the 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. ACCUMULATION UNITS To determine the number of Accumulation Units of each Variable Sub-Account to allocate to your Contract, we divide (i) the amount of the purchase payment or transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of that Variable Sub-Account next computed after we receive your payment or transfer. For example, if we receive a $10,000 purchase payment allocated to a Variable Sub-Account when the Accumulation Unit Value for the Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Sub-Account allocated to your Contract. ACCUMULATION UNIT VALUE As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect: - changes in the share price of the Portfolio in which the Variable Sub-Account invests, and - the deduction of amounts reflecting the mortality and expense risk charge, administrative expense charge, and any provision for taxes that have accrued since we last calculated the Accumulation Unit Value. We determine transfer fees (currently waived) separately for each Contract. They do not affect Accumulation Unit Value. Instead, we obtain payment of transfer 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. 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 the investment objective(s), expenses and risks associated with the Portfolio, please refer to the accompanying prospectuses for the Funds. You should carefully review the Fund prospectuses before allocating amounts to the Variable Sub-Accounts.
JANUS ASPEN SERIES - ------------------------------------ ------------------------------------ ---------------------------------------------- Portfolio: Each Portfolio Seeks: Investment Adviser: - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Capital Appreciation Long-term growth of capital Janus Capital - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Worldwide Growth Long-term growth of capital Janus Capital - ------------------------------------ ------------------------------------ ---------------------------------------------- SCUDDER VARIABLE LIFE INVESTMENT FUND - ------------------------------------ ------------------------------------ ---------------------------------------------- Portfolio: Each Portfolio Seeks: Investment Adviser: - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- International Portfolio Long-term growth of capital Scudder Kemper Investments, Inc. - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Bond Portfolio High level of income Scudder Kemper Investments, Inc. - ------------------------------------ ------------------------------------ ---------------------------------------------- THE STRONG GROWTH FUNDS - ------------------------------------ ------------------------------------ ---------------------------------------------- Portfolio: Each Portfolio Seeks: Investment Adviser: - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Mid Cap Growth Fund II Capital growth Strong Capital Management, Inc - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Opportunity Fund II Capital growth Strong Capital Management, Inc - ------------------------------------ ------------------------------------ ---------------------------------------------- THE UNIVERSAL INSTITUTIONAL FUNDS, INC. - ------------------------------------ ------------------------------------ ---------------------------------------------- Portfolio: Each Portfolio Seeks: Investment Adviser: - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Value Portfolio Above-average total return Miller Anderson & Sherrerd, LLP over a market cycle of three to five years - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Equity Growth Long-term capital appreciation Morgan Stanley Asset Management Portfolio - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Mid-Cap Value Above-average total return over a Miller Anderson & Sherrerd, LLP Portfolio market cycle of three to five years - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Mid-Cap Growth Portfolio Long-term capital growth Miller Anderson & Sherrerd, LLP - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- U.S. Real Estate Portfolio Above-average current income Morgan Stanley Asset Management and long-term capital appreciation - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- International Magnum Portfolio Long-term capital appreciation Morgan Stanley Asset Management - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Emerging Markets Equity Portfolio Long-term capital appreciation Morgan Stanley Asset Management - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Global Equity Portfolio Long-term capital appreciation Morgan Stanley Asset Management - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Fixed Income Portfolio Above-average total Miller Anderson & Sherrerd, LLP return over a market cycle of three to five years - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- High Yield Portfolio Above-average total return over a Miller Anderson & Sherrerd, LLP market cycle of three to five years - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Technology Portfolio Long-term capital appreciation Morgan Stanley Asset Management - ------------------------------------ ------------------------------------ ---------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST - ------------------------------------ ------------------------------------ ---------------------------------------------- Portfolio: Each Portfolio Seeks: Investment Adviser: - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Comstock Portfolio Capital growth and income Van Kampen Asset Management, Inc. - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Emerging Growth Portfolio Capital appreciation Van Kampen Asset Management, Inc. - ------------------------------------ ------------------------------------ ---------------------------------------------- WARBURG PINCUS TRUST - ------------------------------------ ------------------------------------ ---------------------------------------------- Portfolio: Each Portfolio Seeks: Investment Adviser: - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Emerging Growth Maximum capital appreciation Credit Suisse Asset Management, LLC - ------------------------------------ ------------------------------------ ---------------------------------------------- - ------------------------------------ ------------------------------------ ---------------------------------------------- Global Post-Venture Capital Long-term growth of capital Credit Suisse Asset Management, LLC* - ------------------------------------ ------------------------------------ ----------------------------------------------
* Abbott Capital Management, LLC serves as sub-investment adviser for the Global Post-Venture Capital Portfolio and is responsible for managing the Portfolio's investments in private equity portfolios. 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 Currently, Northbrook does not offer a Fixed Account investment alternative during the Accumulation Phase. In the future, Northbrook may offer a Fixed Account option which will enable you to allocate all or a portion of your purchase payments to one or more Guarantee Periods of the Fixed Account. INVESTMENT ALTERNATIVES: TRANSFERS TRANSFERS DURING THE ACCUMULATION PHASE During the Accumulation Phase, you may transfer the Contract Value among the Variable Sub-Accounts. You may request transfers in writing on a form that we provide, electronically through your Morgan Stanley Dean Witter Online Account or by telephone according to the procedure described below. The minimum amount that you may transfer is $100 or the total amount in the Variable Sub-Account, 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 received after 3:00 p.m. on any Valuation Date using the Accumulation Unit Values for the next Valuation Date. LIMITATIONS ON EXCESSIVE TRANSFERS We reserve the right to limit transfers among the Variable Sub-Accounts if we determine, in our sole discretion, that transfers by one or more Contract owners would be to the disadvantage of other Contract owners. We may limit transfers by taking such steps as: - imposing a minimum time period between each transfer, - refusing to accept transfer requests of an agent acting under a power of attorney on behalf of more than one Contract owner, or - limiting the dollar amount that a Contract owner may transfer among the Variable Sub-Accounts 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 amount 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 amount income payments. You may not, however, convert any portion of your right to receive fixed amount income payments into variable amount 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 amount income payments. Your transfers must be at least 6 months apart. TELEPHONE AND E-MAIL TRANSFERS If you have on file a completed authorization form, you may make transfers from the MSDW ONLINE website or by telephone by calling 1-877-801-7157. The cut off time for telephone and e-mail 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 e-mail and 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 e-mail and telephone transfer privilege at any time without notice. We use procedures that we believe provide reasonable assurance that the e-mail and 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 e-mail and telephone transfers. However, if we do not take reasonable steps to help ensure that a e-mail and 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 to any other 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 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 e-mail or by telephone. The new allocation will be effective with the first rebalancing that occurs after we receive your requests. We are not responsible for rebalancing that occurs prior to receipt of your request. Example: Assume that you want your initial purchase payment split among 2 Variable Sub-Accounts. You want 40% to be in the High Yield Variable Sub-Account and 60% to be in the Equity Growth Variable Sub-Account. Over the next 2 months the bond market does very well while the stock market performs poorly. At the end of the first quarter, the High Yield Variable Sub-Account now represents 50% of your holdings because of its increase in value. If you choose to have your holdings rebalanced quarterly, on the first day of the next quarter, we would sell some of your units in the High Yield Variable Sub-Account and use the money to buy more units in the Equity Growth Variable Sub-Account so that the percentage allocations would again be 40% and 60% respectively. The Automatic Portfolio Rebalancing Program is available only during the Accumulation Phase. The transfers made under the Program do not count towards the 12 transfers you can make without paying a transfer fee, and are not subject to a transfer fee. Portfolio rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Contract Value allocated to the better performing segments. EXPENSES As a Contract owner, you will bear, directly or indirectly, the charges and expenses described below. MORTALITY AND EXPENSE RISK CHARGE We deduct a mortality and expense risk charge daily at an annual rate of 0.50% of the average daily net assets you have invested in the Variable Sub-Accounts. 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 will not increase the mortality and expense risk charge for the life of the Contract. 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 will not increase the administrative expense charge for the life of the Contract. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be 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 Variable Sub-Accounts. 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. PREMIUM TAXES Some states and other governmental entities (e.g., municipalities) charge premium taxes or similar taxes. We are responsible for paying these taxes and will deduct them from your Contract Value. Some of these taxes are due when the Contract is issued, others are due when income payments begin or upon surrender. Our current practice is not to charge anyone for these taxes until income payments begin or when a total withdrawal occurs including payment upon death. At our discretion, we may discontinue this practice and deduct premium taxes from the purchase payments. Premium taxes generally range form 0% to 4%, depending on the state. At the Payout Start Date, if applicable, we deduct the charge for premium taxes from each Variable Sub-Account in the proportion that the Contract owner's value in the Variable Sub-Account 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. The amount payable upon withdrawal is the Contract Value (or portion thereof) next computed after we receive the request for a withdrawal at our service center, less any applicable 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. Withdrawals also may be subject to income tax and a 10% penalty tax, as described below. You must name the Variable Sub-Account 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 $50 at a time. You may also withdraw a lesser amount if you are withdrawing your entire interest in a Variable Sub-Account. 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. SYSTEMATIC WITHDRAWALS 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 $50. We will deposit systematic withdrawal payments into the Contract owner's bank account or Morgan Stanley Dean Witter Online account. Depending on fluctuations in the value of the Variable Sub-Accounts, 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. 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. MINIMUM CONTRACT VALUE If your request for a partial withdrawal would reduce your Contract Value to less than $1,000, we may treat it as a request to withdraw your entire Contract Value. Your Contract will terminate if you withdraw all of your Contract Value. We will, however, ask you to confirm your withdrawal request before terminating your Contract. If we terminate your Contract, we will distribute to you its Contract Value, less any applicable charges and taxes. INCOME PAYMENTS PAYOUT START DATE The Payout Start Date is the day that we apply your Contract Value to an Income Plan. The Payout Start Date must be no later than: - the Annuitant's 90th Birthday, or - the 10th Contract Anniversary, if later. You may change the Payout Start Date at any time by notifying us in writing of the change at least 30 days before the scheduled Payout Start Date. Absent a change, we will use the Payout Start Date stated in your Contract. INCOME PLANS An "Income Plan" is a series of payments on a scheduled basis to you or to another person designated by you. You may choose and change your choice of Income Plan until 30 days before the Payout Start Date. If you do not select an Income Plan, we will make income payments in accordance with Income Plan 1 with guaranteed payments for 10 years unless changed by the Contract owner. After the Payout Start Date, you may not make withdrawals (except as described below) or change your choice of Income Plan. Three Income Plans are available under the Contract. Each is available to provide: - fixed amount income payments, - variable amount income payments, or - a combination of the two. The three Income Plans are: INCOME PLAN 1 -- LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as the Annuitant lives. If the Annuitant dies before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract. INCOME PLAN 2 -- JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for as long as either the Annuitant or the joint Annuitant is alive. If both the Annuitant and joint Annuitant die 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 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. The number of months guaranteed may range from 60 to 360. We will deduct the mortality and expense risk charge from the assets of the Variable Account supporting this Income Plan even though we may not bear any mortality risk. The length of any guaranteed payment period under your selected Income Plan generally will affect the dollar amounts of each income payment. As a general rule, longer guaranteed periods result in lower income payments, all other things being equal. For example, if 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 deduct applicable premium taxes from the contract value at the Payout Start Date. We may make other Income Plans available including ones that you and we agree upon. You may obtain information about them by writing sending us an e-mail 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 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. To determine the present value of any remaining variable income payments being withdrawn, we use a discount rate equal to the assumed annual investment rate that we use to compute such variable income payments. The minimum amount you may withdraw under this feature is $1,000. You may apply your Contract Value to an Income Plan. If you do not tell us how to allocate your Contract Value among fixed and variable amount income payments, we will apply your Contract Value in the Variable Account to variable amount income payments. While the fixed account is not available during the Accumulation Phase, the fixed account option is available during the Payout Phase. We will apply your Contract Value, less applicable taxes, to your Income Plan on the Payout Start Date. If the amount available to apply under an Income Plan is less than $2,000, or not enough to provide an initial payment of at least $20, and state law permits, we may: - terminate the Contract and pay you the Contract Value, less any applicable taxes, in a lump sum instead of the periodic payments you have chosen, or - we may reduce the frequency of your payments so that each payment will be at least $20. VARIABLE AMOUNT INCOME PAYMENTS The amount of your variable amount 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 amount income payments. Your variable amount income payments may be more or less than your total purchase payments because (a) variable amount 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 amount income payments will decrease. The dollar amount of your variable amount income payments will increase, however, if the actual net investment return exceeds the assumed investment rate. The dollar amount of the variable amount 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 amount income payments. FIXED AMOUNT INCOME PAYMENTS We calculate the fixed amount 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 amount 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. 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, any Contract owner dies. We will pay the death benefit to the new Contract owner as determined immediately after the death. The new Contract owner would be the surviving Contract owner(s) or, if none, the Beneficiary(ies). A request for payment of the death benefit must include "Due Proof of Death." We will accept the following documentation as Due Proof of Death: - a certified copy of a death certificate, - a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or - any other proof acceptable to us. DEATH BENEFIT AMOUNT Prior to the Payout Start Date, the death benefit is equal to the greater of: 1. the Contract Value as of the date we determine the death benefit, or 2. the sum of all purchase payments made less any amounts deducted in connection with partial withdrawals (including any applicable premium taxes). 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 PAYMENTS If the new Contract owner is a natural person, the new Contract owner may elect to: 1. receive the death benefit in one or more distributions, 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: |X| the life of the new Contract owner, or |X| a period not to exceed the life expectancy of the new Contract owner, or |X| for the life of the Contract owner with payments guaranteed for a period not to exceed the life expectancy of the new Contract owner. If the sole new Contract owner is your spouse, after the date of your death, 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. If the new Contract owner is a corporation, trust, or other non-natural person, then the new Contract owner may elect to receive the death benefit in one or more distributions. The entire value of the Contract must be distributed within 5 years after the date of the death unless an Income Plan is elected or a surviving spouse continues the Contract in accordance with the provisions described above. 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 44 Variable Sub-Accounts, each of which invests in a corresponding Portfolio. We may add new Variable Sub-Accounts or eliminate one or more of them, if we believe marketing, tax, or investment conditions so warrant. We do not guarantee the investment performance of the Variable Account, its Sub-Accounts or the Portfolios. We may use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account. THE PORTFOLIOS DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value. VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Portfolios held by the Variable Sub-Accounts to which you have allocated your Contract Value. Under current law, however, you are entitled to give us instructions on how to vote those shares on certain matters. Based on our present view of the law, we will vote the shares of the Portfolios that we hold directly or indirectly through the Variable Account in accordance with 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 by their principal underwriter, ALFS, Inc. ("ALFS"), 3100 Sanders Road, Northbrook, Illinois, a wholly owned subsidiary of Allstate Life Insurance Company. ALFS is registered with the SEC as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. ("NASD"). Northbrook may pay ALFS a commission for distribution of the Contracts. ADMINISTRATION. We have primary responsibility for all administration of the Contracts and the Variable Account. We provide the following administrative services, among others: - issuance of the Contracts, - maintenance of Contract owner records, - Contract owner services, - calculation of unit values, - maintenance of the Variable Account, and - preparation of Contract owner reports. We will send you Contract statements at least annually prior to the Payout Start Date. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error. We also will provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws. QUALIFIED PLANS If you use the Contract with a qualified plan, the plan may impose different or additional conditions or limitations on withdrawals, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if qualified plan limits on distributions and other conditions are not met. Please consult your qualified plan administrator for more information. 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 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: - made on or after the date the individual attains age 59 1/2, - made to a Beneficiary after the Contract owner's death, - attributable to the Contract owner being disabled, or - for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000). If you transfer a non-Qualified Contract without full and adequate consideration to a person other than your spouse (or to a former spouse incident to a divorce), you will be taxed on the difference between the Contract Value and the investment in the Contract at the time of transfer. Except for certain Qualified Contracts, any amount you receive as a loan under a Contract, and any assignment or pledge (or agreement to assign or pledge) of the Contract Value is treated as a withdrawal of such amount or portion. TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of annuity payments received from a non-Qualified Contract provides for the return of your investment in the Contract in equal tax-free amounts over the payment period. The balance of each payment received is taxable. For fixed annuity payments, the amount excluded from income is determined by multiplying the payment by the ratio of the investment in the Contract (adjusted for any refund feature or period certain) to the total expected value of annuity payments for the term of the Contract. If you elect variable annuity payments, the amount excluded from taxable income is determined by dividing the investment in the Contract by the total number of expected payments. The annuity payments will be fully taxable after the total amount of the investment in the Contract is excluded using these ratios. If you die, and annuity payments cease before the total amount of the investment in the Contract is recovered, the unrecovered amount will be allowed as a deduction for your last taxable year. TAXATION OF ANNUITY DEATH BENEFITS. Death of a Contract owner, or death of the Annuitant if the Contract is owned by a non-natural person, will cause a distribution of death benefits from a Contract. Generally, such amounts are included in income as follows: 1. if distributed in a lump sum, the amounts are taxed in the same manner as a full withdrawal, or 2. if distributed under an annuity option, the amounts are taxed in the same manner as an annuity payment. Please see the Statement of Additional Information for more detail on distribution at death requirements. PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable amount of any premature distribution from a non-Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions: 1. made on or after the date the Contract owner attains age 59 1/2, 2. made as a result of the Contract owner's death or disability, 3. made in substantially equal periodic payments over the Contract owner's life or life expectancy, 4. made under an immediate annuity, or 5. attributable to investment in the Contract before August 14, 1982. You should consult a competent tax advisor to determine if any other exceptions to the penalty apply to your situation. Similar exceptions may apply to distributions from Qualified Contracts. AGGREGATION OF ANNUITY CONTRACTS. All non-qualified deferred annuity contracts issued by Northbrook (or its affiliates) to the same Contract owner during any calendar year will be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution. TAX QUALIFIED CONTRACTS The income on qualified plan and IRA investments is tax deferred, and the income on variable annuities held by such plans does not receive any additional tax deferral. You should review the annuity features, including all benefits and expenses, prior to purchasing a variable annuity in a qualified plan or IRA. Contracts may be used as investments with certain qualified plans such as: - Individual Retirement Annuities or Accounts (IRAs) under Section 408 of the Internal Revenue Code ("Code"); - Roth IRAs under Section 408A of the Code; - Simplified Employee Pension Plans under Section 408(k) of the Code; - Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section 408(p) of the Code; - Tax Sheltered Annuities under Section 403(b) of the Code; - Corporate and Self Employed Pension and Profit Sharing Plans; and - State and Local Government and Tax-Exempt Organization Deferred Compensation Plans. Northbrook reserves the right to limit the availability of the Contract for use with any of the qualified plans listed above. In the case of certain qualified plans, the terms of the plans may govern the right to benefits, regardless of the terms of the Contract. RESTRICTIONS UNDER SECTION 403(b) Plans. Section 403(b) of the Code provides tax-deferred retirement savings plans for employees of certain non-profit and educational organizations. Under Section 403(b), any Contract used for a 403(b) plan must provide that distributions attributable to salary reduction contributions made after December 31, 1988, and all earnings on salary reduction contributions, may be made only: 1. on or after the date of employee - attains age 59 1/2, - separates from service, - dies, - becomes disabled, or 2. on account of hardship (earnings on salary reduction contributions may not be distributed on the account of hardship). These limitations do not apply to withdrawals where Northbrook is directed to transfer some or all of the Contract Value to another 403(b) plan. INCOME TAX WITHHOLDING Northbrook is required to withhold federal income tax at a rate of 20% on all "eligible rollover distributions" unless you elect to make a "direct rollover" of such amounts to an IRA or eligible retirement plan. Eligible rollover distributions generally include all distributions from Qualified Contracts, excluding IRAs, with the exception of: 1. required minimum distributions, or 2. a series of substantially equal periodic payments made over a period of at least 10 years, or 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, ver 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 all asset based insurance charges. 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. STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS DESCRIPTION - ---------------------------------------------------------------------------- Additions, Deletions or Substitutions of Investments - ---------------------------------------------------------------------------- The Contract Purchase of Contracts Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers) - ---------------------------------------------------------------------------- Performance Information - ---------------------------------------------------------------------------- Calculation of Accumulation Unit Values - ---------------------------------------------------------------------------- Calculation of Variable Amount Income Payments - ---------------------------------------------------------------------------- General Matters Incontestability Settlements Safekeeping of the Variable Account's Assets Premium Taxes Tax Reserves - ---------------------------------------------------------------------------- Federal Tax Matters - ---------------------------------------------------------------------------- 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. MORGAN STANLEY DEAN WITTER ONLINE VARIABLE ANNUITY Northbrook Life Insurance Company Statement of Additional Information Northbrook Variable Annuity Account II Dated __________, 2000 Post Office Box 80469 Lincoln, NE 68501 1-877-801-7157 Email: msdwonlineva@northbrooklife.com This Statement of Additional Information supplements the information in the prospectus for the MSDW Online Variable Annuity Contracts that we offer. This Statement of Additional Information is not a prospectus. You should read it with the prospectus, dated _____________, 2000 for the Contract. You may obtain a prospectus by calling or writing us at the address or telephone number listed above, or by sending us an e-mail request at the e-mail address listed above. Except as otherwise noted, this Statement of Additional Information uses the same defined terms as the prospectus for the MSDW Online Variable Annuity Contracts. TABLE OF CONTENTS Description Page - ------------------------------------------------------------------------------- Additions, Deletions or Substitutions of Investments The Contract Purchase of Contracts Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers) Performance Information Calculation of Accumulation Unit Values Calculation of Variable Amount Income Payments Net Investment Factor Calculation of Variable Amount Income Payments Calculation of Annuity Unit Values General Matters Incontestability Settlements Safekeeping of the Variable Account's Assets Premium Taxes Tax Reserves Federal Tax Matters 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 fund 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. PURCHASE OF CONTRACTS ALFS, Inc., ("ALFS") is the principal underwriter and distributor of the Contracts. ALFS is an affiliate of Northbrook. The offering of the Contracts is continuous. We do not anticipate discontinuing the offering of the Contracts but we reserve the right to do so at any time. TAX-FREE EXCHANGES (ROLLOVERS AND TRANSFERS) We accept "rollovers" and transfers from Contracts qualifying as individual retirement annuities or accounts ("IRAs"). 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 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 shown 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 The standardized average annual total returns for the Variable Sub-Accounts available under the Contract for the periods ended December 31, 1999 are set out below. No standardized total returns are shown for the Money Market Variable Sub-Account. No standardized total returns are shown for the Variable Sub-Accounts marked with an asterisk (*) below which commenced operations on or after January 1, 2000. The MSDW Online Variable Annuity Contracts were first offered to the public as of the date of this Statement of Additional Information. Accordingly, performance figures for Variable Sub-Accounts prior to those dates reflect the historical performance of the Variable Sub-Accounts, adjusted to reflect the current level of charges that apply to the Variable Sub-Accounts under the MSDW Online Variable Annuity Contracts. [Performance information to be included in subsequent amendment.] 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. 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 the 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 the 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 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. Adjusted Historical Total Returns We may advertise the total return for periods prior to the date that the Variable Sub-Accounts commenced operations. We will calculate such "adjusted historical total returns" using the historical performance of the underlying Portfolios and adjusting such performance to reflect the current level of charges that apply to the Variable Sub-Accounts under the Contract. The adjusted historical total returns for the Variable Sub-Accounts for the periods ended December 31, 1999 are set out below. No adjusted historical total returns are shown for the Money Market Variable Sub-Account. No adjusted historical total returns are shown for the Variable Sub-Accounts marked with an asterisk (*) below which commenced operations on or after January 1, 2000. The following list provides the inception date for the Portfolio corresponding to each of the Variable Sub-Accounts included in the tables.
Inception Date of Variable Sub-Account Corresponding Portfolio - -------------------------------------------------------------------------------------- [To be furnished in subsequent amendment.]
CALCULATION OF ACCUMULATION UNIT VALUES The value of Accumulation Units will change each Valuation Period according to the investment performance of the Portfolio shares purchased by each Variable Sub-Account and the deduction of certain expenses and charges. A "Valuation Period" is the period from the end of one Valuation Date and continues to the end of the next Valuation Date. A Valuation Date ends at the close of regular trading on the New York Stock Exchange (currently 3:00 p.m. Central Time). The Accumulation Unit Value of a Variable Sub-Account for any Valuation Period equals the Accumulation Unit Value as of the immediately preceding Valuation Period, multiplied by the Net Investment Factor (described below) for that Variable Sub-Account for the current Valuation Period. NET INVESTMENT FACTOR The Net Investment Factor for a Valuation Period is a number representing the change, since the last Valuation Period, in the value of Variable Sub-Account assets per Accumulation Unit due to investment income, realized or unrealized capital gain or loss, deductions for taxes, if any, and deductions for the mortality and expense risk charge and administrative expense charge. We determine the Net Investment Factor for each Variable Sub-Account for any Valuation Period by dividing (A) by (B) and subtracting (C) from the result, where: (A) is the sum of: (1) the net asset value per share of the Portfolio underlying the Variable Sub-Account determined at the end of the current Valuation Period; plus, (2) the per share amount of any dividend or capital gain distributions made by the Portfolio underlying the Variable Sub-Account during the current Valuation Period; (B) is the net asset value per share of the Portfolio underlying the Variable Sub-Account determined as of the end of the immediately preceding Valuation Period; and (C) is the annualized mortality and expense risk and administrative expense charges divided by the number of days in the current calendar year and then multiplied by the number of calendar days in the current Valuation Period. CALCULATION OF VARIABLE AMOUNT 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. Northbrook reserves the right to limit the availability of the contract for use with any of the qualified plans listed below. The tax rules applicable to participants in such qualified plans vary according to the type of plan and the terms and conditions of the plan itself. Adverse tax consequences may result from excess contributions, premature distributions, distributions that do not conform to specified commencement and minimum distribution rules, excess distributions and in other circumstances. Contract owners and participants under the plan and annuitants and beneficiaries under the Contract may be subject to the terms and conditions of the plan regardless of the terms of the Contract. IRAs Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an IRA. IRAs are subject to limitations on the amount that can be contributed and on the time when distributions may commence. Certain distributions from other types of qualified plans may be "rolled over" on a tax-deferred basis into an IRA. An IRA generally may not provide life insurance, but it may provide a death benefit that equals the greater of the premiums paid and the Contract's Cash Value. The Contract provides a death benefit that in certain circumstances may exceed the greater of the payments and the Contract Value. It is possible that the death benefit could be viewed as violating the prohibition on investment in life insurance contracts with the result that the Contract would not be viewed as satisfying the requirements of an IRA. ROTH IRAs Section 408A of the Code permits eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth IRA. Roth IRAs are subject to limitations on the amount that can be contributed and on the time when distributions may commence. "Qualified distributions" from Roth IRAs are not includible in gross income. "Qualified distributions" are any distributions made more than five taxable years after the taxable year of the first contribution to the Roth IRA, and which are made on or after the date the individual attains age 59 1/2, made to a beneficiary after the owner's death, attributable to the owner being disabled or for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000). "Nonqualified distributions" are treated as made from contributions first and are includible in gross income to the extent such distributions exceed the contributions made to the Roth IRA. The taxable portion of a "nonqualified distribution" may be subject to the 10% penalty tax on premature distributions. Subject to certain limitations, a traditional Individual Retirement Account or Annuity may be converted or "rolled over" to a Roth IRA. The taxable portion of a conversion or rollover distribution is includible in gross income, but is exempted from the 10% penalty tax on premature distributions. SIMPLIFIED EMPLOYEE PENSION PLANS Section 408(k) of the Code allows employers to establish simplified employee pension plans for their employees using the employees' IRAs if certain criteria are met. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employees to their individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent advice. In particular, employers should consider that an IRA generally may not provide life insurance, but it may provide a death benefit that equals the greater of the premiums paid and the contract's cash value. The Contract provides a death benefit that in certain circumstances may exceed the greater of the payments and the Contract Value. SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS) Sections 408(p) and 401(k) of the Code allow employers with 100 or fewer employees to establish SIMPLE retirement plans for their employees. SIMPLE plans may be structured as a SIMPLE retirement account using an employee's IRA to hold the assets or as a Section 401(k) qualified cash or deferred arrangement. In general, a SIMPLE plan consists of a salary deferral program for eligible employees and matching or nonelective contributions made by employers. Employers intending to use the Contract in conjunction with SIMPLE plans should seek competent tax and legal advice. TAX SHELTERED ANNUITIES Section 403(b) of the Code permits public school employees and employees of certain types of tax-exempt organizations (specified in Section 501(c)(3) of the Code) to have their employers purchase annuity contracts for them, and subject to certain limitations, to exclude the purchase payments from the employees' gross income. An annuity contract used for a Section 403(b) plan must provide that distributions attributable to salary reduction contributions made after 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee attains age 59 1/2, separates from service, dies, becomes disabled or on the account of hardship (earnings on salary reduction contributions may not be distributed for hardship). These limitations do not apply to withdrawals where Northbrook is directed to transfer some or all of the Contract Value to another 403(b) plan. CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS Sections 401(a) and 403(a) of the Code permit corporate employers to establish various types of tax favored retirement plans for employees. The Self-Employed Individuals Retirement Act of 1962, as amended, (commonly referred to as "H.R. 10" or "Keogh") permits self-employed individuals to establish tax favored retirement plans for themselves and their employees. Such retirement plans may permit the purchase of annuity contracts in order to provide benefits under the plans. STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION PLANS Section 457 of the Code permits employees of state and local governments and tax-exempt organizations to defer a portion of their compensation without paying current taxes. The employees must be participants in an eligible deferred compensation plan. To the extent the Contracts are used in connection with an eligible plan, employees are considered general creditors of the employer and the employer as owner of the contract has the sole right to the proceeds of the contract. Generally, under the non-natural owner rules, such Contracts are not treated as annuity contracts for federal income tax purposes. Under these plans, contributions made for the benefit of the employees will not be includible in the employees' gross income until distributed from the plan. However, under a Section 457 plan all the compensation deferred under the plan must remain solely the property of the employer, subject only to the claims of the employer's general creditors, until such time as made available to the employee or a beneficiary. EXPERTS The financial statements 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 the 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 ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS. Financial Statements All required financial statements are included in Part B of this registration statement. Exhibits (1) Resolution of the Board of Directors of Northbrook Life Insurance Company authorizing establishment of the Northbrook Variable Annuity Account II. 1/ -- (2) Not Applicable. (3)(a) Form of Underwriting Agreement. (b) General Agency Agreement 1/ and Form of Amended General Agency Agreement. 3/ -- (4) Morgan Stanley Dean Witter Online Variable Annuity Contract. (5) Form of Morgan Stanley Dean Witter Online Variable Annuity Contract Application. (6)(a) Amended and Restated Articles of Incorporation and Articles of Redomestication of Northbrook Life Insurance Company.2/ (b) Amended and Restated Bylaws of Northbrook Life Insurance Company.2/ (7) Not applicable. (8) Forms of Participation Agreements. -- a. Janus Aspen Series b. Scudder Variable Life Investment Fund c. Strong Funds d. The Universal Institutional Funds, Inc. e. Van Kampen Funds f. Warburg Pincus Funds (9) Opinion and Consent of Michael J. Velotta, Vice President, Secretary and General Counsel of Northbrook Life Insurance Company.3/ (10)(a) Consent of Independent Certified Public Accountants. (b)Consent of Attorneys.3/ - (11) Not Applicable. (12) Not Applicable. (13) Computation of Performance Quotations. 3/ -- (14) Not Applicable. (99) Powers of Attorney for Thomas J. Wilson, II, Michael J. Velotta, Margaret G. Dyer, Marla G. Friedman, John C. Lounds, J. Kevin McCarthy, Steven C. Verney, Samuel H. Pilch, and Casey J. Sylla. 1/ Previously filed in Post-Effective Amendment No. 13 to registrant's registration statement, File No. 033-35412, dated December 31, 1996. 2/ Incorporated herein by reference to Depositor's Form 10-K, dated March 30, 1999. - - 3/ To be filed by subsequent amendment. - - 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS POSITIONS AND OFFICES WITH DEPOSITOR - ---------------- ------------------------------------ Thomas J. Wilson, II Director, President and Chief Executive Officer Michael J. Velotta Director, Vice President, Secretary and General Counsel Margaret G. Dyer Director Marla G. Friedman Director, Vice President John C. Lounds Director J. Kevin McCarthy Director Steven C. Verney Director Karen C. Gardner Vice President John R. Hunter Vice President Kevin R. Slawin Vice President Samuel H. Pilch Vice President, Controller Casey J. Sylla Chief Investment Officer James P. Zils Treasurer Sarah R. Donahue Assistant Vice President Ronald A. Johnson Assistant Vice President Barry S. Paul Assistant Vice President and Assistant Treasurer Charles F. Thalheimer Assistant Vice President Timothy N. Vander Pas Assistant Vice President Patricia W. Wilson Assistant Vice President, Assistant Secretary and Assistant Treasurer Joanne M. Derrig Assistant Secretary, Assistant General Counsel and Chief Compliance Officer Susan L. Lees Assistant Secretary Paul N. Kierig Assistant Secretary Mary J. McGinn Assistant Secretary Carol S. Watson Assistant Secretary Errol Cramer Corporate Actuary
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 As of the date of the filing of this Registration Statement, the offering of the Morgan Stanley Dean Witter Online Variable Annuity had not commenced. 28. INDEMNIFICATION The bylaws of both Northbrook Life Insurance Company (Depositor) and ALFS, Inc. (Principal Underwriter), provide for the indemnification of its directors, officers and controlling persons, against expenses, judgments, fines and amounts paid in settlement as incurred by such person, if such person acted properly. No indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of a duty to the Company, unless a court determines such person is entitled to such indemnity. Insofar as indemnification for liability arising under 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 the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 29. PRINCIPAL UNDERWRITER (a) ALFS, Inc. currently acts as a principal underwriter, depositor, sponsor, or investment adviser for the following entities: o Glenbrook Life and Annuity Company Variable Annuity Account o Glenbrook Life Multi-Manager Variable Account o Allstate Life of New York Separate Account A o Glenbrook Life Variable Life Separate Account A o Glenbrook Life and Annuity Company Separate Account A o Glenbrook Life AIM Variable Life Separate Account A o Glenbrook Life Variable Life Separate Account B (b) Following are the names, business addresses, positions, and offices, of each director, officer, or partner of the principal underwriter: NAME AND PRINCIPAL BUSINESS ADDRESS POSITION OR OFFICE John R. Hunter Director, President and Chief Executive Officer Kevin R. Slawin Director Michael J. Velotta Director and Secretary Thomas J. Wilson, II Director Janet M. Albers Vice President, Controller and Treasurer Brent H. Hamann Vice President Andrea J. Schur Vice President Terry Young General Counsel and Assistant Secretary Lisa A. Burnell Assistant Vice President and Compliance Officer Joanne M. Derrig Assistant Vice President and Assistant General Counsel Emma M. Kalaidjian Assistant Secretary Carol S. Watson Assistant Secretary Barry S. Paul Assistant Treasurer James P. Zils Assistant Treasurer The principal address of the foregoing officers and directors is 3100 Sanders Road, Northbrook, Illinois 60062. (c) Underwriter compensation during fiscal year ended December 31, 1999:
(1) (2) (3) (4) (5) NET UNDERWRITING NAME OF PRINCIPAL DISCOUNTS AND COMPENSATION ON UNDERWRITER COMMISSIONS REDEMPTION BROKERAGE COMMISSION COMPENSATION ----------- ----------- ---------- ------------------- ------------ ALFS, Inc. None None None None
30. LOCATION OF ACCOUNTS AND RECORDS The depositor, Northbrook Life Insurance Company, is located at 3100 Sanders Road, Northbrook, Illinois 60062. The principal underwriter, ALFS, Inc., is located at 3100 Sanders Road, Northbrook, Illinois 60062. Each company maintains physical possession of each account, book, or other document required to be maintained by Section 31(a) of the 1940 Act and the Rules under it. 31. MANAGEMENT SERVICES None. 32. UNDERTAKINGS The Registrant undertakes to file a post-effective amendment to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted. Registrant furthermore agrees to include either, as part of any 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 affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information, or make a request from the Web site. 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, or e-mail request. Representations Pursuant to Section 403(b) of the Internal Revenue Code The depositor, Northbrook Life Insurance Company ("Northbrook"), represents that it is relying upon a November 28, 1988 Securities and Exchange Commission no-action letter issued to the American Council of Life Insurance ("ACLI") and that the provisions of paragraphs 1-4 of the no-action letter have been complied with. Representations Regarding Contract Expense 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 Company 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 this Registration 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 has duly caused this registration statement to be signed on its behalf, in the Township of Northfield, and the State of Illinois, on this 4th day of August, 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 registration statement has been duly signed below by the following directors and officers of Northbrook Life Insurance Company on the 4th day of August, 2000.
* THOMAS J. WILSON, II Director, President and Chief Executive Officer - ---------------------- Thomas J. Wilson, II /s/ MICHAEL J. VELOTTA Director, Vice President, Secretary and General Counsel - ---------------------- Michael J. Velotta * MARGARET G. DYER Director - ------------------ Margaret G. Dyer * MARLA G. FRIEDMAN Director, Vice President - ------------------- Marla G. Friedman * JOHN C. LOUNDS Director - ---------------- John C. Lounds * J. KEVIN McCARTHY Director - ------------------- J. Kevin McCarthy * STEVEN C. VERNEY Director - ------------------ Steven C. Verney * SAMUEL H. PILCH Vice President and Controller - ----------------- Samuel H. Pilch * CASEY J. SYLLA Chief Investment Officer - ---------------- Casey J. Sylla * By Michael J. Velotta Pursuant to Power of Attorney, filed herewith.
Exhibit Index Exhibit Description - ----------------------------------------------- Exhibit 3 Form of Principal Underwriting Agreement Exhibit 4 Form of Contract Exhibit 5 Form of Application Exhibit 8 Forms of Participation Agreements Exhibit 10(a) Consent of Independent Certified Public Accountants Exhibit 99 Powers of Attorney EX-3 2 0002.txt FORM OF PRINCIPAL UNDERWRITING AGREEMENT PRINCIPAL UNDERWRITING AGREEMENT This Principal Underwriting Agreement (hereinafter "Agreement") is made and entered into as of this ______ day of _________, 2000, by and between [[Party1]] ( "[[Party1]]") a life insurance company organized under the laws of the State of Illinois on its own and on behalf of each separate account of [[Party1]] set forth on Attachment A, as such Attachment may be amended from time (each such account herein referred to as the "Account"), and Party2 ("[[Distributors]]"), a limited liability corporation organized under the laws of the State of Delaware. In consideration of the mutual promises and covenants exchanged by the parties in this Agreement, [[Party1]] grants to [[Distributors]] the right to be and [[Distributors]] agrees to serve as Principal Underwriter for the sale of variable insurance products and other insurance and investment products during the term of this Agreement and the parties agree as follows: ARTICLE I [DISTRIBUTOR'S] DUTIES AND OBLIGATIONS 1.01 [[Distributors]], a broker-dealer registered under the Securities Exchange Act of 1934 (the "1934 Act") and a member of the National Association of Securities Dealers, Inc. ("NASD"), will serve as principal underwriter and distributor for the variable insurance contracts (contracts listed in Attachment A , herein, the "Contracts") which will be issued by [[Party1]]. 1.02 [[Distributors]] shall be duly registered or licensed or otherwise qualified under the insurance and securities laws of the states in which the Contracts are authorized for sale. 1.03 [[Distributors]] proposes to act as principal underwriter on an agency best efforts basis in the marketing and distribution of the Contracts. [Distributors] will use its best efforts to provide information and marketing assistance to licensed insurance agents and broker-dealers ("Selling Broker-Dealers") on a continuing basis. 1.04 [Distributors] shall be responsible for compliance with the requirements of state broker-dealer regulations and the 1934 Act as each applies to [Distributors] in connection with its duties as distributor of the Contracts. Moreover, [Distributors] shall conduct its affairs in accordance with the Rules of Fair Practice of the NASD. 1.05 As a principal underwriter, [Distributors] shall permit the offer and sale of Contracts to the public only by and through persons who are appropriately licensed under the securities laws and who are appointed in writing by [[Party1]] to be authorized insurance agents (unless such persons are exempt from such licensing and appointment requirements); 1.06 To the extent that any statements made in the Registration Statement, or any amendment or supplement thereto, are made in reliance upon and in conformity with written information furnished to [[Party1]] by [Distributors] expressly for use therein, such statements will, when they become effective or are filed with the SEC, as the case may be, conform in all material respects to the requirements of the 1933 Act and the rules and regulations of the Commission thereunder, and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. 1.07 Subject to agreement with [[Party1]], [Distributors] may enter into selling agreements with broker-dealers which are registered under the 1934 Act and/or authorized by applicable law or exemptions to sell the Contracts. Any such contractual arrangement is expressly made subject to this Agreement, and [Distributors] will at all times be responsible to [[Party1]] for supervision of compliance with federal securities laws regarding distribution of the Contracts. ARTICLE II [[PARTY1]'S] DUTIES AND OBLIGATIONS 2.01 [Party1] is validly existing as a stock life insurance company in good standing under the laws of the State of Illinois, and has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business. 2.02 [Party1] represents that: a) Registration Statements for each of the Contracts identified in Attachment A shall have been filed with the Securities and Exchange Commission ("SEC") in the form previously delivered to [Distributors] and that copies of any and all amendments thereto will be forwarded to [Distributors] at the time that they are filed with the SEC; b) Each Account is a duly organized, validly existing separate account, established by resolution of the Board of Directors of [Party1], on the date shown for such Account on Attachment A, for the purpose of issuing the Contracts; and c) [Party1] has registered or will register the Account as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act"). 2.03 The Registration Statement and any further amendments or supplements thereto will, when they became effective, conform in all material respects to the requirements of the Securities Act of 1933 (the "1933 Act") and the 1940 Act, and the rules and regulations of the Commission under such Acts and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statement or omission made in reliance upon and in conformity with information furnished in writing to [Party1] by [Distributors] expressly for use therein. 2.04 [Party1] shall be responsible for the licensing and appointing of registered representatives of Selling Broker-Dealers as required by state insurance laws. ARTICLE III RECORDS 3.01 [Distributors] shall keep, in a manner and form approved by [Party1] and in accordance with Rules 17a-3 and 17a-4 under the 1934 Act, accurate records and books of account as required to be maintained by a registered broker-dealer, acting as principal underwriter, of all transactions entered into on behalf of [Party1] with respect its activities under this Agreement. [Distributors] shall make such records of account available for inspection by the SEC and [Party1] shall have the right to inspect, make copies of or take possession of such records and books of account at any time upon demand. 3.02 Subject to applicable SEC or NASD restrictions, [Party1] will send confirmations of Contract transactions to Contract owners. [Party1] will make such confirmations and records of transactions available to [Distributors] upon request. [Party1] will also maintain Contract Owner records on behalf of [Distributors] to the extent permitted by applicable securities law. 3.03 [Distributors] and [Party1] shall keep confidential the records, books of account and other information concerning the Contract owners, annuitants, insureds, beneficiaries or any persons who have rights arising out of the Contracts. [Distributors] or [Party1] may disclose the Records and such information only if the other has authorized disclosure and if the disclosure is required by applicable law. In the event [Distributors] or [Party1] is served with a subpoena, court order or demand from a regulatory organization which mandates disclosure of the Records or such information, such party must notify the other and allow such other party sufficient time to authorize disclosure or to intervene in the judicial proceeding or matter so as to protect its interest. 3.04 Unless otherwise agreed to, no party to this Agreement shall voluntarily disclose to any third party other than Putnam Investments, Inc. and its affiliates, any books, reference manuals, instructions, information or data which concern the other party's business and which are exchanged during the negotiation and performance of this Agreement. When this Agreement terminates or expires, the parties shall return all such books, reference manuals, instructions, information or data in their possession. 3.05 For the purpose of determining the other party's compliance with this Agreement, each party to this Agreement shall have reasonable access during normal business hours to any records and books of account which concern the Contracts and which are maintained by the other party. 3.06 Both [Party1] and [Distributors] agree to keep all information required by applicable laws, to maintain the books, accounts and records as to clearly and accurately disclose the precise nature and details of the transaction and to assist one another in the timely perpetration of any reports required by law. 3.07 [Distributors] and [Party1] shall furnish to the other any reports and information which the other may request for the purpose of meeting reporting and recordkeeping requirements under the laws of Illinois or any other state or jurisdiction. ARTICLE IV SALES MATERIALS 4.01 [Distributors] will utilize the currently effective prospectus relating to the Contracts in connections with its underwriting, marketing and distribution efforts. As to other types of sales material, [Distributors] hereby agrees and will require Selling Broker-Dealers to agree to use only sales materials which have been authorized for use by [Party1], which conform to the requirements of federal and state laws and regulations, and which have been filed where necessary with the appropriate regulatory authorities including the NASD. 4.02 [Distributors] will not distribute any prospectus, sales literature or any other printed matter or material in the underwriting and distribution or any Contract if, to the knowledge of [Distributors], any of the foregoing misstates the duties, obligation or liabilities of [Party1] or [Distributors]. ARTICLE V COMPENSATION 5.01 [Party1] shall pay to [Distributors] commissions described in Attachment B , attached hereto and made a part hereof. [Distributors] shall not be obligated to pay another broker/dealer for sales of Contracts pursuant to its selling agreement with such broker/dealer until [Distributors] has received its commissions for the sale of such Contracts from [Party1]. 5.02 In compensating [Distributors], [Party1] reserves the right to withhold commissions from [Distributors] if it determines [Distributors] is not paying commissions to its Selling Broker-Dealers in accordance with applicable laws. 5.03 [Distributors] shall direct how commissions are paid, provided such direction is in accordance with applicable law. 5.04 [Party1] agrees to pay [Distributors] for direct expenses incurred on behalf of [Party1]. Such direct expenses shall include, but not be limited to, the costs of goods and services purchased from outside vendors, travel expenses and state and federal regulatory fees incurred on behalf of [Party1]. 5.05 [Distributors] shall present a statement after the end of the quarter showing the apportionment of services rendered and the direct expenses incurred. Settlements are due and payable within thirty days. ARTICLE VI UNDERWRITING TERMS 6.01 [Distributors] makes no representations or warranties regarding the number of contracts to be sold by Selling Broker-Dealer and the registered representatives of Selling Broker-Dealer or the amount to be paid thereunder. [Distributors] does, however, represent that it will actively engage in its duties under this Agreement on a continuous basis while there is an effective Registration Statement with the SEC. 6.02 [Distributors] will use its best efforts to ensure that the Contracts shall be offered for sale by registered broker-dealers and registered representatives (who are duly licensed as insurance agents) on the terms described in the currently effective prospectus describing such Contracts. 6.03 [Party1] will use its best efforts to assure that the Contracts are continuously registered under the 1933 Act (and under any applicable state "blue sky" laws) and to file for approval under state insurance laws when necessary. ARTICLE VII LEGAL AND REGULATORY ACTIONS 7.01 [Party1] agrees to advise [Distributors] immediately of: a) any request by the SEC for amendment of the Registration Statement or for additional information relating to the Contracts; b) the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement relating to the Contracts or the initiation of any proceedings for that purpose; and c) the happening of any known material event which makes untrue any statement made in the Registration Statement relating to the Contracts or which requires the making of a change therein in order to make any statement made therein not misleading. 7.02 Each of the undersigned parties agrees to notify the other in writing upon being apprised of the institution of any proceeding, investigation or hearing involving the offer or sale of the subject Contracts. 7.03 During any legal action or inquiry, [Party1] will furnish to [Distributors] such information with respect to the Contracts in such form and signed by such of its officers as [Distributors] may reasonably request and will warrant that the statements therein contained when so signed are true and correct. 7.04 If changes in insurance laws or regulations could reasonably be expected to affect the sales and administration of Contracts under this Agreement, [Party1] shall notify [Distributors] within a reasonable time after [Party1] receives notice of those changes. Such notice shall be in writing except, if circumstances so require, the notice may be communicated by telephone or facsimile and confirmed in writing. ARTICLE VIII TERMINATION 8.01 This Agreement shall terminate at either Party's option, without penalty: (a) without case, on not less than 180 days' prior written notice to the other Party; (b) upon the mutual written consent of the Parties; (c) upon written notice of one Party to the other in the event of bankruptcy or insolvency of the Party to which notice is given; (d) upon the suspension or revocation of any material license or permit held by a Party by the appropriate governmental agency or authority; however, such termination shall extend only to the jurisdiction(s) where the Party is prohibited from doing business; or (e) upon the finding by any regulatory body in a formal proceeding of material wrongdoing by a Party regarding its duties under this Agreement. 8.02 If either Party breaches this Agreement or is in default in the performance of any of its duties and obligations hereunder (the "defaulting Party"), the non-defaulting Party may give written notice thereof to the defaulting Party, and if such breach or default is not remedied within 60 days after such written notice is given, then the non-defaulting Party may terminate this Agreement by giving 30 days' prior written notice of such termination to the defaulting Party. 8.03 The Parties agree to cooperate and give reasonable assistance to one another in effecting an orderly transition following termination. ARTICLE IX INDEMNIFICATION 9.01 Scope of Indemnification (a) Each Party (the "Indemnifying Party") agrees to indemnify and hold harmless the other (the "Indemnified Party") against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damage or expense, and reasonable counsel fees incurred in connection therewith) arising by reason of any person's acquiring any Contract, which may be based upon any law: (i) on the ground that the Indemnifying Party, its directors, officers, employees, agents, or subcontractors failed to comply with any applicable laws and regulations in connection with its rendering of duties or services under this Agreement; or (ii) on the ground of negligence or misconduct by the Indemnifying Party or its directors, officers, employees, agents, or subcontractors, in the performance of its duties hereunder, or breach by the Indemnifying Party of any representation or warranty hereunder. The foregoing indemnities shall, upon the same terms and conditions, extend to and inure to the benefit of each director, officer and employee of the Indemnified Party and any person controlling or controlled by the Indemnified Party within the meaning of Section 15 of the Securities Act of 1933 or Section 20 of the 1934 Act. (b) In no case shall the indemnity in favor of the Indemnified Party, including such controlling or controlled persons, be deemed to protect the Indemnified Party against any liability to the Indemnifying Party to which it would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of reckless disregard of its obligations and duties under this Agreement. In addition, in no case shall the Indemnifying Party be liable under its indemnity agreement contained in Section 4.1(a) hereof with respect to any claim made against an Indemnified Party, unless the Indemnified Party shall have notified the Indemnifying Party in writing by fax or overnight mail giving information of the nature of the claim within two (2) business days after the summons or other first legal process shall have been served upon the Indemnified Party (or after the Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Indemnifying Party of any such claim shall not relieve it from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of its indemnity agreement contained in Section 4.1(a) hereof. The Indemnifying Party shall be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce such liability. If the Indemnifying Party elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Indemnified Party. In the event the Indemnifying Party elects to assume the defense of any such suit and retains such counsel, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, but, in case the Indemnifying Party does not elect to assume the defense of any such suit, it shall reimburse the Indemnified Party for the reasonable fees and expense of any counsel retained by the Indemnified Party. The Indemnifying Party shall promptly notify the Indemnified Party of the commencement of any litigation or proceedings against the Indemnifying Party or any of its officers, directors, employees or subcontractors in connection with the issuance or sale of the Contracts. 9.02 Limitation on Liability In no event shall either Party be liable for lost profits or for exemplary, special, punitive or consequential damages alleged to have been sustained by the other Party, as opposed to a third party. 9.03 Injunctive Relief The Parties each agree that monetary damages may be an inadequate remedy in the event of a breach by either Party of any of the covenants in this Agreement, and that any such breach by a Party may cause the other Party great and irreparable injury and damage. Accordingly, nothing in this Agreement shall limit a Party's right to obtain equitable relief when appropriate. ARTICLE X GENERAL PROVISIONS 10.01 This Agreement shall be subject to the laws of the State of Illinois. 10.02 This Agreement, along with any schedules attached hereto and incorporated herein by reference, may be amended from time to time by mutual agreement and consent of the under signed parties. [Remainder of page intentionally left blank] 10.03 In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be duly executed, to be effective as of _________, 2000 [[Party1]] (and the Account(s) set forth on Attachment A) By: ___________________________ ______________________ Title Date [[Distributors]] By: ___________________________ _______________________ Title Date EX-4 3 0003.txt FORM OF CONTRACT Northbrook Life Insurance Company A Stock Company Headquarters: 3100 Sanders Road, Northbrook, Illinois 60062 Flexible Premium Deferred Variable Annuity We Will Make Periodic Income Payments Subject to the Provisions of This Contract Beginning on the Payout Start Date Specified on the Annuity Data Page. Death Benefits Are Provided Before the Payout Start Date. Income Payment Amounts Are Not Guaranteed as to Dollar Amounts Before the Start Date. Nonparticipating This Is a Legal Contract Between You and Northbrook Life Insurance Company. Please Read Your Contract Carefully. Return Privilege Upon written request, we will provide you with factual information regarding the benefits and provisions contained in this Contract. If you are not satisfied with this Contract for any reason, you may return it to us within 20 days after you receive it. We will refund any purchase payments allocated to the Variable Account, adjusted to reflect investment gain or loss from the date of allocation to the date of cancellation, plus any purchase payments allocated to the Fixed Account(s). If this Contract is qualified under Section 408 of the Internal Revenue Code, we will refund the greater of any purchase payments or the Contract Value. The Contract Value or Income Payments May Increase or Decrease Based on the Investment Experience of the Selected Sub-accounts of the Variable Account. If you have any questions about your variable annuity, please contact Northbrook Life at (800) 654-2397. Secretary Chairman and Chief Executive Officer - --------------------------------------------------- TABLE OF CONTENTS - --------------------------------------------------- INDEX............................................3 CONTRACT SUMMARY.................................4 DEFINITIONS......................................5 THE PEOPLE INVOLVED..............................7 ACCUMULATION PHASE...............................8 PAYMENTS ON DEATH...............................11 PAYOUT PHASE....................................13 INCOME PAYMENT TABLES...........................15 GENERAL PROVISIONS..............................17 Page 4 NLU914 - ------------------------------------------------------------------------------- INDEX - ------------------------------------------------------------------------------- Accounting Procedures.......................................................10 Administrative Expense Charge...............................................10 Annual Statement............................................................16 Annuitant....................................................................8 Annuity Transfers...........................................................13 Annuity Unit Value..........................................................13 Beneficiary..................................................................8 Certificate Value...........................................................10 Charges.....................................................................10 Crediting Interest...........................................................9 Death Benefit...............................................................12 Death of Owner or Annuitant.................................................11 Deferment of Payments.......................................................16 Entire Contract, The........................................................16 Fixed Amount Income Payments................................................13 Income Payments.............................................................13 Income Plans................................................................13 Incontestability............................................................16 Misstatement of Age or Sex..................................................16 Mortality and Expense Risk Charge...........................................11 Net Investment Factor.......................................................10 Owner........................................................................7 Payout Start Date...........................................................12 Payout Terms and Conditions.................................................14 Purchase Payments............................................................8 Settlements.................................................................12 Standard Fixed Account.......................................................9 Taxes.......................................................................11 Transfers....................................................................9 Variable Account Modifications..............................................17 Variable Amount Income Payments.............................................13 Withdrawal..................................................................11 - ------------------------------------------------------------------------------- CERTIFICATE SUMMARY - ------------------------------------------------------------------------------- This is a no sales load flexible premium deferred variable annuity. It provides a Death Benefit if the Owner dies before the Payout Start Date. It also provides periodic income payments if you are living on the Payout Start Date. The initial purchase payment is shown on the Annuity Data Page. You may make additional purchase payments subject to the limitations described in the Purchase Payment provision. The Certificate Value will vary according to how you allocate the purchase payments. Allocations may be made to one or more of the Variable Sub-accounts and to the Standard Fixed Account. The amount of the Certifictae Value will vary with the investment performance of the selected Variable Sub-accounts and the Standard Fixed Account. You may withdraw part or all of the Certificate Value at any time on or before the Payout Start Date. Any such withdrawal will cause the amount of periodic income payments to be reduced. Above is a brief description of the provisions of this Certificate. The provisions are fully described on the remaining pages of the Certificate. Page 11 NLU914 - ------------------------------------------------------------------------------- DEFINITIONS - ------------------------------------------------------------------------------- Accumulation Phase The "Accumulation Phase" is the first of two phases of your Certificate. During this phase, purchase payments are allocated to selected Investment Alternatives and the Certificate Value accumulates. The Accumulation Phase begins on the Issue Date of the Certificate stated on the Annuity Data Page. This phase will continue until the Payout Start Date unless the Certificate is terminated before that date. Accumulation Unit An "Accumulation Unit" is a measure of your ownership interest in a Variable Sub-account before the Payout Start Date. Accumulation Unit Value The "Accumulation Unit Value" is the value of each Accumulation Unit which is calculated each Valuation Date. Each Variable Sub-account has its own Accumulation Unit Value. Annuitant The "Annuitant" is the person whose life is used to determine the duration and amount of any income payments. The Annuitant is named on the Annuity Data Page but may be changed by the Owner. Beneficiary The "Beneficiary" will become the new Owner as follows. If the sole surviving Owner dies before the Payout Start Date, the Beneficiary, as the new Owner, will receive the Death Benefit. If the sole surviving Owner dies after the Payout Start Date, the Beneficiary, as the new Owner, will receive any remaining guaranteed income payments. The Beneficiary is named on the Annuity Data Page, but may be changed by the Owner. Certificate Value "Certificate Value" is the total value of the amounts in the Variable Sub-accounts plus the total value in the Standard Fixed Account as of any Valuation Date on or before the Payout Start Date. Certificate Year "Certificate Year" is a one year period beginning on the Issue Date of the Certificate and on each anniversary of the Issue Date. Death Benefit The "Death Benefit" is the amount we will pay if you, or the Annuitant if you are not a Natural Person, die before the Payout Start Date. The amount of the Death Benefit is defined in the Death Benefit provision. Fixed Amount Income Payments "Fixed Amount Income Payments" are income payment amounts that are fixed for the duration of the Income Plan. Investment Alternatives The "Investment Alternatives" are the Variable Sub-accounts and the Standard Fixed Account shown on the enrollment. We may offer additional Variable Sub-accounts at our discretion. We reserve the right to limit the availability of the Investment Alternatives. Income Plan An "Income Plan" is a series of payments on a scheduled basis beginning on the Payout Start Date. The available Income Plans are described in the Income Plans provision. Issue Age "Issue Age" is the age of the Annuitant on the Annuitant's birthday on or before the Issue Date. Issue Date The "Issue Date" is the date when coverage under this Certificate becomes effective. It is also the date used to determine Certificate Years. The Issue Date is shown on the Annuity Data Page. Joint Annuitant "Joint Annuitant" is applicable only if a Joint and Survivor Income Plan is selected. The Joint Annuitant will be named at the time of Income Plan selection. Natural Person "Natural Person" is a living individual or trust entity that is treated as an individual for Federal Income Tax purposes under the Internal Revenue Code. Net Investment Factor For each Variable Sub-account, the "Net Investment Factor" is the proportional change in the Accumulation Unit Value during a Valuation Period. Owner The "Owner" is referred to as "you" and "your" in this Certificate. The Owner is named on the Annuity Data Page, but may be changed. Payout Phase The "Payout Phase" is the second of the two phases of your Certificate. During this phase the Certificate Value less any applicable taxes is applied to the Income Plan you choose and is paid out as provided in the chosen plan. The Payout Phase begins on the Payout Start Date. It continues until we make the last payment as provided by the Income Plan chosen. Payout Start Date The "Payout Start Date" is the date the Certificate Value less any applicable taxes is applied to an Income Plan. The anticipated Payout Start Date is shown on the Annuity Data Page. You may change the Payout Start Date by writing to us at least 30 days before this date. Valuation Date A "Valuation Date" is any date the New York Stock Exchange is open for trading except for days in which there is insufficient trading in the Variable Account's portfolio securities such that the value of accumulation or annuity units might not be materially affected by changes in the value of the portfolio securities. Valuation Period A "Valuation Period" is the period that begins on the close of one Valuation Date and ends on the close of the succeeding Valuation Date. Variable Account The "Variable Account" for this Certificate is the Northbrook Variable Annuity Account II. This account is a separate investment account to which we allocate assets contributed under this and certain other certificates and contracts. These assets will not be charged with liabilities arising from any other business we may have. Variable Sub-accounts The Variable Account is divided into Sub-accounts. Each "Variable Sub-account" invests solely in the shares of the mutual fund underlying that Sub-account. Variable Amount Income Payments "Variable Amount Income Payments" are income payment amounts that vary based on any Variable Sub-account. - ------------------------------------------------------------------------------- THE PERSONS INVOLVED - ------------------------------------------------------------------------------- Owner The person named at the time of enrollment is the Owner of this Certificate unless subsequently changed. As Owner, you will receive any periodic income payments, unless you have directed us to pay them to someone else. You may exercise all rights stated in this Certificate, subject to the rights of any irrevocable Beneficiary. You may change the Owner or Beneficiary at any time. You may name a new Annuitant only upon the death of the current Annuitant. Once we have received a satisfactory written request for a change of Owner or Beneficiary, the change will take effect as of the date you signed it. We are not liable for any payment we make or other action we take before receiving any written request for a change from you. You may not assign an interest in this Certificate as collateral or security for a loan. You may not assign an interest in this Contract as collateral or security for a loan. However, you may assign periodic income payments under this Contract before the Payout Start Date. We are bound by an assignment only if it is signed by the assignor and filed with us. We are not responsible for the validity of an assignment. If the sole surviving Owner dies before the Payout Start Date, the Beneficiary becomes the new Owner. If the sole surviving Owner dies after the Payout Start Date, the Beneficiary becomes the new Owner and will receive any subsequent guaranteed income payments. If more than one person is designated as Owner: o Owner as used in this Certificate refers to all persons named as Owners, unless otherwise indicated; o any request to exercise ownership rights must be signed by all Owners; and o on the death of any person who is an Owner, the surviving person(s) named as Owner will continue as Owner. Annuitant The Annuitant is the person named on the Annuity Data Page. The Annuitant must be a living individual. If the Annuittant dies before the payout start date, the new Annuitant will be: o the youngest Owner, if the Owner(s) are living; otherwise, o the youngest Beneficiary Beneficiary The Beneficiary is the person(s) named on the Annuity Data Page, but may be changed by the Owner, as described above. We will determine the Beneficiary from the most recent written request we have received from you. If you do not name a Beneficiary or if the Beneficiary named is no longer living, the Beneficiary will be: o your spouse if living; otherwise o your children equally if living; otherwise o your estate. The Beneficiary may become the Owner under the circumstances described in the Owner provision above. Natural Person As used in this Certificate, Natural Person means a living individual or trust entity that is treated as an individual for Federal Income Tax purposes under the Internal Revenue Code. - -------------------------------------------------------------------------------- ACCUMULATION PHASE - -------------------------------------------------------------------------------- Purchase Payments The initial purchase payment is shown on the Annuity Data Page. You may make subsequent purchase payments during the Accumulation Phase. The number of purchase payments is unlimited. The minimum amount of additional purchase payments we will accept is $100. We will invest the purchase payments in the Investment Alternatives you select. You may allocate any portion of your purchase payment in whole percents from 0% to 100% to any of the Investment Alternatives. The total allocation must equal 100%. The allocation of the initial purchase payment is shown on the Annuity Data Page. Allocation of each subsequent purchase payment will be the same as the allocation for the most recent purchase payment unless you change the allocation. You may change the allocation of subsequent purchase payments at any time, without charge, simply by giving us written notice. Any change will be effective at the time we receive the notice and will reflect the next computed price(s). Standard Fixed Account We reserve the right to offer a Standard Fixed Account at our discretion. The guarantee periods of the Standard Fixed Account may range from 1 - 10 years. We reserve the right to offer any of these guarantee periods at our discretion. Money in the Standard Fixed Account will earn interest for the guarantee period chosen at the current rate in effect at the time of allocation or transfer to the Standard Fixed Account. After the guarantee period expires, a renewal rate will be declared at our discretion. Subsequent renewal dates will be on anniversaries of the first renewal date. Crediting Interest We credit interest daily to money allocated to each Standard Fixed Account at a rate which compounds over one year to the interest rate we guaranteed when the money was allocated. We will credit interest to the initial purchase payment from the Issue Date. We will credit interest to subsequent purchase payments from the date we receive them at a rate declared by us. We will credit interest to transfers from the date the transfer is made. The interest rate for each Standard Fixed Account will never be less than 3.0% as shown on the Annuity Data Page. Transfers Before the Payout Start Date, you may transfer amounts among Investment Alternatives. You may make 12 transfers during each Certificate Year without charge. Each transfer after the 12th transfer in any Certificate Year may be assessed a $10 transfer fee. All transfers made at the same time will be treated as one request. We reserve the right to limit the number of transfers in any Certificate Year or to refuse any transfer request for an Owner or certain Owners if, in our sole discretion, we believe that: o excessive trading by such Owner or Owners or a specific transfer request or group of transfer requests may have a detrimental effect on Unit Values or the share prices of the underlying mutual funds or would be to the disadvantage of other Certificate Owners; or o we are informed by one or more of the underlying mutual funds that the purchase or redemption of shares is to be restricted because of excessive trading or a specific transfer or group of transfers is deemed to have a detrimental effect on share prices of affected underlying mutual funds. Such restrictions may be applied in any manner which is reasonably designed to prevent any use of the transfer right which is considered by us to be to the disadvantage of the other Certificate Owners. We reserve the right to waive the transfer fees and restrictions contained in this Certificate. Certificate Value On the Issue Date of the Certificate, the Certificate Value is equal to the initial purchase payment. After the Issue Date, the "Certificate Value" is equal to the sum of: o the number of Accumulation Units you hold in each Variable Sub-account multiplied by the Accumulation Unit Value for that Sub-account on the most recent Valuation Date; plus o the total value you have in the Standard Fixed Account. If you withdraw the entire Certificate Value, you may receive an amount less than the Certificate Value because income tax withholding, and a premium tax charge may apply. Accounting Procedures The portion of the Certificate Value attributed to each Variable Sub-account is maintained in Accumulation Units. Amounts which you allocate to a Variable Sub-account are used to purchase Accumulation Units in that Sub-account. Additions or transfers to a Variable Sub-account will increase the number of Accumulation Units for that Sub-account. Withdrawals or transfers from a Variable Sub-account will decrease the number of Accumulation Units for that Sub-account. An Accumulation Unit Value is determined for each Valuation Date. The Accumulation Unit Value for each Sub-account at the end of any Valuation Period is equal to the Accumulation Unit Value at the end of the immediately preceding Valuation Period times the Sub-account's Net Investment Factor for the Valuation Period. Each Accumulation Unit Value may go up or down based on the performance of the mutual fund underlying the Sub-account. Net Investment Factor For each Variable Sub-account, the "Net Investment Factor" for a Valuation Period is equal to: o The sum of: o the net asset value per share of the mutual fund underlying the Sub-account determined at the end of the current Valuation Period, plus o the per share amount of any dividend or capital gain distributions made by the mutual fund underlying the Sub-account during the current Valuation Period. o Divided by the net asset value per share of the mutual fund underlying the Sub-account determined as of the end of the immediately preceding Valuation Period. o The result is reduced by the Administrative Expense Charge and the Mortality and Expense Risk Charge corresponding to the portion of the current calendar year that is in the current Valuation Period. Charges The charges for this Certificate include Administrative Expense Charges, Mortality and Expense Risk Charges, transfer fees, and taxes. Administrative Expense Charge The annualized Administrative Expense Charge will never be greater than 0.10%. (See Net Investment Factor for a description of how this charge is applied.) Mortality and Expense Risk Charge The annualized Mortality and Expense Risk Charge will never be greater than 0.50%. (See Net Investment Factor for a description of how this charge is applied.) Our actual mortality and expense experience will not adversely affect the dollar amount of variable benefits or other contractual payments or values under this Certificate. Taxes Any premium tax or income tax withholding relating to this Certificate may be deducted from purchase payments or the Certificate Value when the tax is incurred or at a later time. Withdrawal You have the right to withdraw part or all of your Certificate Value at any time on or before the Payout Start Date. A withdrawal must be at least $50. If any withdrawal reduces the Certificate Value to less than $1,000, we will treat the request as a withdrawal of the entire Certificate Value. If you withdraw the entire Certificate Value, the Certificate will terminate. You must specify the Investment Alternative(s) from which you wish to make a withdrawal. When you make a withdrawal, your Certificate Value will be reduced by any applicable taxes and the amount paid to you. We reserve the right to waive the withdrawal restrictions contained in this Certificate. - ------------------------------------------------------------------------------- PAYMENTS ON DEATH - ------------------------------------------------------------------------------- Death of Owner or Annuitant A benefit may be paid to the Owner determined immediately after the death if, before the Payout Start Date: o any Owner dies; or o the Annuitant dies and the Owner is not a Natural Person. If the Owner eligible to receive a benefit is not a Natural Person, the Owner may elect to receive the benefit in one or more distributions. Otherwise, if the Owner is a Natural Person, the Owner may elect to receive a benefit either in one or more distributions or by periodic payments through an Income Plan. The entire value of the Certificate must be distributed within five (5) years after the date of death unless an Income Plan is elected or a surviving spouse continues the Certificate in accordance with the provisions below. If an Income Plan is elected, payments from the Income Plan must begin within one year of the date of death and must be payable throughout: o the life of the Owner; or o a period not to exceed the life expectancy of the Owner; or o the life of the Owner with payments guaranteed for a period not to exceed the life expectancy of the Owner. If the surviving spouse of the deceased Owner is the new Owner, then the spouse may elect one of the options listed above or may continue the Certificate in the Accumulation Phase as if the death had not occurred. Death Benefit Before the Payout Start Date, the Death Benefit is equal to the greater of the following Death Benefit alternatives: o the sum of all purchase payments less any prior withdrawals and premium taxes; or o the Certificate Value on the date we determine the Death Benefit. We will determine the value of the Death Benefit as of the end of the Valuation Period during which we receive a complete request for payment of the Death Benefit. A complete request includes due proof of death. Settlements We may require that this Certificate be returned to us before any settlement. We must receive due proof of death of the Owner or Annuitant before settlement of a death claim. Any full withdrawal or Death Benefit under this Certificate will not be less than the minimum benefits required by any statute of the state in which the Certificate is delivered. - ------------------------------------------------------------------------------- PAYOUT PHASE - ------------------------------------------------------------------------------- Payout Start Date The anticipated Payout Start Date is shown on the Annuity Data Page. You may change the Payout Start Date by writing to us at least 30 days before this date. The Payout Start Date must be on or before the later of: o the Annuitant's 90th birthday; or o the 10th anniversary of the Certificate's Issue Date. Income Plans The Certificate Value on the Payout Start Date, less any applicable taxes, will be applied to your Income Plan choice from the following list: 1. Life Income with Guaranteed Payments. We will make payments for as long as the Annuitant lives. If the Annuitant dies before the selected number of guaranteed payments have been made, we will continue to pay the remainder of the guaranteed payments. 2. Joint and Survivor Life Income with Guaranteed Payments. We will make payments for as long as either the Annuitant or Joint Annuitant lives. If both the Annuitant and the Joint Annuitant die before the selected number of guaranteed payments have been made, we will continue to pay the remainder of the guaranteed payments. 3. Guaranteed Number of Payments. We will make payments for a specified number of months beginning on the Payout Start Date. These payments do not depend on the Annuitant's life. The number of months guaranteed may be from 60 to 360. We reserve the right to make available other Income Plans. Income Payments Income payment amounts may be Variable Amount Income Payments, Fixed Amount Income Payments, or both. The method of calculating the initial payment is different for the two types of payments. Variable Amount Income Payments Variable Amount Income Payments will vary to reflect the performance of the Variable Account. The portion of the initial income payment based upon a particular Variable Sub-account is determined by applying the amount of the Certificate Value in that Sub-account on the Payout Start Date, less any applicable premium tax, to the appropriate value from the Income Payment Table. This portion of the initial income payment is divided by the Annuity Unit Value on the Payout Start Date for that Variable Sub-account to determine the number of Annuity Units from that Sub-account which will be used to determine subsequent income payments. Unless transfers are made among Variable Sub-accounts, each subsequent income payment from that Sub-account will be that number of Annuity Units times the Annuity Unit Value for the Sub-account for the Valuation Date on which the income payment is made. Annuity Unit Value The Annuity Unit Value for each Variable Sub-account at the end of any Valuation Period is calculated by: o multiplying the Annuity Unit Value at the end of the immediately preceding Valuation Period by the Sub-account's Net Investment Factor during the period; and then o dividing the result by 1.000 plus the assumed investment rate for the period. The assumed investment rate is an effective annual rate of 3%. We reserve the right to offer an assumed investment rate greater than 3%. Fixed Amount Income Payments The income payment amount derived from any money allocated to the Fixed Account Options during the Accumulation Phase is fixed for the duration of the Income Plan. The Fixed Amount Income Payment is calculated by applying the portion of the Certificate Value in the Fixed Account Options on the Payout Start Date, less any applicable premium tax, to the greater of the appropriate value from the Income Payment Table selected or such other value as we are offering at that time. Annuity Transfers After the Payout Start Date, no transfers may be made from the Fixed Amount Income Payment. Transfers between Variable Sub-accounts, or from the Variable Amount Income Payment to the Fixed Amount Income Payment, may not be made for six months after the Payout Start Date. Transfers may be made once every six months thereafter. Payout Terms and Conditions The income payments are subject to the following terms and conditions: o If the Certificate Value is less than $2,000, or not enough to provide an initial payment of at least $20, we reserve the right to: o change the payment frequency to make the payment at least $20; or o terminate the Certificate and pay you the Certificate Value, less any applicable taxes, in a lump sum. o If we do not receive a written choice of an Income Plan from you at least 30 days before the Payout Start Date, the Income Plan will be Life Income with Guaranteed Payments for 120 months. o If you choose an Income Plan which depends on any person's life, we may require: o proof of age and sex before income payments begin; and o proof that the Annuitant or Joint Annuitant is still alive before we make each payment. o After the Payout Start Date, the Income Plan cannot be changed and withdrawals cannot be made unless income payments are being made from the Variable Account under Income Plan 3. You may terminate the income payments being made from the Variable Account under Income Plan 3 at any time and withdraw their value. o If any Owner dies during the Payout Phase, the remaining income payments will be paid to the successor Owner as scheduled. - ------------------------------------------------------------------------------- INCOME PAYMENT TABLES - ------------------------------------------------------------------------------- The initial income payment will be at least the amount based on the adjusted age of the Annuitant(s) and the tables below, less any federal income taxes which are withheld. The adjusted age is the actual age on the Payout Start Date reduced by one year for each six full years between January 1, 1983 and the Payout Start Date. Income payments for ages and guaranteed payment periods not shown below will be determined on a basis consistent with that used to determine those that are shown. The Income Payment Tables are based on 3.0% interest and the 1983a Annuity Mortality Tables. Income Plan 1 - Life Income with Guaranteed Payments for 120 Months
============================================================================================================================ Monthly Income Payment for each $1,000 Applied to this Income Plan - ---------------------------------------------------------------------------------------------------------------------------- - ------------------- ---------------------- ---------------- ---------------------- ---------------- ------------------------ Annuitant's Adjusted Annuitant's Annuitant's Age Male Female Adjusted Age Male Female Adjusted Age Male Female - ------------------- ---------------------- ---------------- ---------------------- ---------------- ------------------------ - ------------------- ---------------------- ---------------- ---------------------- ---------------- ------------------------ 35 $3.43 $3.25 49 $4.15 $3.82 63 $5.52 $4.97 36 3.47 3.28 50 4.22 3.88 64 5.66 5.09 37 3.51 3.31 51 4.29 3.94 65 5.80 5.22 38 3.55 3.34 52 4.37 4.01 66 5.95 5.35 39 3.60 3.38 53 4.45 4.07 67 6.11 5.49 40 3.64 3.41 54 4.53 4.14 68 6.27 5.64 41 3.69 3.45 55 4.62 4.22 69 6.44 5.80 42 3.74 3.49 56 4.71 4.29 70 6.61 43 3.79 3.53 57 4.81 4.38 71 5.96 44 3.84 3.58 58 4.92 4.46 72 6.78 6.13 45 3.90 3.62 59 5.02 4.55 73 6.96 6.31 46 3.96 3.67 60 5.14 4.65 74 7.13 6.50 47 4.02 3.72 61 5.26 4.75 75 7.31 6.69 48 4.08 3.77 62 5.39 4.86 7.49 6.88 =================== ====================== ================ ====================== ================ ======================== Income Plan 2 - Joint and Survivor Life Income with Guaranteed Payments for 120 Months ============================================================================================================================== Monthly Income Payment for each $1,000 Applied to this Income Plan - ------------------------------------------------------------------------------------------------------------------------------ - -------------------- --------------------------------------------------------------------------------------------------------- Female Annuitant's Adjusted Age - -------------------- --------------------------------------------------------------------------------------------------------- - -------------------- ---------- ------------ ----------- ---------- ---------- ---------- ---------- --------- --------------- Male Annuitant's Adjusted 35 40 45 50 55 60 65 70 75 Age - -------------------- ---------- ------------ ----------- ---------- ---------- ---------- ---------- --------- --------------- - -------------------- ---------- ---------- ---------- ---------- ----------- ---------- ------------ ----------- ------------- 35 $3.09 $3.16 $3.23 $3.28 $3.32 $3.36 $3.39 $3.40 $3.42 40 3.13 3.22 3.31 3.39 3.46 3.51 3.56 3.59 3.61 45 3.17 3.28 3.39 3.50 3.60 3.69 3.76 3.81 3.85 50 3.19 3.32 3.45 3.60 3.74 3.87 3.98 4.07 4.14 55 3.21 3.35 3.51 3.68 3.87 4.06 4.23 4.37 4.48 60 3.23 3.37 3.55 3.75 3.98 4.23 4.47 4.70 4.88 65 3.24 3.39 3.57 3.80 4.07 4.37 4.71 5.04 5.34 70 3.24 3.40 3.59 3.83 4.13 4.48 4.90 5.36 5.81 75 3.25 3.41 3.61 3.86 4.17 4.56 5.04 5.61 6.22 ==================== ========== ========== ========== ========== =========== ========== ============ =========== ============= Income Plan 3 - Guaranteed Number of Payments ================================= =============================================== Monthly Income Payment for each Specified Period $1,000 Applied to this Income Plan - --------------------------------- --------------------------------------------- - --------------------------------- --------------------------------------------- 10 Years $9.61 11 Years 8.86 12 Years 8.24 13 Years 7.71 14 Years 7.26 15 Years 6.87 16 Years 6.53 17 Years 6.23 18 Years 5.96 19 Years 5.73 20 Years 5.51 ================================= =============================================
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- The Entire Contract The entire contract consists of this Certificate, the Master Policy, the Master Policy application, any written application, and any Certificate endorsements and riders. All statements made in a written application are representations and not warranties. No statement will be used by us in defense of a claim or to void the Certificate unless it is included in a written application. We may not modify this Certificate without your consent, except to make it comply with any changes in the Internal Revenue Code or as required by any other applicable law. Only our officers may change this Certificate. No other individual may do this. Master Policy Amendment or Termination The Master Policy may be amended by us, terminated by us, or terminated by the Master Policyholder without the consent of any other person. No termination completed after the issue date of this Certificate will adversely affect your rights under this Certificate. Incontestability We will not contest the validity of this Certificate after the issue date. Misstatement of Age or Sex If any age or sex has been misstated, we will pay the amounts which would have been paid at the correct age and sex. If we find the misstatement of age or sex after the income payments begin, we will: o pay all amounts underpaid including interest calculated at an effective annual rate of 6%; or o stop payments until the total payments are equal to the corrected amount. Annual Statement At least once a year, before the Payout Start Date, we will send you a statement containing Certificate Value information. We will provide you with Certificate Value information at any time upon request. The information presented will comply with any applicable law. Deferment of Payments We will pay any amounts due from the Variable Account under this Certificate within seven days, unless: o the New York Stock Exchange is closed for other than usual weekends or holidays, or trading on such Exchange is restricted; o an emergency exists as defined by the Securities and Exchange Commission; or o the Securities and Exchange Commission permits delay for the protection of Certificate holders. We reserve the right to postpone payments or transfers from the Standard Fixed Account for up to six months. If we elect to postpone payments or transfers from the Fixed Account Options for 30 days or more, we will pay interest as required by applicable law. Any interest would be payable from the date the payment or transfer request is received by us to the date the payment or transfer is made. Variable Account Modifications We reserve the right, subject to applicable law, to make additions to, deletions from, or substitutions for the mutual fund shares underlying the Variable Sub-accounts. We will not substitute any shares attributable to your interest in a Variable Sub-account without notice to you and beforeapproval of the Securities and Exchange Commission, to the extent required by the Investment Company Act of 1940, as amended. We reserve the right to establish additional Variable Sub-accounts, each of which would invest in shares of another mutual fund. You may then instruct us to allocate purchase payments or transfers to such Sub-accounts, subject to any terms set by us or the mutual fund. In the event of any such substitution or change, we may by endorsement make such changes as may be necessary or appropriate to reflect such substitution or change. If we deem it to be in the best interests of persons having voting rights under the Certificates, the Variable Account may be operated as a management company under the Investment Company Act of 1940, as amended, or it may be deregistered under such Act in the event such registration is no longer required. EX-5 4 0004.txt FORM OF APPLICATION Flexible Premium Deferred Variable Annuity Northbrook Life Insurance Company - msdwonlineva@northbrooklife.com P.O. Box 80469, Lincoln, Nebraska 68501, 1-877-801-7157 1. OWNER INFORMATION Name ______________________________________________________________________ Last First Middle Address __________________________________________________ Street Apt.# ___________________________________________________________________________ City State Zip Social Security/Tax ID # _____________________________________ Birth Date __________________________________________ Sex _______ Month Day Year Phone ( )_____________________ Day 2. JOINT OWNER INFORMATION, If Applicable Name ______________________________________________________________________ Last First Middle Address __________________________________________________ Street Apt.# ___________________________________________________________________________ City State Zip Social Security/Tax ID # _____________________________________ Birth Date __________________________________________ Sex _______ Month Day Year Phone ( )_____________________ Day 3. ANNUITANT INFORMATION, If Other Than Owner Name ______________________________________________________________________ Last First Middle Address __________________________________________________ Street Apt.# ___________________________________________________________________________ City State Zip Social Security/Tax ID # _____________________________________ Birth Date __________________________________________ Sex _______ Month Day Year Phone ( )_____________________ Day 4. BENEFICIARY DESIGNATION Name ___________________________________________________ Last First Middle Relationship to Owner _______________________________ __________% Name ___________________________________________________ Last First Middle Relationship to Owner _______________________________ __________% Name ___________________________________________________ Last First Middle Relationship to Owner _______________________________ __________% Total designation must equal 100% 5. AMOUNT AND ALLOCATION OF PAYMENT Total Purchase Payment $_____________ Please allocate the above amount in $ or whole %s to the Investment Alternatives specified below ($ must equal Total Purchase Payment. %'s must total 100%): Janus Aspen | | Capital Appreciation __________ | | Worldwide Growth __________ MSDW Universal Funds | | Value __________ | | Equity Growth __________ | | Mid Cap Value __________ | | Mid Cap Growth __________ | | U.S. Real Estate __________ | | International Magnum __________ | | Emerging Markets Equity __________ | | Global Equity __________ | | Fixed Income __________ | | High Yield __________ | | Technology __________ VanKampen | | LIT Comstock __________ | | LIT Emerging Growth __________ Strong | | VIF Growth Fund II __________ | | Opportunity Fund II __________ Scudder | | International __________ | | VLIF Bond __________ Warburg Pincus | | Emerging Growth __________ | | Post Venture Capital __________ 6. QUALIFIED PLAN | | No | | Yes (If yes, complete the following) | | Traditional IRA | | Roth IRA Other _______________ | | Rollover | | Transfer | | Contribution $______________ Contribution Year_____________ NLR736 7. WILL THIS ANNUITY REPLACE ANY EXISTING LIFE INSURANCE OR ANNUITY? | | No | | Yes__________________________________________________ Company, amount, type of policy and policy number and date Special Instructions___________________________________________________________ =============================================================================== 8. SIGNATURES | | Optional Consent for Electronic Distribution to my E-mail address:________________________ I (we) hereby consent to the electronic distribution of annuity and fund prospectuses, statements of additional information, shareholder reports, proxy statements and prospectus supplements. I understand that I may revoke this consent at any time, and that absent my revocation, this consent will be valid. If Northbrook Life Insurance Company ("Northbrook Life") declines this application, Northbrook will have no liability except to return the purchase payments. I understand that annuity values and income payments based on the investment experience of a variable account are variable and are not guaranteed as to dollar amount. I have read the above statements and the applicable fraud warning for my state listed below. - ------------------------------------------------------------------------------ Date - --------------------------------- ------------------------------------------ Owner's Signature Joint Owner's Signature (if applicable) 9. FRAUD WARNINGS The following states require insurance applicants to acknowledge a fraud warning statement. Please refer to the fraud warning statement for your state as indicated below. For applicants in Arizona: Upon your written request we will provide you within a reasonable period of time, reasonable, factual information regarding the benefits and provisions of the annuity contract for which you are applying. If for any reason you are not satisfied with the contract, you may return the contract within 20 days after you receive it. If the contract you are applying for is a variable annuity, you will receive an amount equal to the sum of (1) the difference between the premiums paid and the amounts allocated to any account under the contract and (2) the Contract Value on the date the returned contract is received by our company or agent. F or applicants in Arkansas, Kentucky, Maine, New Mexico, Ohio, and Pennsylvania: Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance or statement of claim containing any materially false information or conceals, for the purpose of misleading, information concerning any fact material thereto commits a fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties. For applicants in Colorado: It is unlawful to knowingly provide false, incomplete, or misleading facts or information to an insurance company for the purpose of defrauding or attempting to defraud the company. Penalties may include imprisonment, fines, denial of insurance, and civil damages. Any insurance company or agent of an insurance company who knowingly provides false, incomplete, or misleading facts or information to a policy holder or claimant for the purpose of defrauding or attempting to defraud the policy or claimant with regard to a settlement or award payable from insurance proceeds shall he reported to the Colorado Division of Insurance within the Department of Regulatory Agencies. For applicants in Florida: Any person who knowingly and with intent to injure, defraud, or deceive any insurer files a statement of claim or an application containing any false, incomplete, or misleading information is guilty of a felony of the third degree. For applicants in Louisiana: Any person who knowingly presents a false or fraudulent claim for payment of a loss or benefit or knowingly presents false information in an application for insurance is guilty of a crime and may be subject to fines and confinement in prison. For applicants in New Jersey: Any person who includes any false or misleading information on an application for an insurance policy is subject to criminal and civil penalties. EX-8 5 0005.txt FORMS OF PARTICIPATION AGREEMENTS Exhibit (8)(a) FORM OF JANUS ASPEN SERIES FUND PARTICIPATION AGREEMENT (Service Shares) THIS AGREEMENT is made this [____] day of [______________________], 2000, between JANUS ASPEN SERIES, an open-end management investment company organized as a Delaware business trust (the "Trust"), and NORTHBROOK LIFE INSURANCE COMANY, a life insurance company organized under the laws of the State of Arizona (the "Company"), on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A, as may be amended from time to time (the "Accounts"). W I T N E S S E T H: ------------------- WHEREAS, the Trust has registered with the Securities and Exchange Commission as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and the beneficial interest in the Trust is divided into several series of shares, each series representing an interest in a particular managed portfolio of securities and other assets (the "Portfolios"); and WHEREAS, the Trust has registered the offer and sale of a class of shares designated the Service Shares ("Shares") of each of its Portfolios under the Securities Act of 1933, as amended (the "1933 Act"); and WHEREAS, the Trust desires to act as an investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts to be offered by insurance companies that have entered into participation agreements with the Trust (the "Participating Insurance Companies"); and WHEREAS, the Trust has received an order from the Securities and Exchange Commission granting Participating Insurance Companies and their separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies and certain qualified pension and retirement plans (the "Exemptive Order"); and WHEREAS, the Company has registered or will register (unless registration is not required under applicable law) certain variable life insurance policies and/or variable annuity contracts under the 1933 Act (the "Contracts"); and WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act; and WHEREAS, the Company desires to utilize the Shares of one or more Portfolios as an investment vehicle of the Accounts; NOW, THEREFORE, in consideration of their mutual promises, the parties agree as follows: ARTICLE I Sale of Trust Shares 1.1 The Trust shall make Shares of its Portfolios listed on Schedule B available to the Accounts at the net asset value next computed after receipt of such purchase order by the Trust (or its agent), as established in accordance with the provisions of the then current prospectus of the Trust. Shares of a particular Portfolio of the Trust shall be ordered in such quantities and at such times as determined by the Company to be necessary to meet the requirements of the Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell Shares of any Portfolio to any person, or suspend or terminate the offering of Shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Trustees acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Portfolio. 1.2 The Trust will redeem any full or fractional Shares of any Portfolio when requested by the Company on behalf of an Account at the net asset value next computed after receipt by the Trust (or its agent) of the request for redemption, as established in accordance with the provisions of the then current prospectus of the Trust. The Trust shall make payment for such shares in the manner established from time to time by the Trust, but in no event shall payment be delayed for a greater period than is permitted by the 1940 Act. 1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints the Company as its agent for the limited purpose of receiving and accepting purchase and redemption orders resulting from investment in and payments under the Contracts. Receipt by the Company shall constitute receipt by the Trust provided that i) such orders are received by the Company in good order prior to the time the net asset value of each Portfolio is priced in accordance with its prospectus and ii) the Trust receives notice of such orders by 10:00 a.m. New York time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Trust calculates its net asset value pursuant to the rules of the Securities and Exchange Commission. 1.4 Purchase orders that are transmitted to the Trust in accordance with Section 1.3 shall be paid for no later than 12:00 noon New York time on the same Business Day that the Trust receives notice of the order. Payments shall be made in federal funds transmitted by wire. 1.5 Issuance and transfer of the Trust's Shares will be by book entry only. Stock certificates will not be issued to the Company or the Account. Shares ordered from the Trust will be recorded in the appropriate title for each Account or the appropriate subaccount of each Account. 1.6 The Trust shall furnish prompt notice to the Company of any income dividends or capital gain distributions payable on the Trust's Shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on a Portfolio's Shares in additional Shares of that Portfolio. The Trust shall notify the Company of the number of Shares so issued as payment of such dividends and distributions. 1.7 The Trust shall make the net asset value per Share for each Portfolio available to the Company on a daily basis as soon as reasonably practical after the net asset value per Share is calculated and shall use its best efforts to make such net asset value per Share available by 6 p.m. New York time. 1.8 The Trust agrees that its Shares will be sold only to Participating Insurance Companies and their separate accounts and to certain qualified pension and retirement plans to the extent permitted by the Exemptive Order. No Shares of any Portfolio will be sold directly to the general public. The Company agrees that Trust Shares will be used only for the purposes of funding the Contracts and Accounts listed in Schedule A, as amended from time to time. 1.9 The Trust agrees that all Participating Insurance Companies shall have the obligations and responsibilities regarding pass-through voting and conflicts of interest corresponding to those contained in Section 2.8 and Article IV of this Agreement. ARTICLE II Obligations of the Parties 2.1 The Trust shall prepare and be responsible for filing with the Securities and Exchange Commission and any state regulators requiring such filing all shareholder reports, notices, proxy materials (or similar materials such as voting instruction solicitation materials), prospectuses and statements of additional information of the Trust. The Trust shall bear the costs of registration and qualification of its shares, preparation and filing of the documents listed in this Section 2.1 and all taxes to which an issuer is subject on the issuance and transfer of its shares. 2.2 At the option of the Company, the Trust shall either (a) provide the Company (at the Company's expense) with as many copies of the Trust's Shares' current prospectus, annual report, semi-annual report and other shareholder communications, including any amendments or supplements to any of the foregoing, as the Company shall reasonably request; or (b) provide the Company with a camera ready copy of such documents in a form suitable for printing. The Trust shall provide the Company with a copy of the Shares' statement of additional information in a form suitable for duplication by the Company. The Trust (at its expense) shall provide the Company with copies of any Trust-sponsored proxy materials in such quantity as the Company shall reasonably require for distribution to Contract owners. 2.3 (a) The Company shall bear the costs of printing and distributing the Trust's Shares' prospectus, statement of additional information, shareholder reports and other shareholder communications to owners of and applicants for policies for which Shares of the Trust are serving or are to serve as an investment vehicle. The Company shall bear the costs of distributing proxy materials (or similar materials such as voting solicitation instructions) to Contract owners. The Company assumes sole responsibility for ensuring that such materials are delivered to Contract owners in accordance with applicable federal and state securities laws. (b) If the Company elects to include any materials provided by the Trust, specifically prospectuses, SAIs, shareholder reports and proxy materials, on its web site or in any other computer or electronic format, the Company assumes sole responsibility for maintaining such materials in the form provided by the Trust and for promptly replacing such materials with all updates provided by the Trust. 2.4 The Company agrees and acknowledges that the Trust's adviser, Janus Capital Corporation ("Janus Capital"), is the sole owner of the name and mark "Janus" and that all use of any designation comprised in whole or part of Janus (a "Janus Mark") under this Agreement shall inure to the benefit of Janus Capital. Except as provided in Section 2.5, the Company shall not use any Janus Mark on its own behalf or on behalf of the Accounts or Contracts in any registration statement, advertisement, sales literature or other materials relating to the Accounts or Contracts without the prior written consent of Janus Capital. Upon termination of this Agreement for any reason, the Company shall cease all use of any Janus Mark(s) as soon as reasonably practicable. 2.5 The Company shall furnish, or cause to be furnished, to the Trust or its designee, a copy of each Contract prospectus or statement of additional information in which the Trust or its investment adviser is named prior to the filing of such document with the Securities and Exchange Commission. The Company shall furnish, or shall cause to be furnished, to the Trust or its designee, each piece of sales literature or other promotional material in which the Trust or its investment adviser is named, at least fifteen Business Days prior to its use. No such material shall be used if the Trust or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. 2.6 The Company shall not give any information or make any representations or statements on behalf of the Trust or concerning the Trust or its investment adviser in connection with the sale of the Contracts other than information or representations contained in and accurately derived from the registration statement or prospectus for the Trust Shares (as such registration statement and prospectus may be amended or supplemented from time to time), reports of the Trust, Trust-sponsored proxy statements, or in sales literature or other promotional material approved by the Trust or its designee, except as required by legal process or regulatory authorities or with the written permission of the Trust or its designee. 2.7 The Trust shall not give any information or make any representations or statements on behalf of the Company or concerning the Company, the Accounts or the Contracts other than information or representations contained in and accurately derived from the registration statement or prospectus for the Contracts (as such registration statement and prospectus may be amended or supplemented from time to time), or in materials approved by the Company for distribution including sales literature or other promotional materials, except as required by legal process or regulatory authorities or with the written permission of the Company. 2.8 So long as, and to the extent that the Securities and Exchange Commission interprets the 1940 Act to require pass-through voting privileges for variable policyowners, the Company will provide pass-through voting privileges to owners of policies whose cash values are invested, through the Accounts, in shares of the Trust. The Trust shall require all Participating Insurance Companies to calculate voting privileges in the same manner and the Company shall be responsible for assuring that the Accounts calculate voting privileges in the manner established by the Trust. With respect to each Account, the Company will vote Shares of the Trust held by the Account and for which no timely voting instructions from policyowners are received as well as Shares it owns that are held by that Account, in the same proportion as those Shares for which voting instructions are received. The Company and its agents will in no way recommend or oppose or interfere with the solicitation of proxies for Trust shares held by Contract owners without the prior written consent of the Trust, which consent may be withheld in the Trust's sole discretion. 2.9 The Company shall notify the Trust of any applicable state insurance laws that restrict the Portfolios' investments or otherwise affect the operation of the Trust and shall notify the Trust of any changes in such laws. ARTICLE III Representations and Warranties 3.1 The Company represents and warrants that it is an insurance company duly organized and in good standing under the laws of the State of Arizona and that it has legally and validly established each Account as a segregated asset account under such law on the date set forth in Schedule A. 3.2 The Company represents and warrants that each Account has been registered or, prior to any issuance or sale of the Contracts, will be registered as a unit investment trust in accordance with the provisions of the 1940 Act. 3.3 The Company represents and warrants that the Contracts or interests in the Accounts (1) are or, prior to issuance, will be registered as securities under the 1933 Act or, alternatively (2) are not registered because they are properly exempt from registration under the 1933 Act or will be offered exclusively in transactions that are properly exempt from registration under the 1933 Act. The Company further represents and warrants that the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws; and the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. 3.4 The Trust represents and warrants that it is duly organized and validly existing under the laws of the State of Delaware. 3.5 The Trust represents and warrants that the Trust Shares offered and sold pursuant to this Agreement will be registered under the 1933 Act and the Trust shall be registered under the 1940 Act prior to any issuance or sale of such Shares. The Trust shall amend its registration statement under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its Shares. The Trust shall register and qualify its Shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Trust. 3.6 The Trust represents and warrants that the investments of each Portfolio will comply with the diversification requirements set forth in Section 817(h) of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder. ARTICLE IV Potential Conflicts 4.1 The parties acknowledge that the Trust's shares may be made available for investment to other Participating Insurance Companies. In such event, the Trustees will monitor the Trust for the existence of any material irreconcilable conflict between the interests of the contract owners of all Participating Insurance Companies. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Trustees shall promptly inform the Company if they determine that an irreconcilable material conflict exists and the implications thereof. 4.2 The Company agrees to promptly report any potential or existing conflicts of which it is aware to the Trustees. The Company will assist the Trustees in carrying out their responsibilities under the Exemptive Order by providing the Trustees with all information reasonably necessary for the Trustees to consider any issues raised including, but not limited to, information as to a decision by the Company to disregard Contract owner voting instructions. 4.3 If it is determined by a majority of the Trustees, or a majority of its disinterested Trustees, that a material irreconcilable conflict exists that affects the interests of Contract owners, the Company shall, in cooperation with other Participating Insurance Companies whose contract owners are also affected, at its expense and to the extent reasonably practicable (as determined by the Trustees) take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps could include: (a) withdrawing the assets allocable to some or all of the Accounts from the Trust or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Trust, or submitting the question of whether or not such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected Contract owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. 4.4 If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Trust's election, to withdraw the affected Account's investment in the Trust and terminate this Agreement with respect to such Account; provided, however that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Trustees. Any such withdrawal and termination must take place within six (6) months after the Trust gives written notice that this provision is being implemented. Until the end of such six (6) month period, the Trust shall continue to accept and implement orders by the Company for the purchase and redemption of shares of the Trust. 4.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Trust and terminate this Agreement with respect to such Account within six (6) months after the Trustees inform the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Trustees. Until the end of such six (6) month period, the Trust shall continue to accept and implement orders by the Company for the purchase and redemption of shares of the Trust. 4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority of the disinterested Trustees shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Company be required to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Trustees determine that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Trust and terminate this Agreement within six (6) months after the Trustees inform the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested Trustees. 4.7 The Company shall at least annually submit to the Trustees such reports, materials or data as the Trustees may reasonably request so that the Trustees may fully carry out the duties imposed upon them by the Exemptive Order, and said reports, materials and data shall be submitted more frequently if deemed appropriate by the Trustees. 4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Exemptive Order) on terms and conditions materially different from those contained in the Exemptive Order, then the Trust and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable. ARTICLE V Indemnification 5.1 Indemnification By the Company. The Company agrees to indemnify and hold harmless the Trust and each of its Trustees, officers, employees and agents and each person, if any, who controls the Trust within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Article V) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses"), to which the Indemnified Parties may become subject under any statute or regulation, or at common law or otherwise, insofar as such Losses: (a) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in a registration statement or prospectus for the Contracts or in the Contracts themselves or in sales literature for the Trust generated or approved by the Company on behalf of the Contracts or Accounts (or any amendment or supplement to any of the foregoing) (collectively, "Company Documents" for the purposes of this Article V), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and was accurately derived from written information furnished to the Company by or on behalf of the Trust for use in Company Documents or otherwise for use in connection with the sale of the Contracts or Trust Shares; or (b) arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the Company or persons under its control, with respect to the sale or acquisition of the Contracts or Trust Shares; or (c) arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in Trust Documents as defined in Section 5.2(a) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon and accurately derived from written information furnished to the Trust by or on behalf of the Company; or (d) arise out of or result from any failure by the Company to provide the services or furnish the materials required under the terms of this Agreement; or (e) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company. 5.2 Indemnification By the Trust. The Trust agrees to indemnify and hold harmless the Company and each of its directors, officers, employees and agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Article V) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Trust) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses"), to which the Indemnified Parties may become subject under any statute or regulation, or at common law or otherwise, insofar as such Losses: (a) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus for the Trust (or any amendment or supplement thereto), (collectively, "Trust Documents" for the purposes of this Article V), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and was accurately derived from written information furnished to the Trust by or on behalf of the Company for use in Trust Documents or otherwise for use in connection with the sale of the Contracts or Trust Shares; or (b) arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Company Documents) or wrongful conduct of the Trust or persons under its control, with respect to the sale or acquisition of the Contracts or Trust Shares; or (c) arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in Company Documents or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon and accurately derived from written information furnished to the Company by or on behalf of the Trust; or (d) arise out of or result from any failure by the Trust to provide the services or furnish the materials required under the terms of this Agreement; or (e) arise out of or result from any material breach of any representation and/or warranty made by the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust. 5.3 Neither the Company nor the Trust shall be liable under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect to any Losses incurred or assessed against an Indemnified Party that arise from such Indemnified Party's willful misfeasance, bad faith or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. 5.4 Neither the Company nor the Trust shall be liable under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the other party in writing within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim shall have been served upon or otherwise received by such Indemnified Party (or after such Indemnified Party shall have received notice of service upon or other notification to any designated agent), but failure to notify the party against whom indemnification is sought of any such claim shall not relieve that party from any liability which it may have to the Indemnified Party in the absence of Sections 5.1 and 5.2. 5.5 In case any such action is brought against the Indemnified Parties, the indemnifying party shall be entitled to participate, at its own expense, in the defense of such action. The indemnifying party also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in the action. After notice from the indemnifying party to the Indemnified Party of an election to assume such defense, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the indemnifying party will not be liable to the Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. ARTICLE VI Termination 6.1 This Agreement may be terminated by either party for any reason by ninety (90) days advance written notice delivered to the other party. 6.2 Notwithstanding any termination of this Agreement, the Trust shall, at the option of the Company, continue to make available additional shares of the Trust (or any Portfolio) pursuant to the terms and conditions of this Agreement for all Contracts in effect on the effective date of termination of this Agreement, provided that the Company continues to pay the costs set forth in Section 2.3. 6.3 The provisions of Article V shall survive the termination of this Agreement, and the provisions of Article IV and Section 2.8 shall survive the termination of this Agreement as long as Shares of the Trust are held on behalf of Contract owners in accordance with Section 6.2. ARTICLE VII Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Trust: Janus Aspen Series 100 Fillmore Street Denver, Colorado 80206 Attention: General Counsel If to the Company: Northbrook Life Insurance Company 3100 Sanders Road Northbrook, IL 60062 Attention: [___________________] ARTICLE VIII Miscellaneous 8.1 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 8.2 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 8.3 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 8.4 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of State of Colorado. 8.5 The parties to this Agreement acknowledge and agree that all liabilities of the Trust arising, directly or indirectly, under this Agreement, of any and every nature whatsoever, shall be satisfied solely out of the assets of the Trust and that no Trustee, officer, agent or holder of shares of beneficial interest of the Trust shall be personally liable for any such liabilities. 8.6 Each party shall cooperate with each other party and all appropriate governmental authorities (including without limitation the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 8.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 8.8 The parties to this Agreement acknowledge and agree that this Agreement shall not be exclusive in any respect. 8.9 Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the prior written approval of the other party. 8.10 No provisions of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by both parties. IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Participation Agreement as of the date and year first above written. JANUS ASPEN SERIES By: Name: Title: NORTHBROOK LIFE INSURANCE COMPANY By: Name: Title: Exhibit (8)(b) FORM OF PARTICIPATION AGREEMENT PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust created under a Declaration of Trust dated March 15, 1985, as amended, with a principal place of business in Boston, Massachusetts and NORTHBROOK LIFE INSURANCE COMPANY, an Arizona corporation (the "Company"), with a principal place of business in Northbrook, Illinois on behalf of NORTHBROOK VARIABLE ACCOUNT II, a separate account of the Company, and any other separate account of the Company as designated by the Company from time to time, upon written notice to the Fund in accordance with Section 9 herein (each, an "Account"). WHEREAS, the Fund acts as the investment vehicle for the separate accounts established for variable life insurance policies and variable annuity contracts (collectively referred to herein as "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements substantially identical to this Agreement ("Participating Insurance Companies") and their affiliated insurance companies; and WHEREAS, the beneficial interest in the Fund is divided into several series of shares of beneficial interest without par value ("Shares"), and additional series of Shares may be established, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities; and WHEREAS, each Portfolio of the Fund, except the Money Market Portfolio, is divided into two classes of Shares, and additional classes of Shares may be established; and WHEREAS, the Parties desire to evidence their agreement as to certain other matters, NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. Duty of Fund to Sell. -------------------- The Fund shall make its Shares available for purchase at the applicable net asset value per Share by Participating Insurance Companies and their affiliates and separate accounts on those days on which the Fund calculates its net asset value pursuant to rules of the Securities and Exchange Commission; provided, however, that the Trustees of the Fund may refuse to sell Shares of any Portfolio to any person, or suspend or terminate the offering of Shares of any Portfolio, if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Trustees, necessary in the best interest of the shareholders of any Portfolio. 2. Fund Materials. --------------- The Fund, at its expense, shall provide the Company or its designee with camera-ready copy or computer diskette versions of all prospectuses, statements of additional information, annual and semi-annual reports and proxy materials (collectively, "Fund Materials") to be printed and distributed by the Company or its broker/dealer to the Company's existing or prospective contract owners, as appropriate. The Company agrees to bear the cost of printing and distributing such Fund Materials. 3. Requirement to Execute Participation Agreement; Requests. -------------------------------------------------------- Each Participating Insurance Company shall, prior to purchasing Shares in the Fund, execute and deliver a participation agreement in a form substantially identical to this Agreement. The Fund shall make available, upon written request from the Participating Insurance Company given in accordance with Paragraph 9, to each Participating Insurance Company which has executed an Agreement and which Agreement has not been terminated pursuant to Paragraph 7 (i) a list of all other Participating Insurance Companies, and (ii) a copy of the Agreement as executed by any other Participating Insurance Company. The Fund shall also make available upon request to each Participating Insurance Company which has executed an Agreement and which Agreement has not been terminated pursuant to Paragraph 7, the net asset value of any Portfolio of the Fund as of any date upon which the Fund calculates the net asset value of its Portfolios for the purpose of purchase and redemption of Shares. 4. Indemnification. --------------- (a) The Company agrees to indemnify and hold harmless the Fund and each of its Trustees and officers and each person, if any, who controls the Fund within the meaning of Section 15 of the Securities Act of 1933 (the "Act") against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses), arising out of the acquisition of any Shares by any person, to which the Fund or such Trustees, officers or controlling person may become subject under the Act, under any other statute, at common law or otherwise, which (i) may be based upon any wrongful act by the Company, any of its employees or representatives, any affiliate of or any person acting on behalf of the Company or a principal underwriter of its insurance products, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering Shares or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by the Company, or (iii) may be based on any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering insurance products sold by the Company or any insurance company which is an affiliate thereof, or any amendments or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, unless such statement or omission was made in reliance upon information furnished to the Company or such affiliate by or on behalf of the Fund; provided, however, that in no case (i) is the Company's indemnity in favor of a Trustee or officer or any other person deemed to protect such Trustee or officer or other person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement or (ii) is the Company to be liable under its indemnity agreement contained in this Paragraph 4 with respect to any claim made against the Fund or any person indemnified unless the Fund or such person, as the case may be, shall have notified the Company in writing pursuant to Paragraph 9 within a reasonable time after the summons or other first legal process giving information of the nature of the claims shall have been served upon the Fund or upon such person (or after the Fund or such person shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it has to the Fund or any person against whom such action is brought otherwise than on account of its indemnity agreement contained in this Paragraph 4. The Company shall be entitled to participate, at its own expense, in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but, if it elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Fund, to its officers and Trustees, or to any controlling person or persons, defendant or defendants in the suit. In the event that the Company elects to assume the defense of any such suit and retain such counsel, the Fund, such officers and Trustees or controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them, but, in case the Company does not elect to assume the defense of any such suit, the Company will reimburse the Fund, such officers and Trustees or controlling person or persons, defendant or defendants in such suit, for the reasonable fees and expenses of any counsel retained by them. The Company agrees promptly to notify the Fund pursuant to Paragraph 9 of the commencement of any litigation or proceedings against it in connection with the issue and sale of any Shares. (b) The Fund agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the Act against any and all losses, claims, damages, liabilities or litigation (including legal and other expenses) to which it or such directors, officers or controlling person may become subject under the Act, under any other statute, at common law or otherwise, arising out of the acquisition of any Shares by any person which (i) may be based upon any wrongful act by the Fund, any of its employees or representatives or a principal underwriter of the Fund, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering Shares or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading unless such statement or omission was made in reliance upon information furnished to the Fund by the Company or (iii) may be based on any untrue statement or alleged untrue statement of a material fact contained in a registration statement or prospectus covering insurance products sold by the Company, or any amendment or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund; provided, however, that in no case (i) is the Fund's indemnity in favor of a director or officer or any other person deemed to protect such director or officer or other person against any liability to which any such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of his duties or by reason of his reckless disregard of obligations and duties under this Agreement or (ii) is the Fund to be liable under its indemnity agreement contained in this Paragraph 4 with respect to any claims made against the Company or any such director, officer or controlling person unless it or such director, officer or controlling person, as the case may be, shall have notified the Fund in writing pursuant to Paragraph 9 within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon it or upon such director, officer or controlling person (or after the Company or such director, officer or controlling person shall have received notice of such service on any designated agent), but failure to notify the Fund of any claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this Paragraph. The Fund will be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but if the Fund elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Company, its directors, officers or controlling person or persons, defendant or defendants, in the suit. In the event the Fund elects to assume the defense of any such suit and retain such counsel, the Company, its directors, officers or controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them, but, in case the Fund does not elect to assume the defense of any such suit, it will reimburse the Company or such directors, officers or controlling person or persons, defendant or defendants in the suit, for the reasonable fees and expenses of any counsel retained by them. The Fund agrees promptly to notify the Company pursuant to Paragraph 9 of the commencement of any litigation or proceedings against it or any of its officers or Trustees in connection with the issuance or sale of any Shares. The provisions of this Section 4 shall survive the termination of the Agreement. 5. Procedure for Resolving Irreconcilable Conflicts. ------------------------------------------------ (a) The Trustees of the Fund will monitor the operations of the Fund for the existence of any material irreconcilable conflict among the interests of all the contract holders and policy owners of Variable Insurance Products (the "Participants") of all separate accounts investing in the Fund. An irreconcilable material conflict may arise, among other things, from: (a) an action by any state insurance regulatory authority; (b) a change in applicable insurance laws or regulations; (c) a tax ruling or provision of the Internal Revenue Code or the regulations thereunder; (d) any other development relating to the tax treatment of insurers, contract holders or policy owners or beneficiaries of Variable Insurance Products; (e) the manner in which the investments of any Portfolio are being managed; (f) a difference in voting instructions given by variable annuity contract holders, on the one hand, and variable life insurance policy owners, on the other hand, or by the contract holders or policy owners of different participating insurance companies; or (g) a decision by an insurer to override the voting instructions of Participants. (b) The Company will be responsible for reporting any potential or existing conflicts to the Trustees of the Fund. The Company will be responsible for assisting the Trustees in carrying out their responsibilities under this Paragraph 5(b) and Paragraph 5(a), by providing the Trustees with all information reasonably necessary for the Trustees to consider the issues raised. The Fund will also request its investment adviser to report to the Trustees any such conflict which comes to the attention of the adviser. (c) If it is determined by a majority of the Trustees of the Fund, or a majority of its disinterested Trustees, that a material irreconcilable conflict exists involving the Company, the Company shall, at its expense, and to the extent reasonably practicable (as determined by a majority of the disinterested Trustees), take whatever steps are necessary to eliminate the irreconcilable material conflict, including withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio or class thereof and reinvesting such assets in a different investment medium, including another Portfolio of the Fund or class thereof, offering to the affected Participants the option of making such a change or establishing a new funding medium including a registered investment company. For purposes of this Paragraph 5(c), the Trustees, or the disinterested Trustees, shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict. In the event of a determination of the existence of an irreconcilable material conflict, the Trustees shall cause the Fund to take such action, such as the establishment of one or more additional Portfolios or classes, as they in their sole discretion determine to be in the interest of all shareholders and Participants in view of all applicable factors, such as cost, feasibility, tax, regulatory and other considerations. In no event will the Fund be required by this Paragraph 5(c) to establish a new funding medium for any variable contract or policy. The Company shall not be required by this Paragraph 5(c) to establish a new funding medium for any variable contract or policy if an offer to do so has been declined by a vote of a majority of the Participants materially adversely affected by the material irreconcilable conflict. The Company will recommend to its Participants that they decline an offer to establish a new funding medium only if the Company believes it is in the best interest of the Participants. (d) The Trustees' determination of the existence of an irreconcilable material conflict and its implications promptly shall be communicated to all Participating Insurance Companies by written notice thereof delivered or mailed, first class postage prepaid. 6. Voting Privileges. ----------------- The Company shall be responsible for assuring that its separate account or accounts participating in the Fund shall use a calculation method of voting procedures substantially the same as the following: those Participants permitted to give instructions and the number of Shares for which instructions may be given will be determined as of the record date for the Fund shareholders' meeting, which shall not be more than 60 days before the date of the meeting. Whether or not voting instructions are actually given by a particular Participant, all Fund shares held in any separate account or sub-account thereof and attributable to policies will be voted for, against, or withheld from voting on any proposition in the same proportion as (i) the aggregate record date cash value held in such sub-account for policies giving instructions, respectively, to vote for, against, or withhold votes on such proposition, bears to (ii) the aggregate record date cash value held in the sub-account for all policies for which voting instructions are received. Participants continued in effect under lapse options will not be permitted to give voting instructions. Shares held in any other insurance company general or separate account or sub-account thereof will be voted in the proportion specified in the second preceding sentence for shares attributable to policies. 7. Duration and Termination. ------------------------ This Agreement shall continue in effect for five (5) years from the date of its execution. This Agreement may be terminated at any time, at the option of either of the Company or the Fund, when neither the Company, any insurance company nor the separate account or accounts of such insurance company which is an affiliate thereof which is not a Participating Insurance Company own any Shares of the Fund or may be terminated by either party to the Agreement upon a determination by a majority of the Trustees of the Fund, or a majority of its disinterested Trustees, following certification thereof by a Participating Insurance Company given in accordance with Paragraph 9 that an irreconcilable conflict exists among the interests of (i) all contract holders and policy holders of Variable Insurance Products of all separate accounts or (ii) the interests of the Participating Insurance Companies investing in the Fund. If this Agreement is so terminated, the Fund may, at any time thereafter, automatically redeem the Shares of any Portfolio held by a Participating Shareholder. 8. Compliance. ---------- The Fund will comply with the provisions of Section 4240(a) of the New York Insurance Law. Each Portfolio of the Fund will use its best efforts to comply with the provisions of Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating to diversification requirements for variable annuity, endowment and life insurance contracts. Specifically, each Portfolio will comply with either (i) the requirement of Section 817(h)(1) of the Code that its assets be adequately diversified, or (ii) the "Safe Harbor for Diversification" specified in Section 817(h)(2) of the Code, or (iii) in the case of variable life insurance contracts only, the diversification requirement of Section 817(h)(1) of the Code by having all or part of its assets invested in U.S. Treasury securities which qualify for the "Special Rule for Investments in United States Obligations" specified in Section 817(h)(3) of the Code. The Fund will notify the Company immediately upon having a reasonable basis for believing that a Portfolio has ceased to comply with the requirements of Section 817(h) of the Code or that the Portfolio might not so comply in the future. The provisions of Paragraphs 5 and 6 of this Agreement shall be interpreted in a manner consistent with any Rule or order of the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, applicable to the parties hereto. No Shares of any Portfolio of the Fund may be sold to the general public. 9. Notices. ------- Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Scudder Variable Life Investment Fund Two International Place Boston, Massachusetts 02110 (617) 295-4548 Attn: William M. Thomas If to the Company: Northbrook Life Insurance Company 3100 Sanders Road Northbrook, IL 60062 Attn:[_______________] 10. Massachusetts Law to Apply. -------------------------- This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts. 11. Miscellaneous. ------------- The name "Scudder Variable Life Investment Fund" is the designation of the Trustees for the time being under a Declaration of Trust dated March 15, 1985, as amended, and all persons dealing with the Fund must look solely to the property of the Fund for the enforcement of any claims against the Fund as neither the Trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Fund. No Portfolio shall be liable for any obligations properly attributable to any other Portfolio. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12. Entire Agreement. ---------------- This Agreement incorporates the entire understanding and agreement among the parties hereto, and supersedes any and all prior understandings and agreements between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the [__] day of [__________], 2000. SEAL SCUDDER VARIABLE LIFE INVESTMENT FUND By:________________________________ Linda C. Coughlin President SEAL NORTHBROOK LIFE INSURANCE COMPANY By:________________________________ Its:_______________________________ Exhibit (8)(c) FORM OF PARTICIPATION AGREEMENT THIS AGREEMENT, is made as of [_____________], 2000, by and among Northbrook Life Insurance Company ("Company"), on its own behalf and on behalf of Northbrook Variable Annuity Account II, a segregated asset account of the Company ("Account"), Strong Variable Insurance Funds, Inc. ("Strong Variable") on behalf of the Portfolios of Strong Variable listed on the attached Exhibit A as such Exhibit may be amended from time to time (the "Designated Portfolios"), Strong Opportunity Fund II, Inc. ("Opportunity Fund II"), Strong Capital Management, Inc. (the "Adviser"), the investment adviser and transfer agent for the Opportunity Fund II and Strong Variable, and Strong Investments, Inc. ("Distributors"), the distributor for Strong Variable and the Opportunity Fund II (each, a "Party" and collectively, the "Parties"). PRELIMINARY STATEMENTS A. Beneficial interests in Strong Variable are divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets (each, a "Portfolio"). B. To the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares of Opportunity Fund II and the Designated Portfolios ("Fund" or "Funds" shall be deemed to refer to each Designated Portfolio and to the Opportunity Fund II to the extent the context requires), on behalf of the Account to fund the variable annuity contracts that use the Funds as an underlying investment medium (the "Contracts"). C. The Company, Adviser and Distributors desire to facilitate the purchase and redemption of shares of the Funds by the Company for the Account through one or more accounts, which number shall be as mutually agreed upon by the parties, in each Fund (each an "Omnibus Account"), to be maintained of record by the Company, subject to the terms and conditions of this Agreement. D. The Company desires to provide administrative services and functions (the "Services") for purchasers of Contracts ("Owners") who are beneficial owners of shares of the Funds on the terms and conditions set forth in this Agreement. AGREEMENTS The parties to this Agreement agree as follows: 1. Performance of Services. Company agrees to perform the administrative functions and services specified in Exhibit B attached to this Agreement with respect to the shares of the Funds beneficially owned by the Owners and included in the Account. Nothing in this Agreement shall limit Company's right to engage one or more of its wholly owned subsidiaries (each, a "Designee") to provide all or any portion of the Services, but no such engagement shall relieve Company of its duties, responsibilities or liabilities under this Agreement. 2. The Omnibus Accounts. -------------------- 2.1 Each Omnibus Account will be opened based upon the information contained in Exhibit C to this Agreement. In connection with each Omnibus Account, Company represents and warrants that it is authorized to act on behalf of each Owner effecting transactions in the Omnibus Account and that the information specified on Exhibit C to this Agreement is correct. 2.2 Each Fund shall designate each Omnibus Account with an account number. These account numbers will be the means of identification when the Parties are transacting in the Omnibus Accounts. The assets in the Accounts are segregated from the Company's own assets. The Adviser agrees to cause the Omnibus Accounts to be kept open on each Fund's books, as applicable, regardless of a lack of activity or small position size except to the extent the Company takes specific action to close an Omnibus Account or to the extent a Fund's prospectus reserves the right to close accounts which are inactive or of a small position size. In the latter two cases, the Adviser will give prior notice to the Company before closing an Omnibus Account. 2.3 The Company agrees to provide Adviser such information as Adviser or Distributors may reasonably request concerning Owners as may be necessary or advisable to enable Adviser and Distributors to comply with applicable laws, including state "Blue Sky" laws relating to the sales of shares of the Funds to the Accounts. 3. Fund Shares Transactions. ------------------------ 3.1 In General. Shares of the Funds shall be sold on behalf of the Funds by Distributors and purchased by Company for the Account and, indirectly for the appropriate subaccount thereof at the net asset value next computed after receipt by Distributors of each order of the Company or its Designee, in accordance with the provisions of this Agreement, the then current prospectuses of the Funds, and the Contracts. Company may purchase shares of the Funds for its own account subject to (a) receipt of prior written approval by Distributors; and (b) such purchases being in accordance with the then current prospectuses of the Fund and the Contracts. The Board of Directors of each Fund ("Directors") may refuse to sell shares of the applicable Fund to any person, or suspend or terminate the offering of shares of the Fund if such action is required by law or by regulatory authorities having jurisdiction. Company agrees to purchase and redeem the shares of the Funds in accordance with the provisions of this Agreement, of the Contracts and of the then current prospectuses for the Contracts and Funds. Except as necessary to implement transactions initiated by Owners, or as otherwise permitted by state or federal laws or regulations, Company shall not redeem shares of Funds attributable to the Contracts. 3.2 Purchase and Redemption Orders. On each day that a Fund is open for business (a "Business Day"), the Company or its Designee shall aggregate and calculate the net purchase or redemption order it receives for the Account from the Owners for shares of the Fund that it received prior to the close of trading on the New York Stock Exchange (the "NYSE") (i.e. 3:00 p.m., Central time, unless the NYSE closes at an earlier time in which case such earlier time shall apply) and communicate to Distributors, by telephone or facsimile (or by such other means as the Parties to this Agreement may agree to in writing), the net aggregate purchase or redemption order (if any) for the Omnibus Account for such Business Day (such Business Day is sometimes referred to herein as the "Trade Date"). The Company or its Designee will communicate such orders to Distributors prior to 9:00 a.m., Central time, on the next Business Day following the Trade Date. All trades communicated to Distributors by the foregoing deadline shall be treated by Distributors as if they were received by Distributors prior to the close of trading on the Trade Date. 3.3 Settlement of Transactions. -------------------------- (a) Purchases. Company or its Designee will wire, or arrange for the wire of, the purchase price of each purchase order to the custodian for the Fund in accordance with written instructions provided by Distributors to the Company so that either (i) such funds are received by the custodian for the Fund prior to 10:30 a.m., Central time, on the next Business Day following the Trade Date, or (ii) Distributors is provided with a Federal Funds wire system reference number prior to such 10:30 a.m. deadline evidencing the entry of the wire transfer of the purchase price to the applicable custodian into the Federal Funds wire system prior to such time. Company agrees that if it fails to provide funds to the Fund's custodian by the close of business on the next Business Day following the Trade Date, then, at the option of Distributors, (A) the transaction may be canceled, or (B) the transaction may be processed at the next-determined net asset value for the applicable Fund after purchase order funds are received. In such event, the Company shall indemnify and hold harmless Distributors, Adviser and the Funds from any liabilities, costs and damages either may suffer as a result of such failure. (b) Redemptions. The Adviser will use its best efforts to cause to be transmitted to such custodial account as Company shall direct in writing, the proceeds of all redemption orders placed by Company or its Designee by 9:00 a.m., Central time, on the Business Day immediately following the Trade Date, by wire transfer on that Business Day. Should Adviser need to extend the settlement on a trade, it will contact Company to discuss the extension. For purposes of determining the length of settlement, Adviser agrees to treat the Account no less favorably than other shareholders of the Funds. Each wire transfer of redemption proceeds shall indicate, on the Federal Funds wire system, the amount thereof attributable to each Fund; provided, however, that if the number of entries would be too great to be transmitted through the Federal Funds wire system, the Adviser shall, on the day the wire is sent, fax such entries to Company or if possible, send via direct or indirect systems access until otherwise directed by the Company in writing. 3.4 Book Entry Only. Issuance and transfer of shares of a Fund will be by book entry only. Stock certificates will not be issued to the Company or the Account. Shares of the Funds ordered from Distributors will be recorded in the appropriate book entry title for the Account. 3.5 Distribution Information. The Adviser or Distributors shall provide the Company with all distribution announcement information as soon as it is announced by the Funds. The distribution information shall set forth, as applicable, ex-dates, record date, payable date, distribution rate per share, record date share balances, cash and reinvested payment amounts and all other information reasonably requested by the Company. Where possible, the Adviser or Distributors shall provide the Company with direct or indirect systems access to the Adviser's systems for obtaining such distribution information. 3.6 Reinvestment. All dividends and capital gains distributions will be automatically reinvested on the payable date in additional shares of the applicable Fund at net asset value in accordance with each Fund's then current prospectus. 3.7 Pricing Information. Distributors shall use its best efforts to furnish to the Company prior to 6:00 p.m., Central time, on each Business Day each Fund's closing net asset value for that day, and for those Funds for which such information is calculated, the daily accrual for interest rate factor (mil rate). Such information shall be communicated via fax, or indirect or direct systems access acceptable to the Company. 3.8 Price Errors. ------------ (a) Notification. If an adjustment is required in accordance with a Fund's then current policies on reimbursement ("Fund Reimbursement Policies") to correct any error in the computation of the net asset value of Fund shares ("Price Error"), Adviser or Distributors shall notify Company as soon as practicable after discovering the Price Error. Notice may be made via facsimile or via direct or indirect systems access and shall state the incorrect price, the correct price and, to the extent communicated to the Fund's shareholders, the reason for the price change. (b) Underpayments. If a Price Error causes an Account to receive less than the amount to which it otherwise would have been entitled, Adviser shall make all necessary adjustments (subject to the Fund Reimbursement Policies) so that the Account receives the amount to which it would have been entitled (c) Overpayments. If a Price Error causes an Account to receive more than the amount to which it otherwise would have been entitled, Company, when requested by Adviser (in accordance with the Fund Reimbursement Policies), will use its best efforts to collect such excess amounts from the applicable Owners. (d) Fund Reimbursement Policies. Adviser agrees to treat Company's customers no less favorably than Adviser treats its retail shareholders in applying the provisions of paragraphs 3.8(b) and 3.8(c). (e) Expenses. Adviser shall reimburse Company for all reasonable and necessary out-of-pocket expenses incurred by Company for payroll overtime, stationery and postage in adjusting Owner accounts affected by a Price Error described in paragraphs 3.8(b) and 3.8(c). Company shall use its best efforts to mitigate all expenses which may be reimbursable under this section 3.8(e) and agrees that payroll overtime shall not include any time spent programming computers or otherwise customizing Company's recordkeeping system. Upon requesting reimbursement, Company shall present an itemized bill to Adviser detailing the costs for which it seeks reimbursement. 3.9 Agency. Distributors hereby appoints the Company or its Designee as its agents for the limited purpose of accepting purchase and redemption instructions from the Owners for the purchase and redemption of shares of the Funds by the Company on behalf of Account. 3.10 Quarterly Reports. Adviser agrees to provide Company a statement of Fund assets as soon as practicable and in any event within 30 days after the end of each fiscal quarter, and a statement certifying the compliance by the Funds during that fiscal quarter with the diversification requirements and qualification as a regulated investment company. In the event of a breach of Section 6.4(a), Adviser will take all reasonable steps (a) to notify Company of such breach and (b) to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Treasury Regulation 1.817-5. 4. Proxy Solicitations and Voting. The Company shall, at its expense, distribute or arrange for the distribution of all proxy materials furnished by the Funds to the Account and shall: (a) solicit voting instructions from Owners; (b) vote the Fund shares in accordance with instructions received from Owners; and (c) vote the Fund shares for which no instructions have been received, as well as shares attributable to it, in the same proportion as Fund shares for which instructions have been received from Owners, so long as and to the extent that the Securities and Exchange Commission (the "SEC") continues to interpret the Investment Company Act of 1940, as amended (the "1940 Act"), to require pass-through voting privileges for various contract owners. The Company and its Designees will not recommend action in connection with, or oppose or interfere with, the solicitation of proxies for the Fund shares held for Owners. 5. Customer Communications. ----------------------- 5.1 Prospectuses. The Adviser or Distributors, at its expense, will provide the Company with as many copies of the current prospectus for the Funds as the Company may reasonably request for distribution, at the Company's expense, to existing or prospective Owners. 5.2 Shareholder Materials. The Adviser and Distributors shall, as applicable, provide in bulk to the Company or its authorized representative, at a single address and at no expense to the Company, the following shareholder communications materials prepared for circulation to Owners in quantities requested by the Company which are sufficient to allow mailing thereof by the Company and, to the extent required by applicable law, to all Owners: proxy or information statements, annual reports, semi-annual reports, and all initial and updated prospectuses, supplements and amendments thereof. None of the Funds, the Adviser or Distributors shall be responsible for the cost of distributing such materials to Owners. 6. Representations and Warranties. ------------------------------ 6.1 The Company represents and warrants that: (a) It is an insurance company duly organized and in good standing under the laws of the State of Arizona and that it has legally and validly established the Account prior to any issuance or sale thereof as a segregated asset account and that the Company has and will maintain the capacity to issue all Contracts that may be sold; and that it is and will remain duly registered, licensed, qualified and in good standing to sell the Contracts in all the jurisdictions in which such Contracts are to be offered or sold; (b) It and each of its Designees is and will remain duly registered and licensed in all material respects under all applicable federal and state securities and insurance laws and shall perform its obligations under this Agreement in compliance in all material respects with any applicable state and federal laws; (c) The Contracts are and will be registered under the Securities Act of 1933, as amended (the "1933 Act"), and are and will be registered and qualified for sale in the states where so required; and the Account is and will be registered as a unit investment trust in accordance with the 1940 Act and shall be a segregated investment account for the Contracts; (d) The Contracts are currently treated as annuity contracts, under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and the Company will maintain such treatment and will notify Adviser, Distributors and Funds promptly upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future; (e) It and each of its Designees is registered as a transfer agent pursuant to Section 17A of the Securities Exchange Act of 1934, as amended (the "1934 Act"), or is not required to be registered as such; (f) The arrangements provided for in this Agreement will be disclosed to the Owners; and (g) It is registered as a broker-dealer under the 1934 Act and any applicable state securities laws, including as a result of entering into and performing the Services set forth in this Agreement, or is not required to be registered as such. 6.2 The Funds each represent and warrant that Fund shares sold pursuant to this Agreement are and will be registered under the 1933 Act and the Fund is and will be registered as a registered investment company under the Investment Company Act of 1940, in each case, except to the extent the Company is so notified in writing; 6.3 Distributors represents and warrants that: (a) It is and will be a member in good standing of the National Association of Securities Dealers, Inc. ("NASD") and is and will be registered as a broker-dealer with the SEC; and (b) It will sell and distribute Fund shares in accordance with all applicable state and federal laws and regulations. 6.4 Adviser represents and warrants that: (a) It will cause each Fund to invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable annuity contracts under the Code and the regulations issued thereunder, and that each Fund will comply with Section 817(h) of the Code as amended from time to time and with all applicable regulations promulgated thereunder; and (b) It is and will remain duly registered and licensed in all material respects under all applicable federal and state securities and insurance laws and shall perform its obligations under this Agreement in compliance in all material respects with any applicable state and federal laws. 6.5 Each of the Parties to this Agreement represents and warrants to the others that: (a) It has full power and authority under applicable law, and has taken all action necessary, to enter into and perform this Agreement and the person executing this Agreement on its behalf is duly authorized and empowered to execute and deliver this Agreement; (b) This Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms and it shall comply in all material respects with all laws, rules and regulations applicable to it by virtue of entering into this Agreement; (c) No consent or authorization of, filing with, or other act by or in respect of any governmental authority, is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement; (d) The execution, performance and delivery of this Agreement will not result in it violating any applicable law or breaching or otherwise impairing any of its contractual obligations; (e) Each Party to this Agreement is entitled to rely on any written records or instructions provided to it by another Party; and (f) Its directors, officers, employees, and investment advisers, and other individuals/entities dealing with the money or securities of a Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the amount required by the applicable rules of the NASD and the federal securities laws, which bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 7. Sales Material and Information 7.1 NASD Filings. The Company shall promptly inform Distributors as to the status of all sales literature filings pertaining to the Funds and shall promptly notify Distributors of all approvals or disapprovals of sales literature filings with the NASD. For purposes of this Section 7, the phrase "sales literature or other promotional material" shall be construed in accordance with all applicable securities laws and regulations. 7.2 Company Representations. Neither the Company nor any of its Designees shall make any material representations concerning the Adviser, the Distributors, or a Fund other than the information or representations contained in: (a) a registration statement of the Fund or prospectus of a Fund, as amended or supplemented from time to time; (b) published reports or statements of the Funds which are in the public domain or are approved by Distributors or the Funds; or (c) sales literature or other promotional material of the Funds. 7.3 Adviser, Distributors and Fund Representations. None of Adviser, Distributors or any Fund shall make any material representations concerning the Company or its Designees other than the information or representations contained in: (a) a registration statement or prospectus for the Contracts, as amended or supplemented from time to time; (b) published reports or statements of the Contracts or the Account which are in the public domain or are approved by the Company; or (c) sales literature or other promotional material of the Company. 7.4 Trademarks, etc. Except to the extent required by applicable law, no Party shall use any other Party's names, logos, trademarks or service marks, whether registered or unregistered, without the prior consent of such Party. 7.5 Information From Distributors and Adviser. Upon request, Distributors or Adviser will provide to Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, proxy statements, solicitations for voting instructions, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the Funds, in final form as filed with the SEC, NASD and other regulatory authorities. 7.6 Information From Company. Company will provide to Distributors at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters and all amendments to any of the above, that relate to a Fund and the Contracts, in final form as filed with the SEC, NASD and other regulatory authorities. 7.7 Review of Marketing Materials. If so requested by Company, the Adviser or Distributors will use its best efforts to review sales literature and other marketing materials prepared by Company which relate to the Funds, the Adviser or Distributors for factual accuracy as to such entities, provided that the Adviser or Distributors is provided at least five (5) Business Days to review such materials. Neither the Adviser nor Distributors will review such materials for compliance with applicable laws. Company shall provide the Adviser with copies of all sales literature and other marketing materials which refer to the Funds, the Adviser or Distributors within five (5) Business Days after their first use, regardless of whether the Adviser or Distributors has previously reviewed such materials. If so requested by the Adviser or Distributors, Company shall cease to use any sales literature or marketing materials which refer to the Funds, the Adviser or Distributors that the Adviser or Distributors determines to be inaccurate, misleading or otherwise unacceptable. 8. Fees and Expenses. ----------------- 8.1 Fund Registration Expenses. Fund or Distributors shall bear the cost of registration and qualification of Fund shares; preparation and filing of Fund prospectuses and registration statements, proxy materials and reports; preparation of all other statements and notices relating to the Fund or Distributors required by any federal or state law; payment of all applicable fees, including, without limitation, any fees due under Rule 24f-2 of the 1940 Act, relating to a Fund; and all taxes on the issuance or transfer of Fund shares on the Fund's records. 8.2 Contract Registration Expenses. The Company shall bear the expenses for the costs of preparation and filing of the Company's prospectus and registration statement with respect to the Contracts; preparation of all other statements and notices relating to the Account or the Contracts required by any federal or state law; expenses for the solicitation and sale of the Contracts including all costs of printing and distributing all copies of advertisements, prospectuses, Statements of Additional Information, proxy materials, and reports to Owners or potential purchasers of the Contracts as required by applicable state and federal law; payment of all applicable fees relating to the Contracts; all costs of drafting, filing and obtaining approvals of the Contracts in the various states under applicable insurance laws; filing of annual reports on form N-SAR, and all other costs associated with ongoing compliance with all such laws and its obligations under this Agreement. 9. Indemnification. --------------- 9.1 Indemnification By Company. -------------------------- (a) Company agrees to indemnify and hold harmless the Funds, Adviser and Distributors and each of their directors, officers, employees and agents, and each person, if any, who controls any of them within the meaning of Section 15 of the 1933 Act (each, an "Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 9.1) from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Company), and expenses including reasonable legal fees and expenses, (collectively, hereinafter "Losses"), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise insofar as such Losses: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement, prospectus or sales literature for the Contracts or contained in the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this paragraph 9.1(a) shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with written information furnished to Company by or on behalf of a Fund, Distributors or Adviser for use in the registration statement or prospectus for the Contracts or in the Contracts (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of, or as a result of, statements or representations or wrongful conduct of Company, its Designees or its agents, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering a Fund or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon written information furnished to a Fund, Adviser or Distributors by or on behalf of Company; or (iv) arise out of, or as a result of, any failure by Company, its Designees or persons under the Company's or Designees' control to provide the Services and furnish the materials contemplated under the terms of this Agreement; or (v) arise out of, or result from, any material breach of any representation or warranty made by Company, its Designees or persons under the Company's or Designees' control in this Agreement or arise out of or result from any other material breach of this Agreement by Company. its Designees or persons under the Company's or Designees' control; as limited by and in accordance with the provisions of Sections 9.1(b) and 9.1(c) hereof; or (vi) arise out of, or as a result of, adherence by Adviser or Distributors to instructions that it reasonably believes were originated by authorized agents of Company. This indemnification provision is in addition to any liability which the Company or its Designees may otherwise have. (b) Company shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. (c) Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Company of any such claim shall not relieve Company from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against any Indemnified Party, and it notified the indemnifying Party of the commencement thereof, the indemnifying Party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the indemnifying Party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the indemnifying Party shall not be liable to such Indemnified Party under this Section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party may not settle any action without the written consent of the indemnifying Party. The indemnifying Party may not settle any action without the written consent of the Indemnified Party unless such settlement completely and finally releases the Indemnified Party from any and all liability. In either event, consent shall not be unreasonably withheld. (d) The Indemnified Parties will promptly notify Company of the commencement of any litigation or proceedings against the Indemnified Parties in connection with the issuance or sale of Fund shares or the Contracts or the operation of a Fund. 9.2 Indemnification by Adviser and Distributors. ------------------------------------------- (a) Adviser and Distributors agrees to indemnify and hold harmless Company and each of its directors, officers, employees and agents and each person, if any, who controls Company within the meaning of Section 15 of the 1933 Act (each, an "Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 9.2) from and against any and all Losses to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such Losses: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or sales literature of a Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Section 9.2(a) shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with written information furnished to a Fund, Adviser or Distributors by or on behalf of Company for use in the registration statement or prospectus for a Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of, or as a result of, statements or representations or wrongful conduct of Adviser or Distributors or persons under its control, with respect to the sale or distribution of Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon written information furnished to Company by or on behalf of Adviser or Distributors; or (iv) arise out of, or as a result of, any failure by Adviser or Distributors or persons under its control to provide the services and furnish the materials contemplated under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation or warranty made by Adviser or Distributors or persons under its control in this Agreement or arise out of or result from any other material breach of this Agreement by Adviser or Distributors or persons under its control; as limited by and in accordance with the provisions of Sections 9.2(b) and 9.2(c) hereof. This indemnification provision is in addition to any liability which Adviser and Distributors may otherwise have. (b) Adviser and Distributors shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. (c) Adviser and Distributors shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Adviser and Distributors in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Adviser and Distributors of any such claim shall not relieve Adviser and Distributors from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against any Indemnified Party, and it notified the indemnifying Party of the commencement thereof, the indemnifying Party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the indemnifying Party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the indemnifying Party shall not be liable to such Indemnified Party under this Section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party may not settle any action without the written consent of the indemnifying Party. The indemnifying Party may not settle any action without the written consent of the Indemnified Party unless such settlement completely and finally releases the Indemnified Party from any and all liability. In either event, consent shall not be unreasonably withheld. (d) The Indemnified Parties will promptly notify Adviser and Distributors of the commencement of any litigation or proceedings against the Indemnified Parties in connection with the issuance or sale of the Contracts or the operation of the Account. 10. Potential Conflicts. ------------------- 10.1 Monitoring by Directors for Conflicts of Interest. The Directors of each Fund will monitor the Fund for any potential or existing material irreconcilable conflict of interest between the interests of the contract owners of all separate accounts investing in the Fund, including such conflict of interest with any other separate account of any other insurance company investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretive letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of the Fund are being managed; (e) a difference in voting instructions given by variable annuity contract owners and variable life insurance contract owners or by contract owners of different life insurance companies utilizing the Fund; or (f) a decision by Company to disregard the voting instructions of Owners. The Directors shall promptly inform the Company, in writing, if they determine that an irreconcilable material conflict exists and the implications thereof. 10.2 Monitoring by the Company for Conflicts of Interest. The Company will promptly notify the Directors, in writing, of any potential or existing material irreconcilable conflicts of interest, as described in Section 10.1 above, of which it is aware. The Company will assist the Directors in carrying out their responsibilities under any applicable provisions of the federal securities laws and any exemptive orders granted by the SEC ("Exemptive Order"), by providing the Directors, in a timely manner, with all information reasonably necessary for the Directors to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Directors whenever Owner voting instructions are disregarded. 10.3 Remedies. If it is determined by a majority of the Directors, or a majority of disinterested Directors, that a material irreconcilable conflict exists, as described in Section 10.1 above, the Company shall, at its own expense take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including, but not limited to: (a) withdrawing the assets allocable to some or all of the separate accounts from the applicable Fund and reinvesting such assets in a different investment medium, including (but not limited to) another fund managed by the Adviser, or submitting the question whether such segregation should be implemented to a vote of all affected Owners and, as appropriate, segregating the assets of any particular group that votes in favor of such segregation, or offering to the affected owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. 10.4 Causes of Conflicts of Interest. ------------------------------- (a) State Insurance Regulators. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the applicable Fund and terminate this Agreement with respect to such Account within the period of time permitted by such decision, but in no event later than six months after the Directors inform the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Directors. Until the end of the foregoing period, the Distributors and Funds shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund to the extent such actions do not violate applicable law. (b) Disregard of Owner Voting. If a material irreconcilable conflict arises because of Company's decision to disregard Owner voting instructions and that decision represents a minority position or would preclude a majority vote, Company may be required, at the applicable Fund's election, to withdraw the Account's investment in said Fund. No charge or penalty will be imposed against the Account as a result of such withdrawal. 10.5 Limitations on Consequences. For purposes of Sections 10.3 through 10.5 of this Agreement, a majority of the disinterested Directors shall determine whether any proposed action adequately remedies any irreconcilable material conflict. In no event will a Fund, the Adviser or the Distributors be required to establish a new funding medium for any of the Contracts. The Company shall not be required by Section 10.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Owners affected by the irreconcilable material conflict. In the event that the Directors determine that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the applicable Fund and terminate this Agreement as quickly as may be required to comply with applicable law, but in no event later than six (6) months after the Directors inform the Company in writing of the foregoing determination, provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict. 10.6 Changes in Laws. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Funds' Exemptive Order) on terms and conditions materially different from those contained in the Funds' Exemptive Order, then (a) the Funds and/or the Adviser, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 10.1, 10.2, 10.3 and 10.4 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. 11. Maintenance of Records. ---------------------- (a) Recordkeeping and other administrative services to Owners shall be the responsibility of the Company and shall not be the responsibility of the Funds, Adviser or Distributors. None of the Funds, the Adviser or Distributors shall maintain separate accounts or records for Owners. Company shall maintain and preserve all records as required by law to be maintained and preserved in connection with providing the Services and in making shares of the Funds available to the Account. (b) Upon the request of the Adviser or Distributors, the Company shall provide copies of all the historical records relating to transactions between the Funds and the Account, written communications regarding the Funds to or from the Account and other materials, in each case (1) as are maintained by the Company in the ordinary course of its business and in compliance with applicable law, and (2) as may reasonably be requested to enable the Adviser and Distributors, or its representatives, including without limitation its auditors or legal counsel, to (A) monitor and review the Services, (B) comply with any request of a governmental body or self-regulatory organization or the Owners, (C) verify compliance by the Company with the terms of this Agreement, (D) make required regulatory reports, (E) verify to Advisor's reasonable satisfaction that all purchase and redemption orders aggregated for each Trade Date were received by Company prior to the close of trading on the NYSE on such Trade Date, or (F) perform general customer supervision. The Company agrees that it will permit the Adviser and Distributors or such representatives of either to have reasonable access to its personnel and records in order to facilitate the monitoring of the quality of the Services. (c) Upon the request of the Company, the Adviser and Distributors shall provide copies of all the historical records relating to transactions between the Funds and the Account, written communications regarding the Funds to or from the Account and other materials, in each case (1) as are maintained by the Adviser and Distributors, as the case may be, in the ordinary course of its business and in compliance with applicable law, and (2) as may reasonably be requested to enable the Company, or its representatives, including without limitation its auditors or legal counsel, to (A) comply with any request of a governmental body or self-regulatory organization or the Owners, (B) verify compliance by the Adviser and Distributors with the terms of this Agreement, (C) make required regulatory reports, or (D) perform general customer supervision. (d) The Parties agree to cooperate in good faith in providing records to one another pursuant to this Section 11. 12. Term and Termination. -------------------- 12.1 Term and Termination Without Cause. The initial term of this Agreement shall be for a period of one year from the date hereof. Unless terminated as to any Fund upon not less than thirty (30) days prior written notice to the other Parties, this Agreement shall thereafter automatically renew for the remaining Funds from year to year, subject to termination at the next applicable renewal date upon not less than 30 days prior written notice. Any Party may terminate this Agreement as to any Fund following the initial term upon six (6) months advance written notice to the other Parties. 12.2 Termination by Fund, Distributors or Adviser for Cause. Adviser, Fund or Distributors may terminate this Agreement by written notice to the Company, if any of them shall determine, in its sole judgment exercised in good faith, that (a) the Company has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (b) any of the Contracts are not registered, issued or sold in accordance with applicable state and federal law or such law precludes the use of Fund shares as the underlying investment media of the Contracts issued or to be issued by the Company. 12.3 Termination by Company for Cause. Company may terminate this Agreement by written notice to the Adviser, Funds and Distributors in the event that (a) any of the Fund shares are not registered, issued or sold in accordance with applicable state or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; (b) the Funds cease to qualify as Regulated Investment Companies under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that the Funds may fail to so qualify; or (c) a Fund fails to meet the diversification requirements specified in Section 6.4(a). 12.4 Termination by any Party. This Agreement may be terminated as to any Fund by any Party at any time (a) by giving 30 days' written notice to the other Parties in the event of a material breach of this Agreement by the other Party or Parties that is not cured during such 30-day period, and (b) (i) upon institution of formal proceedings relating to the legality of the terms and conditions of this Agreement against the Account, Company, any Designee, the Funds, Adviser or Distributors by the NASD, the SEC or any other regulatory body provided that the terminating Party has a reasonable belief that the institution of formal proceedings is not without foundation and will have a material adverse impact on the terminating Party, (ii) by the non-assigning Party upon the assignment of this Agreement in contravention of the terms hereof, or (iii) as is required by law, order or instruction by a court of competent jurisdiction or a regulatory body or self-regulatory organization with jurisdiction over the terminating Party. 12.5 Limit on Termination. Notwithstanding the termination of this Agreement with respect to any or all Funds, for so long as any Contracts remain outstanding and invested in a Fund each Party to this Agreement shall continue to perform such of its duties under this Agreement as are necessary to ensure the continued tax deferred status thereof and the payment of benefits thereunder, except to the extent proscribed by law, the SEC or other regulatory body. Notwithstanding the foregoing, nothing in this Section 12.5 obligates a Fund to continue in existence. In the event that any Fund elects to terminate its operations, the Company shall, as soon as practicable, obtain an exemptive order or order of substitution from the SEC to remove all Owners from the applicable Fund. 13. Notices. ------- All notices under this Agreement shall be given in writing (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile, by registered or certified mail or by overnight delivery (postage prepaid, return receipt requested) to the respective Parties as follows: If to Strong Variable: Strong Variable Insurance Funds, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 If to Opportunity Fund II: Strong Opportunity Fund II, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 If to Adviser: Strong Capital Management, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 If to Distributors: Strong Investments, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 If to Company: Northbrook Life Insurance Company 3100 Sanders Road Northbrook, IL 60062 Attention:[_____________________] Facsimile No.: [( ) _____________] 14. Miscellaneous. ------------- 14.1.Captions. The captions in this Agreement are included for convenience of reference only and in no way affect the construction or effect of any provisions hereof. 14.2.Enforceability. If any portion of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 14.3.Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 14.4. Remedies not Exclusive. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the Parties to this Agreement are entitled to under state and federal laws. 14.5. Confidentiality. Subject to the requirements of legal process and regulatory authority, the Funds and Distributors shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by the Company to this Agreement and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the Company until such time as it may come into the public domain. 14.6. Governing Law. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of Wisconsin applicable to agreements fully executed and to be performed therein; exclusive of conflicts of laws. 14.7. Survivability. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5 hereof shall survive termination of this Agreement. In addition, all provisions of this Agreement shall survive termination of this Agreement in the event that any Contracts are invested in a Fund at the time the termination becomes effective and shall survive for so long as such Contracts remain so invested. 14.8. Amendment and Waiver. No modification of any provision of this Agreement will be binding unless in writing and executed by the Party to be bound thereby. No waiver of any provision of this Agreement will be binding unless in writing and executed by the Party granting such waiver. Notwithstanding anything in this Agreement to the contrary, the Adviser may unilaterally amend Exhibit A to this Agreement to add additional series of Strong Variable Funds ("New Funds") as Funds by sending to the Company a written notice of the New Funds. Any valid waiver of a provision set forth herein shall not constitute a waiver of any other provision of this Agreement. In addition, any such waiver shall constitute a present waiver of such provision and shall not constitute a permanent future waiver of such provision. 14.9. Assignment. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and assigns; provided, however, that neither this Agreement nor any rights, privileges, duties or obligations of the Parties may be assigned by any Party without the written consent of the other Parties or as expressly contemplated by this Agreement. 14.10. Entire Agreement. This Agreement contains the full and complete understanding between the Parties with respect to the transactions covered and contemplated under this Agreement, and supersedes all prior agreements and understandings between the Parties relating to the subject matter hereof, whether oral or written, express or implied. 14.11. Relationship of Parties; No Joint Venture, Etc. Except for the limited purpose provided in Section 3.8, it is understood and agreed that the Company and each of its Designees shall be acting as an independent contractor and not as an employee or agent of the Adviser, Distributors or the Funds, and none of the Parties shall hold itself out as an agent of any other Party with the authority to bind such Party. Neither the execution nor performance of this Agreement shall be deemed to create a partnership or joint venture by and among any of the Company, any Designees, Funds, Adviser, or Distributors. 14.12. Expenses. All expenses incident to the performance by each Party of its respective duties under this Agreement shall be paid by that Party. 14.13. Time of Essence. Time shall be of the essence in this Agreement. 14.14. Non-Exclusivity. Each of the Parties acknowledges and agrees that this Agreement and the arrangements described herein are intended to be non-exclusive and that each of the Parties is free to enter into similar agreements and arrangements with other entities. 14.15. Operations of Funds. In no way shall the provisions of this Agreement limit the authority of the Funds, the Adviser or Distributors to take such action as it may deem appropriate or advisable in connection with all matters relating to the operation of such Fund and the sale of its shares. In no way shall the provisions of this Agreement limit the authority of the Company to take such action as it may deem appropriate or advisable in connection with all matters relating to the provision of Services or the shares of funds other than the Funds offered to the Account. NORTHBROOK LIFE INSURANCE COMPANY - ---------------------------------------- By: Name: Title: STRONG CAPITAL MANAGEMENT, INC. - -------------------------------------------------------------------------------- Stephen J. Shenkenberg, Vice President STRONG INVESTMENTS, INC. - -------------------------------------------------------------------------------- Stephen J. Shenkenberg, Vice President STRONG VARIABLE INSURANCE FUNDS, INC. on behalf of the Designated Portfolios - ---------------------------------------- Stephen J. Shenkenberg, Vice President STRONG OPPORTUNITY FUND II, INC. - ---------------------------------------- Stephen J. Shenkenberg, Vice President Exhibit (8)(d) FORM OF PARTICIPATION AGREEMENT Among MORGAN STANLEY UNIVERSAL FUNDS, INC., MORGAN STANLEY ASSET MANAGEMENT INC. MILLER ANDERSON & SHERRERD, LLP and NORTHBROOK LIFE INSURANCE COMPANY DATED AS OF [_______________], 2000 THIS AGREEMENT, made and entered into as of the [_____] day of [____], 2000 by and among NORTHBROOK LIFE INSURANCE COMPANY (hereinafter the "Company"), an Arizona corporation, on its own behalf and on behalf of each separate account of the Company set forth on Schedule A hereto as may be amended from time to time (each such account hereinafter referred to as the "Account"), and MORGAN STANLEY UNIVERSAL FUNDS, INC. (hereinafter the "Fund"), a Maryland corporation, and MORGAN STANLEY ASSET MANAGEMENT INC. and MILLER ANDERSON & SHERRERD, LLP (hereinafter collectively the "Advisers" and individually the "Adviser"), a Delaware corporation and a Pennsylvania limited liability partnership, respectively. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as (i) the investment vehicle for separate accounts established by insurance companies for individual and group life insurance policies and annuity contracts with variable accumulation and/or pay-out provisions (hereinafter referred to individually and/or collectively as "Variable Insurance Products") and (ii) the investment vehicle for certain qualified pension and retirement plans (hereinafter "Qualified Plans"); and WHEREAS, insurance companies desiring to utilize the Fund as an investment vehicle under their Variable Insurance Contracts enter into participation agreements with the Fund and the Advisers (the "Participating Insurance Companies"); WHEREAS, shares of the Fund are divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets, any one or more of which may be made available under this Agreement, as may be amended from time to time by mutual agreement of the parties hereto (each such series hereinafter referred to as a "Portfolio"); and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission, dated September 19, 1996 (File No. 812-10118), granting Participating Insurance Companies and Variable Insurance Product separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by Variable Annuity Product separate accounts of both affiliated and unaffiliated life insurance companies and Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, each Adviser is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities laws; and WHEREAS, each Adviser manages certain Portfolios of the Fund; and WHEREAS, Morgan Stanley & Co. Incorporated (the "Underwriter") is registered as a broker/dealer under the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a member in good standing of the National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves as principal underwriter of the shares of the Fund; and WHEREAS, the Company has registered or will register certain Variable Insurance Products under the 1933 Act; and WHEREAS, each Account is a duly organized, validly existing segregated asset account, established by resolution or under authority of the Board of Directors of the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to the aforesaid Variable Insurance Product; and WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase, on behalf of each Account, shares in the Portfolios set forth in Schedule B attached to this Agreement, to fund certain of the aforesaid Variable Insurance Products and the Underwriter is authorized to sell such shares to each such Account at net asset value; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Underwriter agree as follows: ARTICLE I. Purchase of Fund Shares 1.1. The Fund agrees to make available for purchase by the Company shares of the Fund and shall execute orders placed for each Account on a daily basis at the net asset value next computed after receipt by the Fund or its designee of such order. For purposes of this Section 1.1, the Company shall be the designee of the Fund for receipt of such orders from each Account and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives notice of such order by 10:00 a.m. Eastern time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the Securities and Exchange Commission. 1.2. The Fund, so long as this Agreement is in effect, agrees to make its shares available indefinitely for purchase at the applicable net asset value per share by the Company and its Accounts on those days on which the Fund calculates its net asset value pursuant to rules of the Securities and Exchange Commission and the Fund shall use reasonable efforts to calculate such net asset value on each day which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of Directors of the Fund (hereinafter the "Board") may refuse to permit the Fund to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Portfolio. 1.3. The Fund agrees that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts and to certain Qualified Plans. No shares of any Portfolio will be sold to the general public. 1.4. The Fund agrees to redeem for cash, on the Company's request, any full or fractional shares of the Fund held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. For purposes of this Section 1.4, the Company shall be the designee of the Fund for receipt of requests for redemption from each Account and receipt by such designee shall constitute receipt by the Fund, provided that the Fund receives notice of such request for redemption on the next following Business Day. 1.5. The Company agrees that purchases and redemptions of Portfolio shares offered by the then current prospectus of the Fund shall be made in accordance with the provisions of such prospectus. The Variable Insurance Products issued by the Company, under which amounts may be invested in the Fund (hereinafter the "Contracts"), are listed on Schedule A attached hereto and incorporated herein by reference, as such Schedule A may be amended from time to time by mutual written agreement of all of the parties hereto. The Company will give the Fund and the Adviser 45 days written notice of its intention to make available in the future, as a funding vehicle under the Contracts, any other investment company. 1.6. The Company shall pay for Fund shares on the next Business Day after an order to purchase Fund shares is made in accordance with the provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For purposes of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Fund. 1.7. Issuance and transfer of the Fund's shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. Shares ordered from the Fund will be recorded in an appropriate title for each Account or the appropriate subaccount of each Account. 1.8. The Fund shall furnish same day notice (by wire or telephone, followed by written confirmation) to the Company of any income, dividends or capital gain distributions payable on the Fund's shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on the Portfolio shares in additional shares of that Portfolio. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. The Fund shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 1.9. The Fund shall make the net asset value per share for each Portfolio available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated (normally by 6:30 p.m. Eastern time) and shall use its best efforts to make such net asset value per share available by 7:00 p.m. Eastern time. ARTICLE II. Representations and Warranties 2.1. The Company represents and warrants that the Contracts are or will be registered under the 1933 Act; that the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account prior to any issuance or sale thereof as a segregated asset account under Section 424.40 of the New York Insurance Laws and has registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts. 2.2. The Fund represents and warrants that Fund shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with the laws of the State of Maryland and all applicable federal and state securities laws and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund. 2.3. The Fund represents that it is currently qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.4. The Company represents that the Contracts are currently treated as life insurance policies or annuity contracts, under applicable provisions of the Code and that it will make every effort to maintain such treatment and that it will notify the Fund immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.5. The Fund represents that to the extent that it decides to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund undertakes to have a board of directors, a majority of whom are not interested persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. 2.6. The Fund makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states except that the Fund represents that the Fund's investment policies, fees and expenses are and shall at all times remain in compliance with the laws of the State of Maryland and the Fund represents that their respective operations are and shall at all times remain in material compliance with the laws of the State of Maryland to the extent required to perform this Agreement. 2.7. The Fund represents that it is lawfully organized and validly existing under the laws of the State of Maryland and that it does and will comply in all material respects with the 1940 Act. 2.8. Each Adviser represents and warrants that it is and shall remain duly registered in all material respects under all applicable federal and state securities laws and that it will perform its obligations for the Fund in compliance in all material respects with the laws of its state of domicile and any applicable state and federal securities laws. 2.9. The Fund represents and warrants that its directors, officers, employees, and other individuals/entities dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid blanket fidelity bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.10. The Company represents and warrants that all of its directors, officers, employees and other individuals/entities dealing with the money and/or securities of the Fund are covered by a blanket fidelity bond or similar coverage, in an amount not less than $5 million. The aforesaid includes coverage for larceny and embezzlement and is issued by a reputable bonding company. The Company agrees to make all reasonable efforts to see that this bond or another bond containing these provisions is always in effect, and agrees to notify the Fund and the Underwriter in the event that such coverage no longer applies. ARTICLE III. Prospectuses, Reports to Shareholders and Proxy Statements; Voting 3.1. The Fund or its designee shall provide the Company with as many printed copies of the Fund's current prospectus and statement of additional information as the Company may reasonably request. If requested by the Company, in lieu of providing printed copies the Fund shall provide camera-ready film or computer diskettes containing the Fund's prospectus and statement of additional information, and such other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus and/or statement of additional information for the Fund is amended during the year) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document, and to have the statement of additional information for the Fund and the statement of additional information for the Contracts printed together in one document. Alternatively, the Company may print the Fund's prospectus and/or its statement of additional information in combination with other fund companies' prospectuses and statements of additional information. 3.2. Except as provided in this Section 3.2., all expenses of printing and distributing Fund prospectuses and statements of additional information shall be the expense of the Company. The Fund shall not pay any costs of typesetting, printing or distribution of the Fund's prospectus and/or statement of additional information to prospective Contract owners. Such expenses shall be borne by the Company as provided in the Company's General Agency Agreement with Dean Witter Reynolds Inc. For prospectuses and statements of additional information provided by the Company to its existing owners of Contracts who currently own shares of one or more of the Fund's Portfolios, in order to update disclosure as required by the 1933 Act and/or the 1940 Act, the cost of printing shall be borne by the Fund. If the Company chooses to receive camera-ready film or computer diskettes in lieu of receiving printed copies of the Fund's prospectus, the Fund will reimburse the Company in an amount equal to the product of x and y where x is the number of such prospectuses distributed to owners of the Contracts who currently own shares of one or more of the Fund's Portfolios, and y is the Fund's per unit cost of typesetting and printing the Fund's prospectus. The same procedures shall be followed with respect to the Fund's statement of additional information. The Company agrees to provide the Fund or its designee with such information as may be reasonably requested by the Fund to assure that the Fund's expenses do not include the cost of printing any prospectuses or statements of additional information other than those actually distributed to existing owners of the Contracts. 3.3. The Fund's statement of additional information shall be obtainable from the Fund, the Company or such other person as the Fund may designate, as agreed upon by the parties. 3.4. The Fund, at its expense, shall provide the Company with copies of its proxy statements, reports to shareholders, and other communications (except for prospectuses and statements of additional information, which are covered in section 3.1) to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. 3.5. If and to the extent required by law the Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Fund shares in accordance with instructions received from Contract owners; and (iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such Portfolio for which instructions have been received, so long as and to the extent that the Securities and Exchange Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. The Company reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. The Fund and the Company shall follow the procedures, and shall have the corresponding responsibilities, for the handling of proxy and voting instruction solicitations, as set forth in Schedule C attached hereto and incorporated herein by reference. Participating Insurance Companies shall be responsible for ensuring that each of their separate accounts participating in the Fund calculates voting privileges in a manner consistent with the standards set forth on Schedule C, which standards will also be provided to the other Participating Insurance Companies. 3.6. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the Securities and Exchange Commission's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the Commission may promulgate with respect thereto. 3.7. The Fund shall use reasonable efforts to provide Fund prospectuses, reports to shareholders, proxy materials and other Fund communications (or camera-ready equivalents) to the Company sufficiently in advance of the Company's mailing dates to enable the Company to complete, at reasonable cost, the printing, assembling and/or distribution of the communications in accordance with applicable laws and regulations. ARTICLE IV. Sales Material and Information 4.1. The Company shall furnish, or shall cause to be furnished, to the Fund or its designee, each piece of sales literature or other promotional material in which the Fund or the Adviser(s) is named, at least ten Business Days prior to its use. No such material shall be used if the Fund or its designee reasonably objects to such use within ten Business Days after receipt of such material. 4.2. The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement or prospectus for the Fund shares, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee, except with the permission of the Fund. 4.3. The Fund or its designee shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material in which the Company and/or its separate account(s) is named at least ten Business Days prior to its use. No such material shall be used if the Company or its designee reasonably objects to such use within ten Business Days after receipt of such material. 4.4. The Fund and the Advisers shall not give any information or make any representations on behalf of the Company or concerning the Company, each Account, or the Contracts, other than the information or representations contained in a registration statement or prospectus for the Contracts, as such registration statement and prospectus may be amended or supplemented from time to time, or in published reports for each Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5. The Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Fund or its shares, which are relevant to the Company or the Contracts. 4.6. The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the investment in the Fund under the Contracts. 4.7. For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, any of the following that refer to the Fund or any affiliate of the Fund: advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials. ARTICLE V. Fees and Expenses 5.1. The Fund shall pay no fee or other compensation to the Company under this Agreement, except that if the Fund or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter may make payments to the Company or to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing. 5.2. All expenses incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund shall see to it that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sale. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares, preparation and filing of the Fund's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual report), the preparation of all statements and notices required by any federal or state law, and all taxes on the issuance or transfer of the Fund's shares. 5.3. The Company shall bear the expenses of distributing the Fund's prospectus to owners of Contracts issued by the Company. ARTICLE VI. Diversification 6.1 The Fund shall at all times invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable contracts under the Code and the regulations issued thereunder. Without limiting the scope of the foregoing, the Fund will at all times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or Regulations. In the event of a breach of this Article VI by the Fund, it will take all reasonable steps (a) to notify Company of such breach and (b) to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Regulation 817-5. 6.2 The Adviser, upon the prior written request of the Company by February 1, shall provide written confirmation by no later than February 15, that the Fund was adequately diversified within the meaning of Section 817 and Regulation 1.817-5 as of December 31 of the prior year. ARTICLE VII. Potential Conflicts 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by Variable Insurance Product owners; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of contract owners. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever contract owner voting instructions are disregarded. 7.3. If it is determined by a majority of the Board, or a majority of its disinterested members, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the disinterested directors), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance policy owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by the Company to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account (at the Company's expense); provided, however that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account within six months after the Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Underwriter and Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. 7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. Indemnification 8.1. Indemnification By The Company 8.1(a) The Company agrees to indemnify and hold harmless the Fund and each member of the Board and officers, and each Adviser and each director and officer of each Adviser, and each person, if any, who controls the Fund or the Adviser within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and individually, "Indemnified Party," for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus for the Contracts or contained in the Contracts or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the registration statement or prospectus for the Contracts or in the Contracts or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature of the Fund not supplied by the Company, or persons under its control and other than statements or representations authorized by the Fund or an Adviser) or unlawful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 8.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. 8.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them or any of their officers or directors in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of each Account, or the sale or acquisition of shares of the Fund. 8.2. Indemnification by the Advisers 8.2(a). Each Adviser agrees, with respect to each Portfolio that it manages, to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and individually, "Indemnified Party," for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of shares of the Portfolio that it manages or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Fund by or on behalf of the Company for use in the registration statement or prospectus for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature for the Contracts not supplied by the Fund or persons under its control and other than statements or representations authorized by the Company) or unlawful conduct of the Fund, Adviser(s) or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the Contracts or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund; or (iv) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Adviser in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. 8.2(b). An Adviser shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. 8.2(c). An Adviser shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Adviser will be entitled to participate, at its own expense, in the defense of such action. The Adviser also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Adviser to such party of the Adviser's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Adviser will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.2(d). The Company agrees promptly to notify the Adviser of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of each Account, or the sale or acquisition of shares of the Fund. 8.3. Indemnification by the Fund 8.3(a). The Fund agrees to indemnify and hold harmless the Company, and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the "Indemnified Parties" and individually, "Indemnified Party," for purposes of this Section 8.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements result from the gross negligence (except for failure to comply with Section VI of this Agreement for which the standard is negligence), bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Fund and: (i) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement; or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; 8.3(b). The Fund shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. 8.3(c). The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process (including any IRS administrative process) giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve the Fund from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. The Fund shall be liable under this indemnification provision for any claim (including but not limited to any fine or penalty) with respect to any and all IRS audit, settlement, closing agreement, ruling or other administrative process, provided that the Fund is notified in writing within a reasonable time of any administrative action involving the IRS. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action, except with respect to any claim or action related to Section 817(h) of the Code or Regulation 1.817-5. With regard to any claim or action related to Section 817(h) or Regulation 1.817-5, the Indemnified Party shall permit the Fund to attend and otherwise assist the Indemnified Party with respect to any conferences, settlement discussions, or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS or any other claimant regarding any claims that could give rise to liability to the Fund, provided that the Indemnified Party shall control, in good faith, the conduct of such conferences, discussions, proceedings, or contest (or appeals thereof). After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). The Company agrees promptly to notify the Fund of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of each Account, or the sale or acquisition of shares of the Fund. ARTICLE IX. Applicable Law 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the Securities and Exchange Commission may grant (including, but not limited to, the Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. Termination 10.1. This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party for any reason by sixty (60) days advance written notice delivered to the other parties; or (b) termination by the Company by written notice to the Fund and the Adviser with respect to any Portfolio based upon the Company's determination that shares of such Portfolio is not reasonably available to meet the requirements of the Contracts; or (c) termination by the Company by written notice to the Fund and the Adviser with respect to any Portfolio in the event any of the Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) termination by the Company by written notice to the Fund and the Adviser with respect to any Portfolio in the event that such Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that the Fund may fail to so qualify; or (e) termination by the Company by written notice to the Fund and the Adviser with respect to any Portfolio in the event that such Portfolio falls to meet the diversification requirements specified in Article VI hereof; or (f) termination by either the Fund by written notice to the Company if the Fund shall determine, in its sole judgment exercised in good faith, that the Company and/or its affiliated companies has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity, or (g) termination by the Company by written notice to the Fund and the Adviser, if the Company shall determine, in its sole judgment exercised in good faith, that either the Fund or the Adviser has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (h) termination by the Fund or the Adviser by written notice to the Company, if the Company gives the Fund and the Adviser the written notice specified in Section 1.5 hereof and at the time such notice was given there was no notice of termination outstanding under any other provision of this Agreement; provided, however any termination under this Section 10.1(h) shall be effective forty five (45) days after the notice specified in Section 1.5 was given. 10.2. Notwithstanding any termination of this Agreement, the Fund shall at the option of the Company, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing, Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to direct reallocation of investments in the Fund, redemption of investments in the Fund and/or investment in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.2 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.3. The Company shall not redeem Fund shares attributable to the Contracts (as distinct from Fund shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract Owner initiated or approved transactions, or (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption") or (iii) as permitted by an order of the Securities and Exchange Commission pursuant to Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish to the Fund the opinion of counsel for the Company (which counsel shall be reasonably satisfactory to the Fund) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contracts, the Company shall not prevent Contract Owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund 90 days prior written notice of its intention to do so. ARTICLE XI. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Morgan Stanley Universal Funds, Inc. c/o Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 Attention: Harold J. Schaaff, Jr., Esq. If to Adviser: Morgan Stanley Asset Management Inc. 1221 Avenue of the Americas New York, New York 10020 Attention: Harold J. Schaaff, Jr., Esq. If to Adviser: Miller Anderson & Sherrerd, LLP One Tower Bridge West Conshohocken, Pennsylvania 19428 Attention: Lorraine Truten If to the Company: Northbrook Life Insurance Company 3100 Sanders Road, N4A Northbrook, Illinois 60062 Attention: [______________] ARTICLE XII. Miscellaneous 12.1. All persons dealing with the Fund must look solely to the property of the Fund for the enforcement of any claims against the Fund as neither the Board, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Fund. 12.2. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. 12.3. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the Securities and Exchange Commission, the National Association of Securities Dealers and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the California Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the insurance operations of the Company are being conducted in a manner consistent with the California Insurance Regulations and any other applicable law or regulations. 12.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto; provided, however, that an Adviser may assign this Agreement or any rights or obligations hereunder to any affiliate of or company under common control with the Adviser, if such assignee is duly licensed and registered to perform the obligations of the Adviser under this Agreement. 12. 9 The Company shall furnish, or shall cause to be furnished, to the Fund or its designee copies of the following reports: (a) the Company's annual statement (prepared under statutory accounting principles) and annual report (prepared under generally accepted accounting principles ("GAAP"), if any), as soon as practical and in any event within 90 days after the end of each fiscal year; (b) the Company's quarterly statements (statutory) (and GAAP, if any), as soon as practical and in any event within 45 days after the end of each quarterly period: (c) any financial statement, proxy statement, notice or report of the Company sent to stockholders and/or policyholders, as soon as practical after the delivery thereof to stockholders; (d) any registration statement (without exhibits) and financial reports of the Company filed with the Securities and Exchange Commission or any state insurance regulator, as soon as practical after the filing thereof; (e) any other report submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company, as soon as practical after the receipt thereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified above. NORTHBROOK LIFE INSURANCE COMPANY By: ______________________________ Name: Title: MORGAN STANLEY UNIVERSAL FUNDS, INC. By: ______________________________ Name: Michael Klein Title: President MORGAN STANLEY ASSET MANAGEMENT INC. By: ______________________________ Name: Marna Whittington Title: Managing Director MILLER ANDERSON & SHERRERD, LLP By: ______________________________ Name: Marna Whittington Title: Authorized Signatory Exhibit (8)(e) FORM OF PARTICIPATION AGREEMENT Among VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST, VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC., VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC., and NORTHBROOK LIFE INSURANCE COMPANY DATED AS OF [__________________], 2000 THIS AGREEMENT, made and entered into as of the [_____] day of [___________], 2000 by and among NORTHBROOK LIFE INSURANCE COMPANY (hereinafter the "Company"), an Arizona corporation, on its own behalf and on behalf of each separate account of the Company set forth on Schedule A hereto as may be amended from time to time (each such account hereinafter referred to as the "Account"), and VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST (hereinafter the "Fund"), a Delaware business trust, VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC. (hereinafter the "Underwriter"), a Delaware corporation, and VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC. (hereinafter the "Adviser"), a Delaware corporation. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established by insurance companies for individual and group life insurance policies and annuity contracts with variable accumulation and/or pay-out provisions (hereinafter referred to individually and/or collectively as "Variable Insurance Products"); and WHEREAS, insurance companies desiring to utilize the Fund as an investment vehicle under their Variable Insurance Products are required to enter into participation agreements with the Fund and the Underwriter (the "Participating Insurance Companies"); and WHEREAS, shares of the Fund are divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets, any one or more of which may be made available for Variable Insurance Products of Participating Insurance Companies; and WHEREAS, the Fund intends to offer shares of the series set forth on Schedule B (each such series hereinafter referred to as a "Portfolio") as may be amended from time to time by mutual agreement of the parties hereto, under this Agreement to the Accounts of the Company; and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission, dated September 19, 1990 (File No. 812-7552), granting Participating Insurance Companies and Variable Insurance Product separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by Variable Annuity Product separate accounts of both affiliated and unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, the Adviser is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities laws; and WHEREAS, the Adviser is the investment adviser of the Portfolios of the Fund; and WHEREAS, the Underwriter is registered as a broker/dealer under the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a member in good standing of the National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves as principal underwriter of the shares of the Fund; and WHEREAS, the Company has registered or will register certain Variable Insurance Products under the 1933 Act; and WHEREAS, each Account is a duly organized, validly existing segregated asset account, established by resolution or under authority of the Board of Directors of the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to the aforesaid Variable Insurance Products; and WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios on behalf of each Account to fund certain of the aforesaid Variable Insurance Products and the Underwriter is authorized to sell such shares to each such Account at net asset value. NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund, the Underwriter and the Adviser agree as follows: ARTICLE I. Fund Shares 1.1. The Fund and the Underwriter agree to make available for purchase by the Company shares of the Portfolios and shall execute orders placed for each Account on a daily basis at the net asset value next computed after receipt by the Fund or its designee of such order. For purposes of this Section 1.1, the Company shall be the designee of the Fund and Underwriter for receipt of such orders from each Account and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives notice of such order by 10:00 a.m. (CST) on the next following Business Day. Notwithstanding the foregoing, the Company shall use its best efforts to provide the Fund with notice of such orders by 9:15 a.m. (CST) on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the Securities and Exchange Commission, as set forth in the Fund's prospectus and statement of additional information. Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may refuse to permit the Fund to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Portfolio. 1.2. The Fund and the Underwriter agree that shares of the Fund will be sold only to Participating Insurance Companies for their Variable Insurance Products. No shares of any Portfolio will be sold to the general public. 1.3. The Fund will not make its shares available for purchase by any insurance company or separate account unless an agreement containing provisions which afford the Company substantially the same protections currently provided by Sections 2.1, 2.4, 2.9, 3.4 and Article VII of this Agreement is in effect to govern such sales. 1.4. The Fund and the Underwriter agree to redeem for cash, on the Company's request, any full or fractional shares of the Fund held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. For purposes of this Section 1.4, the Company shall be the designee of the Fund for receipt of requests for redemption from each Account and receipt by such designee shall constitute receipt by the Fund; provided that the Underwriter receives notice of such request for redemption on the next following Business Day in accordance with the timing rules described in Section 1.1. 1.5. The Company agrees that purchases and redemptions of Portfolio shares offered by the then current prospectus of the Fund shall be made in accordance with the provisions of such prospectus. The Accounts of the Company, under which amounts may be invested in the Fund are listed on Schedule A attached hereto and incorporated herein by reference, as such Schedule A may be amended from time to time by mutual written agreement of all of the parties hereto. The Company will give the Fund and the Underwriter sixty (60) days written notice of its intention to make available in the future, as a funding vehicle under the Contracts, any other investment company. 1.6. The Company will place separate orders to purchase or redeem shares of each Portfolio. Each order shall describe the net amount of shares and dollar amount of each Portfolio to be purchased or redeemed. In the event of net purchases, the Company shall pay for Portfolio shares on the next Business Day after an order to purchase Portfolio shares is made in accordance with the provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. In the event of net redemptions, the Portfolio shall pay the redemption proceeds in federal funds transmitted by wire on the next Business Day after an order to redeem Portfolio shares is made in accordance with the provisions of Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption proceeds on the next Business Day would require the Portfolio to dispose of Portfolio securities or otherwise incur substantial additional costs, and if the Portfolio has determined to settle redemption transactions for all shareholders on a delayed basis, proceeds shall be wired to the Company within seven (7) days and the Portfolio shall notify in writing the person designated by the Company as the recipient for such notice of such delay by 3:00 p.m. Houston time on the same Business Day that the Company transmits the redemption order to the Portfolio. 1.7. Issuance and transfer of the Fund's shares will be by book entry only. Share certificates will not be issued to the Company or any Account. Shares ordered from the Fund will be recorded in an appropriate title for each Account or the appropriate subaccount of each Account. 1.8. The Underwriter shall use its best efforts to furnish same day notice by 6:00 p.m. Houston time (by wire or telephone, followed by written confirmation) to the Company of any dividends or capital gain distributions payable on the Fund's shares. The Company hereby elects to receive all such dividends and capital gain distributions as are payable on the Portfolio shares in additional shares of that Portfolio. The Company reserves the right to revoke this election and to receive all such dividends and capital gain distributions in cash. The Fund shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 1.9. The Underwriter shall make the net asset value per share of each Portfolio available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 6:00 p.m. Houston time. In the event that Underwriter is unable to meet the 6:00 p.m. time stated immediately above, then Underwriter shall provide the Company with additional time to notify Underwriter of purchase or redemption orders pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time shall be equal to the additional time that Underwriter takes to make the net asset values available to the Company; provided, however, that notification must be made by 10:00 a.m. Houston time on the Business Day such order is to be executed, regardless of when net asset value is made available. 1.10. If Underwriter provides materially incorrect share net asset value information through no fault of the Company, the Company shall be entitled to an adjustment with respect to the Fund shares purchased or redeemed to reflect the correct net asset value per share. The determination of the materiality of any net asset value pricing error shall be based on the SEC's recommended guidelines regarding such errors. The correction of any such errors shall be made at the Company level pursuant to the SEC's recommended guidelines. Any material error in the calculation or reporting of net asset value per share, dividend or capital gain information shall be reported promptly upon discovery to the Company. ARTICLE II. Representations and Warranties 2.1. The Company represents and warrants that the interests of the Accounts (the "Contracts") are or will be registered and will maintain the registration under the 1933 Act and the regulations thereunder to the extent required by the 1933 Act; that the Contracts will be issued and sold in compliance with all applicable federal and state laws and regulations. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account prior to any issuance or sale thereof as a segregated asset account under the Arizona Insurance Code and the regulations thereunder and has registered or, prior to any issuance or sale of the Contracts, will register and will maintain the registration of each Account as a unit investment trust in accordance with and to the extent required by the provisions of the 1940 Act and the regulations thereunder to serve as a segregated investment account for the Contracts. The Company shall amend its registration statement for its contracts under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its Contracts. 2.2. The Fund and the Underwriter represent and warrant that Fund shares sold pursuant to this Agreement shall be registered under the 1933 Act and the regulations thereunder to the extent required by the 1933 Act, duly authorized for issuance in accordance with the laws of the State of Delaware and sold in compliance with all applicable federal and state securities laws and regulations and that the Fund is and shall remain registered under the 1940 Act and the regulations thereunder to the extent required by the 1940 Act. The Fund shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund. 2.3. The Fund and the Adviser represent that the Fund is currently qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and that each will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that each will notify the Company immediately upon having a reasonable basis for believing that the Fund has ceased to so qualify or that the Fund might not so qualify in the future. 2.4. The Company represents that each Account is and will continue to be a "segregated account" under applicable provisions of the Code and that each Contract is and will be treated as a "variable contract" under applicable provisions of the Code and that it will make every effort to maintain such treatment and that it will notify the Fund immediately upon having a reasonable basis for believing that the Account or Contract has ceased to be so treated or that they might not be so treated in the future. 2.5. The Fund represents that to the extent that it decides to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund undertakes to have a board of directors, a majority of whom are not interested persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. 2.6. The Fund makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states. 2.7. The Fund and the Adviser represent that the Fund is duly organized and validly existing under the laws of the State of Delaware and that the Fund does and will comply in all material respects with the 1940 Act. 2.8. The Underwriter represents and warrants that it is and shall remain duly registered under all applicable federal and state laws and regulations and that it will perform its obligations for the Fund and the Company in compliance with the laws and regulations of its state of domicile and any applicable state and federal laws and regulations. 2.9. The Company represents and warrants that all of its trustees, officers, employees, and other individuals/entities dealing with the money and/or securities of the Fund are covered by a blanket fidelity bond or similar coverage, in an amount equal to the greater of $5 million or any amount required by applicable federal or state law or regulation. The aforesaid includes coverage for larceny and embezzlement is issued by a reputable bonding company. The Company agrees to make all reasonable efforts to see that this bond or another bond containing these provisions is always in effect, and agrees to notify the Fund and the Underwriter in the event that such coverage no longer applies. ARTICLE III. Prospectuses, Reports to Shareholders and Proxy Statements; Voting 3.1. The Fund shall provide the Company with as many printed copies of the Fund's current prospectus and statement of additional information as the Company may reasonably request. If requested by the Company in lieu of providing printed copies the Fund shall provide camera-ready film or computer diskettes containing the Fund's prospectus and statement of additional information, and such other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus and/or statement of additional information for the Fund is amended during the year) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document or separately. The Company may elect to print the Fund's prospectus and/or its statement of additional information in combination with other fund companies' prospectuses and statements of additional information. 3.2(a). Except as otherwise provided in this Section 3.2, all expenses of preparing, setting in type and printing and distributing Fund prospectuses and statements of additional information shall be the expense of the Company. For prospectuses and statements of additional information provided by the Company to its existing owners of Contracts in order to update disclosure as required by the 1933 Act and/or the 1940 Act, the cost of setting in type, printing and distributing shall be borne by the Fund. If the Company chooses to receive camera-ready film or computer diskettes in lieu of receiving printed copies of the Fund's prospectus and/or statement of additional information, the Fund shall bear the cost of typesetting to provide the Fund's prospectus and/or statement of additional information to the Company in the format in which the Fund is accustomed to formatting prospectuses and statements of additional information, respectively, and the Company shall bear the expense of adjusting or changing the format to conform with any of its prospectuses and/or statements of additional information. In such event, the Fund will reimburse the Company in an amount equal to the product of x and y where x is the number of such prospectuses distributed to owners of the Contracts, and y is the Fund's per unit cost of printing the Fund's prospectuses. The same procedures shall be followed with respect to the Fund's statement of additional information. The Fund shall not pay any costs of typesetting, printing and distributing the Fund's prospectus and/or statement of additional information to prospective Contract owners. Such expenses shall be borne by the Company as provided in the Company's General Agency Agreement with Dean Witter Reynolds Inc. 3.2(b). The Fund, at its expense, shall provide the Company with, and pay the distribution costs of, copies of its proxy statements, reports to shareholders, and other communications (except for prospectuses and statements of additional information, which are covered in Section 3.2(a) above) to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. The Fund shall not pay any costs of distributing such proxy-related material, reports to shareholders, and other communications to prospective Contract owners. 3.2(c). The Company agrees to provide the Fund or its designee with such information as may be reasonably requested by the Fund to assure that the Fund's expenses do not include the cost of typesetting, printing or distributing any of the foregoing documents other than those actually distributed to existing Contract owners. 3.2(d) The Fund shall pay no fee or other compensation to the Company under this Agreement, except that if the Fund or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter may make payments to the Company or to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing. 3.2(e) All expenses, including expenses to be borne by the Fund pursuant to Section 3.2 hereof, incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund shall see to it that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sale. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares. 3.3. The Fund's statement of additional information shall be obtainable from the Fund, the Underwriter, the Company or such other person as the Fund may designate. 3.4. If and to the extent required by law the Company shall distribute all proxy material furnished by the Fund to Contract Owners to whom voting privileges are required to be extended and shall: (i) solicit voting instructions from Contract owners; (ii) vote the Fund shares in accordance with instructions received from Contract owners; and (iii)vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such Portfolio for which instructions have been received, so long as and to the extent that the Securities and Exchange Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. The Company reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. The Fund and the Company shall follow the procedures, and shall have the corresponding responsibilities, for the handling of proxy and voting instruction solicitations, as set forth in Schedule C attached hereto and incorporated herein by reference. Participating Insurance Companies shall be responsible for ensuring that each of their separate accounts participating in the Fund calculates voting privileges in a manner consistent with the standards set forth on Schedule C, which standards will also be provided to the other Participating Insurance Companies. 3.5. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings (except insofar as the Securities and Exchange Commission may interpret Section 16 not to require such meetings) or comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the Securities and Exchange Commission's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the Commission may promulgate with respect thereto. ARTICLE IV. Sales Material and Information 4.1. The Company shall furnish, or shall cause to be furnished, to the Fund, the Underwriter or their designee, each piece of sales literature or other promotional material prepared by the Company or any person contracting with the Company in which the Fund, the Adviser or the Underwriter is named, at least ten Business Days prior to its use. No such material shall be used if the Fund, the Adviser, the Underwriter or their designee reasonably objects to such use within ten Business Days after receipt of such material. 4.2. Neither the Company nor any person contracting with the Company shall give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement or Fund prospectus, as such registration statement or Fund prospectus may be amended or supplemented from time to time, or in reports to shareholders or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee, except with the permission of the Fund or its designee. 4.3. The Fund shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material prepared by the Fund in which the Company or its Accounts, are named at least ten Business Days prior to its use. No such material shall be used if the Company or its designee reasonably objects to such use within ten Business Days after receipt of such material. 4.4. Neither the Fund nor the Underwriter shall give any information or make any representations on behalf of the Company or concerning the Company, each Account, or the Contracts, other than the information or representations contained in a registration statement or prospectus for the Contracts, as such registration statement or prospectus may be amended or supplemented from time to time, or in published reports or solicitations for voting instruction for each Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5. The Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Fund or its shares, contemporaneously with the filing of such document with the Securities and Exchange Commission or other regulatory authorities. 4.6. The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the investment in an Account or Contract, contemporaneously with the filing of such document with the Securities and Exchange Commission or other regulatory authorities. 4.7. For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, any of the following: advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials. ARTICLE V. [Reserved] ARTICLE VI. Diversification 6.1. The Adviser will ensure that the Fund will at all times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating exclusively to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or Regulations. For purposes of this Section 6.1, non-compliance shall not be deemed a breach of this provision provided compliance is achieved within the grace period afforded by Regulation 1.817-5. In the event the Fund ceases to so qualify, it will take all reasonable steps (a) to notify Company of such event and (b) to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Regulation 1.817-5. 6.2 The Adviser, upon the prior written request of the Company by February 1, shall provide written confirmation by no later than February 15, that the Fund was adequately diversified within the meaning of Section 817(h) and Regulation 1.817-5 as of December 31 of the prior year. ARTICLE VII. Potential Conflicts 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract owners and variable life insurance contract owners; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of contract owners. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. The Company will report any potential or existing material irreconcilable conflict of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever contract owner voting instructions are disregarded. 7.3. If it is determined by a majority of the Board, or a majority of its disinterested trustees, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the disinterested trustees), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance policy owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. No charge or penalty will be imposed as a result of such withdrawal. The Company agrees that it bears the responsibility to take remedial action in the event of a Board determination of an irreconcilable material conflict and the cost of such remedial action, and these responsibilities will be carried out with a view only to the interests of Contract owners. 7.4. If a material irreconcilable conflict arises because of a decision by the Company to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account (at the Company's expense); provided, however that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. No charge or penalty will be imposed as a result of such withdrawal. The Company agrees that it bears the responsibility to take remedial action in the event of a Board determination of an irreconcilable material conflict and the cost of such remedial action, and these responsibilities will be carried out with a view only to the interests of Contract owners. 7.5. For purposes of Sections 7.3 through 7.4 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 through 7.4 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. 7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable. 7.7 Each of the Company and the Adviser shall at least annually submit to the Board such reports, materials or data as the Board may reasonably request so that the Board may fully carry out the obligations imposed upon them by the provisions hereof and in the Shared Funding Exemptive Order, and said reports, materials and data shall be submitted more frequently if deemed appropriate by the Board. All reports received by the Board of potential or existing conflicts, and all Board action with regard to determining the existence of a conflict, notifying Participating Insurance Companies of a conflict, and determining whether any proposed action adequately remedies a conflict, shall be properly recorded in the minutes of the Board or other appropriate records, and such minutes or other records shall be made available to the Securities and Exchange Commission upon request. ARTICLE VIII. Indemnification 8.1. Indemnification By The Company 8.1(a). The Company agrees to indemnify and hold harmless the Fund, the Underwriter and each member of their respective Board and officers and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus for the Contracts or contained in the Contracts or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the registration statement or prospectus for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature of the Fund not supplied by the Company, or persons under its control and other than statements or representations authorized by the Fund or the Underwriter) or unlawful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii)arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature of the Fund or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such a statement or omission was made in reliance upon and in conformity with information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company. 8.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. 8.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense thereof. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund shares or the Contracts or the operation of the Fund. 8.2. Indemnification by Underwriter 8.2(a). The Underwriter agrees, with respect to each Portfolio that it distributes, to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares that it distributes or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Fund or the Underwriter by or on behalf of the Company for use in the registration statement or prospectus for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Portfolio shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature for the Contracts not supplied by the Fund, the Underwriter or persons under their respective control and other than statements or representations authorized by the Company) or unlawful conduct of the Fund or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Portfolio shares; or (iii)arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund or the Underwriter; or (iv) arise as a result of any failure by the Fund or the Underwriter to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Underwriter; as limited by and in accordance with the provisions of Section 8.2(b) and 8.2(c) hereof. 8.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. 8.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.2(d). The Company agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of each Account. 8.3. Indemnification by the Adviser 8.3(a). The Adviser agrees to indemnify and hold harmless the Company and its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the "Indemnified Parties" and individually, "Indemnified Party," for purposes of this Section 8.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the operations of the Adviser or the Fund and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Adviser, the Fund or the Underwriter by or on behalf of the Company for use in the registration statement or prospectus for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Portfolio shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature for the Contracts not supplied by the Fund, the Adviser or persons under its control and other than statements or representations authorized by the Company) or unlawful conduct of the Fund, the Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Portfolio shares; or (iii)arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund or the Adviser; or (iv) arise as a result of any failure by the Adviser to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund or the Adviser in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund or the Adviser, including without limitation any failure by the Fund to comply with the conditions of Article VI hereof. 8.3(b). The Adviser shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. 8.3(c). The Adviser shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process (including any IRS administrative process) giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Adviser will be entitled to participate, at its own expense, in the defense thereof. The Adviser also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action, except with respect to any claim or action related to Section 817(h) of the Code or Regulation 1.817-5, Indemnified Party shall permit the Adviser to attend and otherwise assist Indemnified Party with respect to any conferences, settlement discussions, or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS or any other claimant regarding any claims that could give rise to liability to Adviser, provided that Indemnified Party shall control, in good faith, the conduct of such conferences, discussions, proceedings, or contests (or appeals thereof). After notice from the Adviser to such party of the Adviser's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Adviser will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). The Company agrees to promptly notify the Adviser of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of each Account, or the sale or acquisition of shares of the Adviser. ARTICLE IX. Applicable Law 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Illinois. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the Securities and Exchange Commission may grant (including, but not limited to, the Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. Termination 10.1. This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party for any reason upon six-months advance written notice delivered to the other parties; or (b) termination by the Company by written notice to the Fund, the Adviser and the Underwriter with respect to any Portfolio based upon the Company's determination that shares of such Portfolio are not reasonably available to meet the requirements of the Contracts. Reasonable advance notice of election to terminate shall be furnished by the Company, said termination to be effective ten (10) days after receipt of notice unless the Fund makes available a sufficient number of shares to reasonably meet the requirements of the Account within said ten (10) day period; or (c) termination by the Company by written notice to the Fund, the Adviser and the Underwriter with respect to any Portfolio in the event any of the Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment medium of the Contracts issued or to be issued by the Company. The terminating party shall give prompt notice to the other parties of its decision to terminate; or (d) termination by the Company by written notice to the Fund, the Adviser and the Underwriter with respect to any Portfolio in the event that such Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M of the Code or under any successor or similar provision; or (e) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio in the event that such Portfolio fails to meet the diversification requirements specified in Article VI hereof; or (f) termination by either the Fund, the Adviser or the Underwriter by written notice to the Company, if either one or more of the Fund, the Adviser or the Underwriter, shall determine, in its or their sole judgment exercised in good faith, that the Company and/or their affiliated companies has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity, provided that the Fund, the Adviser or the Underwriter will give the Company sixty (60) days' advance written notice of such determination of its intent to terminate this Agreement, and provided further that after consideration of the actions taken by the Company and any other changes in circumstances since the giving of such notice, the determination of the Fund, the Adviser or the Underwriter shall continue to apply on the 60th day since giving of such notice, then such 60th day shall be the effective date of termination; or (g) termination by the Company by written notice to the Fund, the Adviser and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that either the Fund, the Adviser or the Underwriter has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity, provided that the Company will give the Fund, the Adviser and the Underwriter sixty (60) days' advance written notice of such determination of its intent to terminate this Agreement, and provided further that after consideration of the actions taken by the Fund, the Adviser or the Underwriter and any other changes in circumstances since the giving of such notice, the determination of the Company shall continue to apply on the 60th day since giving of such notice, then such 60th day shall be the effective date of termination; or (h) termination by the Fund, the Adviser or the Underwriter by written notice to the Company, if the Company gives the Fund, the Adviser and the Underwriter the written notice specified in Section 1.5 hereof and at the time such notice was given there was no notice of termination outstanding under any other provision of this Agreement; provided, however any termination under this Section 10.1(h) shall be effective sixty (60) days after the notice specified in Section 1.5 was given; or (i) termination by any party upon the other party's breach of any representation in Section 2 or any material provision of this Agreement, which breach has not been cured to the satisfaction of the terminating party within ten (10) days after written notice of such breach is delivered to the Fund or the Company, as the case may be; or (j) termination by the Fund, Adviser or Underwriter by written notice to the Company in the event an Account or Contract is not registered or sold in accordance with applicable federal or state law or regulation, or the Company fails to provide pass-through voting privileges as specified in Section 3.4. 10.2. Effect of Termination. Notwithstanding any termination of this Agreement, the Fund shall at the option of the Company, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts") unless such further sale of Fund shares is proscribed by law, regulation or applicable regulatory body, or unless the Fund determines that liquidation of the Fund following termination of this Agreement is in the best interests of the Fund and its shareholders. Specifically, without limitation, the owners of the Existing Contracts shall be permitted to direct reallocation of investments in the Fund, redemption of investments in the Fund and/or investment in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.2 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.3. The Company shall not redeem Fund shares attributable to the Contracts (as distinct from Fund shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract Owner initiated or approved transactions, or (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption") or (iii) as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish to the Fund and the Underwriter the opinion of counsel for the Company (which counsel shall be reasonably satisfactory to the Fund and the Underwriter) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contracts, the Company shall not prevent Contract Owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund or the Adviser 90 days notice of its intention to do so. ARTICLE XI. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Van Kampen American Capital Life Investment Trust One Parkview Plaza Oakbrook Terrace, Illinois 60181 Attention: Ronald A. Nyberg If to Underwriter: Van Kampen American Capital Distributors, Inc. One Parkview Plaza Oakbrook Terrace, Illinois 60181 Attention: Ronald A. Nyberg If to Adviser: Van Kampen American Capital Asset Management, Inc. One Parkview Plaza Oakbrook Terrace, Illinois 60181 Attention: Ronald A. Nyberg If to the Company: Northbrook Life Insurance Company 3100 Sanders Road Northbrook, Illinois 60062 Attention: [__________________] ARTICLE XII. Foreign Tax Credits 12.1. The Fund and Adviser agree to consult in advance with the Company concerning whether any series of the Fund qualifies to provide a foreign tax credit pursuant to Section 853 of the Code. ARTICLE XIII. Miscellaneous 13.1. All persons dealing with the Fund must look solely to the property of the Fund for the enforcement of any claims against the Fund as neither the Board, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Fund. Each of the Company, Adviser and Underwriter acknowledges and agrees that, as provided by Article 8, Section 8.1, of the Fund's Agreement and Declaration of Trust, the shareholders, trustees, officers, employees and other agents of the Fund and its Portfolios shall not personally be bound by or liable for matters set forth hereunder, nor shall resort be had to their private property for the satisfaction of any obligation or claim hereunder. A Certificate of Trust referring to the Fund's Agreement and Declaration of Trust is on file with the Secretary of State of Delaware. 13.2. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. 13.3. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 13.4. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 13.5. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 13.6. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the Securities and Exchange Commission, the National Association of Securities Dealers and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 13.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations at law or in equity, which the parties hereto are entitled to under state and federal laws. 13.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto; provided, however, that the Adviser may assign this Agreement or any rights or obligations hereunder to any affiliate of or company under common control with the Adviser if such assignee is duly licensed and registered to perform the obligations of the Adviser under this Agreement. 13.9. The Company shall furnish, or shall cause to be furnished, to the Fund or its designee copies of the following reports: (a) the Company's annual statement (prepared under statutory accounting principles) and annual report (prepared under generally accepted accounting principles ("GAAP"), if any), as soon as practical and in any event within 90 days after the end of each fiscal year; (b) the Company's June 30th quarterly statements (statutory), as soon as practical and in any event within 45 days following such period; (c) any financial statement, proxy statement, notice or report of the Company sent to stockholders and/or policyholders, as soon as practical after the delivery thereof to stockholders; (d) any registration statement (without exhibits) and financial reports of the Company filed with the Securities and Exchange Commission or any state insurance regulator, as soon as practical after the filing thereof; (e) any other public report submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company, as soon as practical after the receipt thereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative as of the date specified above. NORTHBROOK LIFE INSURANCE COMPANY on behalf of itself and each of its Accounts named in Schedule A hereto, as amended from time to time By: ________________________________________________ Name: Title: VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST By: _______________________________________________ Dennis J. McDonnell President VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC. By: ________________________________________________ John H. Zimmermann, III President VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC. By: ________________________________________________ Dennis J. McDonnell President Exhibit (8)(f) FORM OF PARTICIPATION AGREEMENT By and Among NORTHBROOK LIFE INSURANCE COMPANY And WARBURG, PINCUS TRUST And CREDIT SUISSE ASSET MANAGEMENT, LLC And CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC. THIS AGREEMENT, made and entered into this [ ] day of [____________], 2000, by and among Northbrook Life Insurance Company organized under the laws of Arizona (the "Company"), on its own behalf and on behalf of each separate account of the Company named in Schedule 1 to this Agreement as may be amended from time to time (each account referred to as the "Account"), Warburg, Pincus Trust, an open-end management investment company and business trust organized under the laws of the Commonwealth of Massachusetts (the "Fund"); Credit Suisse Asset Management, LLC a limited liability company organized under the laws of the State of Delaware (the "Adviser"); and Credit Suisse Asset Management Securities, Inc., a corporation organized under the laws of the State of New York (f/k/a Counsellors Securities Inc.) ("CSAMSI"). WHEREAS, the Fund engages in business as an open-end management investment company and was established for the purpose of serving as the investment vehicle for separate accounts established for variable life insurance contracts and variable annuity contracts to be offered by insurance companies that have entered into participation agreements similar to this Agreement (the "Participating Insurance Companies"), and WHEREAS, beneficial interests in the Fund are divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets (the "Portfolios"); and WHEREAS, the Fund has received an order from the Securities and Exchange Commission (the "SEC") granting Participating Insurance Companies and variable annuity separate accounts and variable life insurance separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended (the "1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity separate accounts and variable life insurance separate accounts of both affiliated and unaffiliated Participating Insurance Companies and qualified pension and retirement plans outside of the separate account context (the "Mixed and Shared Funding Exemptive Order"). The parties to this Agreement agree that the conditions or undertakings specified in the Mixed and Shared Funding Exemptive Order and that may be imposed on the Company, the Fund, the Adviser and/or CSAMSI by virtue of the receipt of such order by the SEC will be incorporated herein by reference, and such parties agree to comply with such conditions and undertakings to the extent applicable to each such party; and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and its shares are registered under the Securities Act of 1933, as amended (the "1933 Act"); and WHEREAS, the Company has registered or will register certain variable annuity or variable life contracts (the "Contracts") under the 1933 Act; and WHEREAS, the Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of the Company under the insurance laws of [Arizona], to set aside and invest assets attributable to the Contracts; and WHEREAS, the Company has registered the Account as a unit investment trust under the 1940 Act; and WHEREAS, the Adviser is registered as an investment adviser under the Investment Advisers Act of 1940; and WHEREAS, CSAMSI, the Fund's distributor, is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934 (the "1934 Act") and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares of the Portfolios named in Schedule 2, as such schedule may be amended from time to time (the "Designated Portfolios"), on behalf of the Account to fund the Contracts, and the Fund is authorized to sell such shares to unit investment trusts such as the Account at net asset value; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund, the Adviser and CSAMSI agree as follows: ARTICLE I. Sale of Fund Shares 1.1. The Fund agrees to sell to the Company those shares of the Designated Portfolios that each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt and acceptance by the Fund or its designee of the order for the shares of the Fund. For purposes of this Section 1.1, the Company will be the designee of the Fund for receipt of such orders from each Account and receipt by such designee will constitute receipt by the Fund; provided that the Fund receives notice of such order by 9:00 a.m. Eastern Time on the next following Business Day ("T+1"). "Business Day" will mean any day on which the New York Stock Exchange, Inc. (the "NYSE") is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the SEC. 1.2. The Company will pay for Fund shares on T+1 in each case that an order to purchase Fund shares is made in accordance with Section 1.1 above. Payment will be in federal funds transmitted by wire. This wire transfer will be initiated by 12:00 p.m. Eastern Time. 1.3. The Fund agrees to make shares of the Designated Portfolios available indefinitely for purchase at the applicable net asset value per share by Participating Insurance Companies and their separate accounts on those days on which the Fund calculates its Designated Portfolio net asset value pursuant to rules of the SEC and the Fund shall use reasonable efforts to calculate such net asset value on each day the NYSE is open for trading; provided, however, that the Fund, the Adviser or CSAMSI may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in its or their sole discretion acting in good faith, in the best interests of the shareholders of such Portfolio. 1.4. On each Business Day on which the Fund calculates its net asset value, the Company will aggregate and calculate the net purchase or redemption orders for each Account maintained by the Fund in which contract owner assets are invested. Net orders will only reflect orders that the Company has received prior to the close of regular trading on the NYSE currently 4:00 p.m., Eastern Time) on that Business Day. Orders that the Company has received after the close of regular trading on the NYSE will be treated as though received on the next Business Day. Each communication of orders by the Company will constitute a representation that such orders were received by it prior to the close of regular trading on the NYSE on the Business Day on which the purchase or redemption order is priced in accordance with Rule 22c-1 under the 1940 Act. Other procedures relating to the handling of orders will be in accordance with the prospectus and statement of information of the relevant Designated Portfolio or with oral or written instructions that CSAMSI or the Fund will forward to the Company from time to time. 1.5. The Fund agrees that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts, qualified pension and retirement plans or such other persons as are permitted under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and regulations promulgated thereunder, the sale to which will not impair the tax treatment currently afforded the Contracts. No shares of any Portfolio will be sold to the general public except as set forth in this Section 1.5. 1.6. The Fund agrees to redeem for cash, upon the Company's request, any full or fractional shares of the Fund held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt and acceptance by the Fund or its designee of the request for redemption. For purposes of this Section 1.6, the Company will be the designee of the Fund for receipt of requests for redemption from each Account and receipt by such designee will constitute receipt by the Fund, provided the Fund receives notice of request for redemption by 9:00 a.m. Eastern Time on the next following Business Day. Payment will be in federal funds transmitted by wire to the Company's account as designated by the Company in writing from time to time, on the same Business Day the Fund receives notice of the redemption order from the Company. The Fund reserves the right to delay payment of redemption proceeds, but in no event may such payment be delayed longer than the period permitted by the 1940 Act. The Fund will not bear any responsibility whatsoever for the proper disbursement or crediting of redemption proceeds; the Company alone will be responsible for such action. If notification of redemption is received after 10:00 a.m. Eastern Time, payment for redeemed shares will be made on the next following Business Day. 1.7. The Company agrees to purchase and redeem the shares of the Designated Portfolios offered by the then current prospectus of the Fund in accordance with the provisions of such prospectus. 1.8. Issuance and transfer of the Fund's shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. Purchase and redemption orders for Fund shares will be recorded in an appropriate title for each Account or the appropriate subaccount of each Account. 1.9. The Fund will furnish same day notice (by telecopier, followed by written confirmation) to the Company of the declaration of any income, dividends or capital gain distributions payable on each Designated Portfolio's shares. The Company hereby elects to receive all such dividends and distributions as are payable on the Designated Portfolio shares in the form of additional shares of that Designated Portfolio. The Fund will notify the Company of the number of shares so issued as payment of such dividends and distributions. The Company reserves the right to revoke this election upon reasonable prior notice to the Fund and to receive all such dividends and distributions in cash. 1.10. The Fund will make the net asset value per share for each Designated Portfolio available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated and will use its best efforts to make such net asset value per share available by 6:00 p.m., Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each Business Day. 1.11. In the event adjustments are required to correct any error in the computation of the net asset value of the Fund's shares, the Fund or CSAMSI will notify the Company as soon as practicable after discovering the need for those adjustments that result in an aggregate reimbursement of $150 or more to any one Account maintained by a Designated Portfolio unless notified otherwise by the Company (or, if lesser, results in an adjustment of $10 or more to each contractowner's account). Any such notice will state for each day for which an error occurred the incorrect price, the correct price and, to the extent communicated to the Fund's shareholders, the reason for the price change. The Company may send this notice or a derivation thereof (so long as such derivation is approved in advance by CSAMSI or the Adviser) to contractowners whose accounts are affected by the price change. The parties will negotiate in good faith to develop a reasonable method for effecting such adjustments. ARTICLE II. Representations and Warranties 2.1. The Company represents and warrants that the Contracts are or will be registered under the 1933 Act and that the Contracts will be issued and sold in compliance with all applicable federal and state laws, including state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account as a separate account under applicable state law and has registered the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts, and that it will maintain such registration for so long as any Contracts are outstanding. The Company will amend the registration statement under the 1933 Act for the Contracts and the registration statement under the 1940 Act for the Account from time to time as required in order to effect the continuous offering of the Contracts or as may otherwise be required by applicable law. The Company will register and qualify the Contracts for sale in accordance with the securities laws of the various states only if and to the extent deemed necessary by the Company. 2.2. The Company represents that the Contracts are currently and at the time of issuance will be treated as annuity contracts under applicable provisions of the Internal Revenue Code, and that it will make every effort to maintain such treatment and that it will notify the Fund and the Adviser immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.3. The Company represents and warrants that it will not purchase shares of the Designated Portfolios with assets derived from tax-qualified retirement plans except, indirectly, through Contracts purchased in connection with such plans. 2.4. The Fund represents and warrants that Fund shares of the Designated Portfolios sold pursuant to this Agreement will be registered under the 1933 Act and duly authorized for issuance in accordance with applicable law and that the Fund is and will remain registered under the 1940 Act for as long as such shares of the Designated Portfolios are outstanding. The Fund will amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares or as may otherwise be required by applicable law. The Fund will register and qualify the shares of the Designated Portfolios for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund. 2.5. The Fund represents that each Designated Portfolio is currently qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code and that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify the Company immediately upon having a reasonable basis for believing that a Designated Portfolio has ceased to so qualify or that it might not so qualify in the future. 2.6. The Fund represents and warrants that in performing the services described in this Agreement, the Fund will comply with all applicable laws, rules and regulations. The Fund makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies, objectives and restrictions) complies with the insurance laws and regulations of any state. The Fund and CSAMSI agree that upon request they will use their best efforts to furnish the information required by state insurance laws so that the Company can obtain the authority needed to issue the Contracts in the various states. 2.7. The Fund currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1 the Fund undertakes to have its Fund Board formulate and approve any plan under Rule 12b-1 to finance distribution expenses in accordance with the 1940 Act. 2.8. The Fund represents that it is lawfully organized and validly existing under the laws of The Commonwealth of Massachusetts and that it does and will comply in all material respects with applicable provisions of the 1940 Act. 2.9. CSAMSI represents and warrants that it will distribute the Fund shares of the Designated Portfolios in accordance with all applicable federal and state securities laws including, without limitation, the 1933 Act, the 1934 Act and the 1940 Act. 2.10. CSAMSI represents and warrants that it is and will remain duly registered under all applicable federal and state securities laws and that it will perform its obligations for the Fund in accordance in all material respects with any applicable state and federal securities laws. 2.11. The Fund represents and warrants that all of its trustees, officers, employees, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. CSAMSI and the Adviser represent and warrant that they are and continue to be at all times covered by policies similar to the aforesaid bond. ARTICLE III. Prospectuses and Proxy Statements; Voting 3.1. The Fund or CSAMSI will provide the Company, at the Fund's or its affiliate's expense, with as many copies of the current Fund prospectus for the Designated Portfolios as the Company may reasonably request for distribution, at the Company's expense, to prospective contractowners and applicants. The Fund or CSAMSI will provide, at the Fund's or its affiliate's expense, as many copies of said prospectus as necessary for distribution, at the Company's expense, to existing contractowners. The Fund or CSAMSI will provide the copies of said prospectus to the Company or to its mailing agent. If requested by the Company, the Fund or CSAMSI will provide such documentation, including a computer diskette of the Company's specification or a final copy of a current prospectus set in type at the Fund's or its affiliate's expense, and such other assistance as is reasonably necessary in order for the Company at least annually (or more frequently if the Fund prospectus is amended more frequently) to have the Fund's prospectus, the prospectus for the Contracts and the prospectuses of other mutual funds in which assets attributable to the Contracts may be invested printed together in one document (the "Multifund Prospectus"), in which case the Fund or its affiliate will bear its reasonable share of expenses as described above, allocated based on the proportionate number of pages of the Fund's and other fund's respective portions of the document. 3.2. The Fund or CSAMSI will provide the Company, at the Fund's or its affiliate's expense, with as many copies of the statement of additional information as the Company may reasonably request for distribution, at the Company's expense, to prospective contractowners and applicants. The Fund or CSAMSI will provide, at the Fund's or its affiliate's expense, as many copies of said statement of additional information as necessary for distribution, at the Company's expense, to any existing contractowner who requests such statement or whenever state or federal law otherwise requires that such statement be provided. The Fund or CSAMSI will provide the copies of said statement of additional information to the Company or to its mailing agent. 3.3. To the extent that the Fund or CSAMSI desires to change (whether by revision or supplement) any of the information contained in any form of Fund prospectus or statement of additional information provided to the Company for inclusion in a Multifund Prospectus, the Company agrees to make such changes within a reasonable period of time after receipt of a request to make such change from the Fund or CSAMSI, subject to the following limitation. To the extent that the Fund is legally required to make a change to a Fund prospectus or statement of additional information provided to the Company for inclusion in a Multifund Prospectus, the Company agrees to make any such change as soon as possible following receipt of the form of revised prospectus and/or statement of additional information or supplement, as applicable, but in no event later than five days following receipt. To the extent that the Fund is required by law to cease selling shares of a Designated Portfolio, the Company agrees to cease offering shares of the Designated Portfolio until the Fund or CSAMSI notifies the Company otherwise. 3.4. The Fund or CSAMSI, at the Fund's or its affiliate's expense, will provide the Company or its mailing agent with copies of its proxy material, if any, reports to shareholders and other communications to shareholders in such quantity as the Company will reasonably require. The Company will distribute this proxy material, reports and other communications to existing contract owners and tabulate the votes. 3.5. If and to the extent required by law the Company will: (a) solicit voting instructions from contractowners; (b) vote the shares of the Designated Portfolios held in the Account in accordance with instructions received from contractowners; and (c) vote shares of the Designated Portfolios held in the Account for which no timely instructions have been received, as well as shares it owns, in the same proportion as shares of such Designated Portfolio for which instructions have been received from the Company's contractowners; so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contractowners. Except as set forth above, the Company reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. The Company will be responsible for assuring that each of its separate accounts participating in the Fund calculates voting privileges in a manner consistent with all legal requirements, including the Mixed and Shared Funding Exemptive Order. 3.6. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, the Fund either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or, as the Fund currently intends, will comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rules the SEC may promulgate with respect thereto. ARTICLE IV. Sales Material and Information 4.1. CSAMSI will provide the Company on a timely basis with investment performance information for each Designated Portfolio in which the Company maintains an Account, including total return for the preceding calendar month and calendar quarter, the calendar year to date, and the prior one-year, five-year, and ten year (or life of the Designated Portfolio) periods. The Company may, based on the SEC mandated information supplied by CSAMSI, prepare communications for contractowners ("Contractowner Materials"). The Company will provide copies of all Contractowner Materials concurrently with their first use for CSAMSI's internal recordkeeping purposes. It is understood that neither CSAMSI nor any Designated Portfolio will be responsible for errors or omissions in, or the content of, Contractowner Materials except to the extent that the error or omission resulted from information provided by or on behalf of CSAMSI or the Designated Portfolio. Any printed information that is furnished to the Company pursuant to this Agreement other than each Designated Portfolio's prospectus or statement of additional information (or information supplemental thereto), periodic reports and proxy solicitation materials is CSAMSI's sole responsibility and not the responsibility of any Designated Portfolio or the Fund. The Company agrees that the Portfolios, the shareholders of the Portfolios and the officers and governing Board of the Fund will have no liability or responsibility to the Company in these respects. 4.2. The Company will not give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement, prospectus or statement of additional information for Fund shares, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in published reports for the Fund which are in the public domain or approved by the Fund or CSAMSI for distribution, or in sales literature or other material provided by the Fund, the Adviser or by CSAMSI, except with permission of CSAMSI. The Company will furnish, or will cause to be furnished, to the Fund, the Adviser or CSAMSI, each piece of sales literature or other promotional material in which the Company or its Account is named, at least ten (10) business days prior to its use. No such sales literature or other promotional material which requires the permission of CSAMSI prior to use will be used if CSAMSI reasonably objects to such use within five (5) business days after receipt. Nothing in this Section 4.2 will be construed as preventing the Company or its employees or agents from giving advice on investment in the Fund. 4.3. The Fund, the Adviser and CSAMSI will not give any information or make any representations or statements on behalf of the Company or concerning the Company, each Account, or the Contracts other than the information or representations contained in a registration statement, prospectus or statement of additional information for the Contracts, as such registration statement, prospectus and statement of additional information may be amended or supplemented from time to time, or in published reports for each Account or the Contracts which are in the public domain or approved by the Company for distribution to contractowners, or in sales literature or other material provided by the Company, except with permission of the Company. The Company agrees to respond to any request for approval on a prompt and timely basis. The Fund, the Adviser or CSAMSI will furnish, or will cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material in which the Company or its Account is named at least ten (10) business days prior to its use. No such material will be used if the Company reasonably objects to such use within five (5) business days after receipt of such material. 4.4. The Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, statements of additions information, reports and other material filing that relates to the Fund or its shares, promptly after the filing of such document with the SEC, the NASD or other regulatory authority. 4.5. The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses, statements of additional information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the Contracts or each Account, contemporaneously with the filing of such document with the SEC, the NASD or other regulatory authority. 4.6. For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media (e.g., on-line networks such as the Internet or other electronic messages)), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisements sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.7. The Fund and CSAMSI hereby consent to the Company's use of the names Warburg, Pincus Trust Global Post-Venture Capital Portfolio, or other Designated Portfolio, in connection with the marketing of the Contracts, subject to the terms of Sections 4.1 and 4.2 of this Agreement. Such consent will continue only as long as any Contracts are invested in the relevant Designated Portfolio. ARTICLE V. Fees and Expenses 5.1. The Fund, the Adviser and CSAMSI will pay no fee or other compensation to the Company (other than as set forth in the administrative services letter agreement between CSAMSI and the Company) except if the Fund or any Designated Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses, then, subject to obtaining any required exemptive orders or other regulatory approvals, the Fund may make payments to the Company or to the underwriter for the Contracts if and in such amounts agreed to by the Fund in writing. 5.2. All expenses incident to performance by the Fund of this Agreement will be paid by the Fund to the extent permitted by law. The Fund will bear the expenses for the cost of registration and qualification of the Fund's shares; preparation and filing of the Fund's prospectus, statement of additional information and registration statement, proxy materials and reports; setting in type and printing the Fund's prospectus; setting in type and printing proxy materials and reports by it to contractowners (including the costs of printing a Fund prospectus that contains an annual report); the preparation of all statements and notices required by any federal or state law; all taxes on the issuance or transfer of the Fund's shares; any expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act; and all other expenses set forth in Article III of this Agreement. ARTICLE VI. Diversification 6.1. The Adviser will ensure that the Fund will at all times invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable annuity contracts under the Internal Revenue Code and the regulations issued thereunder. Without limiting the scope of the foregoing, the Fund will comply with Section 817(h) of the Internal Revenue Code and Treasury Regulation 1.817-5, as amended from time to time, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or Regulation. In the event of a breach of this Article VI by the Fund, it will take all reasonable steps: (a) to notify the Company of such breach; and (b) to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Treasury Regulation 1.817-5. ARTICLE VII. Potential Conflicts 7.1. The Board of Trustees of the Fund (the "Fund Board") will monitor the Fund for the existence of any irreconcilable material conflict among the interests of the contractowners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by Participating Insurance Companies or by variable annuity and variable life insurance contractowners; or (f) a decision by an insurer to disregard the voting instructions of contractowners. The Fund Board will promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. The Company will report any potential or existing conflicts of which it is aware to the Fund Board. The Company agrees to assist the Fund Board in carrying out its responsibilities, as delineated in the Mixed and Shared Funding Exemptive Order, by providing the Fund Board with all information reasonably necessary for the Fund Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Fund Board whenever contractowner voting instructions are to be disregarded. The Company's responsibilities hereunder will be carried out with a view only to the interest of contractowners. 7.3. If it is determined by a majority of the Fund Board, or a majority of its disinterested trustees, that an irreconcilable material conflict exists, the Company will, at its expense and to the extent reasonably practicable (as determined by a majority of the disinterested trustees), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (a) withdrawing the assets allocable to some or all of the Accounts from the Fund or any Designated Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected contractowners and, as appropriate, segregating the assets of any appropriate group (i.e., variable annuity contractowners or variable life insurance contractowners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contractowners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by the Company to disregard contractowner voting instructions, and the Company's judgment represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the affected subaccount of the Account's investment in the Fund and terminate this Agreement with respect to such subaccount; provided, however, that such withdrawal and termination will be limited to the extent required by the foregoing irreconcilable material conflict as determined by a majority of the disinterested trustees of the Fund Board. No charge or penalty will be imposed as a result of such withdrawal. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state insurance regulators, then the Company will withdraw the affected subaccount of the Account's investment in the Fund and terminate this Agreement with respect to such subaccount; provided, however, that such withdrawal and termination will be limited to the extent required by the foregoing irreconcilable material conflict as determined by a majority of the disinterested directors of the Fund Board. No charge or penalty will be imposed as a result of such withdrawal. 7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Fund Board will determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund or the Adviser (or any other investment adviser to the Fund) be required to establish a new funding medium for the Contracts. The Company will not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of contractowners materially affected by the irreconcilable material conflict. 7.7. The Company will at least annually submit to the Fund Board such reports, materials or data as the Fund Board may reasonably request so that the Fund Board may fully carry out the duties imposed upon it as delineated in the Mixed and Shared Funding Exemptive Order, and said reports, materials and data will be submitted more frequently if deemed appropriate by the Fund Board. 7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then: (a) the Fund and/or the Participating Insurance Companies, as appropriate, will take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement will continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. Indemnification 8.1. Indemnification By The Company (a) The Company agrees to indemnify and hold harmless the Fund, the Adviser, CSAMSI, and each person, if any, who controls or is associated with the Fund, the Adviser or CSAMSI within the meaning of such terms under the federal securities laws and any director, trustee, officer, partner, employee or agent of the foregoing (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including reasonable legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (1) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement, prospectus or statement of additional information for the Contracts or contained in the Contracts or sales literature or other promotional material for the Contracts (or any amendment or supplement to any of the foregoing), including any prospectuses or statements of additional information of the Fund to which the Company has made any changes to the information provided to the Company or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated or necessary to make such statements not misleading in light of the circumstances in which they were made; provided that this agreement to indemnify will not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with written information furnished to the Company by the Fund, the Adviser or CSAMSI for use in the registration statement, prospectus or statement of additional information for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (2) arise out of or as a result of statements or representations by or on behalf of the Company or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund shares (other than statements or representations contained in the Fund registration statement, Fund prospectus, Fund statement of additional information, sales literature or other promotional material of the Fund not supplied by the Company or persons under its control); or (3) arise out of any untrue statement or alleged untrue statement of a material fact contained in the Fund registration statement, prospectus, statement of additional information or sales literature or other promotional material of the Fund (or amendment or supplement) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make such statements not misleading in light of the circumstances in which they were made, if such a statement or omission was made in reliance upon and in conformity with information furnished to the Fund by or on behalf of the Company or persons under its control; or (4) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (5) arise out of any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach by the Company of this Agreement, including, but not limited to, a failure to comply with the provisions of Section 3.3; except to the extent provided in Sections 8.1(b) and 8.3 hereof. This indemnification will be in addition to any liability that the Company otherwise may have. (b) No party will be entitled to indemnification under Section 8.1(a) to the extent such loss, claim, damage, liability or litigation is due to the willful misfeasance, bad faith, or gross negligence in the performance of such party's duties under this Agreement, or by reason of such party's reckless disregard of its obligations or duties under this Agreement by the party seeking indemnification. (c) The Indemnified Parties promptly will notify the Company of the commencement of any litigation, proceedings, complaints or actions by regulatory authorities against them in connection with the issuance or sale of the Fund shares or the Contracts or the operation of the Fund. 8.2. Indemnification By The Adviser, the Fund and CSAMSI --------------------------------------------------- (a) The Adviser, the Fund and CSAMSI, in each case solely to the extent relating to such party's responsibilities hereunder, agree to indemnify and hold harmless the Company and each person, if any, who controls or is associated with the Company within the meaning of such terms under the federal securities laws and any director, trustee, officer, partner, employee or agent of the foregoing (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (1) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus or statement of additional information for the Fund or sales literature or other promotional material of the Fund (or any amendment or supplement to any of the foregoing) or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated or necessary to make such statements not misleading in light of the circumstances in which they were made (in each case substantially as transmitted to you by the Fund or CSAMSI), provided that this agreement to indemnify will not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Adviser, CSAMSI or the Fund by or on behalf of the Company for use in the registration statement, prospectus or statement of additional information for the Fund or in sales literature of the Fund (or any amendment or supplement thereto) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (2) arise out of or as a result of statements or representations or wrongful conduct of the Adviser, the Fund or CSAMSI or persons under the control of the Adviser, the Fund or CSAMSI respectively, with respect to the sale of the Fund shares (other than statements or representations contained in a registration statement, prospectus, statement of additional information, sales literature or other promotional material covering the Contracts not supplied by CSAMSI or persons under its control); or (3) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, statement of additional information or sales literature or other promotional material covering the Contracts (or any amendment or supplement thereto), or the omission or alleged omission to state therein a material fact required to be stated or necessary to make such statement or statements not misleading in light of the circumstances in which they were made, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company by the Adviser, the Fund or CSAMSI or persons under the control of the Adviser, the Fund or CSAMSI; or (4) arise as a result of any failure by the Fund, the Adviser or CSAMSI to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements and procedures related thereto specified in Article VI of this Agreement); or (5) arise out of or result from any material breach of any representation and/or warranty made by the Adviser, the Fund or CSAMSI in this Agreement, or arise out of or result from any other material breach of this Agreement by the Adviser the Fund or CSAMSI; except to the extent provided in Sections 8.2(b) and 8.3 hereof. These indemnifications will be in addition to any liability that the Fund, Adviser or CSAMSI otherwise may have. (b) No party will be entitled to indemnification under Section 8.2(a) to the extent such loss, claim, damage, liability or litigation is due to the willful misfeasance, bad faith, or gross negligence in the performance of such party's duties under this Agreement, or by reason of such party's reckless disregard of its obligations or duties under this Agreement by the party seeking indemnification. (c) The Indemnified Parties will promptly notify the Adviser, the Fund and CSAMSI of the commencement of any litigation, proceedings, complaints or actions by regulatory authorities against them in connection with the issuance or sale of the Contracts or the operation of the account. 8.3. Indemnification Procedure Any person obligated to provide indemnification under this Article VIII ("Indemnifying Party" for the purpose of this Section 8.3) will not be liable under the indemnification provisions of this Article VIII with respect to any claim made against a party entitled to indemnification under this Article VIII ("Indemnified Party" for the purpose of this Section 8.3) unless such Indemnified Party will have notified the Indemnifying Party in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim will have been served upon such Indemnified Party (or after such party will have received notice of such service on any designated agent), but failure to notify the Indemnifying Party of any such claim will not relieve the Indemnifying Party from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of the indemnification provision of this Article VIII, except to the extent that the failure to notify results in the failure of actual notice to the Indemnifying Party and such Indemnifying Party is damaged solely as a result of failure to give such notice. In case any such action is brought against the Indemnified Party, the Indemnifying Party will be entitled to participate, at its own expense, in the defense thereof. The Indemnifying Party also will be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Indemnifying Party to the Indemnified Party of the Indemnifying Party's election to assume the defense thereof, the Indemnified Party will bear the fees and expenses of any additional counsel retained by it, and the Indemnifying Party will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation, unless: (a) the Indemnifying Party and the Indemnified Party will have mutually agreed to the retention of such counsel; or (b) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Indemnifying Party will not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there is a final judgment for the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from and against any loss or liability by reason of such settlement or judgment. A successor by law of the parties to this Agreement will be entitled to the benefits of the indemnification contained in this Article VIII. The indemnification provisions contained in this Article VIII will survive any termination of this Agreement. ARTICLE IX. Applicable Law 9.1. This Agreement will be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. 9.2. This Agreement will be subject to the provisions of the 1933 Act, the 1934 Act and the 1940 Act, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, the Mixed and Shared Funding Exemptive Order) and the terms hereof will be interpreted and construed in accordance therewith. ARTICLE X. Termination 10.1. This Agreement will terminate: (a) at the option of any party, with or without cause, with respect to some or all of the Designated Portfolios, upon ninety (90) days' advance written notice to the other parties; or (b) at the option of the Company, upon receipt of the Company's written notice by the other parties, with respect to any Designated Portfolio if shares of the Designated Portfolio are not reasonably available to meet the requirements of the Contracts as determined in good faith by the Company; or (c) at the option of the Company, upon receipt of the Company's written notice by the other parties, with respect to any Designated Portfolio in the event any of the Designated Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or Federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by Company; or (d) at the option of the Fund, upon receipt of the Fund's written notice by the other parties, upon institution of formal proceedings against the Company by the NASD, the SEC, the insurance commission of any state or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, the administration of the Contracts, the operation of the Account, or the purchase of the Fund shares, provided that the Fund determines in its sole judgment, exercised in good faith, that any such proceeding would have a material adverse effect on the Company's ability to perform its obligations under this Agreement; or (e) at the option of the Company, upon receipt of the Company's written notice by the other parties, upon institution of formal proceedings against the Fund, Adviser or CSAMSI by the NASD, the SEC, or any state securities or insurance department or any other regulatory body, provided that the Company determines in its sole judgment, exercised in good faith, that any such proceeding would have a material adverse effect on the Fund's, Adviser's or CSAMSI's ability to perform its obligations under this Agreement; or (f) at the option of the Company, upon receipt of the Company's written notice by the other parties, with respect to any Designated Portfolio if the Designated Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M of the Internal Revenue Code, or under any successor or similar provision, or if the Company reasonably and in good faith believes that the Designated Portfolio may fail to so qualify; or (g) at the option of the Company, upon receipt of the Company's written notice by the other parties, with respect to any Designated Portfolio if the Designated Portfolio fails to meet the diversification requirements specified in Article VI hereof or if the Company reasonably and in good faith believes the Designated Portfolio may fail to meet such requirements; or (h) at the option of any party to this Agreement, upon written notice to the other parties, upon another party's material breach of any provision of this Agreement which material breach is not cured within thirty (30) days of said notice; or (i) at the option of the Company, if the Company determines in its sole judgment exercised in good faith, that either the Fund, the Adviser or CSAMSI has suffered a material adverse change in its business, operations or financial condition since the date of this Agreement or is the subject of material adverse publicity which is likely to have a material adverse impact upon the business and operations of the Company, such termination to be effective sixty (60) days' after receipt by the other parties of written notice of the election to terminate; or (j) at the option of the Fund or CSAMSI, if the Fund or CSAMSI respectively, determines in its sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations or financial condition since the date of this Agreement or is the subject of material adverse publicity which is likely to have a material adverse impact upon the business and operations of the Fund or the Adviser, such termination to be effective sixty (60) days' after receipt by the other parties of written notice of the election to terminate; or (k) at the option of the Company or the Fund upon receipt of any necessary regulatory approvals and/or the vote of the contractowners having an interest in the Account (or any subaccount) to substitute the shares of another investment company for the corresponding Designated Portfolio shares of the Fund in accordance with the terms of the Contracts for which those Designated Portfolio shares had been selected to serve as the underlying investment media. The Company will give sixty (60) days' prior written notice to the Fund of the date of any proposed vote or other action taken to replace the Fund's shares; or (l) at the option of the Company or the Fund upon a determination by a majority of the Fund Board, or a majority of the disinterested Fund Board members, that an irreconcilable material conflict exists among the interests of: (1) all contractowners of variable insurance products of all separate accounts; or (2) the interests of the Participating Insurance Companies investing in the Fund as set forth in Article VII of this Agreement; or (m) at the option of the Fund in the event any of the Contracts are not issued or sold in accordance with applicable federal and/or state law. Termination will be effective immediately upon such occurrence without notice. 10.2. Notice Requirement Except as specified in Section 10.1(m), no termination of this Agreement will be effective unless and until the party terminating this Agreement gives prior written notice to all other parties of its intent to terminate, which notice will set forth the basis for the termination. 10.3. Surviving Provisions Notwithstanding any termination of this Agreement, each party's obligations under Article VIII to indemnify other parties will survive and not be affected by any termination of this Agreement. In addition, each party's obligations under Section 12.6 will survive and not be affected by any termination of this Agreement. Finally, with respect to Existing Contracts, all provisions of this Agreement also will survive and not be affected by any termination of this Agreement. ARTICLE XI. Notices 11.1. Any notice will be deemed duly given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other parties. If to the Company: If to the Fund, the Adviser and/or CSAMSI: Northbrook Life Insurance Company 466 Lexington Avenue 3100 Sanders Road New York, New York 10017 Northbrook, IL 60062 Attn: Legal Dept. Attn: [__________] ARTICLE XII. Miscellaneous 12.1. The Fund, the Adviser and CSAMSI acknowledge that the identities of the customers of the Company or any of its affiliates (collectively the "Company Protected Parties" for purposes of this Section 12.1), information maintained regarding those customers, and all computer programs and procedures or other information developed or used by the Company Protected Parties or any of their employees or agents in connection with the Company's performance of its duties under this Agreement are the valuable property of the Company Protected Parties. The Fund, the Adviser and CSAMSI agree that if they come into possession of any list or compilation of the identities of or other information about the Company Protected Parties' customers, or any other information or property of the Company Protected Parties, other than such information as is publicly available or as may be independently developed or compiled by the Fund, the Adviser or CSAMSI from information supplied to them by the Company Protected Parties' customers who also maintain accounts directly with the Fund, the Adviser or CSAMSI, the Fund, the Adviser and CSAMSI will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with the Company's prior written consent; or (b) as required by law or judicial process. The Company acknowledges that the identities of the customers of the Fund, the Adviser, CSAMSI or any of their affiliates (collectively the "Adviser Protected Parties" for purposes of this Section 12.1), information maintained regarding those customers, and all computer programs and procedures or other information developed or used by the Adviser Protected Parties or any of their employees or agents in connection with the Fund's, the Adviser's or CSAMSI's performance of their respective duties under this Agreement are the valuable property of the Adviser Protected Parties. The Company agrees that if it comes into possession of any list or compilation of the identities of or other information about the Adviser Protected Parties' customers, or any other information or property of the Adviser Protected Parties, other than such information as is publicly available or as may be independently developed or compiled by the Company from information supplied to them by the Adviser Protected Parties' customers who also maintain accounts directly with the Company, the Company will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with the Fund's, the Adviser's or CSAMSI's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 12.1 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. 12.2. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.3. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. 12.4. If any provision of this Agreement will be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement will not be affected thereby. 12.5. This Agreement will not be assigned by any party hereto without the prior written consent of all the parties; provided, however, that CSAMSI may assign without further consent of the parties hereto, in whole or in part, its responsibilities hereunder as Fund distributor, to a third party distributor which may be appointed to serve as Fund distributor. 12.6. Each party to this Agreement will maintain all records required by law, including records detailing the services it provides. Such records will be preserved, maintained and made available to the extent required by law and in accordance with the 1940 Act and the rules thereunder. Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Upon request by the Fund or CSAMSI, the Company agrees to promptly make copies or, if required, originals of all records pertaining to the performance of services under this Agreement available to the Fund or CSAMSI, as the case may be. The Fund agrees that the Company will have the right to inspect, audit and copy all records pertaining to the performance of services under this Agreement pursuant to the requirements of any state insurance department. Each party also agrees to promptly notify the other parties if it experiences any difficulty in maintaining the records in an accurate and complete manner. This provision will survive termination of this Agreement. 12.7. Each party represents that the execution and delivery of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by all necessary corporate or board action, as applicable, by such party and when so executed and delivered this Agreement will be the valid and binding obligation of such party enforceable in accordance with its terms. 12.8. The parties to this Agreement acknowledge and agree that all liabilities of the Fund arising, directly or indirectly, under this agreement, will be satisfied solely out of the assets of the Fund and that no trustee, officer, agent or holder of shares of beneficial interest of the Fund will be personally liable for any such liabilities. No Portfolio or series of the Fund will be liable for the obligations or liabilities of any other Portfolio or series. 12.9. The parties to this Agreement may amend the schedules to this Agreement from time to time to reflect changes in or relating to the Contracts, the Accounts or the Designated Portfolios of the Fund or other applicable terms of this Agreement. 12.10. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and behalf by its duly authorized representative as of the date specified below. NORTHBROOK LIFE INSURANCE COMPANY By:_____________________________________ Name:___________________________________ Title:____________________________________ WARBURG, PINCUS TRUST By:_____________________________________ Name:___________________________________ Title:____________________________________ CREDIT SUISSE ASSET MANAGEMENT, LLC By:_____________________________________ Name:___________________________________ Title:____________________________________ CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC. By:_____________________________________ Name:___________________________________ Title:____________________________________ EX-10 6 0006.txt CONSENT OF INDEPENDENT ACCOUNTANTS INDEPENDENT AUDITORS' CONSENT We consent to the use in this initial Registration Statement 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 Account II of Northbrook Life Insurance Company), which is part of such Registration Statement, and to the reference to us under the heading "Experts" in such Statement of Additional Information. /s/ Deloitte & Touche LLP - ---------------------------------------- Chicago, Illinois August 4, 2000 EX-99 7 0007.txt POWERS OF ATTORNEY POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) 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. August 4, 2000 Date /s/ THOMAS J. WILSON, II - ------------------------- Thomas J. Wilson, II President, Chief Operating Officer, and Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) 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. August 4, 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) NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) Know all men by these presents that Margaret G. Dyer, whose signature appears below, constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them, her 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 each of said attorney-in-fact, or her substitute or substitutes, may do or cause to be done by virtue hereof. August 4, 2000 Date /s/ MARGARET G. DYER - --------------------- Margaret G. Dyer Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) Know all men by these presents that Marla G. Friedman, whose signature appears below, constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them, her 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 each of said attorney-in-fact, or her substitute or substitutes, may do or cause to be done by virtue hereof. August 4, 2000 Date /s/ MARLA G. FRIEDMAN - ---------------------- Marla G. Friedman Director, Vice President POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) Know all men by these presents that John C. Lounds, 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 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. August 4, 2000 Date /s/ JOHN C. LOUNDS - ------------------- John C. Lounds Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) Know all men by these presents that J. Kevin McCarthy, 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 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. August 4, 2000 Date /s/ J. KEVIN McCARTHY - ---------------------- J. Kevin McCarthy Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) Know all men by these presents that Steven C. Verney, 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 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. August 4, 2000 Date /s/ STEVEN C. VERNEY - --------------------- Steven C. Verney Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) 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 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. August 4, 2000 Date /s/ SAMUEL H. PILCH - -------------------- Samuel H. Pilch Vice President and Controller POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) 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 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. August 4, 2000 Date /s/ CASEY J. SYLLA - ------------------- Casey J. Sylla Chief Investment Officer -----END PRIVACY-ENHANCED MESSAGE-----