-----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, G37uqxcoEjVDtctt+XeOEEC6dB6eVXIFckZRVoPxd9I/XxOxr2nH8h4lS/Zenmp/ 9vIpVx0RNBpL+tdpnH2veg== 0000945094-01-000148.txt : 20010421 0000945094-01-000148.hdr.sgml : 20010421 ACCESSION NUMBER: 0000945094-01-000148 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20010419 EFFECTIVENESS DATE: 20010419 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHBROOK VARIABLE ANNUITY ACCOUNT II CENTRAL INDEX KEY: 0000864922 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 333-93871 FILM NUMBER: 1606564 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-06116 FILM NUMBER: 1606565 BUSINESS ADDRESS: STREET 1: 3100 SANDERS RD STREET 2: C/O NORTHBROOK LIFE INSURANCE CO CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 8474022400 MAIL ADDRESS: STREET 1: 3100 SANDERS RD CITY: NORTHBROOK STATE: IL ZIP: 60062 485BPOS 1 0001.txt NLIC PREFERRED CLIENT VA AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 2001 -------------------------------------------------------------------------- FILE NOS. 333-93871 811-6116 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 4 AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 40 NORTHBROOK VARIABLE ANNUITY ACCOUNT II (Exact Name of Registrant) NORTHBROOK LIFE INSURANCE COMPANY (Name of Depositor) NORTHBROOK LIFE INSURANCE COMPANY 3100 SANDERS ROAD NORTHBROOK, ILLINOIS 60062 847/402-2400 (Address and Telephone Number of Depositor's Principal Offices) MICHAEL J. VELOTTA VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL NORTHBROOK LIFE INSURANCE COMPANY 3100 SANDERS ROAD NORTHBROOK, ILLINOIS 60062 847/402-2400 (Name, Complete Address and Telephone Number of Agent for Service) COPIES TO: CHARLES M. SMITH, ESQUIRE DANIEL J. FITZPATRICK, ESQUIRE ALLSTATE LIFE INSURANCE MORGAN STANLEY DW INC. COMPANY TWO WORLD TRADE CENTER 3100 SANDERS ROAD NEW YORK, NEW YORK 10048 NORTHBROOK, ILLINOIS 60062 Approximate date of proposed public offering: Continuous. / / immediately upon filing pursuant to paragraph (b) of Rule 485 /X/ on May 1, 2001 pursuant to paragraph (b) of Rule 485 / / 60 days after filing pursuant to paragraph (a)(1) of Rule 485 / / on (date) pursuant to paragraph (a)(1) of Rule 485 Title of Securities Being Registered: Units of interest in the Northbrook Variable Annuity Account II under deferred variable annuity contracts. PREFERRED CLIENT VARIABLE ANNUITY NORTHBROOK LIFE INSURANCE COMPANY 300 N. MILWAUKEE AVENUE VERNON HILLS, IL 60061 TELEPHONE NUMBER: 1-800-654-2397 PROSPECTUS DATED MAY 1, 2001 - -------------------------------------------------------------------------------- Northbrook Life Insurance Company ("NORTHBROOK") is offering the Preferred Client Variable Annuity, an individual and group flexible premium deferred variable annuity contract ("CONTRACT"). This prospectus contains information about the Contract that you should know before investing. Please keep it for future reference. The Contract offers 32 investment alternatives ("INVESTMENT ALTERNATIVES"). The investment alternatives include a fixed account option ("FIXED ACCOUNT OPTION") and 31 variable sub-accounts ("VARIABLE SUB-ACCOUNTS") of the Northbrook Variable Annuity Account II ("VARIABLE ACCOUNT"). Each Variable Sub-Account invests exclusively in shares of portfolios ("PORTFOLIOS") of the following mutual funds ("FUNDS"): - AIM VARIABLE INSURANCE FUNDS - ALLIANCE VARIABLE PRODUCTS SERIES FUND (CLASS B SHARES) - MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - THE UNIVERSAL INSTITUTIONAL FUNDS, INC. - PUTNAM VARIABLE TRUST (CLASS IB SHARES) - VAN KAMPEN LIFE INVESTMENT TRUST WE (Northbrook) have filed a Statement of Additional Information, dated May 1, 2001, with the Securities and Exchange Commission ("SEC"). It contains more information about the Contract and is incorporated herein by reference, which means that it is legally a part of this prospectus. Its table of contents appears on page of this prospectus. For a free copy, please write or call us at the address or telephone number above, or go to the SEC's Web site (http://www.sec.gov). You can find other information and documents about us, including documents that are legally a part of this prospectus, at the SEC's Web site. - -------------------------------------------------------------------------------- THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS IMPORTANT PROSPECTUS. ANY ONE WHO TELLS YOU OTHERWISE IS COMMITTING A NOTICES FEDERAL CRIME. INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
PROSPECTUS 1 TABLE OF CONTENTS - -------------------------------------------------------------------
PAGE - ---------------------------------------------------------------------------- OVERVIEW - ---------------------------------------------------------------------------- Important Terms 3 - ---------------------------------------------------------------------------- The Contract At A Glance 4 - ---------------------------------------------------------------------------- How the Contract Works 6 - ---------------------------------------------------------------------------- Expense Table 7 - ---------------------------------------------------------------------------- Financial Information 11 - ---------------------------------------------------------------------------- CONTRACT FEATURES - ---------------------------------------------------------------------------- The Contract 12 - ---------------------------------------------------------------------------- Purchase of Contracts 13 - ---------------------------------------------------------------------------- Contract Value 14 - ---------------------------------------------------------------------------- Investment Alternatives 15 - ---------------------------------------------------------------------------- The Variable Sub-Accounts 15 - ---------------------------------------------------------------------------- The Fixed Account Option 17 - ---------------------------------------------------------------------------- Transfers 17 - ---------------------------------------------------------------------------- Expenses 19 - ---------------------------------------------------------------------------- Access to Your Money 20 - ---------------------------------------------------------------------------- Income Plans 21 - ---------------------------------------------------------------------------- Death Benefits 23 - ----------------------------------------------------------------------------
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PAGE OTHER INFORMATION - ---------------------------------------------------------------------------- More Information: 26 - ---------------------------------------------------------------------------- Northbrook 26 - ---------------------------------------------------------------------------- The Variable Account 26 - ---------------------------------------------------------------------------- The Portfolios 26 - ---------------------------------------------------------------------------- The Contract 27 - ---------------------------------------------------------------------------- Qualified Plans 27 - ---------------------------------------------------------------------------- Legal Matters 27 - ---------------------------------------------------------------------------- Taxes 28 - ---------------------------------------------------------------------------- Performance Information 31 - ---------------------------------------------------------------------------- APPENDIX -- ACCUMULATION UNIT VALUES A-1 - ---------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS A-10 - ----------------------------------------------------------------------------
2 PROSPECTUS 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 6 - -------------------------------------------------------------------------------- Accumulation Unit 11 - -------------------------------------------------------------------------------- Accumulation Unit Value 11 - -------------------------------------------------------------------------------- Annuitant 12 - -------------------------------------------------------------------------------- Automatic Additions Program 13 - -------------------------------------------------------------------------------- Automatic Portfolio Rebalancing Program 18 - -------------------------------------------------------------------------------- Beneficiary 12 - -------------------------------------------------------------------------------- Cancellation Period 13 - -------------------------------------------------------------------------------- *Contract 12 - -------------------------------------------------------------------------------- Contract Anniversary 5 - -------------------------------------------------------------------------------- Contract Owner ("You") 12 - -------------------------------------------------------------------------------- Contract Value 14 - -------------------------------------------------------------------------------- Contract Year 5 - -------------------------------------------------------------------------------- Death Benefit Anniversary 23 - -------------------------------------------------------------------------------- Death Benefit Combination Option 23 - -------------------------------------------------------------------------------- Dollar Cost Averaging Option 17 - -------------------------------------------------------------------------------- Dollar Cost Averaging Program 18 - -------------------------------------------------------------------------------- Due Proof of Death 23 - -------------------------------------------------------------------------------- Enhanced Death Benefit 24 - -------------------------------------------------------------------------------- Fixed Account Option 17 - --------------------------------------------------------------------------------
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PAGE Funds 1 - -------------------------------------------------------------------------------- Income Plan 21 - -------------------------------------------------------------------------------- Investment Alternatives 17 - -------------------------------------------------------------------------------- Issue Date 6 - -------------------------------------------------------------------------------- Northbrook ("We") 25 - -------------------------------------------------------------------------------- Payout Phase 6 - -------------------------------------------------------------------------------- Payout Start Date 21 - -------------------------------------------------------------------------------- Performance Benefit Combination Option 24 - -------------------------------------------------------------------------------- Performance Death Benefit Option 24 - -------------------------------------------------------------------------------- Performance Income Benefit Option 24 - -------------------------------------------------------------------------------- Portfolios 26 - -------------------------------------------------------------------------------- Qualified Contracts 29 - -------------------------------------------------------------------------------- Right to Cancel 13 - -------------------------------------------------------------------------------- SEC 1 - -------------------------------------------------------------------------------- Settlement Value 25 - -------------------------------------------------------------------------------- Systematic Withdrawal Program 20 - -------------------------------------------------------------------------------- Valuation Date 13 - -------------------------------------------------------------------------------- Variable Account 26 - -------------------------------------------------------------------------------- Variable Sub-Account 26 - --------------------------------------------------------------------------------
* If you purchase a group Contract, we will issue you a certificate that represents your ownership and that summarizes the provisions of the group Contract. References to "Contract" in this prospectus include certificates, unless the context requires otherwise. In certain states the Contract is available only as a group Contract. 3 PROSPECTUS 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. You must maintain a minimum account size of $1,000. - -------------------------------------------------------------------------------------------------------- RIGHT TO CANCEL You may cancel your Contract within 20 days of receipt or any Longer period as your state may require ("CANCELLATION PERIOD"). Upon cancellation, we will return your purchase payments adjusted, to the extent applicable law permits, to reflect the investment experience of any amounts allocated to the Variable Account. - -------------------------------------------------------------------------------------------------------- EXPENSES You will bear the following expenses: - Total Variable Account annual fees equal to 0.70% of average daily net assets (0.83% if you select the Performance Death Benefit Option, or the Performance Income Benefit Option, and 0.94% if you select the PERFORMANCE BENEFIT COMBINATION OPTION OR THE DEATH BENEFIT COMBINATION OPTION) - Transfer fee of $25 after 12th transfer in any Contract Year (fee currently waived) - State premium tax (if your state imposes one) In addition, each Portfolio pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. - -------------------------------------------------------------------------------------------------------- INVESTMENT ALTERNATIVES The Contract offers 32 investment alternatives including: - a Fixed Account Option (which credits interest at rates we guarantee) - 31 Variable Sub-Accounts investing in Portfolios offering professional money management by these investment advisers: - A I M ADVISORS, INC. - ALLIANCE CAPITAL MANAGEMENT, L.P. - MORGAN STANLEY DEAN WITTER ADVISORS, INC. - MORGAN STANLEY ASSET MANAGEMENT INC. - PUTNAM INVESTMENT MANAGEMENT, INC. - VAN KAMPEN ASSET MANAGEMENT INC. To find out current rates being paid on the Fixed Account Option, or to find out how the Variable Sub-Accounts have performed, call us at 1-800-654-2397. - -------------------------------------------------------------------------------------------------------- SPECIAL SERVICES For your convenience, we offer these special services: - AUTOMATIC ADDITIONS PROGRAM - AUTOMATIC PORTFOLIO REBALANCING PROGRAM - DOLLAR COST AVERAGING PROGRAM - SYSTEMATIC WITHDRAWAL PROGRAM
4 PROSPECTUS - -------------------------------------------------------------------------------------------------------- INCOME PAYMENTS You can choose fixed income payments, variable income payments, or a combination of the two. You can receive your income payments in one of the following ways: - life income with guaranteed payments - joint and survivor life income - guaranteed payments for a specified period - -------------------------------------------------------------------------------------------------------- DEATH BENEFITS If you or the ANNUITANT dies before the PAYOUT START DATE, we will pay the death benefit described in the Contract. We also offer death benefit options. - -------------------------------------------------------------------------------------------------------- TRANSFERS Before the Payout Start Date, you may transfer your Contract value ("CONTRACT VALUE") among the investment alternatives, with certain restrictions. Transfers must be at least $100 or the total amount in the investment alternative, whichever is less. We do not currently impose a fee upon transfers. However, we reserve the right to charge $25 per transfer after the 12th transfer in each "Contract Year," which we measure from the date we issue your contract or a Contract anniversary ("CONTRACT ANNIVERSARY"). - -------------------------------------------------------------------------------------------------------- WITHDRAWALS You may withdraw some or all of your Contract Value at any time during the Accumulation Phase. In general, you must withdraw at least $500 at a time or the total amount in the investment alternative, if less. A 10% federal tax penalty may apply if you withdraw before you are 59 1/2 years old.
The Preferred Client Variable Annuity is currently offered only through investment accounts that charge an annual fee in lieu of sales charges or an investment advisory fee. Fees for these accounts are specified in the respective account agreements and typically start at 1% and may be subject to minimum fees of $1,000 or more. The fees and expenses associated with these accounts are separate from and in addition to the fees and expenses associated with the Preferred Client Variable Annuity. You should consult your Morgan Stanley Dean Witter Financial Advisor for details. 5 PROSPECTUS HOW THE CONTRACT WORKS - ------------------------------------------------------------------- The Contract basically works in two ways. First, the Contract can help you (we assume you are the "CONTRACT OWNER") save for retirement because you can invest in up to 32 investment alternatives and pay no federal income taxes on any earnings until you withdraw them. You do this during what we call the "ACCUMULATION PHASE" of the Contract. The Accumulation Phase begins on the date we issue your Contract (we call that date the "ISSUE DATE") and continues until the Payout Start Date, which is the date we apply your money to provide income payments. During the Accumulation Phase, you may allocate your purchase payments to any combination of the Variable Sub-Accounts and/or the Fixed Account Option. If you invest in the Fixed Account Option, you will earn a fixed rate of interest that we declare periodically. If you invest in any of the Variable Sub-Accounts, your investment return will vary up or down depending on the performance of the corresponding Portfolios. Second, the Contract can help you plan for retirement because you can use it to receive retirement income for life and/or for a pre-set number of years, by selecting one of the income payment options (we call these "INCOME PLANS") described on page 21. You receive income payments during what we call the "PAYOUT PHASE" of the Contract, which begins on the Payout Start Date and continues until we make the last payment required by the Income Plan you select. During the Payout Phase, if you select a fixed income payment option, we guarantee the amount of your payments, which will remain fixed. If you select a variable income payment option, based on one or more of the Variable Sub-Accounts, the amount of your payments will vary up or down depending on the performance of the corresponding Portfolios. The amount of money you accumulate under your Contract during the Accumulation Phase and apply to an Income Plan will determine the amount of your income payments during the Payout Phase. The timeline below illustrates how you might use your Contract.
ISSUE ACCUMULATION PHASE PAYOUT START PAYOUT DATE DATE PHASE ------------------------------------------------------------------------------------------------------------ You buy You save for You elect to receive You can receive Or you can a Contract retirement income income payments receive income payments or receive for a set period payments for life a lump sum payment
As the Contract owner, you exercise all of the rights and privileges provided by the Contract. If you die, any surviving Contract owner or, if there is none, the BENEFICIARY will exercise the rights and privileges provided by the Contract. SEE "THE CONTRACT." In addition, if you die before the Payout Start Date, we will pay a death benefit to any surviving Contract owner, or if there is none, to your Beneficiary. SEE "Death Benefits." Please call us at 1-800-654-2397 if you have any question about how the Contract works. 6 PROSPECTUS EXPENSE TABLE - ------------------------------------------------------------------- The table below lists the expenses that you will bear directly or indirectly when you buy a Contract. The table and the examples that follow do not reflect premium taxes that may be imposed by the state where you reside. For more information about Variable Account expenses, see "Expenses," below. For more information about Portfolio expenses, please refer to the accompanying prospectuses for the Funds. The table and expenses also do not reflect the expenses associated with the Choice Account Program. Please see your Morgan Stanley Dean Witter Financial Advisor for details. CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge None - --------------------------------------------------- Annual Contract Maintenance Charge None - --------------------------------------------------- Transfer Fee $25* - ---------------------------------------------------
*Applies solely to the thirteenth and subsequent transfers within a Contract Year excluding transfers due to dollar cost averaging and automatic portfolio rebalancing. We are currently waiving the transfer fee. VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSET VALUE DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT)
With the Performance With the Performance Income Benefit or the Benefit Combination or Basic Performance Death the Death Benefit Contract Benefit Option Combination Option - -------------------------------------------------------------------------------------------------------- Mortality and Expense Risk Charge 0.60% 0.73% 0.84 - -------------------------------------------------------------------------------------------------------- Administrative Expense Charge 0.10% 0.10% 0.10% - -------------------------------------------------------------------------------------------------------- Total Variable Account Annual Expense 0.70% 0.83% 0.94% - --------------------------------------------------------------------------------------------------------
7 PROSPECTUS PORTFOLIO ANNUAL EXPENSES (After Voluntary Reductions and Reimbursements) (as a percentage of Portfolio average daily net assets)(1)
Management Rule 12b-1 Other Total Portfolio Portfolio Fees Fees Expenses Annual Expenses - --------------------------------------------------------------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS AIM V.I. Capital Appreciation Fund 0.61% N/A 0.21% 0.82% - --------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund 0.61% N/A 0.22% 0.83% - --------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund 0.61% N/A 0.23% 0.84% - --------------------------------------------------------------------------------------------------------------------------------- ALLIANCE VARIABLE PRODUCTS SERIES FUNDS (CLASS B SHARES) Alliance Growth (2) 0.75% 0.25% 0.08% 1.08% - --------------------------------------------------------------------------------------------------------------------------------- Alliance Growth and Income (2) 0.63% 0.25% 0.07% 0.95% - --------------------------------------------------------------------------------------------------------------------------------- Alliance Premier Growth (2) 1.00% 0.25% 0.05% 1.30% - --------------------------------------------------------------------------------------------------------------------------------- MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES Aggressive Equity 0.75% N/A 0.07% 0.82% - --------------------------------------------------------------------------------------------------------------------------------- Capital Growth 0.65% N/A 0.04% 0.69% - --------------------------------------------------------------------------------------------------------------------------------- Competitive Edge "Best Ideas" 0.65% N/A 0.06% 0.71% - --------------------------------------------------------------------------------------------------------------------------------- Dividend Growth 0.53% N/A 0.01% 0.54% - --------------------------------------------------------------------------------------------------------------------------------- Equity 0.49% N/A 0.01% 0.50% - --------------------------------------------------------------------------------------------------------------------------------- European Growth 0.94% N/A 0.06% 1.00% - --------------------------------------------------------------------------------------------------------------------------------- Global Dividend Growth 0.75% N/A 0.05% 0.80% - --------------------------------------------------------------------------------------------------------------------------------- High Yield 0.50% N/A 0.04% 0.54% - --------------------------------------------------------------------------------------------------------------------------------- Income Builder Portfolio 0.75% N/A 0.06% 0.81% - --------------------------------------------------------------------------------------------------------------------------------- Money Market 0.50% N/A 0.02% 0.52% - --------------------------------------------------------------------------------------------------------------------------------- Pacific Growth 0.95% N/A 0.26% 1.21% - --------------------------------------------------------------------------------------------------------------------------------- Quality Income Plus 0.50% N/A 0.02% 0.52% - --------------------------------------------------------------------------------------------------------------------------------- Short-Term Bond 0.45% N/A 0.53% 0.98% - --------------------------------------------------------------------------------------------------------------------------------- Strategist 0.50% N/A 0.02% 0.52% - --------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index 0.40% N/A 0.05% 0.45% - --------------------------------------------------------------------------------------------------------------------------------- Utilities 0.64% N/A 0.02% 0.66% - --------------------------------------------------------------------------------------------------------------------------------- THE UNIVERSAL INSTITUTIONAL FUNDS, INC. Emerging Markets Equity (3) 1.09% N/A 0.71% 1.80% - --------------------------------------------------------------------------------------------------------------------------------- Equity Growth (3) 0.48% N/A 0.37% 0.85% - --------------------------------------------------------------------------------------------------------------------------------- International Magnum (3) 0.50% N/A 0.68% 1.18% - --------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value (3) 0.53% N/A 0.52% 1.05% - --------------------------------------------------------------------------------------------------------------------------------- U.S. Real Estate (3) 0.74% N/A 0.36% 1.10% - --------------------------------------------------------------------------------------------------------------------------------- PUTNAM VARIABLE TRUST (CLASS IB SHARES) Putnam VT Growth and Income Fund 0.46% 0.25% 0.04% 0.75% - --------------------------------------------------------------------------------------------------------------------------------- Putnam VT International Growth Fund 0.80% 0.25% 0.17% 1.22% - --------------------------------------------------------------------------------------------------------------------------------- Putnam VT Voyager Fund 0.51% 0.25% 0.05% 0.81% - --------------------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST Van Kampen LIT Emerging Growth 0.70% N/A 0.05% 0.75% - ---------------------------------------------------------------------------------------------------------------------------------
(1) Figures shown in the Table are for the year ended December 31, 2000 (except as otherwise noted). (2) Class B of the Alliance Variable Products Series Fund has a distribution plan or "Rule 12b-1" plan as described in the Fund's prospectus. 8 PROSPECTUS (3) Absent voluntary reductions and reimbursements for certain Portfolios, "Management Fees," "Rule 12b-1 Fees," "Other Expenses," and "Total Portfolio Annual Expenses" as a percent of average net assets of the portfolios would have been as follows:
Management Rule 12b-1 Other Total Portfolio Portfolio Fees Fees Expenses Annual Expenses ----------------------------------------------------------------------------------------------------------------------------- Emerging Markets Equity 1.25% N/A 0.71% 1.96% ----------------------------------------------------------------------------------------------------------------------------- Equity Growth 0.55% N/A 0.37% 0.92% ----------------------------------------------------------------------------------------------------------------------------- International Magnum 0.80% N/A 0.68% 1.48% ----------------------------------------------------------------------------------------------------------------------------- Mid Cap Value 0.75% N/A 0.52% 1.27% ----------------------------------------------------------------------------------------------------------------------------- U.S. Real Estate 0.80% N/A 0.36% 1.16% -----------------------------------------------------------------------------------------------------------------------------
The Portfolio's Advisors may discontinue all or part of these reductions and reimbursements at any time. Additionally, in determining the actual amount of voluntary management fee waiver and/or expense reimbursement for a Portfolio, if any, the adviser excluded from the total annual operating expenses certain investment related expenses, such as foreign country tax expense and interest expense on borrowing. Included in "Other Expenses", respectively, would be as follows: Emerging Markets Equity Portfolio 0.05% and International Magnum Portfolio 0.03%. 9 PROSPECTUS EXAMPLE The example below shows the dollar amount of expenses that you would bear directly or indirectly if you: - - invested $1,000 in a Variable Sub-Account, - - earned a 5% annual return on your investment, and - - elected the Performance Benefit Combination Option or the Death Benefit Combination Option. THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDERED YOUR CONTRACT.
Variable Sub-Account 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------------------------------------------ AIM VARIABLE INSURANCE FUNDS AIM V.I. Capital Appreciation $16 $51 $ 88 $192 - ------------------------------------------------------------------------------------------------------------------------------ AIM V.I. Growth $17 $53 $ 91 $198 - ------------------------------------------------------------------------------------------------------------------------------ AIM V.I. Value $16 $51 $ 88 $191 - ------------------------------------------------------------------------------------------------------------------------------ ALLIANCE VARIABLE PRODUCTS SERIES FUNDS (CLASS B SHARES) Alliance Growth $21 $65 $112 $241 - ------------------------------------------------------------------------------------------------------------------------------ Alliance Growth and Income $20 $61 $105 $226 - ------------------------------------------------------------------------------------------------------------------------------ Alliance Premier Growth $23 $72 $123 $264 - ------------------------------------------------------------------------------------------------------------------------------ MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES Aggressive Equity $21 $64 $110 $237 - ------------------------------------------------------------------------------------------------------------------------------ Capital Growth $17 $52 $ 90 $196 - ------------------------------------------------------------------------------------------------------------------------------ Competitive Edge "Best Ideas" $19 $59 $101 $219 - ------------------------------------------------------------------------------------------------------------------------------ Dividend Growth $15 $47 $ 81 $177 - ------------------------------------------------------------------------------------------------------------------------------ Equity $15 $46 $ 80 $176 - ------------------------------------------------------------------------------------------------------------------------------ European Growth $21 $65 $111 $240 - ------------------------------------------------------------------------------------------------------------------------------ Global Dividend Growth $18 $56 $ 97 $211 - ------------------------------------------------------------------------------------------------------------------------------ High Yield $15 $47 $ 81 $177 - ------------------------------------------------------------------------------------------------------------------------------ Income Builder $18 $56 $ 96 $208 - ------------------------------------------------------------------------------------------------------------------------------ Money Market $15 $46 $ 80 $176 - ------------------------------------------------------------------------------------------------------------------------------ Pacific Growth $25 $77 $132 $281 - ------------------------------------------------------------------------------------------------------------------------------ Quality Income Plus $15 $46 $ 80 $176 - ------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond $16 $50 $ 86 $187 - ------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index $16 $49 $ 84 $183 - ------------------------------------------------------------------------------------------------------------------------------ Strategist $15 $46 $ 80 $176 - ------------------------------------------------------------------------------------------------------------------------------ Utilities $16 $51 $ 88 $192 - ------------------------------------------------------------------------------------------------------------------------------ THE UNIVERSAL INSTITUTIONAL FUNDS, INC. Emerging Markets Equity $30 $91 $154 $325 - ------------------------------------------------------------------------------------------------------------------------------ Equity Growth $18 $57 $ 98 $212 - ------------------------------------------------------------------------------------------------------------------------------ International Magnum $21 $66 $113 $244 - ------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Value $20 $63 $108 $233 - ------------------------------------------------------------------------------------------------------------------------------ U.S. Real Estate $21 $65 $111 $239 - ------------------------------------------------------------------------------------------------------------------------------ PUTNAM VARIABLE TRUST (CLASS IB SHARES) Putnam VT Growth and Income $17 $54 $ 92 $201 - ------------------------------------------------------------------------------------------------------------------------------ Putnam VT International Growth $22 $68 $117 $251 - ------------------------------------------------------------------------------------------------------------------------------ Putnam VT Voyager $18 $56 $ 96 $208 - ------------------------------------------------------------------------------------------------------------------------------ VAN KAMPEN LIFE INVESTMENT TRUST Emerging Growth $18 $57 $ 98 $212 - ------------------------------------------------------------------------------------------------------------------------------
PLEASE REMEMBER THAT YOU ARE LOOKING AT AN EXAMPLE AND NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE LOWER OR GREATER THAN THOSE SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LOWER OR GREATER THAN 5%, WHICH IS NOT GUARANTEED. THE ABOVE EXAMPLES ASSUME THE ELECTION OF THE DEATH BENEFIT COMBINATION OPTION, WITH A MORTALITY AND EXPENSE RISK CHARGE OF 0.84%. IF THIS OPTION WAS NOT ELECTED, THE EXPENSE FIGURES SHOWN ABOVE WOULD BE SLIGHTLY LOWER. 10 PROSPECTUS FINANCIAL INFORMATION - ------------------------------------------------------------------- To measure the value of your investment in the Variable Sub-Accounts during the Accumulation Phase, we use a unit of measure we call the "ACCUMULATION UNIT." Each Variable Sub-Account has a separate value for its Accumulation Units we call the "ACCUMULATION UNIT VALUE." Accumulation Unit Value is similar to, but not the same as, the share price of a mutual fund. Attached as Appendix A to this prospectus are tables showing the Accumulation Unit Values of each Variable Sub-Account since the date we first offered the Contracts. To obtain additional detail on each Variable Sub-Account's finances, please refer to the Variable Account's financial statements contained in the Statement of Additional Information. The financial statements of Northbrook also appear in the Statement of Additional Information. 11 PROSPECTUS THE CONTRACT - ------------------------------------------------------------------- CONTRACT OWNER The Preferred Client Variable Annuity is a contract between you, the Contract owner, and Northbrook, a life insurance company. As the Contract owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted): - - the investment alternatives during the Accumulation and Payout Phases, - - the amount and timing of your purchase payments and withdrawals, - - the programs you want to use to invest or withdraw money, - - the income payment plan you want to use to receive retirement income, - - the Owner, if the Owner is a natural person, - - 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 age of the oldest Contract Owner cannot exceed 90 as of the date we receive the completed application. 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 27. 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. The maximum age of the oldest Annuitant cannot exceed 90 as of the date we receive the completed application. You initially designate an Annuitant in your application. If the Contract owner is a natural person, you may change the Annuitant at any time prior to the Payout Start Date. Once we receive your change request, any change will be effective at the time you sign the written notice. We are not liable for any payment we make or other action we take before receiving any written request from you. Before the Payout Start Date, you may designate a joint Annuitant, who is a second person on whose life income payments depend. If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be the youngest Contract owner, otherwise, the youngest Beneficiary, unless the Contract owner names a different Annuitant. BENEFICIARY The Beneficiary is the person who may elect to receive the death benefit or become the new Contract owner if the sole surviving Contract owner dies before the Payout Start Date. If the sole surviving Contract owner dies after the Payout Start Date, the Beneficiary will receive any guaranteed income payments scheduled to continue. You may name one or more Beneficiaries when you apply for a Contract. You may change or add Beneficiaries at any time by writing to us, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed and filed with us. Any change will be effective at the time you sign the written notice, whether or not the Annuitant is living when we receive the notice. Until we receive your written notice to change a Beneficiary, we are entitled to rely on the most recent Beneficiary information in our files. We will not be liable as to any payment or settlement made prior to receiving the written notice. Accordingly, if you wish to change your Beneficiary, you should deliver your written notice to us promptly. If you did not name a Beneficiary or, if the named Beneficiary is no longer living and there are no other surviving Beneficiaries, the new Beneficiary will be: - - your spouse, if he or she is still alive, otherwise - - your surviving children equally, or if you have no surviving children, - - your estate. If more than one Beneficiary survives you, (or the Annuitant, if the Contract owner is not a natural person) we will divide the death benefit among your Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the death benefit in equal amounts to the surviving Beneficiaries. MODIFICATION OF THE CONTRACT Only a Northbrook officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law. 12 PROSPECTUS 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. PURCHASE OF CONTRACTS - ------------------------------------------------------------------- MINIMUM PURCHASE PAYMENTS Your initial purchase payment must be at least $1,000. We may increase or decrease this minimum in the future. You may make additional purchase payments of at least $100 at any time prior to the Payout Start Date. We reserve the right to lower the minimum and limit the maximum amount of purchase payments we will accept. We also reserve the right to reject any application. AUTOMATIC ADDITIONS PROGRAM You may make subsequent purchase payments of at least $100 by automatically transferring amounts from your bank account or your Morgan Stanley Dean Witter Choice Account. Please consult your Morgan Stanley Dean Witter Financial Advisor for details. ALLOCATION OF PURCHASE PAYMENTS At the time you apply for a Contract, you must decide how to allocate your purchase payments among the investment alternatives. The allocation you specify on your application will be effective immediately. All allocations must be in whole percentages that total 100% or in whole dollars. The minimum you may allocate to any investment alternative is $100. You can change your allocations by notifying us in writing. We will allocate your purchase payments to the investment alternatives according to your most recent instructions on file with us. Unless you notify us in writing otherwise, we will allocate subsequent purchase payments according to the allocation for the previous purchase payment. We will effect any change in allocation instructions at the time we receive written notice of the change in good order. We will credit the initial purchase payment that accompanies your completed application to your Contract within 2 business days after we receive the payment at our headquarters. If your application is incomplete, we will ask you to complete your application within 5 business days. If you do so, we will credit your initial purchase payment to your Contract within that 5 business day period. If you do not, we will return your purchase payment at the end of the 5 business day period unless you expressly allow us to hold it until you complete the application. We will credit subsequent purchase payments to the Contract on the business day that we receive the purchase payment at our headquarters. We use the term "business day" to refer to each day Monday through Friday that the New York Stock Exchange is open for business. We also refer to these days as "VALUATION DATES." If we receive your purchase payment after 3 p.m. Central Time on any Valuation Date, we will credit your purchase payment using the Accumulation Unit Values computed on the next Valuation Date. RIGHT TO CANCEL You may cancel the Contract within the Cancellation Period, which is the 20-day period after you receive the Contract or such longer period as your state may require. If you exercise this "RIGHT TO CANCEL," the Contract terminates and we will pay you the full amount of your purchase payments allocated to the Fixed Account Option. We also will return your purchase payments allocated to the Variable Account after an adjustment, to the extent state or federal law permit, to reflect investment gain or loss that occurred from the date of allocation through the date of cancellation. Some states may require us to return a greater amount to you. 13 PROSPECTUS CONTRACT VALUE - ------------------------------------------------------------------- Your Contract Value at any time during the Accumulation Phase is equal to the sum of the value of your Accumulation Units in the Variable Sub-Accounts you have selected, plus the value of your investment in the Fixed Account Option. ACCUMULATION UNITS To determine the number of Accumulation Units of each Variable Sub-Account to allocate to your Contract, we divide (i) the amount of the purchase payment or transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of that Variable Sub-Account next computed after we receive your payment or transfer. For example, if we receive a $10,000 purchase payment allocated to a Variable Sub-Account when the Accumulation Unit Value for the Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Sub-Account allocated to your Contract. ACCUMULATION UNIT VALUE As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect: - - changes in the share price of the Portfolio in which the Variable Sub-Account invests, and - - the deduction of amounts reflecting the mortality and expense risk charge, administrative expense charge, and any provision for taxes that have accrued since we last calculated the Accumulation Unit Value. We determine transfer fees (currently waived) separately for each Contract. They do not affect Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we calculate Accumulation Unit Value, please refer to the Statement of Additional Information. We determine a separate Accumulation Unit Value for each Variable Sub-Account on each Valuation Date. We also determine a second set of Accumulation Unit Values that reflect the cost of the Performance Death Benefit Option, or the Performance Income Benefit Option, and a third set of Accumulation Unit Values that reflect the cost of the Performance Benefit Combination Option and Death Benefit Combination Option. YOU SHOULD REFER TO THE PROSPECTUSES FOR THE FUNDS THAT ACCOMPANY THIS PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE. 14 PROSPECTUS INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS - ------------------------------------------------------------------- You may allocate your purchase payments to up to 31 Variable Sub-Accounts. Each Variable Sub-Account invests in the shares of a corresponding Portfolio. Each Portfolio has its own investment objective(s) and policies. We briefly describe the Portfolios below. For more complete information about each Portfolio, including the investment objective(s), expenses and risks associated with the Portfolio, please refer to the accompanying prospectuses for the Funds. You should carefully review the Fund prospectuses before allocating amounts to the Variable Sub-Accounts.
Portfolio*: Each Portfolio Seeks: Investment Adviser: AIM VARIABLE INSURANCE FUNDS AIM V.I. Capital Appreciation Fund Growth of capital AIM V.I. Growth Fund Growth of capital AIM Advisors, Inc. AIM V.I. Value Fund Long-term growth of capital ALLIANCE VARIABLE PRODUCTS SERIES FUND (CLASS B SHARES) Growth Portfolio Long-term growth of capital Current income is incidental To the Portfolio's objective Growth and Income Portfolio Reasonable current income and Alliance Capital reasonable opportunity for Management L.P. appreciation Premier Growth Portfolio Growth of capital by pursuing aggressive investment policies MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES Money Market Portfolio High current income, preservation of capital, and liquidity Quality Income Plus Portfolio High current income and, as a secondary objective, capital appreciation when consistent with its primary objective Short-Term Bond Portfolio High current income consistent with preservation of capital High Yield Portfolio High current income and, as a secondary objective, capital appreciation when consistent with its primary objective Utilities Portfolio Capital appreciation and current income Income Builder Portfolio Reasonable income and, as a secondary objective, growth of capital Dividend Growth Portfolio Reasonable current income and Morgan Stanley Dean long-term growth of income and Witter Advisors, Inc. capital Capital Growth Portfolio Long-term capital growth Global Dividend Growth Portfolio Reasonable current income and long-term growth of income and capital European Growth Portfolio To maximize the capital appreciation on its investments Pacific Growth Portfolio To maximize the capital appreciation on its investments Aggressive Equity Portfolio Capital Growth Equity Portfolio Growth of capital and, as a secondary objective, income when consistent with its primary objective. S&P 500 Index Investment results that, before expenses, correspond to the total return of the Standard and Poor's 500 Composite Stock Price Index Competitive Edge "Best Ideas" Long-term capital growth Portfolio Strategist Portfolio High total investment return Portfolio*: Each Portfolio Seeks: Investment Adviser: THE UNIVERSAL INSTITUTIONAL FUNDS, INC. Equity Growth Portfolio Long-term capital appreciation U.S. Real Estate Portfolio Above-average current Income And Morgan Stanley Asset long-term capital appreciation Management, Inc. International Magnum Portfolio Long-term capital appreciation Emerging Markets Equity Portfolio Long-term capital appreciation Mid-Cap Value Above-average total return over a Miller Anderson & market cycle of three to five years Sherrerd PUTNAM VARIABLE TRUST (CLASS IB SHARES) Putnam VT Growth and Income Fund Capital growth and current Income Putnam VT International Growth Fund Capital appreciation Putnam Investment Management, Inc. Putnam VT Voyager Fund Capital appreciation VAN KAMPEN LIFE INVESTMENT TRUST Emerging Growth Portfolio Capital appreciation. Van Kampen Asset Management Inc.
*A portfolio's investment objective may be changed by the Fund's Board of Directors without shareholder approval. AMOUNTS YOU ALLOCATE TO VARIABLE SUB-ACCOUNTS MAY GROW IN VALUE, DECLINE IN VALUE, OR GROW LESS THAN YOU EXPECT, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. 15 PROSPECTUS INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT OPTION - ------------------------------------------------------------------- You may allocate all or a portion of your purchase payments to the Fixed Account. We are currently offering only a Dollar Cost Averaging Fixed Account Option ("DOLLAR COST AVERAGING OPTION"), described below. We may offer additional Fixed Account options in the future. The Dollar Cost Averaging Option may not be available in all states. Northbrook may also limit the availability of the Dollar Cost Averaging Option. Please consult with your Morgan Stanley Dean Witter Financial Advisor for current information. The Fixed Account supports our insurance and annuity obligations. The Fixed Account consists of our general assets other than those in segregated asset accounts. We have sole discretion to invest the assets of the Fixed Account, subject to applicable law. Any money you allocate to the Fixed Account does not entitle you to share in the investment experience of the Fixed Account. DOLLAR COST AVERAGING OPTION You may establish a Dollar Cost Averaging Program, as described on page 18, by allocating purchase payments to the Dollar Cost Averaging Option. Purchase payments that you allocate to the Dollar Cost Averaging Option will earn interest for up to a 1 year period at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound over the year to the annual interest rate we guaranteed at the time of allocation. You may not transfer funds from other investment alternatives to the Dollar Cost Averaging Option. The crediting rates for the Dollar Cost Averaging Option will never be less than 3% annually. We may declare more than one interest rate for different monies based upon the date of allocation to the Dollar Cost Averaging Option. For current interest rate information, please contact your Morgan Stanley Dean Witter Financial Advisor or our customer support unit at 1-800-654-2397. INVESTMENT ALTERNATIVES: TRANSFERS - ------------------------------------------------------------------- TRANSFERS DURING THE ACCUMULATION PHASE During the Accumulation Phase, you may transfer the Contract Value among the investment alternatives. You may not transfer Contract Value into the Dollar Cost Averaging Option. You may request transfers in writing on a form that we provide or by telephone according to the procedure described below. The minimum amount that you may transfer is $100 or the total amount in the investment alternative, whichever is less. We currently do not assess, but reserve the right to assess, a $25 charge on each transfer in excess of 12 per Contract Year. We will notify you at least 30 days before we begin imposing the transfer charge. We treat transfers to or from more than one Portfolio on the same day as one transfer. We will process transfer requests that we receive before 3:00 p.m. Central Time on any Valuation Date using the Accumulation Unit Values for that Date. We will process requests completed after 3:00 p.m. Central Time on any Valuation Date using the Accumulation Unit Values for the next Valuation Date. The Contract permits us to defer transfers from the Fixed Account Option for up to 6 months from the date we receive your request. If we decide to postpone transfers for 30 days or more, we will pay interest as required by applicable law. Any interest would be payable from the date we receive the transfer request to the date we make the transfer. EXCESSIVE TRADING We reserve the right to limit transfers among the Variable Sub-Accounts if we determine, in our sole discretion, that transfers by one or more Contract owners would be to the disadvantage of other Contract owners. We may limit transfers by taking such steps as: - - imposing a minimum time period between each transfer, - - refusing to accept transfer requests of an agent acting under a power of attorney on behalf of more than one Contract owner, or - - limiting the dollar amount that a Contract owner may transfer between the Variable Sub-Accounts and the Fixed Account Option at any one time. We may apply the restrictions in any manner reasonably designed to prevent transfers that we consider disadvantageous to other Contract owners. We reserve the right to waive any transfer restrictions. TRANSFERS DURING THE PAYOUT PHASE During the Payout Phase, you may make transfers among the Variable Sub-Accounts so as to change the relative weighting of the Variable Sub-Accounts on which your variable income payments will be based. In addition, you will have a limited ability to make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. You may not, however, convert any portion of your right to 17 PROSPECTUS receive fixed income payments into variable income payments. You may not make any transfers for the first 6 months after the Payout Start Date. Thereafter, you may make transfers among the Variable Sub-Accounts or make transfers from the Variable Sub-Accounts to increase the proportion of your income payments consisting of fixed income payments. Your transfers must be at least 6 months apart. TELEPHONE TRANSFERS You may make transfers by telephone by calling 1-800-654-2397 if you have on file a completed authorization form. The cut off time for telephone transfer requests is 3:00 p.m. Central Time. In the event that the New York Stock Exchange closes early, i.e., before 3:00 p.m. Central Time, or in the event that the Exchange closes early for a period of time but then reopens for trading on the same day, we will process telephone transfer requests as of the close of the Exchange on that particular day. We will not accept telephone requests received at any telephone number other than the number that appears in this paragraph or received after the close of trading on the Exchange. We may suspend, modify or terminate the telephone transfer privilege at any time without notice. We use procedures that we believe provide reasonable assurance that the telephone transfers are genuine. For example, we tape telephone conversations with persons purporting to authorize transfers and request identifying information. Accordingly, we disclaim any liability for losses resulting from allegedly unauthorized telephone transfers. However, if we do not take reasonable steps to help ensure that a telephone authorization is valid, we may be liable for such losses. DOLLAR COST AVERAGING PROGRAM Through our Dollar Cost Averaging Program, you may automatically transfer a set amount every month (or other intervals we may offer) during the Accumulation Phase from any Variable Sub-Account or the Dollar Cost Averaging Option to any Variable Sub-Account. Transfers made through dollar cost averaging must be $100 or more. We will not charge a transfer fee for transfers made under this Program, nor will such transfers count against the 12 transfers you can make each Contract Year without paying a transfer fee. The theory of dollar cost averaging is that if purchases of equal dollar amounts are made at fluctuating prices, the aggregate average cost per unit will be less than the average of the unit prices on the same purchase dates. However, participation in this Program does not assure you of a greater profit from your purchases under the Program nor will it prevent or necessarily reduce losses in a declining market. Call or write us for information on how to enroll. AUTOMATIC PORTFOLIO REBALANCING PROGRAM Once you have allocated your money among the Variable Sub-Accounts, the performance of each Sub-Account may cause a shift in the percentage you allocated to each Sub-Account. If you select our Automatic Portfolio Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. We will not include money you allocate to the Fixed Account Option in the Automatic Portfolio Rebalancing Program. We will rebalance your account each quarter (or other intervals that we may offer) according to your instructions. We will transfer amounts among the Variable Sub-Accounts to achieve the percentage allocations you specify. You can change your allocations at any time by contacting us in writing or by telephone. The new allocation will be effective with the first rebalancing that occurs after we receive your requests. We are not responsible for rebalancing that occurs prior to receipt of your request. Example: Assume that you want your initial purchase payment split among 2 Variable Sub-Accounts. You want 40% to be in the High Yield Variable Sub-Account and 60% to be in the Equity Growth Variable Sub-Account. Over the next 2 months the bond market does very well while the stock market performs poorly. At the end of the first quarter, the High Yield Variable Sub-Account now represents 50% of your holdings because of its increase in value. If you choose to have your holdings rebalanced quarterly, on the first day of the next quarter, we would sell some of your units in the High Yield Variable Sub-Account and use the money to buy more units in the Equity Growth Variable Sub-Account so that the percentage allocations would again be 40% and 60% respectively. The Automatic Portfolio Rebalancing Program is available only during the Accumulation Phase. The transfers made under the Program do not count towards the 12 transfers you can make without paying a transfer fee, and are not subject to a transfer fee. Portfolio rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Contract Value allocated to the better performing segments. 18 PROSPECTUS EXPENSES - ------------------------------------------------------------------- As a Contract owner, you will bear, directly or indirectly, the charges and expenses described below. MORTALITY AND EXPENSE RISK CHARGE We deduct a mortality and expense risk charge daily at an annual rate of 0.60% of the average daily net assets you have invested in the Variable Sub-Accounts (0.73% if you select either the Performance Death Benefit Option or the Performance Income Benefit Option, and 0.84% if you select the Performance Benefit Combination Option or the Death Benefit Combination Option). The mortality and expense risk charge is for all the insurance benefits available with your Contract (including our guarantee of annuity rates and the death benefits), for certain expenses of the Contract, and for assuming the risk (expense risk) that the current changes will not be sufficient in the future to cover the cost of administering the Contract. If the charges under the Contract are not sufficient, then we will bear the loss. We charge an additional amount for the Death Benefit Options and the Income Benefit Options to compensate us for the additional risk that we accept by providing these Options. We guarantee the mortality and expense risk charge and we cannot increase it. We assess the mortality and expense risk charge during both the Accumulation Phase and the Payout Phase. ADMINISTRATIVE EXPENSE CHARGE We deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-Accounts. We guarantee the administrative expense charge and we cannot increase it. We intend this charge to cover actual administrative expenses. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed to that Contract. We assess this charge each day during the Accumulation Phase and the Payout Phase. TRANSFER FEE We do not currently impose a fee upon transfers among the investment alternatives. However, we reserve the right to charge a $25 per transfer after the 12th transfer in each Contract Year. We will not charge a transfer fee on transfers that are part of a Dollar Cost Averaging or Automatic Portfolio Rebalancing Program. PREMIUM TAXES Some states and other governmental entities (e.g., municipalities) charge premium taxes or similar taxes. We are responsible for paying these taxes and will deduct them from your Contract Value. Some of these taxes are due when the Contract is issued, others are due when income payments begin or upon surrender. Our current practice is not to charge anyone for these taxes until income payments begin or when a total withdrawal occurs including payment upon death. At our discretion, we may discontinue this practice and deduct premium taxes from the purchase payments. Premium taxes generally range form 0% to 4%, depending on the state. At the Payout Start Date, if applicable, we deduct the charge for premium taxes from each investment alternative in the proportion that the Contract owner's value in the investment alternative bears to the total Contract Value. DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES We are not currently making a provision for taxes. In the future, however, we may make a provision for taxes if we determine, in our sole discretion, that we will incur a tax as a result of the operation of the Variable Account. We will deduct for any taxes we incur as a result of the operation of the Variable Account, whether or not we previously made a provision for taxes and whether or not is was sufficient. Our status under the Internal Revenue Code is briefly described in the Statement of Additional Information. OTHER EXPENSES Each Portfolio deducts advisory fees and other expenses from its assets. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Variable Sub-Accounts. These fees and expenses are described in the accompanying prospectuses for the Funds. For a summary of current estimates of those charges and expenses, see pages 7 - 10 above. We may receive compensation from the investment advisers or administrators of the Portfolios for administrative services we provide to the Portfolios. The Preferred Client Variable Annuity is offered only to participants in the Choice Account Program. This Contract is currently offered only through investment accounts that charge an annual fee in lieu of sales charges or an investment advisory fee. Fees for these accounts are specified in the respective account agreements and typically start at 1% and may be subject to minimum fees of $1,000 or more The fees and expenses associated with these accounts are separate from and in addition to the fees and expenses associated with the Preferred Client Variable Annuity. You should consult your Morgan Stanley Dean Witter Financial Advisor for details. 19 PROSPECTUS ACCESS TO YOUR MONEY - ------------------------------------------------------------------- You can withdraw some or all of your Contract Value at any time during the Accumulation Phase. Withdrawals also are available under limited circumstances on or after the Payout Start Date. See "Income Plans" on page 21. You can withdraw money from the Variable Account and/or the Fixed Account. The amount payable upon withdrawal is the Contract Value (or portion thereof) next computed after we receive the request for a withdrawal at our headquarters, less any income tax withholding, penalty tax, and any premium taxes. To complete a partial withdrawal from the Variable Account, we will cancel Accumulation Units in an amount equal to the withdrawal and any applicable charges and taxes. We will pay withdrawals from the Variable Account within 7 days of receipt of the request, subject to postponement in certain circumstances. You have the opportunity to name the investment alternative(s) from which you are taking the withdrawal. If none are named, then we will withdraw the amount from the investment alternatives in which you are invested according to each alternative percentage shares of the Contract Value. In general, you must withdraw at least $500 at a time. You may also withdraw a lesser amount if you are withdrawing your entire interest in a Variable Sub-Account. We impose no withdrawal charge for withdrawals out of the Preferred Client Variable Annuity. However, withdrawals, including withdrawals made to pay all or part of any fee associated with the Choice Account Program, also may be subject to income tax and a 10% penalty tax, as described in "Taxes," on page 28. In addition, a charge may apply if you decide to no longer participate in the Choice Account Program. You should consult your Morgan Stanley Dean Witter Financial advisor for details. The total amount paid or surrender may be more or less than the total purchase payments due to prior withdrawals, any deductions, and investment performance. POSTPONEMENT OF PAYMENTS We may postpone the payment of any amounts due from the Variable Account under the Contract if: 1. The New York Stock Exchange is closed for other than usual weekends or holidays, or trading on the Exchange is otherwise restricted; 2. An emergency exists as defined by the SEC; or 3. The SEC permits delay for your protection. In addition, we may delay payment or transfers from the Fixed Account Option for up to 6 months or shorter period if required by law. If we delay payment or transfer for 30 days or more, we will pay interest as required by applicable law. Any interest would be payable from the date we receive the withdrawal request to the date we make the payment or transfer. SYSTEMATIC WITHDRAWAL PROGRAM You may choose to receive systematic withdrawal payments on a monthly basis at any time prior to the Payout Start Date. The minimum amount of each systematic withdrawal is $100. We will deposit systematic withdrawal payments into the Contract owner's bank account or Morgan Stanley Dean Witter Account. Please consult with your Morgan Stanley Dean Witter Financial Advisor for details. Depending on fluctuations in the value of the Variable Sub-Accounts and the value of the Fixed Account Option, systematic withdrawals may reduce or even exhaust the Contract Value. Income taxes may apply to systematic withdrawals. Please consult your tax advisor before taking any withdrawal. We may modify or suspend the Systematic Withdrawal Program and charge a processing fee for the service. If we modify or suspend the Systematic Withdrawal Program, existing systematic withdrawal payments will not be affected. MINIMUM CONTRACT VALUE If your request for a partial withdrawal would reduce your Contract Value to less than $1,000, we may treat it as a request to withdraw your entire Contract Value. Your Contract will terminate if you withdraw all of your Contract Value. We will, however, ask you to confirm your withdrawal request before terminating your Contract. If we terminate your Contract, we will distribute to you its Contract Value, less any applicable charges and taxes. 20 PROSPECTUS INCOME PAYMENTS - ------------------------------------------------------------------- PAYOUT START DATE The Payout Start Date is the day that money is applied to an Income Plan. The Payout Start Date must be no later than: - - the Annuitant's 90th Birthday, or - - the 10th Contract Anniversary, if later. You may change the Payout Start Date at any time by notifying us in writing of the change at least 30 days before the scheduled Payout Start Date. Absent a change, we will use the Payout Start Date stated in your Contract. INCOME PLANS An "Income Plan" is a series of payments on a scheduled basis to you or to another person designated by you. You may choose and change your choice of Income Plan until 30 days before the Payout Start Date. If you do not select an Income Plan, we will make income payments in accordance with Income Plan 1 with guaranteed payment for 10 years. After the Payout Start Date, you may not make withdrawals (except as described below) or change your choice of Income Plan. Three Income Plans are available under the Contract. Each is available to provide: - - fixed income payments; - - variable income payments; or - - a combination of the two. The three Income Plans are: INCOME PLAN 1 -- LIFE INCOME WITH GUARANTEED PAYMENTS. Under this plan, we make periodic income payments for at least as long as the Annuitant lives. If the Annuitant dies before we have made all of the guaranteed income payments, we will continue to pay the remainder of the guaranteed income payments as required by the Contract. INCOME PLAN 2 -- JOINT AND SURVIVOR LIFE INCOME. Under this plan, we make periodic income payments for as long as either the Annuitant or the joint Annuitant is alive. INCOME PLAN 3 -- GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD (5 TO 30 YEARS). Under this plan, we make periodic income payments for the period you have chosen. These payments do not depend on the Annuitant's life. We will deduct the mortality and expense risk charge from the assets of the Variable Account supporting this Income Plan even though we may not bear any mortality risk. The length of any guaranteed payment period under your selected Income Plan generally will affect the dollar amounts of each income payment. As a general rule, longer guaranteed periods result in lower income payments, all other things being equal. For example, if choose an Income Plan with payments that depend on the life of the Annuitant but with no minimum specified period for guaranteed payments, the income payments generally will be greater than the income payments made under the same Income Plan with a minimum specified period for guaranteed payments. We may make other Income Plans available including ones that you and we agree upon. You may obtain information about them by writing or calling us. If you choose Income Plan 1 or 2, or, if available, another Income Plan with payments that continue for the life of the Annuitant or joint Annuitant, we may require proof of age and sex of the Annuitant or joint Annuitant before starting income payments, and proof that the Annuitant or joint Annuitant is still alive before we make each payment. Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on. Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or part of the Variable Account portion of the income payments at any time and receive a lump sum equal to the present value of the remaining variable payments associated with the amount withdrawn. The minimum amount you may withdraw under this feature is $1,000. We also assess applicable premium taxes against all income payments. You may apply your Contract Value to an Income Plan. If you elected the Performance Income Benefit Option, you may be able to apply an amount greater than your Contract Value to an Income Plan. You must apply at least the Contract Value in the Fixed Account Option on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account Option balance to provide variable income payments, you should plan ahead and transfer that amount to the Variable Sub-Accounts prior to the Payout Start Date. If you do not tell us how to allocate your Contract Value among fixed and variable income payments, we will apply your Contract Value in the Variable Account to variable income payments and your Contract Value in the Fixed Account Option to fixed income payments. We will apply your Contract Value, less applicable taxes, to your Income Plan on the Payout Start Date. If the amount available to apply under an Income Plan is less than $2,000, 21 PROSPECTUS 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 - - reduce the frequency of your payments so that each payment will be at least $20. VARIABLE INCOME PAYMENTS The amount of your variable income payments depends upon the investment results of the Variable Sub-Accounts you select, the premium taxes you pay, the age and sex of the Annuitant, and the Income Plan you choose. We guarantee that the payments will not be affected by (a) actual mortality experience and (b) the amount of our administration expenses. We cannot predict the total amount of your variable income payments. Your variable income payments may be more or less than your total purchase payments because (a) variable income payments vary with the investment results of the underlying Portfolios, and (b) the Annuitant could live longer or shorter than we expect based on the tables we use. In calculating the amount of the periodic payments in the annuity tables in the Contract, we assumed an annual investment rate of 3%. If the actual net investment return of the Variable Sub-Accounts you choose is less than this assumed investment rate, then the dollar amount of your variable income payments will decrease. The dollar amount of your variable income payments will increase, however, if the actual net investment return exceeds the assumed investment rate. The dollar amount of the variable income payments stays level if the net investment return equals the assumed investment rate. Please refer to the Statement of Additional Information for more detailed information as to how we determine variable income payments. FIXED INCOME PAYMENTS We guarantee income payment amounts derived from any Fixed Account Option for the duration of the Income Plan. We calculate the fixed income payments by: 1. deducting any applicable premium tax; and 2. applying the resulting amount to the greater of (a) the appropriate value from the income payment table in your Contract or (b) such other value as we are offering at that time. We may defer making fixed income payments for a period of up to 6 months or such shorter time state law may require. If we defer payments for 30 days or more, we will pay interest as required by law from the date we receive the withdrawal request to the date we make payment. PERFORMANCE INCOME BENEFIT If the oldest Contract Owner, or Annuitant if the Owner is a non-natural person, is less than or equal to age 75 as of the date we receive the signed application or the date we receive the written request to add the following rider, whichever is later, the Performance Income Benefit is an optional benefit that you may elect. Keep in mind that once you have selected an optional income or death benefit, your ability to select a different option may be limited. Please consult with your Financial Advisor concerning any such limitations before selecting any option. Further, if you select another option, the benefits under the new option on the date we issue the new option will equal the Contract Value. You will not retain or transfer the benefits of the earlier option. Please consult with your Financial Advisor concerning the effect of selecting a different option before doing so. We may discontinue the offering of these options at any time. On the date we issue the rider for this benefit ("Rider Date"), the Performance Income Benefit is equal to the Contract Value. On each Contract Anniversary, we will recalculate your Performance Income Benefit to equal the greater of your Contract Value on that date or the most recently calculated Performance Income Benefit. We will also recalculate your Performance Income Benefit whenever you make an additional purchase payment or a partial withdrawal. Additional purchase payments will increase the Performance Income Benefit dollar-for-dollar. Withdrawals will reduce the Performance Income Benefit by an amount equal to: (i) the Performance Income Benefit just before the withdrawal, multiplied by (ii) the ratio of the withdrawal amount to the Contract Value just before the withdrawal. In the absence of any withdrawals or purchase payments, the Performance Income Benefit will be the greatest of the Contract Value on the Rider Date and all Contract Anniversary Contract Values on or prior to the Payout Start Date. We will recalculate the Performance Income Benefit as described above until the oldest Contract owner or Annuitant (if the Contract owner is not a natural person) attains age 85. After age 85, we will only recalculate the Performance Income Benefit to reflect additional purchase payments and withdrawals. If you select the Performance Income Benefit Option, the maximum age of any Contract Owner and Annuitant as of the date we receive the completed application, or the date we receive the written request to add the rider, whichever is later, cannot exceed age 75. To exercise your Performance Income Benefit, you must apply it to an Income Plan. The Payout Start Date you select must begin on or after your tenth Contract Anniversary, after electing the benefit, and within 30 days after a 22 PROSPECTUS Contract Anniversary. In addition, you must apply your Performance Income Benefit to an Income Plan that provides guaranteed payments for either a single or joint life for at least: 1. 10 years, if the youngest Annuitant's age is 80 or less on the date you apply the Benefit, or 2. 5 years, if the youngest Annuitant's age is greater than 80 on the date you apply the Benefit. If your current Contract Value is higher than the Performance Income Benefit, you can apply the Contract Value to any Income Plan. The Performance Income Benefit may not be available in all states. At present, we do not permit you to simultaneously elect the Performance Income Benefit and the Death Benefit Combination Option. We do, however, reserve the right to do so in the future. CERTAIN EMPLOYEE BENEFIT PLANS The Contracts offered by this prospectus contain income payment tables that provide for different payments to men and women of the same age, except in states that require unisex tables. We reserve the right to use income payment tables that do not distinguish on the basis of sex to the extent permitted by law. In certain employment-related situations, employers are required by law to use the same income payment tables for men and women. Accordingly, if the Contract is to be used in connection with an employment-related retirement or benefit plan and we do not offer unisex annuity tables in your state, you should consult with legal counsel as to whether the purchase of a Contract is appropriate. DEATH BENEFITS - ------------------------------------------------------------------- We will pay a death benefit if, prior to the Payout Start Date: 1. any Contract owner dies, or 2. the Annuitant dies. We will pay the death benefit to the new Contract owner who is determined immediately after the death. The new Contract owner would be a surviving Contract owner(s) or, if none, the Beneficiary(ies). In the case of the death of an Annuitant, we will pay the death benefit to the current Contract owner. A request for payment of the death benefit must include "Due Proof of Death." We will accept the following documentation as Due Proof of Death: - - a certified copy of a death certificate, - - a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or - - any other proof acceptable to us. DEATH BENEFIT AMOUNT Prior to the Payout Start Date, the death benefit is equal to the greatest of: 1. the Contract Value as of the date we determine the death benefit, or 2. the sum of all purchase payments made less any amounts deducted in connection with partial withdrawals (including any applicable premium taxes), or 3. the Contract Value on the most recent DEATH BENEFIT ANNIVERSARY prior to the date we determine the death benefit, plus any purchase payments and less any withdrawals since that Death Benefit Anniversary. A "Death Benefit Anniversary" is every 6th Contract Anniversary beginning with the 6th Contract Anniversary. For example, the 6th, 12th and 18th Contract Anniversaries are the first three Death Benefit Anniversaries. We will determine the value of the death benefit as of the end of the Valuation Date on which we receive a complete request for payment of the death benefit. If we receive a request after 3 p.m. Central Time on a Valuation Date, we will process the request as of the end of the following Valuation Date. DEATH BENEFIT OPTIONS If the oldest Contract Owner, or Annuitant if the owner is a non-natural person, is less than or equal to age 80 as of the date we receive the completed application or the date we receive the request to add the following riders, whichever is later, the Performance Death Benefit, and the Death Benefit Combination Options are optional benefits that you may elect. If the oldest Contract Owner, or Annuitant if the Owner is a non-natural person, is less than or equal to age 75 as of the date we receive the completed application or the date we receive the request to add the following rider, whichever is later, the Performance Benefit Combination is an optional benefit that you may elect. Keep in mind that once you have selected an optional income or death benefit your ability to select a different option may be limited. 23 PROSPECTUS Please consult with your Financial Advisor concerning any such limitations before selecting any option. Further, if you select another option, the benefits under the new option on the date we issue the new option will equal the Contract Value. You will not retain or transfer the benefits of the earlier option. Please consult with your Financial Advisor concerning the effect of selecting a different option before doing so. We may discontinue the offering of these options at any time. If the Contract owner is a natural person, these Options apply only on the death of the Contract owner. If the Contract owner is not a natural person, these Options apply only on the death of the Annuitant. For Contracts with a death benefit option, the death benefit will be the greater of (1) through (3) above, or (4) the death benefit option you selected. The death benefit options may not be available in all states. PERFORMANCE DEATH BENEFIT OPTION. The Performance Death Benefit on the date we issue the rider for this option ("Rider Date") is equal to the Contract Value. On each Contract Anniversary, we will recalculate your Performance Death Benefit to equal the greater of your Contract Value on that date, or the most recently calculated Performance Death Benefit. We also will recalculate your Performance Death Benefit whenever you make an additional purchase payment or a partial withdrawal. Additional purchase payments will increase the Performance Death Benefit dollar-for-dollar. Withdrawals will reduce the Performance Death Benefit by an amount equal to: (i) the Performance Death Benefit immediately before the withdrawal, multiplied by (ii) the ratio of the withdrawal amount to the Contract Value just before the withdrawal. In the absence of any withdrawals or purchase payments, the Performance Death Benefit will be the greatest of the Contract Value on the Rider Date and all Contract Anniversary Contract Values on or before the date we calculate the death benefit. We will recalculate the Performance Death Benefit as described above until the oldest Contract owner (the oldest Annuitant, if the owner is not a natural person), attains age 85. After age 85, we will recalculate the Performance Death Benefit only to reflect additional purchase payments and withdrawals. If you select the Performance Death Benefit Option, the maximum age of any owner and annuitant as of the date we receive the completed application, or the date we receive the written request to add the rider, whichever is later, cannot exceed age 80. DEATH BENEFIT COMBINATION OPTION. If you select the Death Benefit Combination Option, the death benefit payable will be the greater of the death benefits provided by the Performance Death Benefit or the Enhanced Death Benefit described below. The Enhanced Death Benefit is only available through the Death Benefit Combination Option. We sometimes refer to the Death Benefit Combination Option as the "Best of the Best" death benefit option. If you select the Death Benefit Combination Option, the maximum age of any owner and annuitant as of the date we receive the completed application, or the date we receive the written request to add the rider, whichever is later, cannot exceed age 80. ENHANCED DEATH BENEFIT. The Enhanced Death Benefit on the date we issue the rider for this option ("Rider Date") is equal to the Contract Value. On the first Contract anniversary after the Rider Date, the Enhanced Death Benefit is equal to the Contract Value on the Rider Date plus interest at an annual rate of 5% per year for the portion of the year since the Rider Date. On each subsequent Contract Anniversary, we will multiply the Enhanced Death Benefit as of the prior Contract Anniversary by 1.05. This results in an increase of 5% annually. We will recalculate the Enhanced Death Benefit as described above, but not beyond the Contract Anniversary preceding the oldest Contract owner's (the oldest Annuitant, if the owner is not a natural person), 85th birthday. For all ages, we will recalculate the Enhanced Death Benefit on each Contract Anniversary, or upon receipt of a death claim, as follows: - - For cash withdrawal, we will reduce the Enhanced Death Benefit by (i) the Enhanced Death Benefit immediately before the withdrawal, multiplied by (ii) the ratio of the withdrawal amount to the Contract Value just before the withdrawal; and - - We will increase the Enhanced Death Benefit by any additional purchase payments since the prior Contract Anniversary. PERFORMANCE BENEFIT COMBINATION OPTION. You may elect the Performance Death Benefit in combination with the Performance Income Benefit. We call this the "Performance Benefit Combination Option." If you select the Performance Benefit Combination Option, the maximum age of any Owner and Annuitant as of the date we receive the completed application, or the date we receive the written request to add the rider, whichever is later, cannot exceed age 75. Neither the Enhanced Death Benefit, the Performance Death Benefit, the Performance Benefit Combination, nor the Death Benefit Combination will ever be greater than the maximum death benefit allowed by any nonforfeiture laws which govern the Contract. DEATH BENEFIT PAYMENTS If the new Contract owner is a natural person, the new Contract owner may elect to: 1. receive the death benefit in a lump sum, or 24 PROSPECTUS 2. apply the death benefit to an Income Plan. Payments from the Income Plan must begin within 1 year of the date of death and must be payable throughout: - - the life of the new Contract owner; or - - for a guaranteed number of payments from 5 to 30 years, but not to exceed the life expectancy of the (new) Contract owner. Options 1 and 2 above are only available if the new Contract owner elects one of these options within 180 days of the date of death. Otherwise, the new Contract owner will receive the Settlement Value. The "Settlement Value" is the Contract Value, less premium tax. The Settlement Value paid will be the Settlement Value next computed on or after the requested distribution date for payment, or on the mandatory distribution date of 5 years after the date of your death, whichever is earlier. We reserve the right to waive the 180 day limit on a non-discriminatory basis. In any event, the entire value of the Contract must be distributed within 5 years after the date of the death unless an Income Plan is elected or a surviving spouse continues the Contract in accordance with the provisions described below. If the new Contract owner is your spouse, then he or she may elect one of the options listed above or may continue the Contract in the Accumulation Phase as if the death had not occurred. On the date the Contract is continued, the Contract Value will equal the amount of the death benefit as determined as of the Valuation Date on which we received Due Proof of Death (the next Valuation Date, if we receive Due Proof of Death after 3 p.m. Central Time). Unless otherwise instructed by the continuing spouse, the excess, if any, of the death benefit amount over the Contract Value will be allocated to the Variable Sub-Accounts. This excess will be allocated in proportion to your Contract Value in the investment alternatives on the Valuation Date that we receive Due Proof of Death, except that any portion of this excess attributable to the Fixed Account Options will be allocated to the Money Market Variable Sub-Account. Within 30 days of the date the Contract is continued, your surviving spouse may choose one of the following transfer alternatives without incurring a transfer fee: - - Transfer all or a portion of the excess among the Variable Sub-Accounts; - - Transfer all or a portion of the excess into the Standard Fixed Account; or - - Transfer all or a portion of the excess into a combination of Variable Sub-Accounts and the Standard Fixed Account. Any such transfer does not count as one of the free transfers allowed each Contract Year and is subject to any minimum allocation amount specified in your Contract. The Contract may only be continued once. If the new Contract owner is corporation, trust, or other non-natural person, then the new Contract owner may elect, within 180 days of your death, to receive the death benefit in lump sum or may elect to receive the Settlement Value in a lump sum within 5 years of death. We reserve the right to waive the 180 day limit on a non-discriminatory basis. DEATH OF ANNUITANT If any Annuitant who is not also the Contract owner dies prior to the Payout Start Date, the Contract owner must elect one of the applicable options described below. If the Contract owner is a natural person, the Contract owner may elect to continue the Contract as if the death had not ccurred, or, if we receive Due Proof of Death within 180 days of the date of the Annuitant's death, the Contract owner may choose to: 1. receive the death benefit in a lump sum; or 2. apply the death benefit to an Income Plan that must begin within 1 year of the date of death and must be for a guaranteed number of payments for a period from 5 to 30 years but not to exceed the life expectancy of the Contract owner. If the Contract owner elects to continue the Contract or to apply the death benefit to an Income Plan, the new Annuitant will be the youngest Contract owner, unless the Contract owner names a different Annuitant. If the Contract owner is a non-natural person, the non-natural Contract owner may elect, within 180 days of the Annuitant's date of death, to receive the death benefit in a lump sum or may elect to receive the Settlement Value payable in a lump sum within 5 years of the Annuitant's date of death. If the non-natural Contract owner does not make one of the above described elections, the Settlement Value must be withdrawn by the non-natural Contract owner on or before the mandatory distribution date 5 years after the Annuitant's death. We reserve the right to waive the 180 day limit on a non-discriminatory basis. 25 PROSPECTUS MORE INFORMATION - ------------------------------------------------------------------- NORTHBROOK Northbrook is the issuer of the Contract. Northbrook is a stock life insurance company organized under the laws of Arizona in 1998. Previously, from 1978 to 1998, Northbrook was organized under the laws 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. Independent rating agencies regularly evaluate life insurers' claims-paying ability, quality of investments, and overall stability. A.M. Best Company assigns an A+ (Superior) financial strength rating to Allstate Life, which results in an A+r rating to Northbrook due to the reinsurance agreement with Allstate Life mentioned above. Standard & Poor's assigns an AA+ (Very Strong) financial strength rating and Moody's Investors Service assigns an Aa2 (Excellent) financial strength rating to Northbrook, sharing 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 multiple Variable Sub-Accounts, 31 of which are available under the Contract. We may add new Variable Sub-Accounts or eliminate one or more of them, if we believe marketing, tax, or investment conditions so warrant. We do not guarantee the investment performance of the Variable Account, its Sub-Accounts or the Portfolios. We may use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account. THE PORTFOLIOS DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value. VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Portfolios held by the Variable Sub-Accounts to which you have allocated your Contract Value. Under current law, however, you are entitled to give us instructions on how to vote those shares on certain matters. Based on our present view of the law, we will vote the shares of the Portfolios that we hold directly or indirectly through the Variable Account in accordance with instructions that we receive from Contract owners entitled to give such instructions. As a general rule, before the Payout Start Date, the Contract owner or anyone with a voting interest is the person entitled to give voting instructions. The number of shares that a person has a right to instruct will be determined by dividing the Contract Value allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Portfolio as of the record date of the meeting. After the Payout Start Date the person receiving income payments has the voting interest. The payee's number of votes will be determined by dividing the reserves for such Contract allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Portfolio as of the record date of the meeting. The votes decrease as income payments are made and as the reserves for the Contract decrease. 26 PROSPECTUS We will vote shares attributable to Contracts for which we have not received instructions, as well as shares attributable to us, in the same proportion as we vote shares for which we have received instructions, unless we determine that we may vote such shares in our own discretion. We will apply voting instructions to abstain on any item to be voted upon on a pro rate basis to reduce the votes eligible to be cast. We reserve the right to vote Portfolio shares as we see fit without regard to voting instructions to the extent permitted by law. If we disregard voting instructions, we will include a summary of that action and our reasons for that action in the next semi-annual financial report we send to you. CHANGES IN PORTFOLIOS. We reserve the right, subject to any applicable law, to make additions to, deletions from or substitutions for the Portfolio shares held by any Variable Sub-Account. If the shares of any of the Portfolios are no longer available for investment by the Variable Account or if, in our judgment, further investment in such shares is no longer desirable in view of the purposes of the Contract, we may eliminate that Portfolio and substitute shares of another eligible investment fund. Any substitution of securities will comply with the requirements of the Investment Company Act of 1940. We also may add new Variable Sub-Accounts that invest in additional mutual funds. We will notify you in advance of any change. CONFLICTS OF INTEREST. Certain of the Portfolios sell their shares to separate accounts underlying both variable life insurance and variable annuity contracts. It is conceivable that in the future it may be unfavorable for variable life insurance separate accounts and variable annuity separate accounts to invest in the same Portfolio. The boards of directors or trustees of these Portfolios monitor for possible conflicts among separate accounts buying shares of the Portfolios. Conflicts could develop for a variety of reasons. For example, differences in treatment under tax and other laws or the failure by a separate account to comply with such laws could cause a conflict. To eliminate a conflict, a Portfolio's board of directors or trustees may require a separate account to withdraw its participation in a Portfolio. A Portfolio's net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a separate account withdrawing because of a conflict. THE CONTRACT The Contracts are distributed exclusively by their principal underwriter, Morgan Stanley DW Inc.* Morgan Stanley DW Inc., a wholly owned subsidiary of Morgan Stanley Dean Witter & Co., is located at Two World Trade Center, New York, New York 10048. Morgan Stanley DW Inc. is a member of the New York Stock Exchange and the National Association of Securities Dealers. *Effective April 2, 2001, Dean Witter Reynolds Inc. changed its name to Morgan Stanley DW Inc. 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 Foley & Lardner, 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. 27 PROSPECTUS TAXES - ------------------------------------------------------------------- THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. NORTHBROOK MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax consequences of ownership or receipt of distributions under an annuity contract depend on your individual circumstances. If you are concerned about any tax consequences with regard to your individual circumstances, you should consult a competent tax adviser. TAXATION OF ANNUITIES IN GENERAL TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value until a distribution occurs. This rule applies only where: 1. the Contract owner is a natural person, 2. the investments of the Variable Account are "adequately diversified" according to Treasury Department regulations, and 3. Northbrook is considered the owner of the Variable Account assets for federal income tax purposes. NON-NATURAL OWNERS. As a general rule, annuity contracts owned by non-natural persons such as corporations, trusts, or other entities are not treated as annuity contracts for federal income tax purposes. The income on such contracts is taxed as ordinary income received or accrued by the owner during the taxable year. Please see the Statement of Additional Information for a discussion of several exceptions to the general rule for Contracts owned by non-natural persons. DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for federal income tax purposes, the investments in the Variable Account must be "adequately diversified" consistent with standards under Treasury Department regulations. If the investments in the Variable Account are not adequately diversified, the Contract will not be treated as an annuity contract for federal income tax purposes. As a result, the income on the Contract will be taxed as ordinary income received or accrued by the Contract owner during the taxable year. Although Northbrook does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements. OWNERSHIP TREATMENT. The IRS has stated that you will be considered the owner of Variable Account assets if you possess incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of separate account investments may cause an investor to be treated as the owner of the separate account. The Treasury Department also stated that future guidance would be issued regarding the extent that owners could direct sub-account investments without being treated as owners of the underlying assets of the separate account. Your rights under the Contract are different than those described by the IRS in rulings in which it found that contract owners were not owners of separate account assets. For example, you have the choice to allocate premiums and Contract Values among more investment alternatives. Also, you may be able to transfer among investment alternatives more frequently than in such rulings. These differences could result in you being treated as the owner of the Variable Account. If this occurs, income and gain from the Variable Account assets would be includible in your gross income. Northbrook does not know what standards will be set forth in any regulations or rulings which the Treasury Department may issue. It is possible that future standards announced by the Treasury Department could adversely affect the tax treatment of your Contract. We reserve the right to modify the Contract as necessary to attempt to prevent you from being considered the federal tax owner of the assets of the Variable Account. However, we make no guarantee that such modification to the Contract will be successful. TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal under a non-Qualified Contract, amounts received are taxable to the extent the Contract Value, without regard to surrender charges, exceeds the investment in the Contract. The investment in the Contract is the gross premium paid for the Contract minus any amounts previously received from the Contract if such amounts were properly excluded from your gross income. If you make a partial withdrawal under a Qualified Contract, the portion of the payment that bears the same ratio to the total payment that the investment in the Contract (i.e., nondeductible IRA contributions, after tax contributions to qualified plans) bears to the Contract Value, is excluded from your income. If you make a full withdrawal under a non-Qualified Contract or a Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract. "Nonqualified distributions" from Roth IRAs are treated as made from contributions first and are included in gross income only to the extent that distributions exceed contributions. "Qualified distributions" from Roth IRAs are not included in gross income. "Qualified distributions" are any distributions made more than 5 taxable years after the 28 PROSPECTUS 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 Contracyt for use with any of the qualified plans listed above. 29 PROSPECTUS 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 the 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. 30 PROSPECTUS PERFORMANCE INFORMATION - ------------------------------------------------------------------- We may advertise the performance of the Variable Sub-Accounts, including yield and total return information. Yield refers to the income generated by an investment in a Variable Sub-Account over a specified period. Total return represents the change, over a specified period of time, in the value of an investment in a Variable Sub-Account after reinvesting all income distributions. All performance advertisements will include, as applicable, standardized yield and total return figures that reflect the deduction of insurance charges. Performance advertisements also may include aggregate, average, year-by-year, or other types of total return figures. Performance information for periods prior to the inception date of the Variable Sub-Accounts will be based on the historical performance of the corresponding Portfolios for the periods beginning with the inception dates of the Portfolios and adjusted to reflect current Contract expenses. You should not interpret these figures to reflect actual historical performance of the Variable Account. We may include in advertising and sales materials tax deferred compounding charts and other hypothetical illustrations that compare currently taxable and tax deferred investment programs based on selected tax brackets. Our advertisements also may compare the performance of our Variable Sub-Accounts with: (a) certain unmanaged market indices, including but not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, and the Shearson Lehman Bond Index; and/or (b) other management investment companies with investment objectives similar to the underlying funds being compared. In addition, our advertisements may include the performance ranking assigned by various publications, including the Wall Street Journal, Forbes, Fortune, Money, Barron's, Business Week, USA Today, and statistical services, including Lipper Analytical Services Mutual Fund Survey, Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey, and SEI. 31 PROSPECTUS APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED BASE POLICY - -------------------------------------------------------------------
For the Period Beginning January 31* and Ending December 31, VARIABLE SUB-ACCOUNT 2000 - ---------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS AIM V.I. CAPITAL APPRECIATION Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.007 Number of Units Outstanding, End of Period 4,660 - ---------------------------------------------------------------------- AIM V.I. GROWTH FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.227 Number of Units Outstanding, End of Period 1,323 - ---------------------------------------------------------------------- AIM V.I. VALUE FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.694 Number of Units Outstanding, End of Period 18,847 - ---------------------------------------------------------------------- ALLIANCE VARIABLE PRODUCTS SERIES FUND (CLASS B) ALLIANCE GROWTH PORTFOLIO Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.555 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- ALLIANCE GROWTH AND INCOME PORTFOLIO Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.741 Number of Units Outstanding, End of Period 18,108 - ---------------------------------------------------------------------- ALLIANCE PREMIER GROWTH PORTFOLIO Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.709 Number of Units Outstanding, End of Period 14,568 - ---------------------------------------------------------------------- MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES AGGRESSIVE EQUITY Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.081 Number of Units Outstanding, End of Period 10,423 - ---------------------------------------------------------------------- CAPITAL GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.637 Number of Units Outstanding, End of Period 30,553 - ---------------------------------------------------------------------- COMPETITIVE EDGE "BEST IDEAS" Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.620 Number of Units Outstanding, End of Period 2,665 - ---------------------------------------------------------------------- DIVIDEND GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.131 Number of Units Outstanding, End of Period 2,279 - ---------------------------------------------------------------------- EQUITY Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.087 Number of Units Outstanding, End of Period 50,772 - ---------------------------------------------------------------------- EUROPEAN GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.934 Number of Units Outstanding, End of Period 22,179 - ---------------------------------------------------------------------- GLOBAL DIVIDEND GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.647 Number of Units Outstanding, End of Period 2,768 - ---------------------------------------------------------------------- HIGH YIELD Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $6.692 Number of Units Outstanding, End of Period 3,974 - ----------------------------------------------------------------------
A-1 - ---------------------------------------------------------------------- INCOME BUILDER
For the Period Beginning January 31* and Ending December 31, VARIABLE SUB-ACCOUNT 2000 Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.436 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- MONEY MARKET Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.488 Number of Units Outstanding, End of Period 17,605 - ---------------------------------------------------------------------- PACIFIC GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $6.804 Number of Units Outstanding, End of Period 3,042 - ---------------------------------------------------------------------- QUALITY INCOME PLUS Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.063 Number of Units Outstanding, End of Period 1,056 - ---------------------------------------------------------------------- SHORT TERM BOND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.512 Number of Units Outstanding, End of Period 3,067 - ---------------------------------------------------------------------- STRATEGIST Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.405 Number of Units Outstanding, End of Period 18,279 - ---------------------------------------------------------------------- S&P 500 INDEX Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.484 Number of Units Outstanding, End of Period 1,369 - ---------------------------------------------------------------------- UTILITIES Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.002 Number of Units Outstanding, End of Period 6,091 - ---------------------------------------------------------------------- THE UNIVERSAL INSTITUTIONAL FUNDS, INC. U.S. REAL ESTATE Accumulation Unit Value, Beginning of Period $10.000 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- INTERNATIONAL MAGNUM Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.340 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- EMERGING MARKETS EQUITY Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $6.177 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- EQUITY GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.982 Number of Units Outstanding, End of Period 6,554 - ---------------------------------------------------------------------- MID-CAP VALUE Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.568 Number of Units Outstanding, End of Period 5,847 - ---------------------------------------------------------------------- PUTNAM VARIABLE TRUST (CLASS IB) PUTNAM VT GROWTH AND INCOME FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.088 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- PUTNAM VT INTERNATIONAL FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.435 Number of Units Outstanding, End of Period 52,946 - ----------------------------------------------------------------------
A-2
For the Period Beginning January 31* and Ending December 31, VARIABLE SUB-ACCOUNT 2000 - ---------------------------------------------------------------------- PUTNAM VT VOYAGER FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.541 Number of Units Outstanding, End of Period 22,829 - ---------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST EMERGING GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.924 Number of Units Outstanding, End of Period 45,106 - ----------------------------------------------------------------------
*All of the Variable Sub-Accounts commenced operations on January 31, 2000. A-3 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED WITH PERFORMANCE DEATH BENEFIT OPTION OR PERFORMANCE INCOME BENEFIT OPTION - -------------------------------------------------------------------
For the Period Beginning January 31* and Ending December 31, VARIABLE SUB-ACCOUNT 2000 - ---------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS AIM V.I. CAPITAL APPRECIATION Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.996 Number of Units Outstanding, End of Period 104 - ---------------------------------------------------------------------- AIM V.I. GROWTH FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.217 Number of Units Outstanding, End of Period 1,045 - ---------------------------------------------------------------------- AIM V.I. VALUE FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.684 Number of Units Outstanding, End of Period 12,128 - ---------------------------------------------------------------------- ALLIANCE VARIABLE PRODUCTS SERIES FUND (CLASS B) ALLIANCE GROWTH PORTFOLIO Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.726 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- ALLIANCE GROWTH AND INCOME PORTFOLIO Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.727 Number of Units Outstanding, End of Period 375 - ---------------------------------------------------------------------- ALLIANCE PREMIER GROWTH PORTFOLIO Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.699 Number of Units Outstanding, End of Period 7,282 - ---------------------------------------------------------------------- MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES AGGRESSIVE EQUITY Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.069 Number of Units Outstanding, End of Period 31,721 - ---------------------------------------------------------------------- CAPITAL GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.625 Number of Units Outstanding, End of Period 1,598 - ---------------------------------------------------------------------- COMPETITIVE EDGE "BEST IDEAS" Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.610 Number of Units Outstanding, End of Period 25 - ---------------------------------------------------------------------- DIVIDEND GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.118 Number of Units Outstanding, End of Period 9,619 - ---------------------------------------------------------------------- EQUITY Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.076 Number of Units Outstanding, End of Period 29,949 - ---------------------------------------------------------------------- EUROPEAN GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.922 Number of Units Outstanding, End of Period 14,948 - ---------------------------------------------------------------------- GLOBAL DIVIDEND GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.634 Number of Units Outstanding, End of Period 972 - ---------------------------------------------------------------------- HIGH YIELD Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $6.684 Number of Units Outstanding, End of Period 0 - ----------------------------------------------------------------------
A-4 - ---------------------------------------------------------------------- INCOME BUILDER
For the Period Beginning January 31* and Ending December 31, VARIABLE SUB-ACCOUNT 2000 Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.280 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- MONEY MARKET Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.475 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- PACIFIC GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $6.796 Number of Units Outstanding, End of Period 6,329 - ---------------------------------------------------------------------- QUALITY INCOME PLUS Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.050 Number of Units Outstanding, End of Period 395 - ---------------------------------------------------------------------- SHORT TERM BOND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.499 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- STRATEGIST Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.393 Number of Units Outstanding, End of Period 11,764 - ---------------------------------------------------------------------- S&P 500 INDEX Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.473 Number of Units Outstanding, End of Period 975 - ---------------------------------------------------------------------- UTILITIES Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.990 Number of Units Outstanding, End of Period 3,117 - ---------------------------------------------------------------------- THE UNIVERSAL INSTITUTIONAL FUNDS, INC. U.S. REAL ESTATE Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $12.773 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- INTERNATIONAL MAGNUM Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.329 Number of Units Outstanding, End of Period 3,440 - ---------------------------------------------------------------------- EMERGING MARKETS EQUITY Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $6.171 Number of Units Outstanding, End of Period 27 - ---------------------------------------------------------------------- EQUITY GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.971 Number of Units Outstanding, End of Period 3,142 - ---------------------------------------------------------------------- MID-CAP VALUE Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.554 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- PUTNAM VARIABLE TRUST (CLASS IB) PUTNAM VT GROWTH AND INCOME FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.076 Number of Units Outstanding, End of Period 1,093 - ---------------------------------------------------------------------- PUTNAM VT INTERNATIONAL FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.424 Number of Units Outstanding, End of Period 4,391 - ---------------------------------------------------------------------- PUTNAM VT VOYAGER FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.531 Number of Units Outstanding, End of Period 11,537 - ----------------------------------------------------------------------
A-5
For the Period Beginning January 31* and Ending December 31, VARIABLE SUB-ACCOUNT 2000 - ---------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST EMERGING GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.913 Number of Units Outstanding, End of Period 44,713 - ----------------------------------------------------------------------
*All of the Variable Sub-Accounts commenced operations on January 31, 2000. A-6 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION OPTION - -------------------------------------------------------------------
For the Period Beginning January 31* and Ending December 31, VARIABLE SUB-ACCOUNT 2000 - ---------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS AIM V.I. CAPITAL APPRECIATION Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.987 Number of Units Outstanding, End of Period 3,020 - ---------------------------------------------------------------------- AIM V.I. GROWTH FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.209 Number of Units Outstanding, End of Period 15,515 - ---------------------------------------------------------------------- AIM V.I. VALUE FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.675 Number of Units Outstanding, End of Period 20,724 - ---------------------------------------------------------------------- ALLIANCE VARIABLE PRODUCTS SERIES FUND (CLASS B) ALLIANCE GROWTH PORTFOLIO Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.537 Number of Units Outstanding, End of Period 4,002 - ---------------------------------------------------------------------- ALLIANCE GROWTH AND INCOME PORTFOLIO Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.715 Number of Units Outstanding, End of Period 12,982 - ---------------------------------------------------------------------- ALLIANCE PREMIER GROWTH PORTFOLIO Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.690 Number of Units Outstanding, End of Period 16,642 - ---------------------------------------------------------------------- MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES AGGRESSIVE EQUITY Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.059 Number of Units Outstanding, End of Period 18,856 - ---------------------------------------------------------------------- CAPITAL GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.614 Number of Units Outstanding, End of Period 6,749 - ---------------------------------------------------------------------- COMPETITIVE EDGE "BEST IDEAS" Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.601 Number of Units Outstanding, End of Period 2,908 - ---------------------------------------------------------------------- DIVIDEND GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.107 Number of Units Outstanding, End of Period 7,847 - ---------------------------------------------------------------------- EQUITY Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.067 Number of Units Outstanding, End of Period 32,395 - ---------------------------------------------------------------------- EUROPEAN GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.912 Number of Units Outstanding, End of Period 15,791 - ---------------------------------------------------------------------- GLOBAL DIVIDEND GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.624 Number of Units Outstanding, End of Period 1,561 - ---------------------------------------------------------------------- HIGH YIELD Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $6.677 Number of Units Outstanding, End of Period 0 - ----------------------------------------------------------------------
A-7 - ---------------------------------------------------------------------- INCOME BUILDER
For the Period Beginning January 31* and Ending December 31, VARIABLE SUB-ACCOUNT 2000 Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.414 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- MONEY MARKET Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.986 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- PACIFIC GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $6.789 Number of Units Outstanding, End of Period 2,566 - ---------------------------------------------------------------------- QUALITY INCOME PLUS Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.039 Number of Units Outstanding, End of Period 1,308 - ---------------------------------------------------------------------- SHORT TERM BOND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.489 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- STRATEGIST Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $10.382 Number of Units Outstanding, End of Period 10,992 - ---------------------------------------------------------------------- S&P 500 INDEX Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.464 Number of Units Outstanding, End of Period 21,771 - ---------------------------------------------------------------------- UTILITIES Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.980 Number of Units Outstanding, End of Period 3,469 - ---------------------------------------------------------------------- THE UNIVERSAL INSTITUTIONAL FUNDS, INC. U.S. REAL ESTATE Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $12.230 Number of Units Outstanding, End of Period 0 - ---------------------------------------------------------------------- INTERNATIONAL MAGNUM Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.320 Number of Units Outstanding, End of Period 3,231 - ---------------------------------------------------------------------- EMERGING MARKETS EQUITY Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $6.164 Number of Units Outstanding, End of Period 2,212 - ---------------------------------------------------------------------- EQUITY GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.962 Number of Units Outstanding, End of Period 609 - ---------------------------------------------------------------------- MID-CAP VALUE Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.543 Number of Units Outstanding, End of Period 3,996 - ---------------------------------------------------------------------- PUTNAM VARIABLE TRUST (CLASS IB) PUTNAM VT GROWTH AND INCOME FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $11.064 Number of Units Outstanding, End of Period 487 - ---------------------------------------------------------------------- PUTNAM VT INTERNATIONAL FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $9.415 Number of Units Outstanding, End of Period 22,787 - ---------------------------------------------------------------------- PUTNAM VT VOYAGER FUND Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.523 Number of Units Outstanding, End of Period 8,882 - ----------------------------------------------------------------------
A-8 - ---------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST
For the Period Beginning January 31* and Ending December 31, VARIABLE SUB-ACCOUNT 2000 EMERGING GROWTH Accumulation Unit Value, Beginning of Period $10.000 Accumulation Unit Value, End of Period $8.904 Number of Units Outstanding, End of Period 51,125 - ----------------------------------------------------------------------
*All of the Variable Sub-Accounts commenced operations on January 31, 2000. A-9 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 Income Payments - ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
DESCRIPTION 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. A-10 PREFERRED CLIENT VARIABLE ANNUITY Northbrook Life Insurance Company Statement of Additional Information Northbrook Variable Annuity Account II Dated May 1, 2001 Post Office Box 94040 Palatine, IL 60094-4040 1 (800) 654 - 2397 This Statement of Additional Information supplements the information in the prospectus for the Preferred Client Variable Annuity Contracts that we offer. This Statement of Additional Information is not a prospectus. You should read it with the prospectus, dated May 1, 2001, for the Contract. You may obtain a prospectus by calling or writing us at the address or telephone number listed above, or by calling or writing your Morgan Stanley Dean Witter Financial Advisor. Except as otherwise noted, this Statement of Additional Information uses the same defined terms as the prospectus for the Morgan Stanley Dean Witter Preferred Client Variable Annuity Contracts. 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 Income Payments 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 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 Morgan Stanley DW Inc. , is the principal underwriter and distributor of the Contracts. The offering of the Contracts is continuous. We do not anticipate discontinuing the offering of the Contracts but we reserve the right to do so at any time. TAX-FREE EXCHANGES (1035 EXCHANGES, ROLLOVERS AND TRANSFERS) We accept purchase payments that are the proceeds of a Contract in a transaction qualifying for a tax-free exchange under Section 1035 of the Internal Revenue Code ("Code"). Except as required by federal law in calculating the basis of the Contract, we do not differentiate between Section 1035 purchase payments and non-Section 1035 purchase payments. We also accept "rollovers" and transfers from Contracts qualifying as tax-sheltered annuities ("TSAs"), individual retirement annuities or accounts ("IRAs"), or any other Qualified Contract that is eligible to "rollover" into an IRA. We differentiate among non-Qualified Contracts, TSAs, IRAs and other Qualified Contracts to the extent necessary to comply with federal tax laws. For example, we restrict the assignment, transfer, or pledge of TSAs and IRAs so the Contracts will continue to qualify for special tax treatment. A Contract owner contemplating any such exchange, rollover or transfer of a Contract should contact a competent tax adviser with respect to the potential effects of such a transaction. PERFORMANCE INFORMATION From time to time we may advertise the "standardized," "non-standardized," and "adjusted historical" total returns of the Variable Sub-Accounts, as described below. Please remember that past performance is not an estimate or guarantee of future performance and does not necessarily represent the actual experience of amounts invested by a particular Contract owner. Also, please note that the performance figures do not reflect any applicable taxes. STANDARDIZED TOTAL RETURNS A Variable Sub-Account's standardized total return represents the average annual total return of that Sub-Account over a particular period. We compute standardized total return by finding the annual percentage rate that, when compounded annually, will accumulate a hypothetical $1,000 purchase payment to the redeemable value at the end of the one, five or ten year period, or for a period from the date of commencement of the Variable Sub-Account's operations, if shorter than any of the foregoing. We use the following formula prescribed by the SEC for computing standardized total return: 1000 (1+T)n = ERV where: T = average annual total return ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of 1, 5, or 10 year periods or shorter period n = number of years in the period $1000 = hypothetical $1,000 investment The standardized total returns for the Variable Sub-Accounts available under the Contract for the periods ended December 31, 2000 are set out below. The Preferred Client Variable Annuity Contracts were first offered to the public on January 31, 2000. Accordingly, performance figures for Variable Sub-Accounts prior to that date reflect the historical performance of the Variable Sub-Accounts, adjusted to reflect the current level of charges that apply to the Variable Sub- Accounts under the Preferred Client Contracts. Variable Sub-Account Inception Dates: MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES: Variable Sub-Account Date - -------------------- ---- Quality Income Plus October 25, 1990 High Yield October 25, 1990 Utilities October 25, 1990 Dividend Growth October 25, 1990 Equity October 25, 1990 Strategist October 25, 1990 Capital Growth March 1, 1991 European Growth March 1, 1991 Global Dividend Growth February 23, 1994 Pacific Growth February 23, 1994 Income Builder January 21, 1997 Money Market October 25, 1990 Short-Term Bond May 3, 1999 Aggressive Equity May 3, 1999 S&P 500 Index May 18, 1998 Competitive Edge ("Best Ideas") May 18, 1998 THE UNIVERSAL INSTITUTIONAL FUNDS, INC.: Variable Sub-Account Date - -------------------- ---- Equity Growth March 16, 1998 International Magnum March 16, 1998 Emerging Markets Equity March 16, 1998 U.S. Real Estate May 18, 1998 Mid-Cap Value January 31, 2000 VAN KAMPEN LIFE INVESTMENT TRUST: Variable Sub-Account Date - -------------------- ---- Emerging Growth March 16, 1998 AIM VARIABLE INSURANCE FUNDS: Variable Sub-Account Date - -------------------- ---- Capital Appreciation January 31, 2000 Growth January 31, 2000 Value January 31, 2000 ALLIANCE VARIABLE PRODUCTS SERIES FUND (CLASS B SHARES): Variable Sub-Account Date - -------------------- ---- Growth January 31, 2000 Growth and Income January 31, 2000 Premier Growth January 31, 2000 PUTNAM VARIABLE TRUST (CLASS IB SHARES): Variable Sub-Account Date - -------------------- ---- Growth and Income January 31, 2000 International Growth January 31, 2000 Voyager January 31, 2000 (WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION OR PERFORMANCE INCOME BENEFIT OPTION)
Ten Years or Variable Sub-Account One Year 5 Year Inception - -------------------- -------- ---------- ------------------- Aggressive Equity -2.43% N/A 23.47% Capital Growth 0.58% 16.72% 13.04% Competitive Edge "Best Ideas" -17.96% N/A 0.13% Dividend Growth 4.57% 12.05% 13.52% Equity -12.96% 22.01% 21.04% European Growth -5.60% 17.04% 15.86% Global Dividend Growth -3.17% 9.86% 10.10% High Yield -32.69% -5.37% 6.73% Income Builder -0.53% N/A 7.26% Money Market 5.32% 4.54% 4.04% Pacific Growth -33.92% -9.15% -7.13% Quality Income Plus 10.32% 4.71% 7.42% S&P 500 Index -10.01% N/A 7.04% Short-Term Bond 5.11% N/A 3.72% Strategist 0.94% 13.78% 12.26% Utilities 2.32% 13.91% 13.04% AIM V.I. Capital Appreciation N/A N/A -10.84% AIM V.I. Growth N/A N/A -19.27% AIM V.I. Value N/A N/A -14.23% Alliance Growth and Income N/A N/A 19.24% Alliance Growth N/A N/A -15.73% Alliance Premier Growth N/A N/A -14.07% Emerging Markets Equity -39.33% N/A -6.33% Equity Growth -12.36% N/A 7.79% International Magnum -13.04% N/A 2.11% Mid Cap Value N/A N/A 17.32% U.S. Real Estate 28.37% N/A 4.29% Putnam VT Growth and Income N/A N/A 12.00% Putnam VT International Growth N/A N/A -6.17% Putnam VT Voyager N/A N/A -15.88% Van Kampen LIT Emerging Growth -10.78% N/A 32.31% (WITH PERFORMANCE DEATH BENEFIT OPTION OR PERFORMANCE INCOME BENEFIT OPTION) Ten Years or Variable Sub-Accont One Year 5 Year Inception - ------------------- -------- ------ ------------- Aggressive Equity -2.55% N/A 23.31% Capital Growth 0.45% 16.57% 12.89% Competitive Edge "Best Ideas" -18.07% N/A 0.00% Dividend Growth 4.43% 11.90% 13.37% Equity -13.07% 21.85% 20.88% European Growth -5.70% 17.11% 15.96% Global Dividend Growth -3.30% 9.72% 9.96% High Yield -32.78% -5.49% 6.59% Income Builder -0.66% N/A 7.12% Money Market 5.18% 4.40% 3.91% Pacific Growth -34.01% -9.27% -7.25% Quality Income Plus 10.18% 4.57% 7.28% S&P 500 Index -10.13% N/A 6.90% Short-Term Bond 4.98% N/A 3.59% Strategist 0.81% 13.63% 12.11% Utilities 2.19% 13.76% 12.89% AIM V.I. Capital Appreciation N/A N/A -10.95% AIM V.I. Growth N/A N/A -19.37% AIM V.I. Value N/A N/A -14.34% Alliance Growth and Income N/A N/A 19.09% Alliance Growth N/A N/A -15.84% Alliance Premier Growth N/A N/A -14.18% Emerging Markets Equity -39.41% N/A -6.46% Equity Growth -12.47% N/A 7.65% International Magnum -13.15% N/A 1.98% Mid Cap Value N/A N/A 17.17% Morgan Stanley UIF U.S. Real Estate 28.21% N/A 4.15% Putnam VT Growth and Income N/A N/A 11.86% Putnam VT International Growth N/A N/A -6.30% Putnam VT Voyager N/A N/A -15.99% Van Kampen LIT Emerging Growth -10.89% N/A 32.13% (WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION OPTION) Ten Years or Variable Sub-Account One Year 5 Year Inception - -------------------- -------- ------ ------------ Aggressive Equity -2.66% N/A 23.17% Capital Growth 0.34% 16.44% 12.77% Competitive Edge "Best Ideas" -18.16% N/A -0.11% Dividend Growth 4.32% 11.78% 13.25% Equity -13.17% 21.72% 20.75% European Growth -5.80% 16.98% 15.83% Global Dividend Growth -3.40% 9.60% 9.84% High Yield -32.86% -5.60% 6.47% Income Builder -0.76% N/A 7.00% Money Market 5.07% 4.29% 3.79% Pacific Growth -34.08% -9.37% -7.35% Quality Income Plus 10.05% 4.46% 7.16% S&P 500 Index -10.23% N/A 6.78% Short-Term Bond 4.86% N/A 3.47% Strategist 0.70% 23.64% 16.89% Utilities 2.08% 13.64% 12.77% AIM V.I. Capital Appreciation -11.74% 13.71% 15.84% AIM V.I. Growth -21.23% 13.96% 14.01% AIM V.I. Value -15.44% 13.66% 15.49% Alliance Growth and Income N/A N/A 14.48% Alliance Growth N/A N/A 20.52% Alliance Premier Growth N/A N/A -4.77% Emerging Markets Equity -39.47% N/A -3.87% Equity Growth -12.57% N/A 17.17% International Magnum -13.25% N/A 5.33% Mid Cap Value 9.72% N/A 19.66% U.S. Real Estate 28.07% N/A 6.28% Putnam VT Growth and Income 6.92% 12.69% 13.43% Putnam VT International Growth -10.41% N/A 17.69% Putnam VT Voyager -17.32% 17.36% 19.09% Van Kampen LIT Emerging Growth -10.99% 27.62% 28.40%
NON-STANDARDIZED TOTAL RETURNS From time to time, we may advertise the total return over different periods of time by means of aggregate, average, year-by-year or other types of total return figures. The formula for computing such total return quotations involves a per unit change calculation. This calculation is based on the Accumulation Unit Value at the end of the defined period divided by the Accumulation Unit Value at the beginning of such period, minus 1. The periods included in such advertisements are "year-to-date" (prior calendar year end to the day of the advertisement); "year to most recent quarter" (prior calendar year end to the end of the most recent quarter); "the prior calendar year"; " 'n' most recent Calendar Years"; and "Inception (commencement of the Variable Sub-Account's operation) to date" (day of the advertisement). 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, 2000 are set out below. No adjusted historical total returns are shown for the Money Market Variable Sub-Account. The following list provides the inception date for the Portfolio corresponding to each of the Variable Sub-Accounts included in the tables. Inception Date of Variable Sub-Account Corresponding Portfolio - -------------------- ----------------------- High Yield March 9, 1984 Equity March 9, 1984 Quality Income Plus March 1, 1987 Strategist March 1, 1987 Dividend Growth March 1, 1990 Utilities March 1, 1990 European Growth March 1, 1991 Capital Growth March 1, 1991 Pacific Growth February 24, 1994 Global Dividend Growth February 24, 1994 Income Builder January 21, 1997 Equity Growth January 2, 1997 International Magnum January 2, 1997 Emerging Markets Equity October 1,1996 Mid-Cap Value January 2, 1997 U.S. Real Estate March 4, 1997 Competitive Edge ("Best May 18, 1998 Ideas") S&P 500 Index May 18, 1998 Short-Term Bond May 2, 1999 Aggressive Equity May 2, 1999 Van Kampen Emerging Growth July 3, 1995 AIM V.I. Capital Appreciation May 5, 1993 AIM V.I. Growth May 5, 1993 AIM V.I. Value May 5, 1993 Alliance Growth* September 15, 1994 Alliance Growth and Income* January 14, 1991 Alliance Premier Growth* July 14, 1999 Putnam VT Growth and Income** February 1, 1988 Putnam VT International Growth** January 2, 1997 Putnam VT Voyager** February 1, 1988 * The Portfolios' Class B shares ("12b-1 class") corresponding to the Alliance Growth and Alliance Growth and Income Variable Sub-Accounts were first offered on June 1, 1999. For periods prior to these dates, the performance shown is based on the historical performance of the Portfolios' Class A shares ("non-12b-1 class"), adjusted to reflect the current expenses of the Portfolios' 12b-1 class. The inception dates for the Portfolios are as shown above. ** The Portfolios' Class B shares ("12b-1 class") corresponding to the Putnam VT Growth and Income, International Growth, and Voyager Variable Sub-Accounts were first offered on April 6, 1998, April 30, 1998, and April 30, 1998, respectively. For periods prior to these dates, the performance shown is based on the historical performance of the Portfolios' Class IA shares ("non-12b-1 class"), adjusted to reflect the current expenses of the Portfolios' 12b-1 class. The inception dates for the Portfolios are as shown above. (WITHOUT AN OPTIONAL DEATH BENEFIT PROVISION OR PERFORMANCE INCOME BENEFIT OPTION )
Ten Years or Variable Sub-Account One Year 5 Year Inception+ - -------------------- ---------- -------- ---------- Aggressive Equity -2.43% N/A 23.47% Capital Growth 0.58% 16.72% 13.04% Competitive Edge "Best Ideas" -17.96% N/A 0.13% Dividend Growth 4.57% 12.05% 13.52% Equity -12.96% 22.01% 21.04% European Growth -5.60% 17.04% 15.86% Global Dividend Growth -3.17% 9.86% 10.10% High Yield -32.69% -5.37% 6.73% Income Builder -0.53% N/A 7.26% Money Market 5.32% 4.54% 4.04% Pacific Growth -33.92% -9.15% -7.13% Quality Income Plus 10.32% 4.71% 7.42% S&P 500 Index -10.01% N/A 7.04% Short-Term Bond 5.11% N/A 3.72% Strategist 0.94% 13.78% 12.26% Utilities 2.32% 13.91% 13.04% AIM V.I. Capital Appreciation -11.53% 13.98% 16.12% AIM V.I. Growth -21.04% 14.24% 14.28% AIM V.I. Value -15.24% 13.93% 15.77% Alliance Growth and Income* -18.31% 18.09% 20.56% Alliance Growth* 12.87% 18.75% 14.50% Alliance Premier Growth* -17.23% N/A -4.62% Emerging Markets Equity -39.33% N/A -3.64% Equity Growth -12.36% N/A 17.45% International Magnum -13.04% N/A 5.59% Mid Cap Value 9.98% N/A 19.94% U.S. Real Estate 28.37% N/A 6.53% Putnam VT Growth and Income* 7.17% 12.97% 13.70% Putnam VT International Growth* -10.19% N/A 17.97% Putnam VT Voyager* -17.12% 17.65% 19.37% Van Kampen LIT Emerging Growth -10.78% 27.93% 28.70% + Please refer to the table at the beginning of this section for the inception dates of the portfolios. * The performance shown for the Portfolios' 12b-1 class is based on the performance of the non-12b-1 class, as described in the table at the beginning of this section. (WITH PERFORMANCE DEATH BENEFIT OPTION OR PERFORMANCE INCOME BENEFIT OPTION) Ten Years or Variable Sub-Account One Year 5 Year Inception+ - -------------------- -------- ------ -------------- Aggressive Equity -2.55% N/A 23.31% Capital Growth 0.45% 16.57% 12.89% Competitive Edge "Best Ideas" -18.07% N/A 0.00% Dividend Growth 4.43% 11.90% 13.37% Equity -13.07% 21.85% 20.88% European Growth -5.70% 17.11% 15.96% Global Dividend Growth -3.30% 9.72% 9.96% High Yield -32.78% -5.49% 6.59% Income Builder -0.66% N/A 7.12% Money Market 5.18% 4.40% 3.91% Pacific Growth -34.01% -9.27% -7.25% Quality Income Plus 10.18% 4.57% 7.28% S&P 500 Index -10.13% N/A 6.90% Short-Term Bond 4.98% N/A 3.59% Strategist 0.81% 13.63% 12.11% Utilities 2.19% 13.76% 12.89% AIM V.I. Capital Appreciation -11.64% 13.83% 15.97% AIM V.I. Growth -21.14% 14.09% 14.13% AIM V.I. Value -15.35% 13.78% 15.62% Alliance Growth and Income* N/A N/A 14.49% Alliance Growth* N/A N/A 20.54% Alliance Premier Growth* N/A N/A -4.70% Emerging Markets Equity -39.41% N/A -3.76% Equity Growth -12.47% N/A 17.30% International Magnum -13.15% N/A 5.45% Mid Cap Value 9.84% N/A 19.79% U.S. Real Estate 28.21% N/A 6.40% Putnam VT Growth and Income* 7.04% 12.82% 13.55% Putnam VT International Growth* -10.31% N/A 17.82% Putnam VT Voyager* -17.22% 17.49% 19.22% Van Kampen LIT Emerging Growth -10.89% 27.76% 28.54% + Please refer to the table at the beginning of this section for the inception dates of the portfolios. * The performance shown for the Portfolios' 12b-1 class is based on the performance of the non-12b-1 class, as described in the table at the beginning of this section. (WITH PERFORMANCE BENEFIT COMBINATION OPTION OR DEATH BENEFIT COMBINATION OPTION) Ten Years or Variable Sub-Account One Year 5 Year Inception+ - -------------------- -------- ------ ------------- Aggressive Equity -2.66% N/A 23.17% Capital Growth 0.34% 16.44% 12.77% Competitive Edge "Best Ideas" -18.16% N/A -0.11% Dividend Growth 4.32% 11.78% 13.25% Equity -13.17% 21.72% 20.75% European Growth -5.80% 16.98% 15.83% Global Dividend Growth -3.40% 9.60% 9.84% High Yield -32.86% -5.60% 6.47% Income Builder -0.76% N/A 7.00% Money Market 5.07% 4.29% 3.79% Pacific Growth -34.08% -9.37% -7.35% Quality Income Plus 10.05% 4.46% 7.16% S&P 500 Index -10.23% N/A 6.78% Short-Term Bond 4.86% N/A 3.47% Strategist 0.70% 23.64% 16.89% Utilities 2.08% 13.64% 12.77% AIM V.I. Capital Appreciation -11.74% 13.71% 15.84% AIM V.I. Growth -21.23% 13.96% 14.01% AIM V.I. Value -15.44% 13.66% 15.49% Alliance Growth and Income* N/A N/A 14.48% Alliance Growth* N/A N/A 20.52% Alliance Premier Growth* N/A N/A -4.77% Emerging Markets Equity -39.47% N/A -3.87% Equity Growth -12.57% N/A 17.17% International Magnum -13.25% N/A 5.33% Mid Cap Value 9.72% N/A 19.66% U.S. Real Estate 28.07% N/A 6.28% Putnam VT Growth and Income* 6.92% 12.69% 13.43% Putnam VT International Growth* -10.41% N/A 17.69% Putnam VT Voyager* -17.32% 17.36% 19.09% Van Kampen LIT Emerging Growth -10.99% 27.62% 28.40%
+ Please refer to the table at the beginning of this section for the inception dates of the portfolios. * The performance shown for the Portfolios' 12b-1 class is based on the performance of the non-12b-1 class, as described in the table at the beginning of this section. CALCULATION OF ACCUMULATION UNIT VALUES The value of Accumulation Units will change each Valuation Period according to the investment performance of the Portfolio shares purchased by each Variable Sub-Account and the deduction of certain expenses and charges. A "Valuation Period" is the period from the end of one Valuation Date and continues to the end of the next Valuation Date. A Valuation Date ends at the close of regular trading on the New York Stock Exchange (currently 3:00 p.m. Central Time). The Accumulation Unit Value of a Variable Sub-Account for any Valuation Period equals the Accumulation Unit Value as of the immediately preceding Valuation Period, multiplied by the Net Investment Factor (described below) for that Variable Sub-Account for the current Valuation Period. NET INVESTMENT FACTOR The Net Investment Factor for a Valuation Period is a number representing the change, since the last Valuation Period, in the value of Variable Sub-Account assets per Accumulation Unit due to investment income, realized or unrealized capital gain or loss, deductions for taxes, if any, and deductions for the mortality and expense risk charge and administrative expense charge. We determine the Net Investment Factor for each Variable Sub-Account for any Valuation Period by dividing (A) by (B) and subtracting (C) from the result, where: (A) is the sum of: (1) the net asset value per share of the Portfolio underlying the Variable Sub-Account determined at the end of the current Valuation Period; plus, (2) the per share amount of any dividend or capital gain distributions made by the Portfolio underlying the Variable Sub-Account during the current Valuation Period; (B) is the net asset value per share of the Portfolio underlying the Variable Sub-Account determined as of the end of the immediately preceding Valuation Period; and (C) is the annualized mortality and expense risk and administrative expense charges divided by the number of days in the current calendar year and then multiplied by the number of calendar days in the current Valuation Period. CALCULATION OF VARIABLE INCOME PAYMENTS We calculate the amount of the first variable income payment under an Income Plan by applying the Contract Value allocated to each Variable Sub-Account less any applicable premium tax charge deducted at the time, to the income payment tables in the Contract. We divide the amount of the first variable annuity income payment by the Variable Sub-Account's then current Annuity Unit value to determine the number of annuity units ("Annuity Units") upon which later income payments will be based. To determine income payments after the first, we simply multiply the number of Annuity Units determined in this manner for each Variable Sub-Account by the then current Annuity Unit value ("Annuity Unit Value") for that Variable Sub-Account. CALCULATION OF ANNUITY UNIT VALUES Annuity Units in each Variable Sub-Account are valued separately and Annuity Unit Values will depend upon the investment experience of the particular Portfolio in which the Variable Sub-Account invests. We calculate the Annuity Unit Value for each Variable Sub-Account at the end of any Valuation Period by: o multiplying the Annuity Unit Value at the end of the immediately preceding Valuation Period by the Variable Sub-Account's Net Investment Factor (described in the preceding section) for the Period; and then o dividing the product by the sum of 1.0 plus the assumed investment rate for the Valuation Period. The assumed investment rate adjusts for the interest rate assumed in the income payment tables used to determine the dollar amount of the first variable income payment, and is at an effective annual rate which is disclosed in the Contract. We determine the amount of the first variable income payment paid under an Income Plan using the income payment tables set out in the Contracts. The Contracts include tables that differentiate on the basis of sex, except in states that require the use of unisex tables. GENERAL MATTERS INCONTESTABILITY We will not contest the Contract after we issue it. SETTLEMENTS The Contract must be returned to us prior to any settlement. We must receive due proof of the Contract owner(s) death (or Annuitant's death if there is a non-natural Contract owner) before we will settle a death claim. SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS We hold title to the assets of the Variable Account. We keep the assets physically segregated and separate and apart from our general corporate assets. We maintain records of all purchases and redemptions of the Portfolio shares held by each of the Variable Sub-Accounts. The Portfolios do not issue stock certificates. Therefore, we hold the Variable Account's assets in open account in lieu of stock certificates. See the Portfolios' prospectuses for a more complete description of the custodian of the Portfolios. PREMIUM TAXES Applicable premium tax rates depend on the Contract owner's state of residency and the insurance laws and our status in those states where premium taxes are incurred. Premium tax rates may be changed by legislation, administrative interpretations, or judicial acts. TAX RESERVES We do not establish capital gains tax reserves for any Variable Sub-Account nor do we deduct charges for tax reserves because we believe that capital gains attributable to the Variable Account will not be taxable. However, we reserve the right to deduct charges to establish tax reserves for potential taxes on realized or unrealized capital gains. 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, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 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, 2000 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, 2000 and for each of the periods in the two years then ended, the financial statements of Northbrook as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 and related financial statement schedule and the accompanying Independent Auditors' Reports appear in the pages that follow. The financial statements and related financial statement schedule of Northbrook included herein should be considered only as bearing upon the ability of Northbrook to meet its obligations under the Contracts. Financial Statements Index ----- Page ---- Independent Auditors' Report............................................... F-1 Financial Statements: Statements of Operations and Comprehensive Income for the Years Ended December 31, 2000, 1999 and 1998..................................... F-2 Statements of Financial Position December 31, 2000 and 1999........................................... F-3 Statements of Shareholder's Equity for the Years Ended December 31, 2000, 1999 and 1998..................................... F-4 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998..................................... F-5 Notes to Financial Statements......................................... F-6 Schedule IV - Reinsurance for the Years Ended December 31, 2000, 1999 and 1998..................................... F-18 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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. 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 23, 2001 F-1 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- ($ IN THOUSANDS) REVENUES Net investment income..................................... $6,802 $6,010 $5,691 Realized capital gains and losses......................... (230) 510 2 ------ ------ ------ INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE............ 6,572 6,520 5,693 INCOME TAX EXPENSE.......................................... 2,293 2,264 1,995 ------ ------ ------ NET INCOME.................................................. 4,279 4,256 3,698 ------ ------ ------ OTHER COMPREHENSIVE INCOME (LOSS), AFTER-TAX Change in unrealized net capital gains and losses......... 2,663 (4,802) 825 ------ ------ ------ COMPREHENSIVE INCOME (LOSS)................................. $6,942 $ (546) $4,523 ====== ====== ======
See notes to financial statements. F-2 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, ---------------------------- 2000 1999 ------------ ------------- ($ IN THOUSANDS, EXCEPT PAR VALUE DATA) ASSETS Investments Fixed income securities, at fair value (amortized cost $91,141 and $89,205)..................................... $ 93,030 $ 86,998 Short-term................................................ 3,859 3,170 ---------- ----------- Total investments......................................... 96,889 90,168 Cash........................................................ -- 21 Reinsurance recoverable from Allstate Life Insurance Company................................................... 1,975,150 2,022,502 Other assets................................................ 4,817 5,997 Separate Accounts........................................... 7,614,673 8,211,996 ---------- ----------- TOTAL ASSETS.......................................... $9,691,529 $10,330,684 ========== =========== LIABILITIES Reserve for life-contingent contract benefits............... $ 149,111 $ 150,587 Contractholder funds........................................ 1,826,062 1,871,933 Current income taxes payable................................ 2,078 2,171 Deferred income taxes....................................... 2,279 746 Payable to affiliates, net.................................. 7,123 5,990 Separate Accounts........................................... 7,614,673 8,211,996 ---------- ----------- TOTAL LIABILITIES..................................... 9,601,326 10,243,423 ---------- ----------- COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 8) 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............................................. 29,875 29,596 Accumulated other comprehensive income (loss): Unrealized net capital gains and losses................... 1,228 (1,435) ---------- ----------- Total accumulated other comprehensive income (loss)... 1,228 (1,435) ---------- ----------- TOTAL SHAREHOLDER'S EQUITY............................ 90,203 87,261 ---------- ----------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............ $9,691,529 $10,330,684 ========== ===========
See notes to financial statements. F-3 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF SHAREHOLDER'S EQUITY
DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- ($ 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.................................. 29,596 25,340 21,642 Net income.................................................. 4,279 4,256 3,698 Dividends................................................... (4,000) -- -- ------- ------- ------- Balance, end of year........................................ 29,875 29,596 25,340 ------- ------- ------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance, beginning of year.................................. (1,435) 3,367 2,542 Change in unrealized net capital gains and losses........... 2,663 (4,802) 825 ------- ------- ------- Balance, end of year........................................ 1,228 (1,435) 3,367 ------- ------- ------- Total Shareholder's Equity.............................. $90,203 $87,261 $87,807 ======= ======= =======
See notes to financial statements. F-4 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- ($ IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 4,279 $ 4,256 $ 3,698 Adjustments to reconcile net income to net cash provided by operating activities Amortization and other non-cash items................... 295 559 518 Realized capital gains and losses....................... 230 (510) (2) Changes in: Life-contingent contract benefits and contractholder funds................................................ 5 (68) 273 Income taxes payable.................................. 7 355 1,866 Other operating assets and liabilities................ 1,563 924 4,126 -------- -------- -------- Net cash provided by operating activities............... 6,379 5,516 10,479 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Fixed income securities Proceeds from sales....................................... 6,780 17,992 1,922 Investment collections.................................... 2,933 6,555 10,253 Investment purchases...................................... (11,561) (32,050) (20,690) Change in short-term investments, net..................... (552) 2,008 (1,964) -------- -------- -------- Net cash used in investing activities................... (2,400) (5,495) (10,479) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid.............................................. (4,000) -- -- -------- -------- -------- Net cash used in financing activities................... (4,000) -- -- -------- -------- -------- NET INCREASE (DECREASE) IN CASH............................. (21) 21 -- CASH AT THE BEGINNING OF YEAR............................... 21 -- -- -------- -------- -------- CASH AT END OF YEAR......................................... $ -- $ 21 $ -- ======== ======== ========
See notes to financial statements. F-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 accounting principles generally accepted in the United States of America. NATURE OF OPERATIONS The Company markets investment 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. Investment products include deferred annuities and immediate annuities without life contingencies. Deferred annuities include fixed rate, market value adjusted, and variable annuities. Life insurance products consist of interest-sensitive life, immediate annuities with life contingencies, and variable life insurance. In 2000, 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 that have the potential to impact its business. Federal legislation has allowed 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 that lessen these incentives are likely to negatively impact the demand for these products. The demand for life insurance products that are used to address a customer's estate planning needs may be impacted to the extent any legislative changes occur to the current estate tax laws. 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 investment 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, 2000. No other jurisdiction accounted for more than 5% of statutory premiums and deposits. F-6 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 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 write-downs 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. Interest is recognized on an accrual basis. Interest income on mortgage-backed securities is determined on the effective yield method, based on the estimated principal repayments. Accrual of income is suspended for fixed income securities that are in default or when the receipt of interest payments is in doubt. Realized capital gains and losses are determined on a specific identification basis. REINSURANCE RECOVERABLE The Company has reinsurance agreements whereby substantially all premiums, contract charges, credited interest, policy benefits and certain expenses are ceded to ALIC (See Note 3). Such amounts are 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 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 the 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 administration and surrender charges. Contract benefits include interest credited and claims incurred in excess of the related contractholder account balance. F-7 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS Crediting rates for fixed rate annuities and interest-sensitive life contracts are adjusted periodically by the Company to reflect current market conditions. Variable annuity and variable life contracts 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 provision wherein the Company guarantees either a minimum return or account value upon death or annuitization, variable annuity and variable life 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' claim 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. As discussed earlier, revenues to the Company from the Separate Accounts are recorded as contract 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 future investment yields, mortality, morbidity, 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 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 contracts that include an investment component, including most fixed annuities, interest-sensitive life policies and certain investment contracts. Deposits received are recorded as interest-bearing liabilities. Contractholder funds are equal to deposits received and interest credited to the benefit of the contractholder less withdrawals, mortality charges and administrative expenses. 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 accounting principles generally accepted in the United States of America 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. F-8 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 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 table summarizes amounts that were ceded to ALIC under reinsurance agreements.
YEAR ENDED DECEMBER 31, 2000 1999 1998 -------- -------- -------- Premiums $ 289 $ 2,966 $ 2,528 Contract charges 124,250 118,290 102,218 Credited interest, policy benefits, and certain expenses 224,265 222,513 217,428
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 $22,026, $33,892 and $26,230 in 2000, 1999 and 1998, 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 and the Universal Institutional Funds, Inc., 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 that 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. F-9 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 5. INVESTMENTS FAIR VALUES The amortized cost, gross unrealized gains and losses, and fair value for fixed income securities are as follows:
GROSS UNREALIZED AT DECEMBER 31, AMORTIZED ------------------- FAIR 2000 COST GAINS LOSSES VALUE ---- --------- -------- -------- -------- U.S. government and agencies $10,778 $1,193 $ -- $11,971 Municipal 1,501 26 (38) 1,489 Corporate 59,449 656 (720) 59,385 Mortgage-backed securities 19,413 958 (186) 20,185 ------- ------ ------- ------- Total fixed income securities $91,141 $2,833 $ (944) $93,030 ======= ====== ======= ======= 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 ======= ====== ======= =======
SCHEDULED MATURITIES The scheduled maturities for fixed income securities are as follows at December 31, 2000:
AMORTIZED FAIR COST VALUE --------- -------- Due in one year or less $ 454 $ 456 Due after one year through five years 31,914 32,461 Due after five years through ten years 31,618 31,119 Due after ten years 7,742 8,809 ------- ------- 71,728 72,845 Mortgage-backed securities 19,413 20,185 ------- ------- Total $91,141 $93,030 ======= =======
Actual maturities may differ from those scheduled as a result of prepayments by the issuers. NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------- -------- -------- -------- Fixed income securities $6,635 $5,881 $5,616 Short-term investments 249 261 190 ------ ------ ------ Investment income, before expense 6,884 6,142 5,806 Investment expense 82 132 115 ------ ------ ------ Net investment income $6,802 $6,010 $5,691 ====== ====== ======
F-10 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS REALIZED CAPITAL GAINS AND LOSSES, AFTER TAX
YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------- -------- -------- -------- Fixed income securities $(230) $ 510 $ 2 ----- ----- --- Realized capital gains and losses (230) 510 2 Income taxes 80 (178) (1) ----- ----- --- Realized capital gains and losses, after tax $(150) $ 332 $ 1 ===== ===== ===
Excluding calls and prepayments, gross gains of $78 and $629 were realized on sales of fixed income securities during 2000 and 1999, respectively and gross losses of $308, $119 and $9 were realized on sales of fixed income securities during 2000, 1999 and 1998, respectively. There were no gross gains realized on sales of fixed income securities during 1998. UNREALIZED NET CAPITAL GAINS Unrealized net capital gains on fixed income securities included in shareholder's equity at December 31, 2000 are as follows:
GROSS COST/ UNREALIZED UNREALIZED AMORTIZED FAIR ------------------- NET COST VALUE GAINS LOSSES GAINS --------- -------- -------- -------- ---------- Fixed income securities $91,141 $93,030 $ 2,833 $ (944) $1,889 ======= ======= ======= ======= Deferred income taxes (661) ------ Unrealized net capital gains $1,228 ======
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 2000 1999 1998 ----------------------- -------- -------- -------- Fixed income securities $ 4,096 $(7,387) $ 1,269 Deferred income taxes (1,433) 2,585 (444) ------- ------- ------- Increase (decrease) in unrealized net capital gains and losses $ 2,663 $(4,802) $ 825 ======= ======= =======
SECURITIES ON DEPOSIT At December 31, 2000, fixed income securities with a carrying value of $8,939 were on deposit with regulatory authorities as required by law. F-11 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 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 approximate fair value. FINANCIAL ASSETS The carrying value and fair value of financial assets at December 31, are as follows:
2000 1999 ----------------------- ----------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- Fixed income securities $ 93,030 $ 93,030 $ 86,998 $ 86,998 Short-term 3,859 3,859 3,170 3,170 Separate Accounts 7,614,673 7,614,673 8,211,996 8,211,996
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:
2000 1999 ----------------------- ----------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- Contractholder funds on investment contracts $1,652,039 $1,644,231 $1,735,843 $1,675,910 Separate Accounts 7,614,673 7,614,673 8,211,996 8,211,996
The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts. 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. F-12 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 7. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS At December 31, the Reserve for life-contingent contract benefits consists of the following:
2000 1999 -------- -------- Immediate annuities: Structured settlement annuities $108,441 $109,907 Other immediate annuities 40,670 40,680 -------- -------- Total Reserve for life-contingent contract benefits $149,111 $150,587 ======== ========
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, 2000 and 1999. At December 31, Contractholder funds consists of the following:
2000 1999 ---------- ---------- Interest-sensitive life $ 171,192 $ 173,867 Fixed annuities: Immediate annuities 66,051 78,197 Deferred annuities 1,588,819 1,619,869 ---------- ---------- Total Contractholder funds $1,826,062 $1,871,933 ========== ==========
Contractholder funds are equal to deposits received and interest credited to the benefit of the contractholder less withdrawals, mortality charges and administrative expenses. Interest rates credited range from 5.8% to 6.5% for interest-sensitive life contracts; 3.5% to 10.2% for immediate annuities and 4.3% to 7.3% 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 44.4% of deferred annuities are subject to a market value adjustment. 8. 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. Recent 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. In the normal course of its business, the Company is involved in pending and threatened litigation and regulatory actions in which claims for monetary damages are asserted. At this time, based on their present status, it is in the opinion of management, that the ultimate liability, if any, in one or more of these actions in excess of amounts currently reserved is not expected to have a material effect on the results of operations, liquidity or financial position of the Company. F-13 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 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 are immaterial and 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 enforces compliance procedures to mitigate exposure to potential litigation. The Company is a member of the Insurance Marketplace Standards Association, an organization that advocates ethical market conduct. 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. The Company has also entered into a supplemental tax sharing agreement with respect to reinsurance ceded to ALIC to allocate to ALIC the tax consequences of such reinsurance. Effectively, these agreements result in the Company's annual income tax provision being computed as if the Company filed a separate return, as adjusted for the reinsurance ceded to ALIC. F-14 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 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. The components of the deferred income tax assets and liabilities at December 31, are as follows:
2000 1999 -------- -------- DEFERRED ASSETS Unrealized net capital losses $ -- $ 772 ------- ------- Total deferred assets -- 772 DEFERRED LIABILITIES Difference in tax bases of investments (1,618) (1,518) Unrealized net capital gains (661) -- ------- ------- Total deferred liabilities (2,279) (1,518) ------- ------- Net deferred liability $(2,279) $ (746) ======= =======
The components of income tax expense for the year ended December 31, are as follows:
2000 1999 1998 -------- -------- -------- Current $2,193 $2,249 $1,797 Deferred 100 15 198 ------ ------ ------ Total income tax expense $2,293 $2,264 $1,995 ====== ====== ======
The Company paid income taxes of $2,286, $1,908 and $129 in 2000, 1999 and 1998, 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:
2000 1999 1998 -------- -------- -------- Statutory federal income tax rate 35.0% 35.0% 35.0% Tax-exempt income (0.1) (0.1) (0.2) Other -- (0.2) 0.2 ---- ---- ---- Effective income tax rate 34.9% 34.7% 35.0% ==== ==== ====
F-15 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 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, 2000, 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 1983. 10. STATUTORY FINANCIAL INFORMATION The Company's statutory capital and surplus was $84,335 and $83,746 at December 31, 2000 and 1999, respectively. The Company's statutory net income was $4,893, $4,840 and $3,518 for the years ended December 31, 2000, 1999 and 1998, respectively. 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 has approved a January 1, 2001 implementation date for newly developed statutory accounting principles ("codification"). The Company's state of domicile, Arizona, has passed legislation revising various statutory accounting requirements to conform to codification. These requirements will not have a material impact on the statutory surplus of the Company. The NAIC has installed a formal maintenance process to develop and propose new guidance, as well as on- going clarification and interpretation of issues. The impact of any future changes will be recorded as they are approved by the NAIC. 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. On December 28, 2000, the Company paid a cash dividend of $4.0 million to ALIC. The maximum amount of dividends that the Company can distribute during 2001 without prior approval of the Arizona Department of Insurance is $4,893. F-16 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 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, 2000, RBC for the Company was significantly above levels that would require regulatory action. 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:
2000 1999 1998 ------------------------------- ------------------------------- ------------------------------- PRETAX TAX AFTER-TAX PRETAX TAX AFTER-TAX PRETAX TAX AFTER-TAX -------- -------- --------- -------- -------- --------- -------- -------- --------- UNREALIZED CAPITAL GAINS AND LOSSES: - ---------------------------- Unrealized holding gains (losses) arising during the period $3,843 $(1,344) $2,499 $(6,877) $2,407 $(4,470) $1,271 $(445) $826 Less: reclassification adjustments (253) 89 (164) 510 (178) 332 2 (1) 1 ------ ------- ------ ------- ------ ------- ------ ----- ---- Unrealized net capital gains (losses) 4,096 (1,433) 2,663 (7,387) 2,585 (4,802) 1,269 (444) 825 ------ ------- ------ ------- ------ ------- ------ ----- ---- Other comprehensive income (loss) $4,096 $(1,433) $2,663 $(7,387) $2,585 $(4,802) $1,269 $(444) $825 ====== ======= ====== ======= ====== ======= ====== ===== ====
F-17 NORTHBROOK LIFE INSURANCE COMPANY SCHEDULE IV--REINSURANCE ($ IN THOUSANDS)
GROSS NET AMOUNT CEDED AMOUNT -------- -------- -------- YEAR ENDED DECEMBER 31, 2000 Life insurance in force..................................... $441,073 $441,073 $ -- ======== ======== ======== Premiums and contract charges: Life and annuities........................................ $124,621 $124,621 $ -- ======== ======== ========
GROSS NET AMOUNT CEDED AMOUNT -------- -------- -------- YEAR ENDED DECEMBER 31, 1999 Life insurance in force..................................... $474,824 $474,824 $ -- ======== ======== ======== Premiums and contract charges: Life and annuities........................................ $121,351 $121,351 $ -- ======== ======== ========
GROSS NET AMOUNT CEDED AMOUNT -------- -------- -------- YEAR ENDED DECEMBER 31, 1998 Life insurance in force..................................... $494,256 $494,256 $ -- ======== ======== ======== Premiums and contract charges: Life and annuities........................................ $104,746 $104,746 $ -- ======== ======== ========
F-18 ------------------------------------------------------------------- NORTHBROOK VARIABLE ANNUITY ACCOUNT II FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND FOR THE PERIODS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999, 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 (the "Account") as of December 31, 2000 (including the assets of each of the individual sub-accounts which comprise the Account as disclosed in Note 1), 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 auditing standards generally accepted in the United States of America. 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, 2000 by correspondence with the Account's 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, 2000 (including the assets of each of the individual sub-accounts which comprise the Account), 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 accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Chicago, Illinois March 16, 2001 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF NET ASSETS DECEMBER 31, 2000 - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Allocation to Sub-Accounts investing in the Morgan Stanley Dean Witter Variable Investment Series: Aggressive Equity, 9,324,197 shares (cost $137,973,999) $ 133,429,256 Capital Growth, 8,376,439 shares (cost $154,649,655) 168,031,371 Competitive Edge, "Best Ideas", 6,501,703 shares (cost $69,126,775) 66,187,323 Dividend Growth, 99,725,922 shares (cost $2,021,362,239) 1,446,025,885 Equity, 42,297,703 shares (cost $1,498,425,486) 1,677,949,912 European Growth, 18,555,920 shares (cost $457,882,241) 470,763,685 Global Dividend Growth, 27,475,948 shares (cost $347,817,219) 349,768,829 High Yield, 48,733,748 shares (cost $252,940,759) 118,423,004 Income Builder, 5,232,788 shares (cost $59,586,492) 56,828,070 Information, 270,570 shares (cost $2,679,453) 2,519,002 Money Market, 329,076,061 shares (cost $329,076,061) 329,076,061 Pacific Growth, 10,506,071 shares (cost $68,708,789) 58,413,757 Quality Income Plus, 36,118,616 shares (cost $380,339,700) 369,132,239 S&P 500 Index, 16,583,164 shares (cost $198,782,618) 199,827,129 Short-Term Bond, 634,713 shares (cost $6,296,134) 6,321,744 Strategist, 38,001,657 shares (cost $565,791,144) 633,107,612 Utilities, 23,361,628 shares (cost $391,212,111) 506,480,064 Allocation to Sub-Accounts investing in The Universal Institutional Funds, Inc. (a): Emerging Markets Equity, 2,583,089 shares (cost $27,026,493) 18,314,101 Equity Growth, 6,498,999 shares (cost $121,248,987) 108,923,229 International Magnum, 1,740,292 shares (cost $21,659,380) 20,500,642 Mid Cap Value, 529,126 shares (cost $8,657,831) 7,963,341 U.S. Real Estate, 1,417,626 shares (cost $15,219,889) 16,316,872 Allocation to Sub-Accounts investing in the Van Kampen Life Investment Trust: LIT Emerging Growth, 6,758,613 shares (cost $305,440,259) 280,076,934 Allocation to Sub-Accounts investing in the AIM Variable Insurance Funds: AIM V.I. Capital Appreciation, 460,280 shares (cost $17,187,336) 14,195,037 AIM V.I. Growth, 359,847 shares (cost $11,189,259) 8,931,397 AIM V.I. Value, 1,109,110 shares (cost $35,005,920) 30,289,801 Allocation to Sub-Accounts investing in the Alliance Variable Product Series Fund: Alliance Growth, 381,478 shares (cost $10,970,733) 9,533,140 Alliance Growth & Income, 1,155,922 shares (cost $25,976,933) 26,655,557 Alliance Premier Growth, 1,152,794 shares (cost $44,487,129) 36,808,714
(a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. See notes to financial statements. 2 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENT OF NET ASSETS (CONTINUED) DECEMBER 31, 2000 - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Allocation to Sub-Accounts investing in the Putnam Variable Trust: Growth & Income, 389,078 shares (cost $9,662,848) $ 10,022,645 International Growth, 1,379,868 shares (cost $25,129,280) 24,382,273 Voyager, 530,373 shares (cost $30,071,462) 25,797,343 Allocation to Sub-Accounts investing in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares): Aggressive Equity, 934,261 shares (cost $14,251,780) 13,350,585 Capital Growth, 176,088 shares (cost $3,665,836) 3,527,050 Competitive Edge, "Best Ideas", 459,255 shares (cost $5,233,332) 4,666,032 Dividend Growth, 1,317,242 shares (cost $18,070,467) 19,086,840 Equity, 803,447 shares (cost $34,586,978) 31,864,714 European Growth, 417,351 shares (cost $10,818,291) 10,571,497 Global Dividend Growth, 173,972 shares (cost $2,137,828) 2,211,184 High Yield, 799,540 shares (cost $2,680,762) 1,942,883 Income Builder, 88,914 shares (cost $962,058) 964,721 Information, 205,693 shares (cost $2,024,764) 1,915,004 Money Market, 13,812,844 shares (cost $13,812,844) 13,812,844 Pacific Growth, 131,096 shares (cost $925,987) 728,895 Quality Income Plus, 506,767 shares (cost $5,081,703) 5,174,088 S&P 500 Index, 1,057,247 shares (cost $13,823,841) 12,729,255 Short-Term Bond, 143,718 shares (cost $1,428,531) 1,429,993 Strategist, 1,402,350 shares (cost $24,122,392) 23,349,119 Utilities, 879,210 shares (cost $19,263,900) 19,061,271 ----------------- Total Assets 7,397,381,944 LIABILITIES Payable to Northbrook Life Insurance Company: Accrued contract maintenance charges 1,601,225 ----------------- Net Assets $ 7,395,780,719 =================
See notes to financial statements. 3 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------------------ Competitive Aggressive Capital Edge, Dividend Equity Growth "Best Ideas" Growth Equity -------------- ------------- -------------- -------------- --------------- NET INVESTMENT INCOME (LOSS) Dividends $ 47,575 $ 29,086,812 $ 299,232 $362,534,374 $ 297,648,729 Charges from Northbrook Life Insurance Company: Mortality and expense risk (1,517,851) (2,241,359) (976,358) (19,528,740) (24,911,486) Administrative expense (111,337) (171,290) (71,998) (1,491,480) (1,885,727) ------------- ------------ ----------- ------------ ------------- Net investment income (loss) (1,581,613) 26,674,163 (749,124) 341,514,154 270,851,516 -------------- ------------ ----------- ------------ ------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 23,121,158 28,138,618 11,603,729 529,947,039 191,449,587 Cost of investments sold 22,734,007 22,751,087 10,814,175 321,944,807 142,485,156 -------------- ------------ ----------- ------------ ------------- Net realized gains (losses) 387,151 5,387,531 789,554 208,002,232 48,964,431 -------------- ------------ ----------- ------------ ------------- Change in unrealized gains (losses) (11,134,118) (32,870,081) (14,724,894) (532,890,671) (594,936,907) -------------- ------------ ----------- ------------ ------------- Net gains (losses) on investments (10,746,967) (27,482,550) (13,935,340) (324,888,439) (545,972,476) -------------- ------------ ----------- ------------ ------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $(12,328,580) $ (808,387) $(14,684,464) $ 16,625,715 $(275,120,960) ============== ============ ============ ============ =============
See notes to financial statements. 4 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------------------- Global European Dividend High Income Growth Growth Yield Builder Information (d) -------------- -------------- -------------- -------------- --------------- NET INVESTMENT INCOME (LOSS) Dividends $ 81,559,286 $ 38,418,888 $ 34,828,332 $ 3,300,354 $ - Charges from Northbrook Life Insurance Company: Mortality and expense risk (6,752,112) (5,057,987) (2,631,531) (843,085) (3,058) Administrative expense (514,410) (387,407) (200,584) (63,198) (218) ------------ ------------ ------------ ------------ ------------ Net investment income (loss) 74,292,764 32,973,494 31,996,217 2,394,071 (3,276) ------------ ------------ ------------ ------------ ------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 269,468,966 126,228,317 97,696,615 25,465,332 121,973 Cost of investments sold 226,110,015 124,018,182 146,727,240 26,747,744 136,773 ------------ ------------ ------------ ------------ ------------ Net realized gains (losses) 43,358,951 2,210,135 (49,030,625) (1,282,412) (14,800) ------------ ------------ ------------ ------------ ------------ Change in unrealized gains (losses) (149,231,476) (57,816,199) (47,984,362) (2,694,441) (160,451) ------------ ------------ ------------ ------------ ------------ Net gains (losses) on investments (105,872,525) (55,606,064) (97,014,987) (3,976,853) (175,251) ------------ ------------ ------------ ------------ ------------ CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $(31,579,761) $(22,632,570) $(65,018,770) $ (1,582,782) $ (178,527) ============ ============ ============== ============ ============
(d) For the Period Beginning November 6, 2000 and Ended December 31, 2000 See notes to financial statements. 5 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------------------- Quality Money Pacific Income S&P 500 Short-Term Market Growth Plus Index Bond -------------- --------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS) Dividends $ 20,547,459 $ 1,406,029 $ 25,901,025 $ 2,124,368 $ 251,924 Charges from Northbrook Life Insurance Company: Mortality and expense risk (4,612,431) (1,224,475) (4,829,415) (2,793,746) (67,831) Administrative expense (351,214) (92,705) (373,780) (204,891) (5,015) ------------ ------------- ------------ ------------ ------------ Net investment income (loss) 15,583,814 88,849 20,697,830 (874,269) 179,078 ------------ ------------- ------------ ------------ ------------ REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 924,460,138 367,859,674 119,060,101 24,211,104 3,986,498 Cost of investments sold 924,460,138 372,581,665 127,836,141 22,349,734 3,984,090 ------------ ------------- ------------ ------------ ------------ Net realized gains (losses) - (4,721,991) (8,776,040) 1,861,370 2,408 ------------ ------------- ------------ ------------ ------------ Change in unrealized gains (losses) - (25,754,810) 21,690,015 (23,889,850) 44,678 ------------ ------------- ------------ ------------ ------------ Net gains (losses) on investments - (30,476,801) 12,913,975 (22,028,480) 47,086 ------------ ------------- ------------ ------------ ------------ CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 15,583,814 $ (30,387,952) $ 33,611,805 $(22,902,749) $ 226,164 ============ ============= ============ ============ ============
See notes to financial statements. 6 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment The Universal Institutional Series Sub-Accounts Funds, Inc. Sub-Accounts (a) ------------------------------- ---------------------------------------------- Emerging Markets Equity International Strategist Utilities Equity Growth Magnum -------------- --------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS) Dividends $ 94,362,198 $ 42,191,530 $ 3,202,487 $ 7,112,755 $ 630,686 Charges from Northbrook Life Insurance Company: Mortality and expense risk (8,546,307) (6,756,708) (381,217) (1,418,665) (243,948) Administrative expense (652,796) (521,802) (27,571) (104,200) (17,678) ------------ ------------- ------------ ------------ ----------- Net investment income (loss) 85,163,095 34,913,020 2,793,699 5,589,890 369,060 ------------ ------------- ------------ ------------ ----------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 88,870,638 85,288,040 114,529,084 22,570,885 37,961,558 Cost of investments sold 70,820,948 58,514,330 115,643,105 20,646,110 38,203,383 ------------ ------------- ------------ ------------ ----------- Net realized gains (losses) 18,049,690 26,773,710 (1,114,021) 1,924,775 (241,825) ------------ ------------- ------------ ------------ ----------- Change in unrealized gains (losses) (101,361,897) (53,017,599) (13,971,580) (26,639,061) (2,386,683) ------------ ------------- ------------ ------------ ----------- Net gains (losses) on investments (83,312,207) (26,243,889) (15,085,601) (24,714,286) (2,628,508) ------------ ------------- ------------ ------------ ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,850,888 $ 8,669,131 $(12,291,902) $(19,124,396) $(2,259,448) ============ ============= ============ ============ ===========
(a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. See notes to financial statements. 7 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Van Kampen The Universal Institutional Life Investment AIM Variable Insurance Funds, Inc. Sub-Accounts (a) Trust Sub-Account Funds Sub-Accounts ---------------------------- ----------------- ------------------------------- Mid Cap U.S. Real LIT Emerging AIM V.I. Capital AIM V.I. Value (e) Estate Growth Appreciation (e) Growth (e) ------------- ------------- ----------------- ---------------- ------------- NET INVESTMENT INCOME (LOSS) Dividends $ 880,361 $ 362,555 $ 620,288 $ 381,821 $ 272,516 Charges from Northbrook Life Insurance Company: Mortality and expense risk (31,192) (139,563) (3,589,992) (75,582) (46,586) Administrative expense (2,197) (10,133) (261,949) (5,440) (3,421) ----------- ----------- --------------- -------------- ----------- Net investment income (loss) 846,972 212,859 (3,231,653) 300,799 222,509 ----------- ----------- --------------- -------------- ----------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 11,462,434 25,388,488 60,523,851 8,462,728 4,935,760 Cost of investments sold 11,489,190 24,789,389 53,406,221 9,246,474 5,261,069 ----------- ----------- --------------- -------------- ----------- Net realized gains (losses) (26,756) 599,099 7,117,630 (783,746) (325,309) ----------- ----------- --------------- -------------- ----------- Change in unrealized gains (losses) (694,490) 1,473,607 (73,283,344) (2,992,299) (2,257,862) ----------- ----------- --------------- -------------- ----------- Net gains (losses) on investments (721,246) 2,072,706 (66,165,714) (3,776,045) (2,583,171) ----------- ----------- --------------- -------------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 125,726 $ 2,285,565 $ (69,397,367) $ (3,475,246) $(2,360,662) =========== =========== =============== ============== ===========
(a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. (e) For the Period Beginning January 31, 2000 and Ended December 31, 2000 See notes to financial statements. 8 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ AIM Variable Insurance Putnam Funds Variable Trust Sub-Accounts Alliance Variable Product Series Fund Sub-Accounts Sub-Accounts ------------ -------------------------------------------------- -------------- Alliance AIM V.I. Alliance Growth & Alliance Premier Growth & Value (e) Growth (e) Income (e) Growth (e) Income (e) ------------ ------------- ---------------- ----------------- -------------- NET INVESTMENT INCOME (LOSS) Dividends $ 1,304,111 $ 90,083 $ 103,200 $ 155,667 $ 293 Charges from Northbrook Life Insurance Company: Mortality and expense risk (158,818) (49,440) (97,725) (196,503) (31,299) Administrative expense (11,487) (3,615) (7,114) (14,244) (2,285) ----------- ----------- -------------- --------------- ------------ Net investment income (loss) 1,133,806 37,028 (1,639) (55,080) (33,291) ----------- ----------- -------------- --------------- ------------ REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 10,601,342 2,072,364 8,524,970 2,572,763 10,522,766 Cost of investments sold 11,141,220 2,317,782 8,486,425 2,669,150 10,484,701 ----------- ----------- -------------- --------------- ------------ Net realized gains (losses) (539,878) (245,418) 38,545 (96,387) 38,065 ----------- ----------- -------------- --------------- ------------ Change in unrealized gains (losses) (4,716,119) (1,437,593) 678,624 (7,678,415) 359,797 ----------- ----------- -------------- --------------- ------------ Net gains (losses) on investments (5,255,997) (1,683,011) 717,169 (7,774,802) 397,862 ----------- ----------- -------------- --------------- ------------ CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $(4,122,191) $(1,645,983) $ 715,530 $ (7,829,882) $ 364,571 =========== =========== ============== =============== ============
(e) For the Period Beginning January 31, 2000 and Ended December 31, 2000 See notes to financial statements. 9 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Putnam Variable Morgan Stanley Dean Witter Variable Investment Trust Sub-Accounts Series (Class Y Shares) Sub-Accounts ---------------------------- -------------------------------------------------- Competitive International Aggressive Capital Edge, Growth (e) Voyager (e) Equity (f) Growth (f) "Best Ideas" (f) ------------- ------------- --------------- --------------- ---------------- NET INVESTMENT INCOME (LOSS) Dividends $ 15,742 $ 7,042 $ 496 $ 99,461 $ 2,321 Charges from Northbrook Life Insurance Company: Mortality and expense risk (118,902) (140,678) (58,560) (59,229) (21,589) Administrative expense (8,768) (10,126) (3,903) (3,552) (1,442) ----------- ----------- ------------- ------------- -------------- Net investment income (loss) (111,928) (143,762) (61,967) 36,680 (20,710) ----------- ----------- ------------- ------------- -------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 33,741,385 5,601,893 691,604 226,527 505,600 Cost of investments sold 34,091,072 5,798,454 688,205 245,073 514,368 ----------- ----------- ------------- ------------- -------------- Net realized gains (losses) (349,687) (196,561) 3,399 (18,546) (8,768) ----------- ----------- ------------- ------------- -------------- Change in unrealized gains (losses) (747,007) (4,274,119) (901,195) (138,786) (567,300) ----------- ----------- ------------- ------------- -------------- Net gains (losses) on investments (1,096,694) (4,470,680) (897,796) (157,332) (576,068) ----------- ----------- ------------- ------------- -------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $(1,208,622) $(4,614,442) $ (959,763) $ (120,652) $ (596,778) =========== =========== ============= ============= ==============
(e) For the Period Beginning January 31, 2000 and Ended December 31, 2000 (f) For the Period Beginning May 1, 2000 and Ended December 31, 2000 See notes to financial statements. 10 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts ----------------------------------------------------------------------------------- Global Dividend European Dividend High Growth (f) Equity (f) Growth (f) Growth (f) Yield (f) -------------- --------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS) Dividends $ 481,819 $ 637,506 $ 218,617 $ 20,557 $ 181,215 Charges from Northbrook Life Insurance Company: Mortality and expense risk (59,906) (133,322) (49,286) (8,893) (10,953) Administrative expense (3,972) (9,156) (3,296) (601) (738) ------------ ------------- -------------- -------------- ----------- Net investment income (loss) 417,941 495,028 166,035 11,063 169,524 ------------ ------------- -------------- -------------- ----------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 589,481 951,176 1,205,945 119,306 301,713 Cost of investments sold 647,369 1,023,310 1,327,683 120,355 342,327 ------------ ------------- -------------- -------------- ----------- Net realized gains (losses) (57,888) (72,134) (121,738) (1,049) (40,614) ------------ ------------- -------------- -------------- ----------- Change in unrealized gains (losses) 1,016,373 (2,722,264) (246,794) 73,356 (737,879) ------------ --------------- -------------- -------------- ----------- Net gains (losses) on investments 958,485 (2,794,398) (368,532) 72,307 (778,493) ------------ --------------- -------------- -------------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,376,426 $ (2,299,370) $ (202,497) $ 83,370 $ (608,969) ============ =============== ============== ============== ===========
(f) For the Period Beginning May 1, 2000 and Ended December 31, 2000 See notes to financial statements. 11 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts ----------------------------------------------------------------------------------- Quality Income Money Pacific Income Builder (f) Information (f) Market (f) Growth (f) Plus (f) -------------- --------------- -------------- -------------- -------------- NET INVESTMENT INCOME (LOSS) Dividends $ 17,787 $ - $ 179,443 $ 877 $ 80,813 Charges from Northbrook Life Insurance Company: Mortality and expense risk (2,728) (2,669) (44,098) (4,429) (14,130) Administrative expense (193) (172) (3,065) (282) (1,006) ------------ ------------- ------------ ------------ ----------- Net investment income (loss) 14,866 (2,841) 132,280 (3,834) 65,677 ------------ ------------- ------------ ------------ ----------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 88,029 29,381 6,375,457 77,163 201,333 Cost of investments sold 88,966 29,373 6,375,457 82,326 199,314 ------------ ------------- ------------ ------------ ----------- Net realized gains (losses) (937) 8 - (5,163) 2,019 ------------ ------------- ------------ ------------ ----------- Change in unrealized gains (losses) 2,663 (109,760) - (197,092) 92,385 ------------ ------------- ------------ ------------ ----------- Net gains (losses) on investments 1,726 (109,752) - (202,255) 94,404 ------------ ------------- ------------ ------------ ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 16,592 $ (112,593) $ 132,280 $ (206,089) $ 160,081 ============ ============= ============ ============ ============
(f) For the Period Beginning May 1, 2000 and Ended December 31, 2000 See notes to financial statements. 12 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts ----------------------------------------------------------------------------------- S&P 500 Short-Term Index (f) Bond (f) Strategist (f) Utilities (f) -------------- -------------- ---------------- --------------- NET INVESTMENT INCOME (LOSS) Dividends $ 16,188 $ 18,008 $ 454,862 $ 195,463 Charges from Northbrook Life Insurance Company: Mortality and expense risk (58,073) (4,286) (83,435) (61,586) Administrative expense (3,954) (282) (5,604) (4,069) ------------ ------------ -------------- ------------- Net investment income (loss) (45,839) 13,440 365,823 129,808 ------------ ------------ -------------- ------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 920,532 99,101 1,079,619 617,486 Cost of investments sold 933,408 98,867 1,117,985 628,231 ------------ ------------ -------------- ------------- Net realized gains (losses) (12,876) 234 (38,366) (10,745) ------------ ------------ -------------- ------------- Change in unrealized gains (losses) (1,094,586) 1,462 (773,273) (202,629) ------------ ------------ -------------- ------------- Net gains (losses) on investments (1,107,462) 1,696 (811,639) (213,374) ------------ ------------ -------------- ------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ (1,153,301) $ 15,136 $ (445,816) $ (83,566) ============ ============ ============== =============
(f) For the Period Beginning May 1, 2000 and Ended December 31, 2000 See notes to financial statements. 13 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ----------------------------------------------------------------------------------- Capital Aggressive Equity Appreciation (c) Capital Growth ------------------------------- ---------------- -------------------------------- 2000 1999 (b) 1999 2000 1999 --------------- -------------- ---------------- --------------- --------------- FROM OPERATIONS Net investment income (loss) $ (1,581,613) $ (89,491) $ 331,100 $ 26,674,163 $ 14,629,948 Net realized gains (losses) 387,151 562,424 45,003 5,387,531 5,021,860 Change in unrealized gains (losses) (11,134,118) 6,589,375 1,824,853 (32,870,081) 18,225,024 ------------- ------------ -------------- ------------- ------------- Change in net assets resulting from operations (12,328,580) 7,062,308 2,200,956 (808,387) 37,876,832 ------------- ------------ -------------- ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 37,028,311 12,119,932 1,292,309 13,443,564 9,505,220 Benefit payments (900,845) (8,280) (57,970) (1,969,294) (1,116,070) Payments on termination (6,715,026) (180,619) (647,504) (18,795,015) (12,938,058) Contract maintenance charge (56,112) (8,488) 3,365 (65,736) (54,380) Transfers among the sub-accounts and with the Fixed Account - net 78,737,903 18,649,870 (34,073,925) 18,365,722 (3,891,813) ------------- ------------ -------------- ------------- ------------- Change in net assets resulting from capital transactions 108,094,231 30,572,415 (33,483,725) 10,979,241 (8,495,101) ------------- ------------ -------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS 95,765,651 37,634,723 (31,282,769) 10,170,854 29,381,731 NET ASSETS AT BEGINNING OF PERIOD 37,634,723 - 31,282,769 157,824,145 128,442,414 ------------- ------------ -------------- ------------- ------------- NET ASSETS AT END OF PERIOD $ 133,400,374 $ 37,634,723 $ - $ 167,994,999 $ 157,824,145 ============= ============ ============== ============= =============
(b) For the Period Beginning May 3, 1999 and Ended December 31, 1999 (c) As of the close of Business on March 19, 1999, the Capital Appreciation Sub-Account merged with and into the Equity Sub-Account. See notes to financial statements 14 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts -------------------------------------------------------------------- Competitive Edge, "Best Ideas" Dividend Growth -------------------------------- ---------------------------------- 2000 1999 2000 1999 --------------- --------------- ---------------- ---------------- FROM OPERATIONS Net investment income (loss) $ (749,124) $ (357,963) $ 341,514,154 $ 314,959,411 Net realized gains (losses) 789,554 668,887 208,002,232 128,696,734 Change in unrealized gains (losses) (14,724,894) 10,507,911 (532,890,671) (523,069,735) ------------- ------------- -------------- -------------- Change in net assets resulting from operations (14,684,464) 10,818,835 16,625,715 (79,413,590) ------------- ------------- -------------- -------------- FROM CAPITAL TRANSACTIONS Deposits 12,414,281 14,308,748 39,845,901 188,251,624 Benefit payments (532,011) (385,715) (22,382,755) (22,608,692) Payments on termination (4,806,290) (3,208,126) (175,477,715) (178,336,682) Contract maintenance charge (28,565) (20,818) (630,181) (827,903) Transfers among the sub-accounts and with the Fixed Account - net 14,339,473 2,656,267 (305,079,362) (100,954,098) ------------- ------------- -------------- -------------- Change in net assets resulting from capital transactions 21,386,888 13,350,356 (463,724,112) (114,475,751) ------------- ------------- -------------- -------------- INCREASE (DECREASE) IN NET ASSETS 6,702,424 24,169,191 (447,098,397) (193,889,341) NET ASSETS AT BEGINNING OF PERIOD 59,470,572 35,301,381 1,892,811,278 2,086,700,619 ------------- ------------- -------------- -------------- NET ASSETS AT END OF PERIOD $ 66,172,996 $ 59,470,572 $1,445,712,881 $1,892,811,278 ============= ============= ============== ============== Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ---------------------------------------------------------------------- Equity ---------------------------------- 2000 1999 (c) ---------------- ---------------- FROM OPERATIONS Net investment income (loss) $ 270,851,516 $ 143,182,457 Net realized gains (losses) 48,964,431 20,788,533 Change in unrealized gains (losses) (594,936,907) 497,325,723 -------------- -------------- Change in net assets resulting from operations (275,120,960) 661,296,713 -------------- -------------- FROM CAPITAL TRANSACTIONS Deposits 100,705,202 167,149,976 Benefit payments (18,537,524) (11,678,201) Payments on termination (168,025,629) (109,621,629) Contract maintenance charge (661,389) (626,104) Transfers among the sub-accounts and with the Fixed Account - net 121,184,474 173,235,007 -------------- -------------- Change in net assets resulting from capital transactions 34,665,134 218,459,049 -------------- -------------- INCREASE (DECREASE) IN NET ASSETS (240,455,826) 879,755,762 NET ASSETS AT BEGINNING OF PERIOD 1,918,042,532 1,038,286,770 -------------- -------------- NET ASSETS AT END OF PERIOD $1,677,586,706 $1,918,042,532 ============== ==============
(c) As of the close of Business on March 19, 1999, the Capital Appreciation Sub-Account merged with and into the Equity Sub-Account. See notes to financial statements 15 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------ European Growth Global Dividend Growth -------------------------------- -------------------------------- 2000 1999 2000 1999 --------------- --------------- --------------- --------------- FROM OPERATIONS Net investment income (loss) $ 74,292,764 $ 40,243,082 $ 32,973,494 $ 35,854,179 Net realized gains (losses) 43,358,951 32,543,061 2,210,135 9,001,583 Change in unrealized gains (losses) (149,231,476) 43,557,813 (57,816,199) 11,267,752 ------------- ------------- ------------- ------------- Change in net assets resulting from operations (31,579,761) 116,343,956 (22,632,570) 56,123,514 ------------- ------------- ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 24,846,114 33,605,981 6,820,575 24,612,447 Benefit payments (5,830,479) (3,672,213) (4,968,693) (5,520,386) Payments on termination (54,836,408) (44,372,248) (42,189,879) (36,599,848) Contract maintenance charge (190,290) (186,281) (153,681) (198,686) Transfers among the sub-accounts and with the Fixed Account - net 2,444,524 (38,047,377) (62,748,030) (16,822,685) ------------- ------------- ------------- ------------- Change in net assets resulting from capital transactions (33,566,539) (52,672,138) (103,239,708) (34,529,158) ------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS (65,146,300) 63,671,818 (125,872,278) 21,594,356 NET ASSETS AT BEGINNING OF PERIOD 535,808,084 472,136,266 475,565,397 453,971,041 ------------- ------------- ------------- ------------- NET ASSETS AT END OF PERIOD $ 470,661,784 $ 535,808,084 $ 349,693,119 $ 475,565,397 ============= ============= ============= ============= Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------ High Yield -------------------------------- 2000 1999 --------------- --------------- FROM OPERATIONS Net investment income (loss) $ 31,996,217 $ 38,967,620 Net realized gains (losses) (49,030,625) (31,301,303) Change in unrealized gains (losses) (47,984,362) (15,834,237) ------------- ------------- Change in net assets resulting from operations (65,018,770) (8,167,920) ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 5,088,118 26,101,041 Benefit payments (4,283,015) (4,009,045) Payments on termination (30,396,806) (35,111,312) Contract maintenance charge (63,055) (104,889) Transfers among the sub-accounts and with the Fixed Account - net (45,613,045) (57,088,792) ------------- ------------- Change in net assets resulting from capital transactions (75,267,803) (70,212,997) ------------- ------------- INCREASE (DECREASE) IN NET ASSETS (140,286,573) (78,380,917) NET ASSETS AT BEGINNING OF PERIOD 258,683,943 337,064,860 ------------- ------------- NET ASSETS AT END OF PERIOD $ 118,397,370 $ 258,683,943 ============= =============
See notes to financial statements 16 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------------------- Income Builder Information Money Market ------------------------------ ------------- -------------------------------- 2000 1999 2000 (d) 2000 1999 -------------- -------------- ------------- --------------- --------------- FROM OPERATIONS Net investment income (loss) $ 2,394,071 $ 4,500,919 $ (3,276) $ 15,583,814 $ 13,220,816 Net realized gains (losses) (1,282,412) 112,097 (14,800) - - Change in unrealized gains (losses) (2,694,441) (428,270) (160,451) - - ------------ ------------ ----------- ------------- ------------- Change in net assets resulting from operations (1,582,782) 4,184,746 (178,527) 15,583,814 13,220,816 ------------ ------------ ----------- ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 1,613,246 7,989,151 1,097,092 47,872,330 75,959,488 Benefit payments (968,748) (1,104,145) - (15,333,949) (12,372,372) Payments on termination (5,576,539) (5,408,027) (125) (100,926,101) (112,272,629) Contract maintenance charge (24,523) (31,269) (595) (109,981) (128,006) Transfers among the sub-accounts and with the Fixed Account - net (14,824,705) (11,305,739) 1,600,612 (17,688,547) 34,266,127 ------------ ------------ ----------- ------------- ------------- Change in net assets resulting from capital transactions (19,781,269) (9,860,029) 2,696,984 (86,186,248) (14,547,392) ------------ ------------ ----------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS (21,364,051) (5,675,283) 2,518,457 (70,602,434) (1,326,576) NET ASSETS AT BEGINNING OF PERIOD 78,179,820 83,855,103 - 399,607,264 400,933,840 ------------ ------------ ----------- ------------- ------------- NET ASSETS AT END OF PERIOD $ 56,815,769 $ 78,179,820 $ 2,518,457 $ 329,004,830 $ 399,607,264 ============ ============ =========== ============= =============
(d) For the Period Beginning November 6, 2000 and Ended December 31, 2000 See notes to financial statements 17 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------ Pacific Growth Quality Income Plus ------------------------------- -------------------------------- 2000 1999 2000 1999 -------------- --------------- --------------- --------------- FROM OPERATIONS Net investment income (loss) $ 88,849 $ (306,851) $ 20,697,830 $ 23,233,331 Net realized gains (losses) (4,721,991) 5,666,501 (8,776,040) (2,450,149) Change in unrealized gains (losses) (25,754,810) 34,854,630 21,690,015 (47,274,110) ------------ ------------- ------------- ------------- Change in net assets resulting from operations (30,387,952) 40,214,280 33,611,805 (26,490,928) ------------ ------------- ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 6,138,915 12,935,903 7,876,912 29,984,131 Benefit payments (779,687) (522,120) (9,709,897) (7,891,742) Payments on termination (8,242,631) (5,927,181) (50,375,262) (52,572,327) Contract maintenance charge (28,669) (41,208) (154,638) (161,057) Transfers among the sub-accounts and with the Fixed Account - net (14,475,423) 12,162,641 (26,207,240) (24,709,758) ------------ ------------- ------------- ------------- Change in net assets resulting from capital transactions (17,387,495) 18,608,035 (78,570,125) (55,350,753) ------------ ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS (47,775,447) 58,822,315 (44,958,320) (81,841,681) NET ASSETS AT BEGINNING OF PERIOD 106,176,560 47,354,245 414,010,657 495,852,338 ------------ ------------- ------------- ------------- NET ASSETS AT END OF PERIOD $ 58,401,113 $ 106,176,560 $ 369,052,337 $ 414,010,657 ============ ============= ============= ============= Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------ S&P 500 Index -------------------------------- 2000 1999 --------------- --------------- FROM OPERATIONS Net investment income (loss) $ (874,269) $ (1,085,100) Net realized gains (losses) 1,861,370 965,551 Change in unrealized gains (losses) (23,889,850) 20,320,510 ------------- ------------- Change in net assets resulting from operations (22,902,749) 20,200,961 ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 29,138,284 62,363,357 Benefit payments (2,917,283) (364,932) Payments on termination (17,084,143) (6,958,805) Contract maintenance charge (79,072) (52,042) Transfers among the sub-accounts and with the Fixed Account - net 36,340,948 55,622,169 ------------- ------------- Change in net assets resulting from capital transactions 45,398,734 110,609,747 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS 22,495,985 130,810,708 NET ASSETS AT BEGINNING OF PERIOD 177,287,890 46,477,182 ------------- ------------- NET ASSETS AT END OF PERIOD $ 199,783,875 $ 177,287,890 ============= =============
See notes to financial statements 18 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------ Short-Term Bond Strategist ----------------------------- -------------------------------- 2000 1999 (b) 2000 1999 ------------- -------------- --------------- --------------- FROM OPERATIONS Net investment income (loss) $ 179,078 $ 40,073 $ 85,163,095 $ 5,099,380 Net realized gains (losses) 2,408 (781) 18,049,690 15,031,460 Change in unrealized gains (losses) 44,678 (19,068) (101,361,897) 68,404,657 ----------- ------------ ------------- ------------- Change in net assets resulting from operations 226,164 20,224 1,850,888 88,535,497 ----------- ------------ ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 1,300,140 930,037 27,377,665 53,336,082 Benefit payments (168,784) - (9,554,700) (7,657,772) Payments on termination (448,343) (114,564) (67,256,375) (54,083,482) Contract maintenance charge (2,476) (754) (250,462) (236,109) Transfers among the sub-accounts and with the Fixed Account - net 2,278,206 2,300,526 28,655,668 15,905,456 ----------- ------------ ------------- ------------- Change in net assets resulting from capital transactions 2,958,743 3,115,245 (21,028,204) 7,264,175 ----------- ------------ ------------- ------------- INCREASE (DECREASE) IN NET ASSETS 3,184,907 3,135,469 (19,177,316) 95,799,672 NET ASSETS AT BEGINNING OF PERIOD 3,135,469 - 652,147,887 556,348,215 ----------- ------------ ------------- ------------- NET ASSETS AT END OF PERIOD $ 6,320,376 $ 3,135,469 $ 632,970,571 $ 652,147,887 =========== ============ ============= ============= Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts ------------------------------------------------------------------ Utilities -------------------------------- 2000 1999 --------------- --------------- FROM OPERATIONS Net investment income (loss) $ 34,913,020 $ 15,985,982 Net realized gains (losses) 26,773,710 23,911,415 Change in unrealized gains (losses) (53,017,599) 14,087,560 ------------- ------------- Change in net assets resulting from operations 8,669,131 53,984,957 ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 18,520,186 39,072,264 Benefit payments (8,048,701) (8,484,832) Payments on termination (55,510,014) (50,808,054) Contract maintenance charge (212,176) (201,221) Transfers among the sub-accounts and with the Fixed Account - net 11,594,071 (10,204,178) ------------- ------------- Change in net assets resulting from capital transactions (33,656,634) (30,626,021) ------------- ------------- INCREASE (DECREASE) IN NET ASSETS (24,987,503) 23,358,936 NET ASSETS AT BEGINNING OF PERIOD 531,357,935 507,998,999 ------------- ------------- NET ASSETS AT END OF PERIOD $ 506,370,432 $ 531,357,935 ============= =============
(b) For the Period Beginning May 3, 1999 and Ended December 31, 1999 See notes to financial statements 19 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------- The Universal Institutional Funds, Inc. Sub-Accounts (a) --------------------------------------------------------------- Emerging Markets Equity Equity Growth ------------------------------ ------------------------------- 2000 1999 2000 1999 -------------- -------------- --------------- -------------- FROM OPERATIONS Net investment income (loss) $ 2,793,699 $ (123,674) $ 5,589,890 $ 1,708,417 Net realized gains (losses) (1,114,021) 2,301,737 1,924,775 638,483 Change in unrealized gains (losses) (13,971,580) 5,429,367 (26,639,061) 12,913,775 ------------ ------------ ------------- ------------ Change in net assets resulting from operations (12,291,902) 7,607,430 (19,124,396) 15,260,675 ------------ ------------ ------------- ------------ FROM CAPITAL TRANSACTIONS Deposits 10,687,977 5,860,089 26,800,090 18,427,169 Benefit payments (264,494) (4,713) (1,101,811) (284,465) Payments on termination (1,504,909) (593,151) (7,282,991) (3,119,435) Contract maintenance charge (7,488) (6,183) (41,500) (21,923) Transfers among the sub-accounts and with the Fixed Account - net (59,472) 7,427,993 36,549,584 17,161,540 ------------ ------------ ------------- ------------ Change in net assets resulting from capital transactions 8,851,614 12,684,035 54,923,372 32,162,886 ------------ ------------ ------------- ------------ INCREASE (DECREASE) IN NET ASSETS (3,440,288) 20,291,465 35,798,976 47,423,561 NET ASSETS AT BEGINNING OF PERIOD 21,750,425 1,458,960 73,100,676 25,677,115 ------------ ------------ ------------- ------------ NET ASSETS AT END OF PERIOD $ 18,310,137 $ 21,750,425 $ 108,899,652 $ 73,100,676 ============ ============ ============= ============ The Universal Institutional Funds, Inc. Sub-Accounts (a) --------------------------------------------------------------- International Magnum ------------------------------ 2000 1999 -------------- -------------- FROM OPERATIONS Net investment income (loss) $ 369,060 $ 12,977 Net realized gains (losses) (241,825) 245,853 Change in unrealized gains (losses) (2,386,683) 1,391,382 ------------ ------------ Change in net assets resulting from operations (2,259,448) 1,650,212 ------------ ------------ FROM CAPITAL TRANSACTIONS Deposits 6,888,652 4,195,250 Benefit payments (218,924) (11,957) Payments on termination (1,086,218) (236,057) Contract maintenance charge (7,789) (3,349) Transfers among the sub-accounts and with the Fixed Account - net 5,829,986 2,293,294 ------------ ------------ Change in net assets resulting from capital transactions 11,405,707 6,237,181 ------------ ------------- INCREASE (DECREASE) IN NET ASSETS 9,146,259 7,887,393 NET ASSETS AT BEGINNING OF PERIOD 11,349,945 3,462,552 ------------ ------------- NET ASSETS AT END OF PERIOD $ 20,496,204 $ 11,349,945 ============ =============
(a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. See notes to financial statements 20 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------- The Universal Institutional Funds, Inc. Sub-Accounts (a) ---------------------------------------------------------- Mid Cap Value U.S. Real Estate ------------------- ------------------------------------- 2000 (e) 2000 1999 ------------------- ------------------ ----------------- FROM OPERATIONS Net investment income (loss) $ 846,972 $ 212,859 $ 209,474 Net realized gains (losses) (26,756) 599,099 (80,917) Change in unrealized gains (losses) (694,490) 1,473,607 (365,102) ----------------- ---------------- --------------- Change in net assets resulting from operations 125,726 2,285,565 (236,545) ----------------- ---------------- --------------- FROM CAPITAL TRANSACTIONS Deposits 5,225,576 2,199,419 2,256,539 Benefit payments (4,831) (83,181) (18,349) Payments on termination (142,447) (829,831) (219,432) Contract maintenance charge (1,966) (5,703) (1,904) Transfers among the sub-accounts and with the Fixed Account - net 2,759,559 7,508,547 1,478,675 ----------------- ---------------- --------------- Change in net assets resulting from capital transactions 7,835,891 8,789,251 3,495,529 ----------------- ---------------- --------------- INCREASE (DECREASE) IN NET ASSETS 7,961,617 11,074,816 3,258,984 NET ASSETS AT BEGINNING OF PERIOD - 5,238,524 1,979,540 ----------------- ---------------- --------------- NET ASSETS AT END OF PERIOD $ 7,961,617 $ 16,313,340 $ 5,238,524 ================= ================ =============== Van Kampen Life Investment Trust Sub-Account -------------------------------- LIT Emerging Growth -------------------------------- 2000 1999 --------------- --------------- FROM OPERATIONS Net investment income (loss) $ (3,231,653) $ (643,933) Net realized gains (losses) 7,117,630 1,246,818 Change in unrealized gains (losses) (73,283,344) 46,420,306 ------------- ------------- Change in net assets resulting from operations (69,397,367) 47,023,191 ------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 98,979,814 27,759,585 Benefit payments (1,770,332) (201,304) Payments on termination (16,299,682) (3,202,433) Contract maintenance charge (113,455) (35,203) Transfers among the sub-accounts and with the Fixed Account - net 138,452,923 49,182,955 ------------- ------------- Change in net assets resulting from capital transactions 219,249,268 73,503,600 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS 149,851,901 120,526,791 NET ASSETS AT BEGINNING OF PERIOD 130,164,408 9,637,617 ------------- ------------- NET ASSETS AT END OF PERIOD $ 280,016,309 $ 130,164,408 ============= =============
(a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. (e) For the Period Beginning January 31, 2000 and Ended December 31, 2000 See notes to financial statements 21 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------- AIM Variable Insurance Funds Sub-Accounts ----------------------------------------------- AIM V.I. Capital AIM V.I. AIM V.I. Appreciation Growth Value ---------------- ------------- -------------- 2000 (e) 2000 (e) 2000 (e) ---------------- ------------- -------------- FROM OPERATIONS Net investment income (loss) $ 300,799 $ 222,509 $ 1,133,806 Net realized gains (losses) (783,746) (325,309) (539,878) Change in unrealized gains (losses) (2,992,299) (2,257,862) (4,716,119) -------------- ----------- ------------ Change in net assets resulting from operations (3,475,246) (2,360,662) (4,122,191) -------------- ----------- ------------ FROM CAPITAL TRANSACTIONS Deposits 8,831,089 6,951,807 19,428,320 Benefit payments (104,263) (70,239) (110,067) Payments on termination (277,657) (100,901) (527,967) Contract maintenance charge (4,181) (2,311) (8,468) Transfers among the sub-accounts and with the Fixed Account - net 9,222,222 4,511,770 15,623,618 -------------- ----------- ------------ Change in net assets resulting from capital transactions 17,667,210 11,290,126 34,405,436 -------------- ----------- ------------ INCREASE (DECREASE) IN NET ASSETS 14,191,964 8,929,464 30,283,245 NET ASSETS AT BEGINNING OF PERIOD - - - -------------- ----------- ------------ NET ASSETS AT END OF PERIOD $ 14,191,964 $ 8,929,464 $ 30,283,245 ============== =========== ============ Alliance Variable Product Series Fund Sub-Accounts -------------------------------------------------- Alliance Alliance Growth Alliance Growth & Income Premier Growth --------------- ---------------- --------------- 2000 (e) 2000 (e) 2000 (e) --------------- ---------------- --------------- FROM OPERATIONS Net investment income (loss) $ 37,028 $ (1,639) $ (55,080) Net realized gains (losses) (245,418) 38,545 (96,387) Change in unrealized gains (losses) (1,437,593) 678,624 (7,678,415) ------------- -------------- ------------- Change in net assets resulting from operations (1,645,983) 715,530 (7,829,882) ------------- -------------- ------------- FROM CAPITAL TRANSACTIONS Deposits 6,020,329 8,503,685 19,474,950 Benefit payments (80,917) (126,654) (97,170) Payments on termination (234,818) (302,659) (766,535) Contract maintenance charge (2,835) (7,260) (11,185) Transfers among the sub-accounts and with the Fixed Account - net 5,475,300 17,867,145 26,030,568 ------------- -------------- ------------- Change in net assets resulting from capital transactions 11,177,059 25,934,257 44,630,628 ------------- -------------- ------------- INCREASE (DECREASE) IN NET ASSETS 9,531,076 26,649,787 36,800,746 NET ASSETS AT BEGINNING OF PERIOD - - - ------------- -------------- ------------- NET ASSETS AT END OF PERIOD $ 9,531,076 $ 26,649,787 $ 36,800,746 ============= ============== =============
(e) For the Period Beginning January 31, 2000 and Ended December 31, 2000 See notes to financial statements 22 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------- Putnam Variable Trust Sub-Accounts ---------------------------------------------- Growth & International Income Growth Voyager -------------- -------------- -------------- 2000 (e) 2000 (e) 2000 (e) -------------- -------------- -------------- FROM OPERATIONS Net investment income (loss) $ (33,291) $ (111,928) $ (143,762) Net realized gains (losses) 38,065 (349,687) (196,561) Change in unrealized gains (losses) 359,797 (747,007) (4,274,119) ------------ ------------ ------------ Change in net assets resulting from operations 364,571 (1,208,622) (4,614,442) ------------ ------------ ------------ FROM CAPITAL TRANSACTIONS Deposits 4,011,399 12,932,128 15,917,834 Benefit payments - (66,733) - Payments on termination (197,399) (422,871) (633,137) Contract maintenance charge (2,605) (6,887) (7,325) Transfers among the sub-accounts and with the Fixed Account - net 5,844,510 13,149,980 15,128,829 ------------ ------------ ------------ Change in net assets resulting from capital transactions 9,655,905 25,585,617 30,406,201 ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS 10,020,476 24,376,995 25,791,759 NET ASSETS AT BEGINNING OF PERIOD - - - ------------ ------------ ------------ NET ASSETS AT END OF PERIOD $ 10,020,476 $ 24,376,995 $ 25,791,759 ============ ============ ============ Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts ------------------------------------------------- Competitive Aggressive Capital Edge, Equity Growth "Best Ideas" ---------------- -------------- --------------- 2000 (f) 2000 (f) 2000 (f) ---------------- -------------- --------------- FROM OPERATIONS Net investment income (loss) $ (61,967) $ 36,680 $ (20,710) Net realized gains (losses) 3,399 (18,546) (8,768) Change in unrealized gains (losses) (901,195) (138,786) (567,300) -------------- ------------ ------------- Change in net assets resulting from operations (959,763) (120,652) (596,778) -------------- ------------ ------------- FROM CAPITAL TRANSACTIONS Deposits 13,046,167 1,840,288 5,131,055 Benefit payments (51,889) (7,387) (11,615) Payments on termination (57,611) (35,472) (10,508) Contract maintenance charge (2,890) (763) (1,010) Transfers among the sub-accounts and with the Fixed Account - net 1,373,681 1,850,273 153,878 -------------- ------------ ------------- Change in net assets resulting from capital transactions 14,307,458 3,646,939 5,261,800 -------------- ------------ ------------- INCREASE (DECREASE) IN NET ASSETS 13,347,695 3,526,287 4,665,022 NET ASSETS AT BEGINNING OF PERIOD - - - -------------- ------------ ------------- NET ASSETS AT END OF PERIOD $ 13,347,695 $ 3,526,287 $ 4,665,022 ============== ============ =============
(e) For the Period Beginning January 31, 2000 and Ended December 31, 2000 (f) For the Period Beginning May 1, 2000 and Ended December 31, 2000 See notes to financial statements 23 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts ----------------------------------------------------------------------------------- Global Dividend European Dividend High Income Growth Equity Growth Growth Yield Builder -------------- ------------- -------------- ------------- ------------- ----------- 2000 (f) 2000 (f) 2000 (f) 2000 (f) 2000 (f) 2000 (f) -------------- ------------- -------------- ------------- ------------- ----------- FROM OPERATIONS Net investment income (loss) $ 417,941 $ 495,028 $ 166,035 $ 11,063 $ 169,524 $ 14,866 Net realized gains (losses) (57,888) (72,134) (121,738) (1,049) (40,614) (937) Change in unrealized gains (losses) 1,016,373 (2,722,264) (246,794) 73,356 (737,879) 2,663 ------------ ----------- ------------ ----------- ----------- --------- Change in net assets resulting from operations 1,376,426 (2,299,370) (202,497) 83,370 (608,969) 16,592 ------------ ----------- ------------ ----------- ----------- --------- FROM CAPITAL TRANSACTIONS Deposits 17,370,177 31,964,349 10,744,322 2,118,591 2,468,796 914,037 Benefit payments (11,393) (37,877) (68,776) - - - Payments on termination (110,205) (193,229) (74,892) (27,365) (9,079) (2,112) Contract maintenance charge (4,132) (6,897) (2,288) (479) (421) (209) Transfers among the sub-accounts and with the Fixed Account - net 461,836 2,430,841 173,340 36,588 92,135 36,204 ------------ ----------- ------------ ----------- ----------- --------- Change in net assets resulting from capital transactions 17,706,283 34,157,187 10,771,706 2,127,335 2,551,431 947,920 ------------ ----------- ------------ ----------- ----------- --------- INCREASE (DECREASE) IN NET ASSETS 19,082,709 31,857,817 10,569,209 2,210,705 1,942,462 964,512 NET ASSETS AT BEGINNING OF PERIOD - - - - - - ------------ ----------- ------------ ----------- ----------- --------- NET ASSETS AT END OF PERIOD $ 19,082,709 $31,857,817 $ 10,569,209 $ 2,210,705 $ 1,942,462 $ 964,512 ============ =========== ============ =========== =========== =========
(f) For the Period Beginning May 1, 2000 and Ended December 31, 2000 See notes to financial statements 24 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts ----------------------------------------------------------------------------------- Quality Money Pacific Income S&P 500 Short-Term Information Market Growth Plus Index Bond ------------- -------------- ----------- ------------- -------------- ------------- 2000 (f) 2000 (f) 2000 (f) 2000 (f) 2000 (f) 2000 (f) ------------- -------------- ----------- ------------- -------------- ------------- FROM OPERATIONS Net investment income (loss) $ (2,841) $ 132,280 $ (3,834) $ 65,677 $ (45,839) $ 13,440 Net realized gains (losses) 8 - (5,163) 2,019 (12,876) 234 Change in unrealized gains (losses) (109,760) - (197,092) 92,385 (1,094,586) 1,462 ----------- ------------ --------- ----------- ------------ ----------- Change in net assets resulting from operations (112,593) 132,280 (206,089) 160,081 (1,153,301) 15,136 ----------- ------------ --------- ----------- ------------ ----------- FROM CAPITAL TRANSACTIONS Deposits 2,037,542 20,255,548 921,823 4,616,633 13,059,493 1,236,517 Benefit payments - - - - (72,473) - Payments on termination (1,735) (225,866) (359) (18,951) (76,724) (3,902) Contract maintenance charge (415) (2,990) (158) (1,120) (2,755) (310) Transfers among the sub-accounts and with the Fixed Account - net (8,210) (6,349,118) 13,520 416,325 972,260 182,242 ----------- ------------ --------- ----------- ------------ ----------- Change in net assets resulting from capital transactions 2,027,182 13,677,574 934,826 5,012,887 13,879,801 1,414,547 ----------- ------------ --------- ----------- ------------ ----------- INCREASE (DECREASE) IN NET ASSETS 1,914,589 13,809,854 728,737 5,172,968 12,726,500 1,429,683 NET ASSETS AT BEGINNING OF PERIOD - - - - - - ----------- ------------ --------- ----------- ------------ ----------- NET ASSETS AT END OF PERIOD $ 1,914,589 $ 13,809,854 $ 728,737 $ 5,172,968 $ 12,726,500 $ 1,429,683 =========== ============ ========= =========== ============ ===========
(f) For the Period Beginning May 1, 2000 and Ended December 31, 2000 See notes to financial statements 25 NORTHBROOK VARIABLE ANNUITY ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, - ------------------------------------------------------------------------------- Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts ------------------------------- Strategist Utilities -------------- -------------- 2000 (f) 2000 (f) -------------- -------------- FROM OPERATIONS Net investment income (loss) $ 365,823 $ 129,808 Net realized gains (losses) (38,366) (10,745) Change in unrealized gains (losses) (773,273) (202,629) ------------ ------------ Change in net assets resulting from operations (445,816) (83,566) ------------ ------------ FROM CAPITAL TRANSACTIONS Deposits 22,556,091 18,280,101 Benefit payments (7,531) (7,416) Payments on termination (87,319) (88,324) Contract maintenance charge (5,054) (4,126) Transfers among the sub-accounts and with the Fixed Account - net 1,333,694 960,476 ------------ ------------ Change in net assets resulting from capital transactions 23,789,881 19,140,711 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS 23,344,065 19,057,145 NET ASSETS AT BEGINNING OF PERIOD - - ------------ ------------ NET ASSETS AT END OF PERIOD $ 23,344,065 $ 19,057,145 ============ ============
(f) For the Period Beginning May 1, 2000 and Ended December 31, 2000 See notes to financial statements 26 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 five variable annuity contracts: the Morgan Stanley Dean Witter Variable Annuity II, the Morgan Stanley Dean Witter Variable Annuity II AssetManager, the Preferred Client Variable Annuity, the Morgan Stanley Dean Witter Variable Annuity 3, and the Morgan Stanley Dean Witter Variable Annuity 3 AssetManager (collectively the "Contracts"). The deposits of the Contracts 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 upon death or annuitization, variable annuity contractholders bear the investment risk that the sub-accounts may not meet their stated investment objectives. The sub-accounts invest in the following underlying mutual fund portfolios (collectively the "Funds"): MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES Aggressive Equity Information Capital Growth Money Market Competitive Edge, "Best Ideas" Pacific Growth Dividend Growth Quality Income Plus Equity S&P 500 Index European Growth Short-Term Bond Global Dividend Growth Strategist High Yield Utilities Income Builder THE UNIVERSAL INSTITUTIONAL FUNDS, INC. (PREVIOUSLY KNOWN AS MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.) Emerging Markets Equity Mid Cap Value Equity Growth U.S. Real Estate International Magnum VAN KAMPEN LIFE INVESTMENT TRUST LIT Emerging Growth AIM VARIABLE INSURANCE FUNDS AIM V.I. Capital Appreciation AIM V.I. Value AIM V.I. Growth ALLIANCE VARIABLE PRODUCT SERIES FUND Alliance Growth Alliance Premier Growth Alliance Growth & Income PUTNAM VARIABLE TRUST Growth & Income Voyager International Growth 27 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 1. ORGANIZATION (CONTINUED) MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES (CLASS Y SHARES) Aggressive Equity Information Capital Growth Money Market Competitive Edge, "Best Ideas" Pacific Growth Dividend Growth Quality Income Plus Equity S&P 500 Index European Growth Short-Term Bond Global Dividend Growth Strategist High Yield Utilities Income Builder 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. INVESTMENT INCOME - Investment income consists of dividends declared by the Funds and is recognized on the ex-dividend date. REALIZED GAINS AND LOSSES - Realized gains and losses represent the difference between the proceeds from sales of shares of the Funds by the Account and the cost of such shares, which is determined on a weighted average basis. Transactions are recorded on a trade date 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 accounting principles generally accepted in the United States of America 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. 28 NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 3. EXPENSES 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 may be purchased for an additional charge. 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 Contracts. 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, Morgan Stanley Dean Witter Variable Annuity 3, and Morgan Stanley Dean Witter Variable Annuity 3 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, Morgan Stanley Dean Witter Variable Annuity 3, and Morgan Stanley Dean Witter Variable Annuity 3 AssetManager contracts. 29 4. UNITS ISSUED AND REDEEMED (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II --------------------------------------------------------------------- Unit activity during 2000: -------------------------------------------- Units Outstanding Units Units Units Outstanding December 31, 1999 Issued Redeemed December 31, 2000 ------------------- ------------ ------------ ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 924,675 6,341,267 (4,164,785) 3,101,157 Capital Growth 3,251,167 1,049,440 (1,279,525) 3,021,082 Competitive Edge, "Best Ideas" 1,766,647 1,564,045 (924,813) 2,405,879 Dividend Growth 31,771,950 2,953,392 (12,277,622) 22,447,720 Equity 13,033,466 2,612,030 (3,382,699) 12,262,797 European Growth 7,442,535 4,593,090 (5,728,147) 6,307,478 Global Dividend Growth 15,377,323 1,179,563 (5,492,334) 11,064,552 High Yield 6,186,696 1,271,037 (3,345,585) 4,112,148 Income Builder 2,557,977 700,855 (1,390,310) 1,868,522 Information - 91,116 (27,576) 63,540 Money Market 17,541,394 77,631,812 (82,072,695) 13,100,511 Pacific Growth 7,412,176 31,249,411 (32,944,342) 5,717,245 Quality Income Plus 16,872,144 2,640,795 (6,588,948) 12,923,991 S&P 500 Index 4,729,418 3,252,229 (2,296,188) 5,685,459 Short-Term Bond 127,159 372,957 (252,926) 247,190 Strategist 13,273,409 1,527,664 (3,280,494) 11,520,579 Utilities 11,688,649 1,316,557 (3,115,661) 9,889,545 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 609,573 16,737,934 (16,850,589) 496,918 Equity Growth 1,653,843 2,769,272 (1,838,283) 2,584,832 International Magnum 281,569 5,407,715 (5,167,722) 521,562 Mid Cap Value - 1,743,809 (1,613,795) 130,014 U.S. Real Estate 230,000 4,268,590 (3,989,429) 509,161 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 1,761,875 5,314,069 (3,678,654) 3,397,290 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 1,741,481 (1,410,724) 330,757 AIM V.I. Growth - 1,133,808 (934,691) 199,117 AIM V.I. Value - 2,296,760 (1,638,647) 658,113 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 736,739 (479,977) 256,762 Alliance Growth & Income - 1,890,009 (1,179,222) 710,787 Alliance Premier Growth - 1,564,834 (474,431) 1,090,403 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 2,025,969 (1,731,711) 294,258 International Growth - 4,794,979 (4,217,824) 577,155 Voyager - 1,159,172 (564,466) 594,706 Accumulated Unit Value December 31, 2000 ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity $ 14.04 Capital Growth 31.30 Competitive Edge, "Best Ideas" 9.93 Dividend Growth 36.76 Equity 67.70 European Growth 40.73 Global Dividend Growth 18.49 High Yield 16.06 Income Builder 12.85 Information 9.29 Money Market 14.08 Pacific Growth 5.76 Quality Income Plus 19.95 S&P 500 Index 11.80 Short-Term Bond 10.51 Strategist 31.23 Utilities 33.42 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 8.22 Equity Growth 12.11 International Magnum 10.45 Mid Cap Value 10.24 U.S. Real Estate 11.23 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 21.45 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 8.32 AIM V.I. Growth 7.34 AIM V.I. Value 8.00 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 8.14 Alliance Growth & Income 10.76 Alliance Premier Growth 7.86 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 10.80 International Growth 9.08 Voyager 8.13
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 30 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Longevity Reward Rider -------------------------------------------------------------------------- Unit activity during 2000: ---------------------------------------- Units Outstanding Units Units Units Outstanding December 31, 1999 Issued Redeemed December 31, 2000 ------------------ -------- ---------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity - 92,041 (19,621) 72,420 Capital Growth - 153,394 (13,781) 139,613 Competitive Edge, "Best Ideas" - 37,003 (110) 36,893 Dividend Growth - 1,089,897 (93,278) 996,619 Equity - 1,328,473 (39,392) 1,289,081 European Growth - 456,654 (22,360) 434,294 Global Dividend Growth - 267,973 (47,593) 220,380 High Yield - 105,732 (11,417) 94,315 Income Builder - 12,953 (3,403) 9,550 Money Market - 275,657 (90,315) 185,342 Pacific Growth - 64,420 (21,942) 42,478 Quality Income Plus - 391,866 (17,793) 374,073 S&P 500 Index - 73,288 (2,662) 70,626 Strategist - 1,094,172 (84,319) 1,009,853 Utilities - 810,548 (29,532) 781,016 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 4,827 - 4,827 Equity Growth - 19,684 (3,668) 16,016 International Magnum - 1,690 - 1,690 Mid Cap Value - 2,770 (35) 2,735 U.S. Real Estate - 10,052 (711) 9,341 Investments in the Van Kampen Life Investment Trust Sub--Account: LIT Emerging Growth - 115,897 (20,193) 95,704 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 18,081 (5) 18,076 AIM V.I. Growth - 37,734 (4,285) 33,449 AIM V.I. Value - 36,117 (2,925) 33,192 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 18,304 (33) 18,271 Alliance Growth & Income - 6,267 - 6,267 Alliance Premier Growth - 14,145 (7) 14,138 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 84 (5) 79 International Growth - 24,612 - 24,612 Voyager - 27,825 (2,363) 25,462 Accumulated Unit Value December 31, 2000 ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity $ 9.69 Capital Growth 9.72 Competitive Edge, "Best Ideas" 8.43 Dividend Growth 10.70 Equity 9.54 European Growth 9.21 Global Dividend Growth 9.95 High Yield 6.96 Income Builder 10.05 Money Market 10.28 Pacific Growth 7.28 Quality Income Plus 10.77 S&P 500 Index 8.97 Strategist 9.94 Utilities 10.14 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 6.39 Equity Growth 8.34 International Magnum 9.06 Mid Cap Value 10.24 U.S. Real Estate 11.51 Investments in the Van Kampen Life Investment Trust Sub--Account: LIT Emerging Growth 8.13 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 8.29 AIM V.I. Growth 7.40 AIM V.I. Value 8.32 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 8.00 Alliance Growth & Income 10.25 Alliance Premier Growth 7.98 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 10.57 International Growth 9.02 Voyager 8.12
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 31 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Longevity Reward Rider and Enhanced Death Benefit Option, Performance Death Benefit Option or Performance Income Benefit Option ------------------------------------------------------------------------------------------- Unit activity during 2000: ------------------------------------- Units Outstanding Units Units Units Outstanding December 31, 1999 Issued Redeemed December 31, 2000 ------------------- -------- ---------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity - 45,427 (13,089) 32,338 Capital Growth - 24,368 - 24,368 Competitive Edge, "Best Ideas" - 5,747 (1) 5,746 Dividend Growth - 291,638 (17,484) 274,154 Equity - 355,627 (32,484) 323,143 European Growth - 121,384 (3,045) 118,339 Global Dividend Growth - 101,777 (5,960) 95,817 High Yield - 29,698 (5,190) 24,508 Income Builder - 1,972 (6) 1,966 Money Market - 95,063 (87,020) 8,043 Pacific Growth - 9,443 (366) 9,077 Quality Income Plus - 115,005 (6,506) 108,499 S&P 500 Index - 41,078 (21) 41,057 Strategist - 331,663 (5,009) 326,654 Utilities - 228,033 (1,722) 226,311 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 12 - 12 Equity Growth - 29,047 (11,559) 17,488 International Magnum - 5,300 (1,628) 3,672 U.S. Real Estate - 458 (6) 452 Investments in the Van Kampen Life Investment Trust Sub--Account: LIT Emerging Growth - 56,049 (6,526) 49,523 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 4,938 (1) 4,937 AIM V.I. Growth - 5,870 (1) 5,869 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 6,858 (1) 6,857 Alliance Growth & Income - 10,486 - 10,486 Alliance Premier Growth - 5,141 (2) 5,139 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 5,419 - 5,419 International Growth - 3,997 - 3,997 Voyager - 3,406 (2) 3,404 Accumulated Unit Value December 31, 2000 ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity $ 9.69 Capital Growth 9.71 Competitive Edge, "Best Ideas" 8.43 Dividend Growth 10.69 Equity 9.54 European Growth 9.20 Global Dividend Growth 9.94 High Yield 6.95 Income Builder 10.04 Money Market 10.27 Pacific Growth 7.27 Quality Income Plus 10.77 S&P 500 Index 8.96 Strategist 9.93 Utilities 10.13 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 6.38 Equity Growth 8.33 International Magnum 9.05 U.S. Real Estate 11.50 Investments in the Van Kampen Life Investment Trust Sub--Account: LIT Emerging Growth 8.13 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 8.28 AIM V.I. Growth 7.40 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 8.00 Alliance Growth & Income 10.24 Alliance Premier Growth 7.98 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 10.56 International Growth 9.01 Voyager 8.11
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 32 4. UNITS ISSUED AND REDEEMED (CONTINUED) (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 2000: -------------------------------------------- Units Outstanding Units Units Units Outstanding December 31, 1999 Issued Redeemed December 31, 2000 ------------------- ----------- ------------ ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 1,122,012 3,803,892 (912,137) 4,013,767 Capital Growth 1,636,053 694,543 (448,216) 1,882,380 Competitive Edge, "Best Ideas" 2,481,411 1,139,678 (642,496) 2,978,593 Dividend Growth 20,053,835 1,948,755 (7,371,661) 14,630,929 Equity 10,374,793 2,343,359 (2,142,932) 10,575,220 European Growth 4,444,148 2,794,872 (2,937,427) 4,301,593 Global Dividend Growth 8,775,455 723,111 (2,588,881) 6,909,685 High Yield 4,203,079 586,990 (1,940,134) 2,849,935 Income Builder 3,113,231 150,686 (1,034,507) 2,229,410 Information - 120,446 (8,160) 112,286 Money Market 10,276,270 36,502,067 (38,497,409) 8,280,928 Pacific Growth 4,058,485 27,612,644 (28,279,905) 3,391,224 Quality Income Plus 5,167,349 869,181 (1,594,859) 4,441,671 S&P 500 Index 6,209,831 3,140,780 (1,814,805) 7,535,806 Short--Term Bond 121,549 310,081 (187,647) 243,983 Strategist 6,559,093 1,350,609 (1,189,912) 6,719,790 Utilities 4,016,659 939,883 (780,555) 4,175,987 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 689,216 1,362,196 (1,166,683) 884,729 Equity Growth 2,952,648 2,752,957 (1,503,676) 4,201,929 International Magnum 416,818 491,043 (194,122) 713,739 Mid Cap Value - 133,783 (14,692) 119,091 U.S. Real Estate 194,964 474,767 (142,836) 526,895 Investments in the Van Kampen Life Investment Trust Sub--Account: LIT Emerging Growth 2,522,689 5,349,894 (2,468,519) 5,404,064 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 530,729 (127,710) 403,019 AIM V.I. Growth - 262,938 (40,849) 222,089 AIM V.I. Value - 984,704 (116,938) 867,766 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 291,472 (38,453) 253,019 Alliance Growth & Income - 915,704 (159,048) 756,656 Alliance Premier Growth - 1,468,491 (98,297) 1,370,194 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 220,718 - 220,718 International Growth - 620,887 (58,420) 562,467 Voyager - 912,659 (125,900) 786,759 Accumulated Unit Value December 31, 2000 ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity $ 14.01 Capital Growth 31.09 Competitive Edge, "Best Ideas" 9.89 Dividend Growth 36.52 Equity 67.25 European Growth 40.46 Global Dividend Growth 18.37 High Yield 15.95 Income Builder 12.78 Information 9.29 Money Market 13.99 Pacific Growth 5.72 Quality Income Plus 19.82 S&P 500 Index 11.76 Short--Term Bond 10.49 Strategist 31.02 Utilities 33.19 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 8.19 Equity Growth 12.06 International Magnum 10.41 Mid Cap Value 10.23 U.S. Real Estate 11.20 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 21.37 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 8.32 AIM V.I. Growth 7.34 AIM V.I. Value 7.99 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 8.14 Alliance Growth & Income 10.75 Alliance Premier Growth 7.85 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 10.79 International Growth 9.08 Voyager 8.12
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 33 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Longevity Reward Rider and Performance Benefit Combination Option or Death Benefit Combination Option ------------------------------------------------------------------------------ Unit activity during 2000: -------------------------------------- Units Outstanding Units Units Units Outstanding December 31, 1999 Issued Redeemed December 31, 2000 ------------------- ------- -------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity - 3,933 (143) 3,790 Capital Growth - 1,919 (345) 1,574 Dividend Growth - 52,339 (2,086) 50,253 Equity - 56,197 (684) 55,513 European Growth - 25,192 (1,738) 23,454 Global Dividend Growth - 16,360 (2,411) 13,949 High Yield - 4,694 (15) 4,679 Money Market - 2,561 (439) 2,122 Pacific Growth - 1,279 (628) 651 Quality Income Plus - 9,270 (201) 9,069 S&P 500 Index - 9,550 (5) 9,545 Strategist - 55,837 (3,590) 52,247 Utilities - 30,894 (368) 30,526 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Equity Growth - 12,028 (92) 11,936 International Magnum - 1,098 - 1,098 Mid Cap Value - 361 - 361 Investments in the Van Kampen Life Investment Trust Sub--Account: LIT Emerging Growth - 14,769 (100) 14,669 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Value - 101 - 101 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Premier Growth - 1,955 (1) 1,954 Investments in the Putnam Variable Trust Sub-Accounts: Voyager - 482 - 482 Accumulated Unit Value December 31, 2000 ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity $ 9.68 Capital Growth 9.71 Dividend Growth 10.69 Equity 9.53 European Growth 9.20 Global Dividend Growth 9.94 High Yield 6.95 Money Market 10.27 Pacific Growth 7.27 Quality Income Plus 10.76 S&P 500 Index 8.96 Strategist 9.93 Utilities 10.13 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Equity Growth 8.33 International Magnum 9.04 Mid Cap Value 10.22 Investments in the Van Kampen Life Investment Trust Sub--Account: LIT Emerging Growth 8.12 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Value 8.31 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Premier Growth 7.97 Investments in the Putnam Variable Trust Sub-Accounts: Voyager 8.11
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 34 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Death Benefit Combination Option or Performance Benefit Combination Option --------------------------------------------------------------------------------------- Unit activity during 2000: -------------------------------------------- Units Outstanding Units Units Units Outstanding December 31, 1999 Issued Redeemed December 31, 2000 ----------------- ---------- --------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 458,487 1,621,998 (329,064) 1,751,421 Capital Growth 128,657 234,510 (50,275) 312,892 Competitive Edge, "Best Ideas" 489,657 446,713 (125,833) 810,537 Dividend Growth 1,434,477 736,620 (682,198) 1,488,899 Equity 950,293 715,671 (269,166) 1,396,798 European Growth 392,050 373,168 (130,075) 635,143 Global Dividend Growth 488,336 303,250 (180,211) 611,375 High Yield 290,136 144,534 (163,230) 271,440 Income Builder 270,771 87,029 (129,242) 228,558 Information - 36,992 (21) 36,971 Money Market 1,263,421 3,903,594 (4,081,597) 1,085,418 Pacific Growth 390,608 716,997 (533,639) 573,966 Quality Income Plus 328,139 198,858 (138,552) 388,445 S&P 500 Index 1,877,442 1,367,163 (623,521) 2,621,084 Short--Term Bond 34,942 67,468 (33,811) 68,599 Strategist 1,004,838 577,758 (247,702) 1,334,894 Utilities 340,744 322,154 (104,032) 558,866 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 210,592 439,572 (200,659) 449,505 Equity Growth 495,861 578,929 (158,881) 915,909 International Magnum 172,588 241,300 (54,679) 359,209 Mid Cap Value - 70,125 (2,321) 67,804 U.S. Real Estate 93,827 100,877 (29,697) 165,007 Investments in the Van Kampen Life Investment Trust Sub--Account: LIT Emerging Growth 818,855 1,726,136 (386,499) 2,158,492 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 267,819 (15,096) 252,723 AIM V.I. Growth - 117,145 (4,520) 112,625 AIM V.I. Value - 543,811 (33,365) 510,446 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 152,519 (7,384) 145,135 Alliance Growth & Income - 282,835 - 282,835 Alliance Premier Growth - 528,775 (23,450) 505,325 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 86,919 - 86,919 International Growth - 446,227 (16,182) 430,045 Voyager - 403,670 (42,449) 361,221 Accumulated Unit Value December 31, 2000 ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity $ 13.98 Capital Growth 30.57 Competitive Edge, "Best Ideas" 9.86 Dividend Growth 35.88 Equity 66.07 European Growth 39.79 Global Dividend Growth 18.19 High Yield 15.66 Income Builder 12.72 Information 9.29 Money Market 13.74 Pacific Growth 5.67 Quality Income Plus 19.47 S&P 500 Index 11.73 Short--Term Bond 10.47 Strategist 30.47 Utilities 32.61 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 8.17 Equity Growth 12.02 International Magnum 10.38 Mid Cap Value 10.23 U.S. Real Estate 11.16 Investments in the Van Kampen Life Investment Trust Sub--Account: LIT Emerging Growth 21.30 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 8.31 AIM V.I. Growth 7.33 AIM V.I. Value 7.99 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 8.13 Alliance Growth & Income 10.75 Alliance Premier Growth 7.85 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 10.78 International Growth 9.07 Voyager 8.11
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 35 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Longevity Reward Rider, Enhanced Earnings Death Benefit and Enhanced Death Benefit Option, Performance Income Benefit Option or Performance Death Benefit Option --------------------------------------------------------------------------- Unit activity during 2000: ----------------------------------------- Units Outstanding Units Units Units Outstanding December 31, 1999 Issued Redeemed December 31, 2000 ------------------- ------- ---------- ------------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Dividend Growth - 18,163 (4) 18,159 Equity - 31,703 - 31,703 European Growth - 23,608 - 23,608 Global Dividend Growth - 11,559 - 11,559 High Yield - 5,111 (1) 5,110 Strategist - 20,036 (5) 20,031 Accumulated Unit Value December 31, 2000 ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Dividend Growth $ 10.50 Equity 10.13 European Growth 10.40 Global Dividend Growth 10.32 High Yield 9.54 Strategist 10.07
Units relating to accrued contract maintenance charges are included in units redeemed. 36 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Enhanced Earnings Death Benefit and Enhanced Death Benefit Option, Performance Income Benefit Option or Performance Death Benefit Option ------------------------------------------------------------------------------------------------ Unit activity during 2000: --------------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Dividend Growth - 24,796 (19,608) Equity - 36,047 (31,693) Global Dividend Growth - 12,606 (11,546) High Yield - 7,164 (5,111) Income Builder - 9,383 (10) Quality Income Plus - 14,091 (7) Strategist - 31,311 (20,039) Utilities - 6,967 (2) Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Equity Growth - 1,183 - U.S. Real Estate - 5,552 (47) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 463 - Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Dividend Growth 5,188 $ 10.50 Equity 4,354 10.13 Global Dividend Growth 1,060 10.32 High Yield 2,053 9.54 Income Builder 9,373 10.28 Quality Income Plus 14,084 10.02 Strategist 11,272 10.07 Utilities 6,965 10.14 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Equity Growth 1,183 9.83 U.S. Real Estate 5,505 10.03 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 463 9.84
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 37 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Longevity Reward Rider, Enhanced Earnings Death Benefit, and Income and Death Benefit Combination Rider II, Death Benefit Combination Option, or Performance Combination Benefit Option ----------------------------------------------------------------------------- Unit activity during 2000: -------------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Dividend Growth - 11,927 (3) Equity - 3,680 - European Growth - 9,466 - Global Dividend Growth - 8,932 - High Yield - 3,187 - Income Builder - 3,463 (3) Pacific Growth - 348 - Strategist - 1,637 (1) Utilities - 1,819 (1) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 3,527 - Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Premier Growth - 576 - Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Dividend Growth 11,924 $ 10.49 Equity 3,680 10.13 European Growth 9,466 10.40 Global Dividend Growth 8,932 10.32 High Yield 3,187 9.54 Income Builder 3,460 10.28 Pacific Growth 348 9.50 Strategist 1,636 10.07 Utilities 1,818 10.14 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 3,527 9.84 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Premier Growth 576 9.81
Units relating to accrued contract maintenance charges are included in units redeemed. 38 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Income and Death Benefit Combination Rider II ------------------------------------------------------------------------------------------------- Unit activity during 2000: -------------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity - 2,136 (1) Capital Growth - 280 - Dividend Growth - 17,415 (4) Equity - 45,152 (309) European Growth - 8,533 - Global Dividend Growth - 5,147 - High Yield - 3,235 (1) Money Market - 4,301 (112) Quality Income Plus - 6,006 (3) S&P 500 Index - 19,737 (9) Strategist - 314 - Utilities - 1,268 - Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Equity Growth - 721 - Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 6,591 - Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Premier Growth - 661 - Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 2,135 $ 9.21 Capital Growth 280 9.87 Dividend Growth 17,411 10.42 Equity 44,843 9.27 European Growth 8,533 10.33 Global Dividend Growth 5,147 10.28 High Yield 3,234 8.36 Money Market 4,189 10.07 Quality Income Plus 6,003 10.40 S&P 500 Index 19,728 9.21 Strategist 314 9.57 Utilities 1,268 10.02 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Equity Growth 721 8.58 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 6,591 8.11 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Premier Growth 661 8.83
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 39 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II with Enhanced Earnings Death Benefit and Income and Death Benefit Combination Rider II ----------------------------------------------------------------------------------- Unit activity during 2000: ------------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Dividend Growth - 3,475 - High Yield - 98 - Quality Income Plus - 2,757 (2) Strategist - 3,348 (1) Utilities - 6,317 (2) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Dividend Growth 3,475 $ 10.49 High Yield 98 9.54 Quality Income Plus 2,755 10.02 Strategist 3,347 10.07 Utilities 6,315 10.14
Units relating to accrued contract maintenance charges are included in units redeemed. 40 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II AssetManager ----------------------------------------------------------- Unit activity during 2000: --------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 11,455 103,217 (16,122) Capital Growth 27,471 47,495 (10,495) Competitive Edge, "Best Ideas" 59,367 110,705 (32,272) Dividend Growth 441,792 330,306 (185,441) Equity 277,235 344,474 (86,840) European Growth 84,846 107,925 (30,211) Global Dividend Growth 80,482 30,782 (31,269) High Yield 183,538 78,174 (136,802) Income Builder 38,046 17,953 (9,138) Information - 54,117 (12) Money Market 326,539 430,710 (489,481) Pacific Growth 16,849 18,340 (9,205) Quality Income Plus 353,126 179,209 (99,929) S&P 500 Index 167,065 211,991 (51,034) Short-Term Bond 11,170 11,617 (14,019) Strategist 198,638 176,730 (50,650) Utilities 137,439 140,984 (41,304) Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 8,933 27,024 (7,572) Equity Growth 48,641 82,939 (8,543) International Magnum 25,209 50,764 (7,809) U.S. Real Estate 13,344 19,112 (4,669) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 90,139 181,308 (26,098) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 98,550 $ 13.98 Capital Growth 64,471 12.70 Competitive Edge, "Best Ideas" 137,800 9.72 Dividend Growth 586,657 10.06 Equity 534,869 13.83 European Growth 162,560 10.72 Global Dividend Growth 79,995 10.71 High Yield 124,910 5.74 Income Builder 46,861 10.06 Information 54,105 9.29 Money Market 267,768 10.93 Pacific Growth 25,984 11.77 Quality Income Plus 432,406 10.67 S&P 500 Index 328,022 10.96 Short-Term Bond 8,768 10.47 Strategist 324,718 11.95 Utilities 237,119 12.27 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 28,385 9.36 Equity Growth 123,037 11.78 International Magnum 68,164 9.31 U.S. Real Estate 27,787 11.25 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 245,349 18.70
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 41 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II AssetManager with Enhanced Death Benefit Option, Performance Death Benefit Option or Performance Income Benefit Option ----------------------------------------------------------------------------------------------- Unit activity during 2000: ---------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 40,515 160,807 (31,530) Capital Growth 30,798 63,396 (22,568) Competitive Edge, Best Ideas 72,820 141,468 (27,304) Dividend Growth 662,841 283,180 (269,991) Equity 471,331 374,551 (126,474) European Growth 194,903 1,330,291 (1,213,378) Global Dividend Growth 128,434 53,084 (29,521) High Yield 123,235 72,395 (98,477) Income Builder 52,500 19,066 (27,211) Money Market 436,501 5,219,455 (5,148,551) Pacific Growth 38,449 2,310,180 (2,295,476) Quality Income Plus 249,824 104,021 (112,968) S&P 500 Index 349,707 226,980 (115,013) Short-Term Bond 11,485 9,657 (3,780) Strategist 162,824 147,664 (54,697) Utilities 165,102 90,031 (36,026) Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 16,698 14,266 (7,719) Equity Growth 104,259 98,166 (42,010) International Magnum 30,807 38,686 (14,106) U.S. Real Estate 33,042 14,335 (10,774) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 108,684 421,544 (314,354) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ------------------ ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 169,792 $ 13.95 Capital Growth 71,626 12.66 Competitive Edge, Best Ideas 186,984 9.69 Dividend Growth 676,030 10.03 Equity 719,408 13.79 European Growth 311,816 10.69 Global Dividend Growth 151,997 10.67 High Yield 97,153 5.73 Income Builder 44,355 10.03 Money Market 507,405 10.90 Pacific Growth 53,153 11.73 Quality Income Plus 240,877 10.63 S&P 500 Index 461,674 10.92 Short-Term Bond 17,362 10.45 Strategist 255,791 11.91 Utilities 219,107 12.23 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 23,245 9.33 Equity Growth 160,415 11.75 International Magnum 55,387 9.28 U.S. Real Estate 36,603 11.21 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 215,874 18.64
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 42 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity II AssetManager with Performance Benefit Combination Option or Death Benefit Combination Option -------------------------------------------------------------------------- Unit activity during 2000: ---------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------ ------------ ------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 44,292 261,031 (36,377) Capital Growth 27,483 112,149 (11,989) Competitive Edge, Best Ideas 23,894 121,152 (13,304) Dividend Growth 256,374 398,660 (136,020) Equity 323,544 438,050 (112,197) European Growth 75,890 234,683 (20,639) Global Dividend Growth 62,965 43,352 (12,494) High Yield 38,054 47,583 (17,645) Income Builder 20,223 7,260 (2,601) Information - 4,195 - Money Market 123,921 732,371 (575,394) Pacific Growth 73,243 65,992 (19,835) Quality Income Plus 172,419 156,062 (52,245) S&P 500 Index 168,103 168,225 (42,689) Short-Term Bond 5,436 12,633 (4,707) Strategist 68,969 158,771 (9,697) Utilities 100,464 143,131 (26,144) Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 51,240 92,115 (30,324) Equity Growth 16,474 129,432 (16,593) International Magnum 21,796 43,414 (9,856) U.S. Real Estate 30,211 55,211 (18,081) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 129,629 337,238 (78,670) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ------------------ ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 268,946 $ 13.92 Capital Growth 127,643 12.62 Competitive Edge, Best Ideas 131,742 9.66 Dividend Growth 519,014 10.00 Equity 649,397 13.75 European Growth 289,934 10.66 Global Dividend Growth 93,823 10.64 High Yield 67,992 5.71 Income Builder 24,882 10.00 Information 4,195 9.29 Money Market 280,898 10.87 Pacific Growth 119,400 11.70 Quality Income Plus 276,236 10.60 S&P 500 Index 293,639 10.89 Short-Term Bond 13,362 10.43 Strategist 218,043 11.88 Utilities 217,451 12.20 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 113,031 9.30 Equity Growth 129,313 11.71 International Magnum 55,354 9.25 U.S. Real Estate 67,341 11.18 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 388,197 18.59
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 43 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity 3 -------------------------------------------------------------- Unit activity during 2000: -------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 70,355 (9,045) Equity Growth - 195,008 (12,835) International Magnum - 41,655 - Mid Cap Value - 57,281 (3,230) U.S. Real Estate - 21,807 (906) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 495,445 (23,341) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 99,637 (8,820) AIM V.I. Growth - 112,909 (1,985) AIM V.I. Value - 312,033 - Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 122,226 (2,250) Alliance Growth & Income - 109,440 (6,732) Alliance Premier Growth - 312,880 (8,302) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 73,374 - International Growth - 194,668 (7,102) Voyager - 216,014 (4,578) Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity - 215,518 (17,167) Capital Growth - 65,559 (1,210) Competitive Edge, "Best Ideas" - 85,892 (2,859) Dividend Growth - 256,863 (5,012) Equity - 681,963 (6,684) European Growth - 235,980 (11,289) Global Dividend Growth - 37,669 (3,745) High Yield - 36,379 (2,566) Income Builder - 31,077 (3,644) Information - 27,658 (77) Money Market - 478,735 (206,566) Pacific Growth - 8,832 (1,305) Quality Income Plus - 177,762 (1,338) S&P 500 Index - 312,738 (11,108) Short-Term Bond - 22,751 (143) Strategist - 437,224 (11,156) Utilities - 342,061 (4,308) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 61,310 $ 6.39 Equity Growth 182,173 8.34 International Magnum 41,655 9.05 Mid Cap Value 54,051 10.23 U.S. Real Estate 20,901 11.50 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 472,104 8.13 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 90,817 8.28 AIM V.I. Growth 110,924 7.40 AIM V.I. Value 312,033 8.32 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 119,976 8.00 Alliance Growth & Income 102,708 10.24 Alliance Premier Growth 304,578 7.98 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 73,374 10.56 International Growth 187,566 9.02 Voyager 211,436 8.12 Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity 198,351 9.68 Capital Growth 64,349 9.70 Competitive Edge, "Best Ideas" 83,033 8.41 Dividend Growth 251,851 10.68 Equity 675,279 9.53 European Growth 224,691 9.19 Global Dividend Growth 33,924 9.93 High Yield 33,813 6.94 Income Builder 27,433 10.03 Information 27,581 9.29 Money Market 272,169 10.26 Pacific Growth 7,527 7.27 Quality Income Plus 176,424 10.75 S&P 500 Index 301,630 8.96 Short-Term Bond 22,608 10.30 Strategist 426,068 9.92 Utilities 337,753 10.13
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 44 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity 3 with Performance Death Benefit Option ----------------------------------------------------------------------------------- Unit activity during 2000: ---------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------ ------------ ------------ Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 45,452 (13,690) Equity Growth - 451,234 (9,863) International Magnum - 43,773 (5,658) Mid Cap Value - 89,498 (680) U.S. Real Estate - 30,053 (4,529) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 821,294 (32,513) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 262,592 (7,022) AIM V.I. Growth - 216,997 (3,809) AIM V.I. Value - 482,717 (8,921) Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 134,618 (1,737) Alliance Growth & Income - 172,651 (25,831) Alliance Premier Growth - 424,668 (20,885) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 73,293 - International Growth - 271,699 (4,540) Voyager - 318,320 (10,628) Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity - 396,938 (13,525) Capital Growth - 122,872 (8,800) Competitive Edge, "Best Ideas" - 185,390 (4,358) Dividend Growth - 451,170 (12,452) Equity - 1,099,472 (64,331) European Growth - 303,478 (18,650) Global Dividend Growth - 76,151 (2,225) High Yield - 51,886 (11,493) Income Builder - 19,855 (2,760) Information - 57,590 (12) Money Market - 616,365 (283,068) Pacific Growth - 13,136 (509) Quality Income Plus - 116,117 (9,488) S&P 500 Index - 441,133 (16,668) Short-Term Bond - 33,699 (1,359) Strategist - 483,829 (9,393) Utilities - 396,056 (18,081) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 31,762 $ 6.38 Equity Growth 441,371 8.33 International Magnum 38,115 9.05 Mid Cap Value 88,818 10.22 U.S. Real Estate 25,524 11.49 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 788,781 8.12 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 255,570 8.28 AIM V.I. Growth 213,188 7.39 AIM V.I. Value 473,796 8.32 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 132,881 7.99 Alliance Growth & Income 146,820 10.23 Alliance Premier Growth 403,783 7.97 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 73,293 10.56 International Growth 267,159 9.01 Voyager 307,692 8.11 Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity 383,413 9.67 Capital Growth 114,072 9.69 Competitive Edge, "Best Ideas" 181,032 8.41 Dividend Growth 438,718 10.68 Equity 1,035,141 9.52 European Growth 284,828 9.18 Global Dividend Growth 73,926 9.92 High Yield 40,393 6.94 Income Builder 17,095 10.02 Information 57,578 9.29 Money Market 333,297 10.25 Pacific Growth 12,627 7.27 Quality Income Plus 106,629 10.74 S&P 500 Index 424,465 8.95 Short-Term Bond 32,340 10.30 Strategist 474,436 9.91 Utilities 377,975 10.12
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 45 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity 3 with Death Benefit Combination Option ----------------------------------------------------------------------------------- Unit activity during 2000: ---------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 83,855 (5,727) Equity Growth - 332,911 (31,363) International Magnum - 73,831 - Mid Cap Value - 98,553 (82) U.S. Real Estate - 23,928 (210) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 683,232 (19,532) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 154,655 (8,419) AIM V.I. Growth - 132,495 (1,504) AIM V.I. Value - 358,488 (13,283) Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 134,032 (7,812) Alliance Growth & Income - 139,161 - Alliance Premier Growth - 388,853 (15,658) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 60,394 (547) International Growth - 182,723 (2,071) Voyager - 299,575 (6,777) Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity - 265,175 (8,734) Capital Growth - 56,059 (1,575) Competitive Edge, "Best Ideas" - 112,649 (1,764) Dividend Growth - 304,912 (25,422) Equity - 711,536 (18,636) European Growth - 286,818 (64,597) Global Dividend Growth - 37,805 (3,680) High Yield - 149,310 (9,490) Income Builder - 36,830 (116) Information - 26,114 (6) Money Market - 443,522 (120,832) Pacific Growth - 29,046 (624) Quality Income Plus - 84,408 (433) S&P 500 Index - 295,044 (11,591) Short-Term Bond - 21,845 (26) Strategist - 481,319 (24,794) Utilities - 361,745 (4,011) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 78,128 $ 6.38 Equity Growth 301,548 8.32 International Magnum 73,831 9.04 Mid Cap Value 98,471 10.22 U.S. Real Estate 23,718 11.49 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 663,700 8.12 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 146,236 8.27 AIM V.I. Growth 130,991 7.39 AIM V.I. Value 345,205 8.31 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 126,220 7.99 Alliance Growth & Income 139,161 10.23 Alliance Premier Growth 373,195 7.97 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 59,847 10.55 International Growth 180,652 9.00 Voyager 292,798 8.11 Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity 256,441 9.66 Capital Growth 54,484 9.69 Competitive Edge, "Best Ideas" 110,885 8.40 Dividend Growth 279,490 10.67 Equity 692,900 9.52 European Growth 222,221 9.18 Global Dividend Growth 34,125 9.92 High Yield 139,820 6.94 Income Builder 36,714 10.02 Information 26,108 9.29 Money Market 322,690 10.25 Pacific Growth 28,422 7.26 Quality Income Plus 83,975 10.73 S&P 500 Index 283,453 8.95 Short-Term Bond 21,819 10.29 Strategist 456,525 9.91 Utilities 357,734 10.12
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 46 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity 3 with Income Benefit Combination Option ------------------------------------------------------------------------------------ Unit activity during 2000: ------------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ----------------- ------------ ------------ Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 14,060 (4,931) Equity Growth - 29,299 (1,274) International Magnum - 7,192 (455) Mid Cap Value - 13,264 (111) U.S. Real Estate - 5,630 (1,155) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 205,879 (9,622) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 6,586 (375) AIM V.I. Growth - 9,431 (122) AIM V.I. Value - 84,006 (2,911) Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 9,111 (355) Alliance Growth & Income - 7,310 - Alliance Premier Growth - 30,846 (291) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 10,484 - International Growth - 25,658 (2,589) Voyager - 99,425 (4,881) Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity - 44,816 (2,062) Capital Growth - 6,320 (439) Competitive Edge, "Best Ideas" - 29,532 (118) Dividend Growth - 22,635 (942) Equity - 90,809 (4,897) European Growth - 36,834 (3,204) Global Dividend Growth - 1,774 (1,049) High Yield - 6,402 (2) Information - 3,567 (1,572) Money Market - 100,189 (57,564) Pacific Growth - 2,612 (211) Quality Income Plus - 11,912 (2) S&P 500 Index - 19,876 (1,313) Short-Term Bond - 4,834 (2) Strategist - 19,619 (1,103) Utilities - 17,781 (3,709) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 9,129 $ 6.38 Equity Growth 28,025 8.32 International Magnum 6,737 9.04 Mid Cap Value 13,153 10.21 U.S. Real Estate 4,475 11.48 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 196,257 8.12 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 6,211 8.27 AIM V.I. Growth 9,309 7.39 AIM V.I. Value 81,095 8.31 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 8,756 7.99 Alliance Growth & Income 7,310 10.22 Alliance Premier Growth 30,555 7.96 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 10,484 10.55 International Growth 23,069 9.00 Voyager 94,544 8.10 Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity 42,754 9.66 Capital Growth 5,881 9.68 Competitive Edge, "Best Ideas" 29,414 8.40 Dividend Growth 21,693 10.67 Equity 85,912 9.51 European Growth 33,630 9.17 Global Dividend Growth 725 9.91 High Yield 6,400 6.93 Information 1,995 9.29 Money Market 42,625 10.24 Pacific Growth 2,401 7.26 Quality Income Plus 11,910 10.73 S&P 500 Index 18,563 8.94 Short-Term Bond 4,832 10.29 Strategist 18,516 9.91 Utilities 14,072 10.11
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 47 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity 3 with Income and Death Benefit Combination Option ---------------------------------------------------------------------------------------------- Unit activity during 2000: -------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 101,725 (18,362) Equity Growth - 299,598 (9,849) International Magnum - 67,972 (3,606) Mid Cap Value - 179,679 (9,870) U.S. Real Estate - 24,723 (416) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 1,160,768 (35,343) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 159,468 (10,146) AIM V.I. Growth - 157,297 (14,706) AIM V.I. Value - 346,373 (19,193) Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 97,138 (1,878) Alliance Growth & Income - 291,984 (7,159) Alliance Premier Growth - 458,139 (19,918) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 87,345 - International Growth - 294,114 (2,530) Voyager - 421,342 (12,310) Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity - 488,918 (19,431) Capital Growth - 110,628 (2,162) Competitive Edge, "Best Ideas" - 149,237 (11,060) Dividend Growth - 296,303 (24,393) Equity - 793,423 (18,936) European Growth - 374,889 (7,893) Global Dividend Growth - 77,812 (1,401) High Yield - 60,034 (5,844) Income Builder - 12,117 (1,549) Information - 91,709 (1,341) Money Market - 584,722 (253,586) Pacific Growth - 44,613 (167) Quality Income Plus - 74,075 (2,438) S&P 500 Index - 385,096 (35,357) Short-Term Bond - 45,611 (1,470) Strategist - 951,045 (23,405) Utilities - 270,764 (7,944) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 83,363 $ 6.37 Equity Growth 289,749 8.31 International Magnum 64,366 9.03 Mid Cap Value 169,809 10.20 U.S. Real Estate 24,307 11.47 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 1,125,425 8.11 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 149,322 8.26 AIM V.I. Growth 142,591 7.38 AIM V.I. Value 327,180 8.30 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 95,260 7.98 Alliance Growth & Income 284,825 10.21 Alliance Premier Growth 438,221 7.96 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 87,345 10.53 International Growth 291,584 8.99 Voyager 409,032 8.09 Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity 469,487 9.65 Capital Growth 108,466 9.67 Competitive Edge, "Best Ideas" 138,177 8.39 Dividend Growth 271,910 10.65 Equity 774,487 9.50 European Growth 366,996 9.16 Global Dividend Growth 76,411 9.90 High Yield 54,190 6.92 Income Builder 10,568 10.00 Information 90,368 9.29 Money Market 331,136 10.23 Pacific Growth 44,446 7.25 Quality Income Plus 71,637 10.72 S&P 500 Index 349,739 8.93 Short-Term Bond 44,141 10.27 Strategist 927,640 9.89 Utilities 262,820 10.10
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 48 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity 3 AssetManager ---------------------------------------------------------- Unit activity during 2000: -------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 697 - Equity Growth - 7,709 (768) International Magnum - 1,848 (739) Mid Cap Value - 11,438 (153) U.S. Real Estate - 5,280 (44) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 27,426 (2,923) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 8,464 (1) AIM V.I. Growth - 5,182 (1) AIM V.I. Value - 32,287 (5,338) Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 4,858 (1) Alliance Growth & Income - 23,886 (5,547) Alliance Premier Growth - 21,107 (9) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 5,756 - International Growth - 17,699 (627) Voyager - 31,848 (5,556) Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity - 14,524 (945) Capital Growth - 7,609 (19) Competitive Edge, "Best Ideas" - 1,875 (1) Dividend Growth - 14,103 (3) Equity - 21,974 (70) European Growth - 5,902 (6) Global Dividend Growth - 1,196 - High Yield - 203 - Information - 1,812 - Money Market - 40,553 (20,929) Quality Income Plus - 16,337 (3) S&P 500 Index - 31,386 (6,110) Short-Term Bond - 3,045 - Strategist - 30,734 (805) Utilities - 11,854 (7) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 697 $ 7.22 Equity Growth 6,941 8.25 International Magnum 1,109 9.68 Mid Cap Value 11,285 9.58 U.S. Real Estate 5,236 10.18 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 24,503 7.72 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 8,463 7.68 AIM V.I. Growth 5,181 7.61 AIM V.I. Value 26,949 8.50 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 4,857 8.23 Alliance Growth & Income 18,339 9.93 Alliance Premier Growth 21,098 8.01 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 5,756 10.26 International Growth 17,072 9.51 Voyager 26,292 8.24 Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity 13,579 8.97 Capital Growth 7,590 9.41 Competitive Edge, "Best Ideas" 1,874 8.51 Dividend Growth 14,100 10.68 Equity 21,904 8.91 European Growth 5,896 10.04 Global Dividend Growth 1,196 10.44 High Yield 203 7.31 Information 1,812 9.29 Money Market 19,624 10.13 Quality Income Plus 16,334 10.46 S&P 500 Index 25,276 8.89 Short-Term Bond 3,045 10.15 Strategist 29,929 9.45 Utilities 11,847 9.33
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 49 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity 3 AssetManager with Performance Death Benefit Option ---------------------------------------------------------- Unit activity during 2000: --------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 1,849 - Equity Growth - 11,596 (3) International Magnum - 1,976 - Mid Cap Value - 6,402 (2) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 31,293 (700) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Growth - 3,651 (1) AIM V.I. Value - 12,015 - Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 5,172 (1) Alliance Growth & Income - 3,262 - Alliance Premier Growth - 8,550 (3) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 1,806 - International Growth - 3,681 - Voyager - 12,002 (7) Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity - 9,125 (20) Capital Growth - 2,875 (825) Competitive Edge, "Best Ideas" - 1,689 - Dividend Growth - 8,706 (2) Equity - 43,821 (885) European Growth - 6,366 (854) High Yield - 1,730 - Information - 625 (1) Money Market - 8,736 - Pacific Growth - 1,338 - S&P 500 Index - 9,951 (918) Short-Term Bond - 2,119 - Strategist - 6,603 (825) Utilities - 10,539 (838) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 1,849 $ 7.22 Equity Growth 11,593 8.25 International Magnum 1,976 9.67 Mid Cap Value 6,400 9.57 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 30,593 7.72 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Growth 3,650 7.61 AIM V.I. Value 12,015 8.50 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 5,171 8.22 Alliance Growth & Income 3,262 9.93 Alliance Premier Growth 8,547 8.01 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 1,806 10.26 International Growth 3,681 9.50 Voyager 11,995 8.23 Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity 9,105 8.97 Capital Growth 2,050 9.40 Competitive Edge, "Best Ideas" 1,689 8.51 Dividend Growth 8,704 10.68 Equity 42,936 8.91 European Growth 5,512 10.03 High Yield 1,730 7.30 Information 624 9.29 Money Market 8,736 10.13 Pacific Growth 1,338 7.87 S&P 500 Index 9,033 8.89 Short-Term Bond 2,119 10.14 Strategist 5,778 9.45 Utilities 9,701 9.33
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 50 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity 3 AssetManager with Death Benefit Combination Option ----------------------------------------------------------- Unit activity during 2000: ------------------------------ Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 849 - Equity Growth - 3,318 (361) International Magnum - 807 - Mid Cap Value - 824 (1) U.S. Real Estate - 916 (8) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 18,589 (1,765) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 31,897 (7) AIM V.I. Growth - 1,381 - AIM V.I. Value - 10,781 (3,867) Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 296 - Alliance Growth & Income - 7,060 - Alliance Premier Growth - 35,707 (14) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 10,733 - International Growth - 31,510 - Voyager - 3,191 (2) Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity - 3,633 (1,686) Capital Growth - 6,555 (64) Competitive Edge, "Best Ideas" - 1,095 - Dividend Growth - 1,400 (8) Equity - 22,921 (5,791) European Growth - 5,026 (1,637) Global Dividend Growth - 2,431 (1) High Yield - 1,725 (10) Income Builder - 1,548 - Money Market - 16,713 (2,333) Pacific Growth - 389 - Quality Income Plus - 2,839 (138) S&P 500 Index - 4,323 (9) Strategist - 16,598 (2,665) Utilities - 10,051 (2,925) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 849 $ 7.22 Equity Growth 2,957 8.24 International Magnum 807 9.67 Mid Cap Value 823 9.57 U.S. Real Estate 908 10.17 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 16,824 7.71 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 31,890 7.67 AIM V.I. Growth 1,381 7.60 AIM V.I. Value 6,914 8.50 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 296 8.22 Alliance Growth & Income 7,060 9.92 Alliance Premier Growth 35,693 8.01 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 10,733 10.25 International Growth 31,510 9.50 Voyager 3,189 8.23 Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity 1,947 8.97 Capital Growth 6,491 9.40 Competitive Edge, "Best Ideas" 1,095 8.50 Dividend Growth 1,392 10.67 Equity 17,130 8.90 European Growth 3,389 10.03 Global Dividend Growth 2,430 10.43 High Yield 1,715 7.30 Income Builder 1,548 10.01 Money Market 14,380 10.13 Pacific Growth 389 7.87 Quality Income Plus 2,701 10.45 S&P 500 Index 4,314 8.89 Strategist 13,933 9.45 Utilities 7,126 9.32
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 51 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity 3 AssetManager with Income Benefit Combination Option ----------------------------------------------------------- Unit activity during 2000: --------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 1,500 - Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 8,701 - Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Growth - 1,410 (1) AIM V.I. Value - 2,074 - Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 2,441 - Alliance Growth & Income - 636 - Alliance Premier Growth - 4,401 (1) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 2,256 - International Growth - 2,085 - Voyager - 1,932 (1) Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity - 856 (2) Dividend Growth - 1,300 - Equity - 1,291 (1) European Growth - 102 - High Yield - 143 - Pacific Growth - 1,879 (1) Quality Income Plus - 2,958 - S&P 500 Index - 636 - Strategist - 2,007 (1) Utilities - 3,126 (2) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 1,500 $ 7.22 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 8,701 7.71 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Growth 1,409 7.60 AIM V.I. Value 2,074 8.50 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 2,441 8.22 Alliance Growth & Income 636 9.92 Alliance Premier Growth 4,400 8.01 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 2,256 10.25 International Growth 2,085 9.50 Voyager 1,931 8.23 Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity 854 8.96 Dividend Growth 1,300 10.67 Equity 1,290 8.90 European Growth 102 10.03 High Yield 143 7.30 Pacific Growth 1,878 7.87 Quality Income Plus 2,958 10.45 S&P 500 Index 636 8.89 Strategist 2,006 9.45 Utilities 3,124 9.32
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 52 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Variable Annuity 3 AssetManager with Income and Death Benefit Combination Option ------------------------------------------------------------ Unit activity during 2000: -------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 957 - Equity Growth - 6,591 (2) International Magnum - 4,040 - Mid Cap Value - 14,053 (7,657) U.S. Real Estate - 857 (7) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 40,969 (6,575) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 13,794 (6,930) AIM V.I. Value - 12,582 (3,582) Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth & Income - 4,299 (1,435) Alliance Premier Growth - 16,389 (7,064) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 4,928 (2,356) International Growth - 5,835 (959) Voyager - 1,886 (1) Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity - 8,774 (959) Capital Growth - 1,105 - Competitive Edge, "Best Ideas" - 17,289 (9,433) Dividend Growth - 501,004 (1,575) Equity - 6,508 (3) European Growth - 5,366 (2,585) High Yield - 4,882 (3,460) Income Builder - 2,912 (1) Information - 73 - Money Market - 3,380 (8) Pacific Growth - 2,017 (1,033) Quality Income Plus - 10,005 (12) S&P 500 Index - 5,537 (1) Short-Term Bond - 8,300 (34) Strategist - 4,200 (1) Utilities - 550,775 (3,613) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 957 $ 7.21 Equity Growth 6,589 8.24 International Magnum 4,040 9.66 Mid Cap Value 6,396 9.56 U.S. Real Estate 850 10.16 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 34,394 7.71 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 6,864 7.67 AIM V.I. Value 9,000 8.49 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth & Income 2,864 9.92 Alliance Premier Growth 9,325 8.00 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 2,572 10.24 International Growth 4,876 9.49 Voyager 1,885 8.23 Investments in the Morgan Stanley Dean Witter Variable Investment Series (Class Y Shares) Sub-Accounts: Aggressive Equity 7,815 8.96 Capital Growth 1,105 9.39 Competitive Edge, "Best Ideas" 7,856 8.50 Dividend Growth 499,429 10.67 Equity 6,505 8.90 European Growth 2,781 10.02 High Yield 1,422 7.30 Income Builder 2,911 10.00 Information 73 9.28 Money Market 3,372 10.12 Pacific Growth 984 7.86 Quality Income Plus 9,993 10.45 S&P 500 Index 5,536 8.88 Short-Term Bond 8,266 10.13 Strategist 4,199 9.44 Utilities 547,162 9.32
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 53 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Preferred Client Variable Annuity ------------------------------------------------------------ Unit activity during 2000: --------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity - 10,449 (26) Capital Growth - 31,812 (1,259) Competitive Edge, "Best Ideas" - 2,666 (1) Dividend Growth - 29,130 (26,851) Equity - 52,752 (1,980) European Growth - 22,291 (112) Global Dividend Growth - 2,768 - High Yield - 3,974 - Money Market - 40,082 (22,477) Pacific Growth - 3,042 - Quality Income Plus - 1,057 (1) S&P 500 Index - 1,369 - Short-term Bond - 3,068 (1) Strategist - 18,492 (213) Utilities - 6,093 (2) Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Equity Growth - 6,580 (26) Mid Cap Value - 5,849 (2) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 72,443 (27,337) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 4,661 (1) AIM V.I. Growth - 1,324 (1) AIM V.I. Value - 19,411 (564) Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth & Income - 18,108 - Alliance Premier Growth - 14,992 (424) Investments in the Putnam Variable Trust Sub-Accounts: International Growth - 52,946 - Voyager - 23,494 (665) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 10,423 $ 10.08 Capital Growth 30,553 10.64 Competitive Edge, "Best Ideas" 2,665 8.62 Dividend Growth 2,279 11.13 Equity 50,772 9.09 European Growth 22,179 9.93 Global Dividend Growth 2,768 10.65 High Yield 3,974 6.69 Money Market 17,605 10.49 Pacific Growth 3,042 6.80 Quality Income Plus 1,056 11.06 S&P 500 Index 1,369 9.48 Short-term Bond 3,067 10.51 Strategist 18,279 10.41 Utilities 6,091 10.00 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Equity Growth 6,554 8.98 Mid Cap Value 5,847 11.57 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 45,106 8.92 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 4,660 9.01 AIM V.I. Growth 1,323 8.23 AIM V.I. Value 18,847 8.69 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth & Income 18,108 11.74 Alliance Premier Growth 14,568 8.71 Investments in the Putnam Variable Trust Sub-Accounts: International Growth 52,946 9.44 Voyager 22,829 8.54
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 54 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Preferred Client Variable Annuity with Performance Death Benefit Option or Performance Income Benefit Option --------------------------------------------------------------------- Unit activity during 2000: -------------------------------- Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity - 53,707 (21,986) Capital Growth - 1,598 - Competitive Edge, "Best Ideas" - 25 - Dividend Growth - 16,096 (6,477) Equity - 299,409 (269,460) European Growth - 31,757 (16,809) Global Dividend Growth - 9,711 (8,739) Pacific Growth - 6,961 (632) Quality Income Plus - 395 - S&P 500 Index - 976 (1) Strategist - 11,768 (4) Utilities - 3,118 (1) Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 27 - Equity Growth - 3,143 (1) International Magnum - 3,440 - Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 97,688 (52,975) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 104 - AIM V.I. Growth - 5,968 (4,923) AIM V.I. Value - 12,128 - Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth & Income - 375 - Alliance Premier Growth - 7,285 (3) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 1,093 - International Growth - 15,806 (11,415) Voyager - 11,544 (7) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 31,721 $ 10.07 Capital Growth 1,598 10.62 Competitive Edge, "Best Ideas" 25 8.61 Dividend Growth 9,619 11.12 Equity 29,949 9.08 European Growth 14,948 9.92 Global Dividend Growth 972 10.63 Pacific Growth 6,329 6.80 Quality Income Plus 395 11.05 S&P 500 Index 975 9.47 Strategist 11,764 10.39 Utilities 3,117 9.99 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 27 6.17 Equity Growth 3,142 8.97 International Magnum 3,440 9.33 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 44,713 8.91 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 104 9.00 AIM V.I. Growth 1,045 8.22 AIM V.I. Value 12,128 8.68 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth & Income 375 11.73 Alliance Premier Growth 7,282 8.70 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 1,093 11.08 International Growth 4,391 9.42 Voyager 11,537 8.53
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 55 4. UNITS ISSUED AND REDEEMED (CONTINUED) (Units in whole amounts)
Morgan Stanley Dean Witter Preferred Client Variable Annuity with Performance Benefit Combination Option or Death Benefit Combination Option ----------------------------------------------------------------------------- Unit activity during 2000: ------------------------------ Units Outstanding Units Units December 31, 1999 Issued Redeemed ------------------- ------------ ------------ Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity - 19,602 (746) Capital Growth - 6,749 - Competitive Edge, "Best Ideas" - 2,908 - Dividend Growth - 15,278 (7,431) Equity - 32,395 - European Growth - 15,791 - Global Dividend Growth - 1,561 - Pacific Growth - 2,566 - Quality Income Plus - 1,309 (1) S&P 500 Index - 25,914 (4,143) Strategist - 13,694 (2,702) Utilities - 6,335 (2,866) Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity - 2,212 - Equity Growth - 609 - International Magnum - 6,184 (2,953) Mid Cap Value - 3,997 (1) Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth - 54,739 (3,614) Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation - 3,020 - AIM V.I. Growth - 15,519 (4) AIM V.I. Value - 20,724 - Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth - 4,003 (1) Alliance Growth & Income - 16,648 (3,666) Alliance Premier Growth - 16,648 (6) Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income - 4,699 (4,212) International Growth - 22,787 - Voyager - 13,026 (4,144) Unit activity during 2000: -------------------------- Accumulated Units Outstanding Unit Value December 31, 2000 December 31, 2000 ----------------- ----------------- Investments in the Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts: Aggressive Equity 18,856 $ 10.06 Capital Growth 6,749 10.61 Competitive Edge, "Best Ideas" 2,908 8.60 Dividend Growth 7,847 11.11 Equity 32,395 9.07 European Growth 15,791 9.91 Global Dividend Growth 1,561 10.62 Pacific Growth 2,566 6.79 Quality Income Plus 1,308 11.04 S&P 500 Index 21,771 9.46 Strategist 10,992 10.38 Utilities 3,469 9.98 Investments in The Universal Institutional Funds, Inc. (a) Sub-Accounts: Emerging Markets Equity 2,212 6.16 Equity Growth 609 8.96 International Magnum 3,231 9.32 Mid Cap Value 3,996 11.54 Investments in the Van Kampen Life Investment Trust Sub-Account: LIT Emerging Growth 51,125 8.90 Investments in the AIM Variable Insurance Funds Sub-Accounts: AIM V.I. Capital Appreciation 3,020 8.99 AIM V.I. Growth 15,515 8.21 AIM V.I. Value 20,724 8.67 Investments in the Alliance Variable Product Series Fund Sub-Accounts: Alliance Growth 4,002 8.54 Alliance Growth & Income 12,982 11.72 Alliance Premier Growth 16,642 8.69 Investments in the Putnam Variable Trust Sub-Accounts: Growth & Income 487 11.06 International Growth 22,787 9.41 Voyager 8,882 8.52
Units relating to accrued contract maintenance charges are included in units redeemed. (a) Previously known as Morgan Stanley Dean Witter Universal Funds, Inc. 56 PART C OTHER INFORMATION 24. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS Northbrook Life Insurance Company Financial Statements and Financial Schedule and Northbrook Variable Annuity Account II Financial Statements are included in Part B of this Registration Statement. (b) EXHIBITS (1) Resolution of the Board of Directors of Northbrook Life Insurance Company authorizing establishment of the Variable Annuity Account II (Incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement (File No. 033-35412) dated December 31, 1996). (2) Not applicable. (3)(a) Form of Underwriting Agreement (Incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement (File No. 033-35412) dated December 31, 1996). (b) Form of General Agency Agreement (Incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's Registration Statement (File No. 033-35412) dated December 31, 1996). (4)(a) Form of Contract and Certificate Amendments for the Preferred Client Variable Annuity (Incorporated herein by reference to Post-Effective Amendment No. 22 to Registrant's Registration Statement (File No. 033-35412) dated November 12, 1999). (b) Income Benefit Combination Rider 2 and Income and Death Benefit Combination Rider 2 (Previously filed in Post-Effective Amendment No. 2 to this Registration Statement (File No. 333-93871) dated March 2, 2000). (5) Form of Application for the Morgan Stanley Dean Witter Preferred Client Variable Annuity (Incorporated herein by reference to Post-Effective Amendment No. 22 to Registrant's Registration Statement (File No. 033-35412) dated November 12, 1999). (6)(a) Amended and Restated Articles of Incorporation and Articles of Redomestication of Northbrook Life Insurance Company (Incorporated herein by reference to Depositor's Form 10-K dated March 30, 1999). (b) Amended and Restated By-laws of Northbrook Life Insurance Company (Incorporated herein by reference to Depositor's Form 10-K dated March 30, 1999). (7) Not applicable. (8) Forms of Participation Agreements: (a) Morgan Stanley Dean Witter Variable Investment Series (Previously filed in Post-Effective Amendment No. 1 to this Registration Statement (File No. 333-93871) dated January 28, 2000). (b) Universal Institutional Funds, Inc. (Previously filed in Post-Effective Amendment No. 1 to this Registration Statement (File No. 333-93871) dated January 28, 2000). (c) AIM Variable Insurance Funds (Previously filed in Post-Effective Amendment No. 1 to this Registration Statement (File No. 333-93871) dated January 28, 2000). (d) Alliance Variable Products Series Fund (Previously filed in Post-Effective Amendment No. 1 to this Registration Statement (File No. 333-93871) dated January 28, 2000). (e) Putnam Variable Trust (Previously filed in Post-Effective Amendment No. 1 to this Registration Statement (File No. 333-93871) dated January 28, 2000). (f) Van Kampen Life Investment Trust (Previously filed in Post-Effective Amendment No. 1 to this Registration Statement (File No. 333-93871) dated January 28, 2000). (9) Opinion and Consent of Michael J. Velotta, Vice President, Secretary and General Counsel of Northbrook Life Insurance Company (Previously filed in Post- Effective Amendment No. 1 to this Registration Statement (File No. 333-93871) dated January 28, 2000). (10)(a) Independent Auditors' Consent. (b) Consent of Foley & Lardner. (11) Not applicable. (12) Not applicable. (13)(a) Performance Data Calculations (Incorporated herein by reference to Post-Effective Amendment No. 22 to Registrant's Registration Statement (File No. 033-35412) dated November 12, 1999). (b) Performance Data Calculations (Previously filed in Post-Effective Amendment No. 1 to this Registration Statement (File No. 333-93871) dated January 28, 2000). (14) Not applicable. (99) (a) Powers of Attorney for Thomas J. Wilson II, Michael J. Velotta and Samuel H. Pilch (Previously filed in Registrant's Post-effective Amendment No. 3 to Form N-4 Registration Statement (File No. 333-93871) dated May 1, 2000). (b) Powers of Attorney for Margaret G. Dyer, Marla G.Friedman, John C. Lounds, J. Kevin McCarthy, and Steven C. Verney filed herewith. 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR, NORTHBROOK LIFE INSURANCE COMPANY
NAME AND PRINCIPAL POSITION AND OFFICE WITH BUSINESS ADDRESS DEPOSITOR OF THE ACCOUNT Thomas J. Wilson, II Director, President and Chief Executive Officer (Principal Executive Officer) Michael J. Velotta Director, Vice President, Secretary and General Counsel Margaret G. Dyer Director John C. Lounds Director J. Kevin McCarthy Director Steven C. Verney Director and Vice President (Principal Financial Officer) John R. Hunter Vice President Kevin R. Slawin Vice President Timothy N. Vander Pas Assistant Vice President Sarah R. Donahue Assistant Vice President Casey J. Sylla Chief Investment Officer Marla G. Friedman Director and Vice President Karen C. Gardner Vice President Samuel H. Pilch Vice Presidnet and Controller (Principal Accounting Officer) James P. Zils Treasurer Ronald A. Johnson Assistant Vice President Barry S. Paul Assistant Vice President and Assistant Treasurer 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 Carol S. Watson Assistant Secretary Paul N. Kierig Assistant Secretary Mary J. McGinn Assistant Secretary Errol Cramer Corporate Actuary
The principal business address of Ms. Watson is 2940 South 84th Street, Lincoln, Nebraska, 68506. The principal address of the other foregoing officers and directors is 3100 Sanders Road, Northbrook, Illinois 60062. 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR REGISTRANT Incorporated herein by reference to Annual Report on Form 10-K, filed by the Allstate Corporation on March 26, 2001 (File No. 1-11840). 27. NUMBER OF CONTRACT OWNERS As of January 31, 2001 , there were 94 nonqualified contracts and 41 qualified contracts. 28. INDEMNIFICATION The General Agency Agreement (Exhibit 3(b)) contains a provision in which Northbrook Life agrees to indemnify Dean Witter Reynolds as Underwriter for certain damages and expenses that may be caused by actions, statements or omissions by Northbrook Life. The Agreement to Purchase Shares contains a similar provision in paragraph 16 of Exhibit 12. Insofar as indemnification for liability arising out of the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the registrant of expenses incurred by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of is counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 29. PRINCIPAL UNDERWRITERS (a) Registrant's principal underwriter, Dean Witter Reynolds Inc., is the principal underwriter for the following affiliated investment companies: Northbrook Variable Annuity Account Northbrook Life Variable Life Separate Account A Allstate Life of New York Variable Annuity Account Allstate Life of New York Variable Annuity Account II (b) The directors and officers of the principal underwriter are:
Name and Principal Business Positions and Offices Address* of Each Such Person with Underwriter Bruce F. Alonso Director, Executive Vice President John H. Schaefer President, Director, Chief Operating Officer Donald G. Kempf, Jr. Director John J. Mack Director Stephen S. Crawford Director Robert G. Scott Director Philip J. Purcell Director, Chairman and Chief Executive Officer James F. Higgins Director Stephen R. Miller Director, Executive Vice President Mitchell M. Merin Director Michael H. Stone Executive Vice President, General Counsel and Secretary Lee Horwitz Senior Vice President and Controller Joseph G. Siniscalchi Director, Executive Vice President Thomas O'Connell Executive Vice President Frederick J. Frohne Executive Vice President Ronald T. Carman Senior Vice President, Associate General Counsel and Assistant Secretary Joyce L. Kramer Senior Vice President, Deputy General Counsel and Assistant Secretary Alexander C. Frank Senior Vice President and Treasurer Charles F. Vadala, Jr. Senior Vice President and Chief Financial Officer Michael T. Cunningham Senior Vice President Lorena J. Kern Senior Vice President Debra M. Aaron Vice President Darlene R. Lockhart Vice President Harvey B. Mogenson Vice President Kevin Mooney Vice President Saul Rosen Vice President Frank G. Skubic Vice President Eileen S. Wallace Vice President Sabrina Hurley Assistant Secretary
* The principal business address of Dean Witter Reynolds Inc. is Two World Trade Center, New York, New York 10048. (c) Compensation of Dean Witter Reynolds Inc. The following commissions and other compensation were received by each principal underwriter, directly or indirectly, from the Registrant during the Registrant's last fiscal year.
(1) (2) (3) (4) (5) Net Underwriting Name of Principal Discounts and Compensation on Brokerage Underwriter Commissions Redemption Commissions Compensation - ------------------------------------------------------------------------------------ Dean Witter Reynolds Inc. N/A N/A $37,298,111.57 N/A
30. LOCATION OF ACCOUNTS AND RECORDS The Depositor, Northbrook Life Insurance Company, is located at 3100 Sanders Road, Northbrook, Illinois 60062. The Distributor, Dean Witter Reynolds Inc., is located at Two World Trade Center, New York, New York 10048. Each company maintains those accounts and records required to be maintained pursuant to Section 31(a) of the Investment Company Act and the rules promulgated thereunder. 31. MANAGEMENT SERVICES None 32. UNDERTAKINGS The Registrant undertakes to file a post-effective amendment to the Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted. Registrant furthermore agrees to include either, as part of any prospectus or application to purchase a contract offered by the prospectus, a toll-free number that an applicant can call to request a Statement of Additional Information or a post card or similar written communication that the applicant can remove to send for a Statement of Additional Information. Finally, the Registrant agrees to deliver any Statement of Additional Information and any Financial Statements required to be made available under this Form N-4 promptly upon written or oral request. REPRESENTATIONS PURSUANT TO SECTION 403(B) OF THE INTERNAL REVENUE CODE The Company represents that it is relying upon a November 28, 1988 Securities and Exchange Commission no-action letter issued to the American Council of Life Insurance and that the provisions of paragraphs 1-4 of the no-action letter have been complied with. REPRESENTATION REGARDING CONTRACT EXPENSES Northbrook 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 under the Contracts. Northbrook 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 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 meets the requirements of Securities Act Rule 485(b) for effectiveness of this amended Registration Statement and has caused this amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, all in the Township of Northfield, State of Illinois, on the 17th day of April, 2001. NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) BY: NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) By: /s/MICHAEL J. VELOTTA ------------------------------ Michael J. Velotta Vice President, Secretary and General Counsel As required by the Securities Act of 1933, this amended Registration Statement has been duly signed below by the following Directors and Officers of Northbrook Life Insurance Company, on the 17th day of April, 2001. */THOMAS J. WILSON, II President, Chief Executive Officer Thomas J. Wilson, II and Director, (Principal Executive Officer) /s/MICHAEL J. VELOTTA Vice President, Secretary, Michael J. Velotta General Counsel and Director */MARGARET G. DYER Director Margaret C. Dyer */MARLA G. FRIEDMAN Director and Vice President Marla G. Friedman */JOHN C. LOUNDS Director John C. Lounds */J. KEVIN MCCARTHY Director J. Kevin McCarthy */STEVEN C. VERNEY Director and Vice President Steven C. Verney (Principal Financial Officer) */SAMUEL H. PILCH Vice President and Controller Samuel H. Pilch (Principal Accounting Officer) */ By Michael J. Velotta, pursuant to Powers of Attorney filed previously or herewith. EXHIBIT INDEX EXHIBIT DESCRIPTION - ------------ ------------------------- 10(a) Independent Auditor's Consent 10(b) Consent of Foley & Lardner 99(b) Powers of Attorney for Margaret G. Dyer, Marla G. Friedman, John C. Lounds, J. Kevin McCarthy, and Steven C. Verney EX-10 2 0002.txt CONSENTS (10)(a) Independent Auditors' Consent INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 4 to Registration Statement No. 333-93871 of Northbrook Variable Annuity Account II of Northbrook Life Insurance Company on Form N-4 of our report dated February 23, 2001 relating to the financial statements and the related financial statement schedule of Northbrook Life Insurance Company, and our report dated March 16, 2001 relating to the financial statements of Northbrook Variable Annuity Account II, appearing in the Statement of Additional Information (which is incorporated by reference in the Prospectus of Northbrook Variable Annuity Account II), which is part of such Registration Statement, and to the references to us under the heading "Experts" in such Statement of Additional Information. /s/ Deloitte & Touche LLP Chicago, Illinois April 13, 2001 (10)(b) Consent of Foley & Lardner CONSENT OF FOLEY & LARDNER We hereby consent to the reference to our firm under the caption "Legal Matters" in the prospectus contained in Post-Effective Amendment No. 4 to the Form N-4 Registration Statement of Northbrook Variable Annuity Account II (File No. 333-93871). /s/ FOLEY & LARDNER FOLEY & LARDNER Washington, D.C. April 12, 2001 EX-99 3 0003.txt POWERS OF ATTORNEY (99)(b) Powers of Attorney for Margaret G. Dyer, Marla G.Friedman, John C. Lounds, Kevin McCarthy, and Steven C. Verney POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) AND NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) Know all men by these presents that the undersigned director of Northbrook Life Insurance Company constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them (with full power to each of them to act alone) as his true and lawful attorney-in-fact and agent, with full power of substitution, for him in any and all capacities, to sign any registration statements of Northbrook Life Insurance Company and its Northbrook Variable Annuity Account II and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. April 5, 2001 /s/ STEVEN C. VERNEY - ---------------------------------- Steven C. Verney Director & Vice President (Principal Financial Officer) POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) AND NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) Know all men by these presents that the undersigned director of Northbrook Life Insurance Company constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them (with full power to each of them to act alone) as his true and lawful attorney-in-fact and agent, with full power of substitution, for him in any and all capacities, to sign any registration statements of Northbrook Life Insurance Company and its Northbrook Variable Annuity Account II and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. April 5, 2001 /s/ J. KEVIN MCCARTHY - ----------------------------------- J. Kevin McCarthy Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) AND NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) Know all men by these presents that the undersigned director of Northbrook Life Insurance Company constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them (with full power to each of them to act alone) as his true and lawful attorney-in-fact and agent, with full power of substitution, for him in any and all capacities, to sign any registration statements of Northbrook Life Insurance Company and its Northbrook Variable Annuity Account II and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. April 5, 2001 /s/ JOHN C. LOUNDS - ------------------------------ John C. Lounds Director POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) AND NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) Know all men by these presents that the undersigned director of Northbrook Life Insurance Company constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them (with full power to each of them to act alone) as her true and lawful attorney-in-fact and agent, with full power of substitution, for her in any and all capacities, to sign any registration statements of Northbrook Life Insurance Company and its Northbrook Variable Annuity Account II and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. April 5, 2001 /s/ MARLA G. FRIEDMAN - ------------------------------------- Marla G. Friedman Director and Vice President POWER OF ATTORNEY WITH RESPECT TO NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) AND NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) Know all men by these presents that the undersigned director of Northbrook Life Insurance Company constitutes and appoints Thomas J. Wilson, II, and Michael J. Velotta, and each of them (with full power to each of them to act alone) as her true and lawful attorney-in-fact and agent, with full power of substitution, for her in any and all capacities, to sign any registration statements of Northbrook Life Insurance Company and its Northbrook Variable Annuity Account II and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable, hereby ratifying and confirming all that each of said attorney-in-fact and agent, or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. April 5, 2001 /s/ MARGARET G. DYER - ---------------------------------- Margaret G. Dyer Director -----END PRIVACY-ENHANCED MESSAGE-----