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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000945094-01-500058.txt : 20010509
<SEC-HEADER>0000945094-01-500058.hdr.sgml : 20010509
ACCESSION NUMBER: 0000945094-01-500058
CONFORMED SUBMISSION TYPE: 497
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20010507
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: 497
SEC ACT:
SEC FILE NUMBER: 333-38682
FILM NUMBER: 1624360
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
</SEC-HEADER>
<DOCUMENT>
<TYPE>497
<SEQUENCE>1
<FILENAME>va3sai.txt
<DESCRIPTION>NLIC VA3
<TEXT>
MORGAN STANLEY DEAN WITTER VARIABLE ANNUITY 3 AssetManager
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 Morgan Stanley Dean Witter Variable Annuity 3 AssetManager
Contract 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 Variable
Annuity 3 AssetManager Contract.
1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Description Page
Additions, Deletions or Substitutions of Investments 3
The Contract 3
Purchase of Contracts 3
Tax-free Exchanges (1035 Exchanges, Rollovers and
Transfers) 3
Performance Information 3
Calculation of Accumulation Unit Values 22
Net Investment Factor 22
Calculation of Variable Amount Income Payments 22
Calculation of Annuity Unit Values 22
General Matters 23
Incontestability 23
Settlements 23
Safekeeping of the Variable Account's Assets 23
Premium Taxes 23
Tax Reserves 23
Federal Tax Matters 23
Qualified Plans 24
Experts 25
Financial Statements 25
2
<PAGE>
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
We may add, delete, or substitute the 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 fund if the shares of the
Portfolio are no longer available for investment or if we believe investment in
any Portfolio would become inappropriate in view of the purposes of the Variable
Account.
We will not substitute shares attributable to a Contract owner's interest in a
Variable Sub-Account until we have notified the Contract owner of the change,
and until the Securities and Exchange Commission has approved the change, to the
extent such notification and approval are required by law. Nothing contained in
this Statement of Additional Information shall prevent the Variable Account from
purchasing other securities for other series or classes of contracts or from
effecting a conversion between series or classes of contracts on the basis of
requests made by Contract owners.
We also may establish additional Variable Sub-Accounts or series of Variable
Sub-Accounts. Each additional Variable Sub-Account would purchase shares in a
new Portfolio of the same or different mutual fund. We may establish new
Variable Sub-Accounts when we believe marketing needs or investment conditions
warrant. We determine the basis on which we will offer any new Variable
Sub-Accounts in conjunction with the Contract to existing Contract owners. We
may eliminate one or more Variable Sub-Accounts if, in our sole discretion,
marketing, tax or investment conditions so warrant.
We may, by appropriate endorsement, change the Contract as we believe necessary
or appropriate to reflect any substitution or change in the Portfolios. If we
believe the best interests of persons having voting rights under the Contracts
would be served, we may operate the Variable Account as a management company
under the Investment Company Act of 1940 or we may withdraw its registration
under such Act if such registration is no longer required.
THE CONTRACT
The Contract is primarily designed to aid individuals in long-term financial
planning. You can use it for retirement planning regardless of whether the
retirement plan qualifies for special federal income tax treatment.
PURCHASE OF CONTRACTS
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 shown do not reflect any applicable taxes.
3
<PAGE>
STANDARDIZED TOTAL RETURNS
A Variable Sub-Account's standardized total return represents the average annual
total return of that Sub-Account over a particular period. We compute
standardized total return by finding the annual percentage rate that, when
compounded annually, will accumulate a hypothetical $1,000 purchase payment to
the redeemable value at the end of the one, five or ten year period, or for a
period from the date of commencement of the Variable Sub-Account's operations,
if shorter than any of the foregoing.
We use the following formula prescribed by the SEC for computing standardized
total return:
1000(1 + T)n = ERV
where:
T = average annual total return
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of 1, 5, or 10 year
periods or shorter period
n = number of years in the period
1000 = hypothetical $1,000 investment
When factoring in the withdrawal charge assessed upon redemption, we exclude the
Free Withdrawal Amount, which is the amount you can withdraw from the Contract
without paying a withdrawal charge. We also use the withdrawal charge that would
apply upon redemption at the end of each period. Thus, for example, when
factoring in the withdrawal charge for a one year standardized total return
calculation, we would use the withdrawal charge that applies to a withdrawal of
a purchase payment made one year prior.
When factoring the contract maintenance charge, we pro rate the charge by
dividing (a) the contract maintenance charge by (b) an assumed annual contract
size of $54,945. We then multiply the resulting percentage by a hypothetical
$1,000 investment.
The standardized average annual total returns for the Variable Sub-Accounts
available under the Contract for the periods ended December 31, 2000 are set out
below. No standardized total returns are shown for the Money Market Variable
Sub-Account. The Morgan Stanley Dean Witter Variable Annuity 3 AssetManager
Contracts were first offered to the public as of September 12, 2000.
Accordingly, performance figures for Variable Sub-Accounts prior to those dates
reflect the historical performance of the Variable Sub-Accounts, adjusted to
reflect the current level of charges that apply to the Variable Sub-Accounts
under the Morgan Stanley Dean Witter Variable Annuity 3 AssetManager Contracts
as well as the withdrawal and contract maintenance charges described above.
Variable Sub-Account Inception Dates:
Morgan Stanley Dean Witter Variable Investment Series:
Variable Sub-Account Date
Quality Income Plus June 5, 2000
High Yield June 5, 2000
Utilities June 5, 2000
Dividend Growth June 5, 2000
Equity June 5, 2000
Strategist June 5, 2000
Capital Growth June 5, 2000
European Growth June 5, 2000
Global Dividend Growth June 5, 2000
Pacific Growth June 5, 2000
Income Builder June 5, 2000
Information November 6, 2000
Short-Term Bond June 5, 2000
Aggressive Equity June 5, 2000
S&P 500 Index June 5, 2000
Competitive Edge ("Best Ideas") June 5, 2000
The Universal Institutional Fund, 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
4
<PAGE>
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:
Variable Sub-Account Date
Growth January 31, 2000
Growth and Income January 31, 2000
Premier Growth January 31, 2000
Putnam Variable Trust:
Variable Sub-Account Date
Growth and Income January 31, 2000
International Growth January 31, 2000
Voyager January 31, 2000
<TABLE>
<CAPTION>
(WITHOUT ANY DEATH OR INCOME BENEFIT OPTION)
10 Years or
Since
Variable Sub-Account One Year 5 Years Inception
<S> <C> <C> <C>
Aggressive Equity* N/A N/A -4.65%
Capital Growth* N/A N/A -8.85%
Competitive Edge "Best Ideas"* N/A N/A -18.13%
Dividend Growth* N/A N/A 7.90%
Equity* N/A N/A -8.40%
European Growth* N/A N/A -6.19%
Global Dividend Growth* N/A N/A 1.98%
High Yield* N/A N/A -31.77%
Income Builder* N/A N/A 0.31%
Information* N/A N/A -7.15%
Pacific Growth* N/A N/A -29.85%
Quality Income Plus* N/A N/A 8.36%
S&P 500 Index* N/A N/A -10.58%
Short-Term Bond* N/A N/A 3.21%
Strategist* N/A N/A -1.90%
Utilities* N/A N/A -0.95%
AIM V.I. Capital Appreciation N/A N/A -11.56%
AIM V.I. Growth N/A N/A -23.53%
AIM V.I. Value N/A N/A -24.51%
Alliance Growth and Income N/A N/A 18.28%
Alliance Growth N/A N/A -16.42%
Alliance Premier Growth N/A N/A -14.78%
Morgan Stanley UIF Emerging Markets Equity -39.84% N/A -7.10%
Morgan Stanley UIF Equity Growth -13.07% N/A 6.92%
Morgan Stanley UIF International Magnum -13.75% N/A 1.28%
Morgan Stanley UIF Mid Cap Value N/A N/A 14.51%
Morgan Stanley UIF U.S. Real Estate 27.35% N/A 3.43%
Putnam VT Growth and Income N/A N/A 11.10%
Putnam VT International Growth N/A N/A -6.94%
Putnam VT Voyager N/A N/A -16.58%
Van Kampen LIT Emerging Growth -11.51% N/A 31.27%
*Performance shown is not annualized.
5
<PAGE>
(WITH THE PERFORMANCE DEATH BENEFIT OPTION)
10 Years or
Since
Variable Sub-Account One Year 5 Years Inception
Aggressive Equity* N/A N/A -4.73%
Capital Growth Portfolio* N/A N/A -5.93%
Competitive Edge "Best Ideas"* N/A N/A -18.20%
Dividend Growth* N/A N/A 7.80%
Equity* N/A N/A -8.48%
European Growth* N/A N/A -6.27%
Global Dividend Growth* N/A N/A 1.89%
High Yield* N/A N/A -31.83%
Income Builder* N/A N/A 0.22%
Information* N/A N/A -7.17%
Pacific Growth* N/A N/A -29.91%
Quality Income Plus* N/A N/A 8.26%
S&P 500 Index* N/A N/A -10.66%
Short-Term Bond* N/A N/A 3.12%
Strategist* N/A N/A -1.99%
Utilities* N/A N/A -1.03%
AIM V.I. Capital Appreciation N/A N/A -11.68%
AIM V.I. Growth N/A N/A -23.64%
AIM V.I. Value N/A N/A -24.61%
Alliance Growth and Income N/A N/A 18.13%
Alliance Growth N/A N/A -16.53%
Alliance Premier Growth N/A N/A -14.89%
Morgan Stanley UIF Emerging Markets Equity -39.92% N/A -7.22%
Morgan Stanley UIF Equity Growth -13.19% N/A 6.78%
Morgan Stanley UIF International Magnum -13.86% N/A 1.15%
Morgan Stanley UIF Mid Cap Value N/A N/A 14.36%
Morgan Stanley UIF U.S. Real Estate 27.18% N/A 3.29%
Putnam VT Growth and Income N/A N/A 10.95%
Putnam VT International Growth N/A N/A -7.07%
Putnam VT Voyager N/A N/A -16.69%
Van Kampen LIT Emerging Growth -11.62% N/A 31.09%
*Performance shown is not annualized.
6
<PAGE>
(WITH THE DEATH BENEFIT COMBINATION OPTION)
10 Years or
Since
Variable Sub-Account One Year 5 Years Inception
Aggressive Equity* N/A N/A -4.80%
Capital Growth* N/A N/A -6.00%
Competitive Edge "Best Ideas"* N/A N/A -18.26%
Dividend Growth* N/A N/A 7.72%
Equity* N/A N/A -8.55%
European Growth* N/A N/A -6.34%
Global Dividend Growth* N/A N/A 1.82%
High Yield* N/A N/A -31.88%
Income Builder* N/A N/A 0.15%
Information* N/A N/A -7.18%
Pacific Growth* N/A N/A -29.97%
Quality Income Plus* N/A N/A 8.18%
S&P 500 Index* N/A N/A -10.73%
Short-Term Bond* N/A N/A 3.05%
Strategist* N/A N/A -2.06%
Utilities* N/A N/A -1.10%
AIM V.I. Capital Appreciation N/A N/A -11.78%
AIM V.I. Growth N/A N/A -23.73%
AIM V.I. Value N/A N/A -24.70%
Alliance Growth and Income N/A N/A 18.00%
Alliance Growth N/A N/A -16.63%
Alliance Premier Growth N/A N/A -14.98%
Morgan Stanley UIF Emerging Markets Equity -39.99% N/A -7.33%
Morgan Stanley UIF Equity Growth -13.28% N/A 6.66%
Morgan Stanley UIF International Magnum -13.96% N/A 1.04%
Morgan Stanley UIF Mid Cap Value N/A N/A 14.23%
Morgan Stanley UIF U.S. Real Estate 27.04% N/A 3.18%
Putnam VT Growth and Income N/A N/A 10.83%
Putnam VT International Growth N/A N/A -7.17%
Putnam VT Voyager N/A N/A -16.78%
Van Kampen LIT Emerging Growth -11.72% N/A 30.95%
*Performance shown is not annualized.
7
<PAGE>
(WITH THE INCOME BENEFIT COMBINATION 2 OPTION)
Ten Years or
Since
Variable Sub-Account One Year 5 Years Inception
Aggressive Equity* N/A N/A -4.84%
Capital Growth* N/A N/A -6.04%
Competitive Edge "Best Ideas"* N/A N/A -18.30%
Dividend Growth* N/A N/A 7.68%
Equity* N/A N/A -8.58%
European Growth* N/A N/A -6.37%
Global Dividend Growth* N/A N/A 1.77%
High Yield* N/A N/A -31.91%
Income Builder* N/A N/A 0.11%
Information* N/A N/A -7.19%
Pacific Growth* N/A N/A -29.99%
Quality Income Plus* N/A N/A 8.14%
S&P 500 Index* N/A N/A -10.76%
Short-Term Bond* N/A N/A 3.01%
Strategist* N/A N/A -2.10%
Utilities* N/A N/A -1.14%
AIM V.I. Capital Appreciation N/A N/A -11.83%
AIM V.I. Growth N/A N/A -23.78%
AIM V.I. Value N/A N/A -24.74%
Alliance Growth and Income N/A N/A 17.92%
Alliance Growth N/A N/A -16.68%
Alliance Premier Growth N/A N/A -15.03%
Morgan Stanley UIF Emerging Markets Equity -40.02% N/A -7.39%
Morgan Stanley UIF Equity Growth -13.34% N/A 6.59%
Morgan Stanley UIF International Magnum -14.01% N/A 0.97%
Morgan Stanley UIF Mid Cap Value N/A N/A 14.16%
Morgan Stanley UIF U.S. Real Estate 26.96% N/A 3.12%
Putnam VT Growth and Income N/A N/A 10.76%
Putnam VT International Growth N/A N/A -7.23%
Putnam VT Voyager N/A N/A -16.83%
Van Kampen LIT Emerging Growth -11.77% N/A 30.87%
*Performance shown is not annualized.
8
<PAGE>
(WITH THE INCOME AND DEATH BENEFIT COMBINATION 2 OPTION)
10 Years or
Since
Variable Sub-Account One Year 5 Years Inception
Aggressive Equity* N/A N/A -4.97%
Capital Growth* N/A N/A -6.16%
Competitive Edge "Best Ideas"* N/A N/A -18.41%
Dividend Growth* N/A N/A 7.54%
Equity* N/A N/A -8.71%
European Growth* N/A N/A -6.50%
Global Dividend Growth* N/A N/A 1.64%
High Yield* N/A N/A -32.00%
Income Builder* N/A N/A -0.03%
Information* N/A N/A -7.22%
Pacific Growth* N/A N/A -30.09%
Quality Income Plus* N/A N/A 7.99%
S&P 500 Index* N/A N/A -10.88%
Short-Term Bond* N/A N/A 2.87%
Strategist* N/A N/A -2.23%
Utilities* N/A N/A -1.28%
AIM V.I. Capital Appreciation N/A N/A -12.01%
AIM V.I. Growth N/A N/A -23.95%
AIM V.I. Value N/A N/A -24.90%
Alliance Growth and Income N/A N/A 17.69%
Alliance Growth N/A N/A -16.85%
Alliance Premier Growth N/A N/A -15.21%
Morgan Stanley UIF Emerging Markets Equity -40.15% N/A -7.57%
Morgan Stanley UIF Equity Growth -13.51% N/A 6.38%
Morgan Stanley UIF International Magnum -14.18% N/A 0.77%
Morgan Stanley UIF Mid Cap Value N/A N/A 13.93%
Morgan Stanley UIF U.S. Real Estate 26.71% N/A 2.91%
Putnam VT Growth and Income N/A N/A 10.53%
Putnam VT International Growth N/A N/A -7.42%
Putnam VT Voyager N/A N/A -17.00%
Van Kampen LIT Emerging Growth -11.95% N/A 30.60%
</TABLE>
*Performance shown is not annualized.
9
<PAGE>
NON-STANDARDIZED TOTAL RETURNS
From time to time, we also may quote rates of return that reflect changes in the
values of each Variable Sub-Account's accumulation units. We may quote these
"non-standardized total returns" on an annualized, cumulative, year-by-year, or
other basis. These rates of return take into account asset-based charges, such
as the mortality and expense risk charge and administration charge as well as
the contract maintenance charge. However, these rates of return do not reflect,
withdrawal charges or any taxes. Such charges, if reflected, would reduce the
performance shown.
Annualized returns reflect the rate of return that, when compounded annually,
would equal the cumulative rate of return for the period shown. We compute
annualized returns according to the following formula:
Annualized Return = (1+r)1/n-1
where:
r = cumulative rate of return for the period shown, and
n = number of years in the period.
The method of computing annualized rates of return is similar to that for
computing standardized performance, described above, except that rather than
using a hypothetical $1,000 investment and the ending redeemable value thereof,
we use the changes in value of an accumulation unit.
Cumulative rates of return reflect the cumulative change in value of an
accumulation unit over the period shown. Year-by-year rates of return reflect
the change in value of accumulation unit during the course of each year shown.
We compute these returns by dividing the accumulation unit value at the end of
each period shown, by accumulation unit value at the beginning of that period,
and subtracting one. We compute other total returns on a similar basis.
We may quote non-standardized total returns for 1,3,5, and 10 year periods, or
period since inception of the Variable Sub-Account's operations, as well as
other periods, such as "year-to-date" (prior calendar year end to the day stated
in the advertisement); "year to most recent quarter" (prior calendar year end to
the end of the most recent quarter); the prior calendar year; and the "n" most
recent calendar years.
The non-standardized average annual total returns for the Variable Sub-Accounts
for the periods ended December 31, 2000 are set out below. No non-standardized
total returns are shown for the Money Market Variable Sub-Account.
The Morgan Stanley Dean Witter Variable Annuity 3 AssetManager Contracts were
first offered to the public as of September 12, 2000 . Accordingly, performance
figures for Variable Sub-Accounts prior to those dates reflect the historical
performance of the Variable Sub-Accounts, adjusted to reflect the current level
of charges that apply to the Variable Sub-Accounts under the Morgan Stanley Dean
Witter Variable Annuity 3 AssetManager Contracts, excluding the withdrawal
charge but including the contract maintenance charges.
The inception dates of each Variable Sub-Account appears under "Standardized
Total Returns" above.
10
<PAGE>
<TABLE>
<CAPTION>
(WITHOUT ANY DEATH OR INCOME BENEFIT OPTION)
10 Years or
Since
Variable Sub-Account One Year 5 Years Inception
<S> <C> <C> <C>
Aggressive Equity* N/A N/A -4.59%
Capital Growth* N/A N/A -5.79%
Competitive Edge "Best Ideas"* N/A N/A -18.08%
Dividend Growth* N/A N/A 7.95%
Equity* N/A N/A -8.35%
European Growth* N/A N/A -6.13%
Global Dividend Growth* N/A N/A 2.03%
High Yield* N/A N/A -31.71%
Income Builder* N/A N/A 0.36%
Information* N/A N/A -7.10%
Pacific Growth* N/A N/A -29.80%
Quality Income Plus* N/A N/A 8.41%
S&P 500 Index* N/A N/A -10.53%
Short-Term Bond* N/A N/A 3.27%
Strategist* N/A N/A -1.85%
Utilities* N/A N/A -0.89%
AIM V.I. Capital Appreciation N/A N/A -11.49%
AIM V.I. Growth N/A N/A -23.45%
AIM V.I. Value N/A N/A -24.44%
Alliance Growth and Income N/A N/A 18.33%
Alliance Growth N/A N/A -16.36%
Alliance Premier Growth N/A N/A -14.71%
Morgan Stanley UIF Emerging Markets Equity -39.79% N/A -7.04%
Morgan Stanley UIF Equity Growth -13.02% N/A 6.96%
Morgan Stanley UIF International Magnum -13.69% N/A 1.34%
Morgan Stanley UIF Mid Cap Value N/A N/A 14.56%
Morgan Stanley UIF U.S. Real Estate 27.40% N/A 3.49%
Putnam VT Growth and Income N/A N/A 11.15%
Putnam VT International Growth N/A N/A -6.88%
Putnam VT Voyager N/A N/A -16.51%
Van Kampen LIT Emerging Growth -11.45% N/A 31.28%
*Performance shown is not annualized.
11
<PAGE>
(WITH THE PERFORMANCE DEATH BENEFIT OPTION)
10 Years or
Since
Variable Sub-Account One Year 5 Years Inception
Aggressive Equity* N/A N/A -4.68%
Capital Growth* N/A N/A -5.87%
Competitive Edge "Best Ideas"* N/A N/A -18.15%
Dividend Growth* N/A N/A 7.86%
Equity* N/A N/A -8.43%
European Growth* N/A N/A -6.21%
Global Dividend Growth* N/A N/A 1.95%
High Yield* N/A N/A -31.77%
Income Builder* N/A N/A 0.28%
Information* N/A N/A -7.11%
Pacific Growth* N/A N/A -29.86%
Quality Income Plus* N/A N/A 8.32%
S&P 500 Index* N/A N/A -10.61%
Short-Term Bond* N/A N/A 3.18%
Strategist* N/A N/A -1.93%
Utilities* N/A N/A -0.98%
AIM V.I. Capital Appreciation N/A N/A 18.18%
AIM V.I. Growth N/A N/A -11.61%
AIM V.I. Value N/A N/A -23.57%
Alliance Growth and Income N/A N/A -16.47%
Alliance Growth N/A N/A -14.82%
Alliance Premier Growth 3.98% N/A 2.68%
Morgan Stanley UIF Emerging Markets Equity -13.81% N/A 1.20%
Morgan Stanley UIF Equity Growth -1.56% N/A 6.26%
Morgan Stanley UIF International Magnum -13.13% N/A 6.82%
Morgan Stanley UIF Mid Cap Value N/A N/A 11.00%
Morgan Stanley UIF U.S. Real Estate -11.57% N/A 31.11%
Putnam VT Growth and Income N/A N/A -16.62%
Putnam VT International Growth N/A N/A -24.54%
Putnam VT Voyager N/A N/A -7.00%
Van Kampen LIT Emerging Growth -39.87% N/A -7.16%
*Performance shown is not annualized.
12
<PAGE>
(WITH THE DEATH BENEFIT COMBINATION OPTION)
10 Years or
Since
Variable Sub-Account One Year 5 Years Inception
Aggressive Equity* N/A N/A -4.75%
Capital Growth* N/A N/A -5.94%
Competitive Edge "Best Ideas"* N/A N/A -18.21%
Dividend Growth* N/A N/A 7.78%
Equity* N/A N/A -8.49%
European Growth* N/A N/A -6.28%
Global Dividend Growth* N/A N/A 1.87%
High Yield* N/A N/A -31.82%
Income Builder* N/A N/A 0.20%
Information* N/A N/A -7.13%
Pacific Growth* N/A N/A -29.91%
Quality Income Plus* N/A N/A 8.24%
S&P 500 Index* N/A N/A -10.67%
Short-Term Bond* N/A N/A 3.10%
Strategist* N/A N/A -2.00%
Utilities* N/A N/A -1.05%
AIM V.I. Capital Appreciation N/A N/A -11.71%
AIM V.I. Growth N/A N/A -23.66%
AIM V.I. Value N/A N/A -24.62%
Alliance Growth and Income N/A N/A 18.04%
Alliance Growth N/A N/A -16.56%
Alliance Premier Growth N/A N/A -14.91%
Morgan Stanley UIF Emerging Markets Equity -39.93% N/A -7.27%
Morgan Stanley UIF Equity Growth -13.23% N/A 6.70%
Morgan Stanley UIF International Magnum -13.90% N/A 1.09%
Morgan Stanley UIF Mid Cap Value N/A N/A 14.28%
Morgan Stanley UIF U.S. Real Estate 27.10% N/A 3.24%
Putnam VT Growth and Income N/A N/A 10.88%
Putnam VT International Growth N/A N/A -7.11%
Putnam VT Voyager N/A N/A -16.71%
Van Kampen LIT Emerging Growth -11.67% N/A 30.96%
*Performance shown is not annualized.
13
<PAGE>
(WITH THE INCOME BENEFIT COMBINATION 2 OPTION)
10 Years or
Since
Variable Sub-Account One Year 5 Years Inception
Aggressive Equity* N/A N/A -4.79%
Capital Growth* N/A N/A -5.98%
Competitive Edge "Best Ideas"* N/A N/A -18.24%
Dividend Growth* N/A N/A 7.74%
Equity* N/A N/A -8.53%
European Growth* N/A N/A -6.32%
Global Dividend Growth* N/A N/A 1.83%
High Yield* N/A N/A -31.85%
Income Builder* N/A N/A 0.16%
Information* N/A N/A -7.14%
Pacific Growth* N/A N/A -29.94%
Quality Income Plus* N/A N/A 8.19%
S&P 500 Index* N/A N/A -10.71%
Short-Term Bond* N/A N/A 3.06%
Strategist* N/A N/A -2.04%
Utilities* N/A N/A -1.09%
AIM V.I. Capital Appreciation N/A N/A -11.76%
AIM V.I. Growth N/A N/A -23.71%
AIM V.I. Value N/A N/A -24.67%
Alliance Growth and Income N/A N/A 17.97%
Alliance Growth N/A N/A -16.61%
Alliance Premier Growth N/A N/A -14.97%
Morgan Stanley UIF Emerging Markets Equity -39.97% N/A -7.32%
Morgan Stanley UIF Equity Growth -13.28% N/A 6.64%
Morgan Stanley UIF International Magnum -13.96% N/A 1.03%
Morgan Stanley UIF Mid Cap Value N/A N/A 14.22%
Morgan Stanley UIF U.S. Real Estate 27.02% N/A 3.18%
Putnam VT Growth and Income N/A N/A 10.81%
Putnam VT International Growth N/A N/A -7.16%
Putnam VT Voyager N/A N/A -16.76%
Van Kampen LIT Emerging Growth -11.72% N/A 30.88%
*Performance shown is not annualized.
14
<PAGE>
(WITH THE INCOME AND DEATH BENEFIT COMBINATION 2 OPTION)
10 Years or
Since
Variable Sub-Account One Year 5 Years Inception
Aggressive Equity* N/A N/A -4.91%
Capital Growth* N/A N/A -6.11%
Competitive Edge "Best Ideas"* N/A N/A -18.35%
Dividend Growth* N/A N/A 7.59%
Equity* N/A N/A -8.65%
European Growth* N/A N/A -6.45%
Global Dividend Growth* N/A N/A 1.69%
High Yield* N/A N/A -31.94%
Income Builder* N/A N/A 0.03%
Information* N/A N/A -7.17%
Pacific Growth* N/A N/A -30.03%
Quality Income Plus* N/A N/A 8.05%
S&P 500 Index* N/A N/A -10.83%
Short-Term Bond* N/A N/A 2.92%
Strategist* N/A N/A -2.17%
Utilities* N/A N/A -1.22%
AIM V.I. Capital Appreciation N/A N/A -11.94%
AIM V.I. Growth N/A N/A -23.88%
AIM V.I. Value N/A N/A -24.82%
Alliance Growth and Income N/A N/A 17.73%
Alliance Growth N/A N/A -16.78%
Alliance Premier Growth N/A N/A -15.14%
Morgan Stanley UIF Emerging Markets Equity -40.09% N/A -7.51%
Morgan Stanley UIF Equity Growth -13.46% N/A 6.42%
Morgan Stanley UIF International Magnum -14.13% N/A 0.82%
Morgan Stanley UIF Mid Cap Value N/A N/A 13.98%
Morgan Stanley UIF U.S. Real Estate 26.76% N/A 2.97%
Putnam VT Growth and Income N/A N/A 10.59%
Putnam VT International Growth N/A N/A -7.35%
Putnam VT Voyager N/A N/A -16.93%
Van Kampen LIT Emerging Growth -11.90% N/A 30.62%
*Performance shown is not annualized.
</TABLE>
15
<PAGE>
ADJUSTED HISTORICAL TOTAL RETURNS
We may advertise the total return for periods prior to the date that the
Variable Sub-Accounts commenced operations. We will calculate such "adjusted
historical total returns" using the historical performance of the underlying
Portfolios and adjusting such performance to reflect the current level of
charges that apply to the Variable Sub-Accounts under the Contract.
The adjusted historical total returns for the Variable Sub-Accounts for the
periods ended December 31, 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 22, 1994
Global Dividend Growth* February 24, 1994
Income Builder* January 21, 1997
Information November 6, 2000
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 Ideas")* May 18, 1998
S&P 500 Index* May 18, 1998
Short-Term Bond* May 2, 1999
Aggressive Equity* May 1, 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 Y shares ("12b-1 class") corresponding to these Variable
Sub-Accounts were first offered on June 5, 2000. For periods prior to June 5,
2000, the performance shown is based on the historical performance of the
Portfolios' Class X shares ("non-12b-1 class"), adjusted to reflect the current
expenses of the Portfolios' 12b-1 class. The inception dates for the Portfolios
are shown above.
** 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 IB 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 6, 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 1A 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.
16
<PAGE>
<TABLE>
<CAPTION>
(WITHOUT ANY DEATH OR INCOME BENEFIT OPTION)
10 Years
or Since
One Year 5 Years Inception
<S> <C> <C> <C>
Aggressive Equity -3.35% N/A 22.37%
Capital Growth -0.38% 15.76% 12.13%
Competitive Edge "Best Ideas" -18.79% N/A -0.53%
Dividend Growth 3.59% 11.13% 12.62%
Equity -13.78% 21.02% 20.08%
European Growth -6.49% 16.30% 15.18%
Global Dividend Growth -4.11% 8.95% 9.20%
High Yield -33.35% -6.16% 5.88%
Income Builder -1.49% N/A 6.36%
Information* N/A N/A -7.15%
Pacific Growth -34.48% -9.91% -7.91%
Quality Income Plus 9.22% 3.82% 6.55%
S&P 500 Index -10.82% N/A 6.32%
Short-Term Bond 4.06% N/A 2.75%
Strategist -0.02% 12.84% 11.36%
Utilities 1.41% 12.99% 12.14%
AIM V.I. Capital Appreciation -12.25% 13.74% 15.65%
AIM V.I. Growth -21.69% 14.94% 14.42%
AIM V.I. Value -24.61% 11.70% 13.97%
Alliance Growth and Income 11.74% 17.77% 13.58%
Alliance Growth -19.12% 17.13% 19.59%
Alliance Premier Growth -18.04% N/A -5.52%
Morgan Stanley UIF Emerging Markets Equity -39.84% N/A -4.44%
Morgan Stanley UIF Equity Growth -13.07% N/A 16.52%
Morgan Stanley UIF International Magnum -13.75% N/A 4.74%
Morgan Stanley UIF Mid Cap Value 9.10% N/A 19.00%
Morgan Stanley UIF U.S. Real Estate 27.35% N/A 5.67%
Putnam VT Growth and Income 6.31% 12.07% 12.81%
Putnam VT International Growth -10.93% N/A 17.04%
Putnam VT Voyager -17.80% 16.72% 18.44%
Van Kampen LIT Emerging Growth -11.51% 26.92% 27.69%
* Performance shown is not annualized.
17
<PAGE>
(WITH THE PERFORMANCE DEATH BENEFIT OPTION)
10 Years
or Since
One Year 5 Years Inception
Aggressive Equity -3.48% N/A 22.21%
Capital Growth -0.51% 15.61% 11.98%
Competitive Edge "Best Ideas" -18.90% N/A -0.66%
Dividend Growth 3.45% 10.98% 12.47%
Equity -13.89% 20.86% 19.92%
European Growth -6.62% 16.15% 15.02%
Global Dividend Growth -4.23% 8.81% 9.06%
High Yield -33.43% -6.29% 5.74%
Income Builder -1.62% N/A 6.22%
Information* N/A N/A -7.17%
Pacific Growth -34.56% -10.03% -8.03%
Quality Income Plus 9.08% 3.69% 6.41%
S&P 500 Index -10.94% N/A 6.18%
Short-Term Bond 3.93% N/A 2.62%
Strategist -0.15% 12.69% 11.21%
Utilities 1.28% 12.84% 11.99%
AIM V.I. Capital Appreciation -12.36% 13.59% 15.49%
AIM V.I. Growth -21.80% 14.78% 14.27%
AIM V.I. Value -24.71% 11.55% 13.82%
Alliance Growth and Income 11.60% 17.61% 13.43%
Alliance Growth -19.22% 16.97% 19.43%
Alliance Premier Growth -18.15% N/A -5.64%
Morgan Stanley UIF Emerging Markets Equity -39.92% N/A -4.56%
Morgan Stanley UIF Equity Growth -13.19% N/A 16.37%
Morgan Stanley UIF International Magnum -13.86% N/A 4.60%
Morgan Stanley UIF Mid Cap Value 8.95% N/A 18.84%
Morgan Stanley UIF U.S. Real Estate 27.18% N/A 5.53%
Putnam VT Growth and Income 6.17% 11.92% 12.66%
Putnam VT International Growth -11.04% N/A 16.88%
Putnam VT Voyager -17.90% 16.56% 18.29%
Van Kampen LIT Emerging Growth -11.62% 26.75% 27.53%
* Performance shown is not annualized.
18
<PAGE>
(WITH THE DEATH BENEFIT COMBINATION OPTION)
10 Years
or Since
One Year 5 Years Inception
Aggressive Equity -3.59% N/A 22.08%
Capital Growth -0.62% 15.48% 11.85%
Competitive Edge "Best Ideas" -18.99% N/A -0.77%
Dividend Growth 3.33% 10.86% 12.34%
Equity -13.98% 20.73% 19.79%
European Growth -6.72% 16.02% 14.90%
Global Dividend Growth -4.34% 8.69% 8.94%
High Yield -33.51% -6.39% 5.62%
Income Builder -1.73% N/A 6.10%
Information* N/A N/A -7.18%
Pacific Growth -34.64% -10.13% -8.13%
Quality Income Plus 8.96% 3.57% 6.29%
S&P 500 Index -11.03% N/A 6.06%
Short-Term Bond 3.81% N/A 2.50%
Strategist -0.26% 12.57% 11.09%
Utilities 1.17% 12.71% 11.87%
AIM V.I. Capital Appreciation -12.46% 13.47% 15.37%
AIM V.I. Growth -21.88% 14.66% 14.14%
AIM V.I. Value -24.80% 11.42% 13.69%
Alliance Growth and Income 11.47% 17.48% 13.30%
Alliance Growth -19.31% 16.84% 19.30%
Alliance Premier Growth -18.24% N/A -5.75%
Morgan Stanley UIF Emerging Markets Equity -39.99% N/A -4.67%
Morgan Stanley UIF Equity Growth -13.28% N/A 16.24%
Morgan Stanley UIF International Magnum -13.96% N/A 4.48%
Morgan Stanley UIF Mid Cap Value 8.83% N/A 18.71%
Morgan Stanley UIF U.S. Real Estate 27.04% N/A 5.41%
Putnam VT Growth and Income 6.06% 11.80% 12.53%
Putnam VT International Growth -11.14% N/A 16.75%
Putnam VT Voyager -18.00% 16.43% 18.15%
Van Kampen LIT Emerging Growth -11.72% 26.61% 27.38%
* Performance shown is not annualized.
19
<PAGE>
(WITH THE INCOME BENEFIT COMBINATION 2 OPTION)
10 Years
or Since
One Year 5 Years Inception
Aggressive Equity -3.65% N/A 22.00%
Capital Growth -0.68% 15.41% 11.79%
Competitive Edge "Best Ideas" -19.04% N/A -0.83%
Dividend Growth 3.27% 10.79% 12.27%
Equity -14.04% 20.65% 19.71%
European Growth -6.78% 15.95% 14.83%
Global Dividend Growth -4.40% 8.62% 8.87%
High Yield -33.55% -6.45% 5.56%
Income Builder -1.79% N/A 6.03%
Information* N/A N/A -7.19%
Pacific Growth -34.68% -10.19% -8.19%
Quality Income Plus 8.89% 3.51% 6.23%
S&P 500 Index -11.09% N/A 6.00%
Short-Term Bond 3.75% N/A 2.44%
Strategist -0.32% 12.50% 11.02%
Utilities 1.10% 12.64% 11.80%
AIM V.I. Capital Appreciation -12.52% 13.40% 15.29%
AIM V.I. Growth -21.93% 14.59% 14.07%
AIM V.I. Value -24.84% 11.36% 13.62%
Alliance Growth and Income 11.40% 17.41% 13.23%
Alliance Growth -19.36% 16.77% 19.23%
Alliance Premier Growth -18.29% N/A -5.81%
Morgan Stanley UIF Emerging Markets Equity -40.02% N/A -4.73%
Morgan Stanley UIF Equity Growth -13.34% N/A 16.17%
Morgan Stanley UIF International Magnum -14.01% N/A 4.42%
Morgan Stanley UIF Mid Cap Value 8.77% N/A 18.63%
Morgan Stanley UIF U.S. Real Estate 26.96% N/A 5.35%
Putnam VT Growth and Income 5.99% 11.73% 12.46%
Putnam VT International Growth -11.20% N/A 16.68%
Putnam VT Voyager -18.05% 16.36% 18.08%
Van Kampen LIT Emerging Growth -11.77% 26.53% 27.31%
* Performance shown is not annualized.
20
<PAGE>
(WITH THE INCOME AND DEATH BENEFIT COMBINATION 2 OPTION)
10 Years or
Since
One Year 5 Years Inception
Aggressive Equity -3.84% N/A 21.75%
Capital Growth -0.88% 15.18% 11.56%
Competitive Edge "Best Ideas" -19.20% N/A -1.03%
Dividend Growth 3.06% 10.56% 12.04%
Equity -14.21% 20.41% 19.47%
European Growth -6.97% 15.71% 14.59%
Global Dividend Growth -4.59% 8.40% 8.65%
High Yield -33.68% -6.64% 5.34%
Income Builder -1.99% N/A 5.82%
Information* N/A N/A -7.22%
Pacific Growth -34.81% -10.37% -8.38%
Quality Income Plus 8.67% 3.30% 6.01%
S&P 500 Index -11.27% N/A 5.78%
Short-Term Bond 3.54% N/A 2.23%
Strategist -0.52% 12.27% 10.79%
Utilities 0.90% 12.41% 11.57%
AIM V.I. Capital Appreciation -12.69% 13.17% 15.06%
AIM V.I. Growth -22.09% 14.35% 13.84%
AIM V.I. Value -25.00% 11.13% 13.39%
Alliance Growth and Income 11.18% 17.17% 13.00%
Alliance Growth -19.53% 16.53% 18.99%
Alliance Premier Growth -18.45% N/A -6.00%
Morgan Stanley UIF Emerging Markets Equity -40.15% N/A -4.92%
Morgan Stanley UIF Equity Growth -13.51% N/A 15.93%
Morgan Stanley UIF International Magnum -14.18% N/A 4.21%
Morgan Stanley UIF Mid Cap Value 8.54% N/A 18.39%
Morgan Stanley UIF U.S. Real Estate 26.71% N/A 5.13%
Putnam VT Growth and Income 5.78% 11.50% 12.24%
Putnam VT International Growth -11.38% N/A 16.44%
Putnam VT Voyager -18.21% 16.12% 17.84%
Van Kampen LIT Emerging Growth -11.95% 26.28% 27.05%
* Performance shown is not annualized.
</TABLE>
21
<PAGE>
CALCULATION OF ACCUMULATION UNIT VALUES
The value of Accumulation Units will change each Valuation Period according to
the investment performance of the Portfolio shares purchased by each Variable
Sub-Account and the deduction of certain expenses and charges. A "Valuation
Period" is the period from the end of one Valuation Date and continues to the
end of the next Valuation Date. A Valuation Date ends at the close of regular
trading on the New York Stock Exchange (currently 3:00 p.m. Central Time).
The Accumulation Unit Value of a Variable Sub-Account for any Valuation Period
equals the Accumulation Unit Value as of the immediately preceding Valuation
Period, multiplied by the Net Investment Factor (described below) for that
Variable Sub-Account for the current Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor for a Valuation Period is a number representing the
change, since the last Valuation Period, in the value of Variable Sub-Account
assets per Accumulation Unit due to investment income, realized or unrealized
capital gain or loss, deductions for taxes, if any, and deductions for the
mortality and expense risk charge and administrative expense charge. We
determine the Net Investment Factor for each Variable Sub-Account for any
Valuation Period by dividing (A) by (B) and subtracting (C) from the result,
where:
(A) is the sum of:
(1) the net asset value per share of the Portfolio underlying the
Variable Sub-Account determined at the end of the current
Valuation Period; plus,
(2) the per share amount of any dividend or capital gain
distributions made by the Portfolio underlying the Variable
Sub-Account during the current Valuation Period;
(B) is the net asset value per share of the Portfolio underlying the
Variable Sub-Account determined as of the end of the immediately preceding
Valuation Period; and
(C) is the annualized mortality and expense risk and administrative expense
charges divided by the number of days in the current calendar year and then
multiplied by the number of calendar days in the current Valuation Period.
CALCULATION OF VARIABLE AMOUNT INCOME PAYMENTS
We calculate the amount of the first variable income payment under an Income
Plan by applying the Contract Value allocated to each Variable Sub-Account less
any applicable premium tax charge deducted at the time, to the income payment
tables in the Contract. We divide the amount of the first variable annuity
income payment by the Variable Sub-Account's then current Annuity Unit value to
determine the number of annuity units ("Annuity Units") upon which later income
payments will be based. To determine income payments after the first, we simply
multiply the number of Annuity Units determined in this manner for each Variable
Sub-Account by the then current Annuity Unit value ("Annuity Unit Value") for
that Variable Sub-Account.
CALCULATION OF ANNUITY UNIT VALUES
Annuity Units in each Variable Sub-Account are valued separately and Annuity
Unit Values will depend upon the investment experience of the particular
Portfolio in which the Variable Sub-Account invests. We calculate the Annuity
Unit Value for each Variable Sub-Account at the end of any Valuation Period by:
o multiplying the Annuity Unit Value at the end of the immediately
preceding Valuation Period by the Variable Sub-Account's Net
Investment Factor (described in the preceding section) for the
Period; and then
o dividing the product by the sum of 1.0 plus the assumed
investment rate for the Valuation Period.
The assumed investment rate adjusts for the interest rate assumed in the income
payment tables used to determine the dollar amount of the first variable income
payment, and is at an effective annual rate which is disclosed in the Contract.
We determine the amount of the first variable income payment paid under an
Income Plan using the income payment tables set out in the Contracts. The
Contracts include tables that differentiate on the basis of sex, except in
states that require the use of unisex tables.
22
<PAGE>
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.
23
<PAGE>
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.
24
<PAGE>
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
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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 have been so 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 have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
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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 schedule of Northbrook included herein should be
considered only as bearing upon the ability of Northbrook to meet its
obligations under the Contracts.
25
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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