-----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, Qvrq1DXUv/KOrUSsQ1g3w1NhRlnUvOrw5qmc/CwNW02wiqcv1l8Wjfd0ty+qfamZ 81pm5mdJTLcxCTi9Q0GJVQ== 0000912057-96-030557.txt : 19970102 0000912057-96-030557.hdr.sgml : 19970102 ACCESSION NUMBER: 0000912057-96-030557 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19961231 EFFECTIVENESS DATE: 19961231 SROS: NONE 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: 1933 Act SEC FILE NUMBER: 033-35412 FILM NUMBER: 96688607 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06116 FILM NUMBER: 96688608 BUSINESS ADDRESS: STREET 1: 3100 SANDERS RD CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 7084024301 MAIL ADDRESS: STREET 1: 3100 SANDERS RD CITY: NORTHBROOK STATE: IL ZIP: 60062 485BPOS 1 485BPOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1996 FILE NO. 33-35412 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/ POST-EFFECTIVE AMENDMENT NO. 13 AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/ AMENDMENT NO. 14 ------------------------ NORTHBROOK VARIABLE ANNUITY ACCOUNT II (Exact Name of Registrant) NORTHBROOK LIFE INSURANCE COMPANY (Name of Depositor) MICHAEL J. VELOTTA VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL NORTHBROOK LIFE INSURANCE COMPANY 3100 SANDERS ROAD NORTHBROOK, ILLINOIS 60062 847/402-2400 (Name and Complete Address of Agent for Service) ------------------------ COPIES TO: GREGOR B. MCCURDY, ESQUIRE CHRISTINE A. EDWARDS, ESQUIRE ROUTIER AND JOHNSON, P.C. DEAN WITTER REYNOLDS INC. 1700 K STREET, N.W., SUITE 1003 TWO WORLD TRADE CENTER WASHINGTON, D.C. 20006 NEW YORK, NEW YORK 10048 ------------------------ STATEMENT PURSUANT TO RULE 24F-2 Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant hereby states that, pursuant to paragraph (b)(1), it filed its Rule 24f-2 Notice for the fiscal year ending December 31, 1995 on February 28, 1996. ------------------------ IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX) ___ immediately upon filing pursuant to paragraph (b) of Rule 485 _X_ on December 31, 1996 pursuant to paragraph (b) of Rule 485 ___ 60 days after filing pursuant to paragraph (a)(i) of Rule 485 ___ on (date) pursuant to paragraph (a)(i) of Rule 485 IF APPROPRIATE, CHECK THE FOLLOWING BOX: __ This post-effective amendment designates a new effective date for a previously filed post-effective amendment. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CROSS REFERENCE SHEET Showing Location in Part A (Prospectus) and Part B of Registration Statement of Information Required by Form N-4
ITEM OF FORM N-4 PROSPECTUS CAPTION - -------------------- ---------------------------------------------- 1. Cover Page.......................................................... Cover Page 2. Definitions......................................................... Glossary 3. Synopsis............................................................ Introduction: Summary of Separate Account Expenses 4. Condensed Financials................................................ -- (a) Chart.................................................... Condensed Financial Statements (b) MM Yield................................................. Not Applicable (c) Location of Others....................................... Financial Statements 5. General............................................................. -- (a) Depositor................................................ Northbrook Life Insurance Company (b) Registrant............................................... The Variable Account (c) Portfolio Company........................................ Dean Witter Variable Investment Series (d) Fund Prospectus.......................................... Dean Witter Variable Investment Series (e) Voting Rights............................................ Voting Rights (f) Administrators........................................... Charges & Other Deductions -- Contract Maintenance Charge 6. Deductions & Expenses............................................... Charges & Other Deductions (a) General.................................................. Charges & Other Deductions (b) Sales Load %............................................. Surrender Charge (c) Special Purchase Plans................................... N/A (d) Commissions.............................................. Sales Commission (e) Expenses -- Registrant................................... Variable Account Expenses (f) Fund Expenses............................................ Dean Witter Variable Investment Series Expenses (g) Organizational Expenses.................................. N/A 7. Contracts (a) Persons with Rights...................................... The Contracts; Benefits; Income Payments; Voting Rights; Assignments; Beneficiaries Contract Owners (b) (i) Allocation of Purchase Payments............... Allocation of Purchase Payments (ii) Transfers..................................... Transfers (iii) Exchanges..................................... N/A (c) Changes.................................................. Modification (d) Inquiries................................................ Customer Inquiries 8. Annuity Period...................................................... Income Payments (a) Material Factors......................................... Amount of Variable Annuity Income Payments (b) Dates.................................................... Income Starting Date (c) Frequency, duration & level.............................. Amount of Variable Annuity Income Payments (d) AIR...................................................... Amount of Variable Annuity Income Payments (e) Minimum.................................................. Amount of Variable Annuity Income Payments (f) -- Change Options........................................ Transfers -- Transfer.............................................. 9. Death Benefit....................................................... Death Benefits
ITEM OF FORM N-4 PROSPECTUS CAPTION - -------------------- ---------------------------------------------- 10. Purchases & Contract Value (a) Purchases................................................ Purchase of the Contract; Crediting of Purchase Payments (b) Valuation................................................ Value of Variable Account Accumulation Units (c) Daily Calculation........................................ Value of Variable Account Accumulation Units; Allocation of Purchase Payments (d) Underwriter.............................................. Dean Witter Reynolds Inc. 11. Redemptions (a) -- By Owners............................................. Surrender & Withdrawals (b) -- By Annuitant.......................................... Annuity Options (c) Texas ORP................................................ Not Applicable (d) Lapse.................................................... Not Applicable (e) Free Look................................................ Introduction 12. Taxes............................................................... Federal Tax Matters 13. Legal Proceedings................................................... N/A 14. SAI Contents........................................................ SAI Table of Contents 15. Cover Page.......................................................... Cover Page 16. Table of Contents................................................... Table of Contents 17. General Information & History (a) Depositor's Name......................................... Northbrook Life Insurance Company (b) Assets of Sub-Account.................................... The Variable Account (c) Control of Depositor..................................... Northbrook Life Insurance Company 18. Services (a) Fees & Expenses of Registrant............................ Contract Maintenance Charge (b) Management Contracts..................................... Contract Maintenance Charge; Sales Commissions (c) Custodian SAI: Safekeeping of the Variable Account's Assets Independent Public Accountant............................ SAI: Experts (d) Assets of Registrant..................................... SAI: Safekeeping of the Variable Account Assets (e) Affiliated Persons....................................... N/A (f) Principal Underwriter.................................... Dean Witter Reynolds Inc. 19. Purchase of Securities Being Offered (a) Offering................................................. SAI: Purchase of Contracts (b) Sales load............................................... SAI: Sales Commissions 20. Underwriters (a) Principal Underwriter.................................... SAI: Dean Witter Reynolds Inc. (b) Continuous offering...................................... SAI: Purchase of Contracts (c) Commissions.............................................. SAI: Sales Commissions; Dean Witter Reynolds Inc. (d) Unaffiliated Underwriters................................ N/A 21. Calculation of Performance Data..................................... SAI: Performance Data 22. Annuity Payments.................................................... SAI; Income Payments 23. Financial Statements (a) Financial Statements of Registrant....................... SAI; Northbrook Variable Annuity Account Financial Statements (b) Financial Statements of Depositor........................ SAI; Northbrook Life Insurance Company Financial Statements
ITEM OF FORM N-4 PROSPECTUS CAPTION - -------------------- ---------------------------------------------- 24a. Financial Statements................................................ Part C. Financial Statements 24b. Exhibits............................................................ Part C. Exhibits 25. Directors and Officers.............................................. Part C. Directors & Officers of Depositor 26. Persons Controlled By or Under Common Control with Depositor or Registrant........................................ Part C. Persons Controlled by or Under Common Control with Depositor or Registrant 27. Number of Contract Owners........................................... Part C. Number of Contract Owners 28. Indemnification..................................................... Part C. Indemnification 29a. Relationship of Principal Underwriter to Other Investment Companies................................................ Part C. Relationship of Principal Underwriter to Other Investment Companies 29b. Principal Underwriters.............................................. Part C. Principal Underwriters 29c. Compensation of Underwriter......................................... Part C. Compensation of Dean Witter 30. Location of Accounts and Records.................................... Part C. Location of Accounts and Records 31. Management Services................................................. Part C. Management Services 32. Undertakings........................................................ Part C. Undertakings
NORTHBROOK VARIABLE ANNUITY ACCOUNT II of NORTHBROOK LIFE INSURANCE COMPANY P.O. Box 94040 Palatine, Illinois 60094-4040 GROUP AND INDIVIDUAL VARIABLE ANNUITY CONTRACTS Distributed By Dean Witter Reynolds Inc. Two World Trade Center New York, New York 10048 ------------------- This Prospectus describes the group and individual Flexible Premium Deferred Variable Annuity Contract ("Contract") offered by Northbrook Life Insurance Company ("Company"), a wholly owned subsidiary of Allstate Life Insurance Company. Dean Witter Reynolds Inc. ("Dean Witter") is the principal underwriter and distributor of the Contracts. In certain states the Contract is only available as a group Contract. In these states a Certificate (hereinafter referred to as "Contract") is issued to customers of Dean Witter which summarizes the provisions of the Master Group Policy issued to Dean Witter. The Contract has the flexibility to allow you to shape an annuity to fit your particular needs. It is primarily designed to aid you in long-term financial planning and can be used for retirement planning regardless of whether the plan qualifies for special federal income tax treatment. This Prospectus is a concise statement of the relevant information about the Northbrook Variable Annuity Account II ("Variable Account") which you should know before making a decision to purchase the Contract. This Prospectus generally describes only the variable portion of the Contract. For a brief summary of the fixed portion of the Contract, see "The Fixed Account" on page 19. The Variable Account invests exclusively in shares of the Dean Witter Variable Investment Series (the "Fund"), a mutual fund managed by Dean Witter InterCapital Inc., a wholly owned subsidiary of Dean Witter, Discover & Co. The Company has prepared and filed a Statement of Additional Information dated December 31, 1996, with the U.S. Securities and Exchange Commission. If you wish to receive the Statement of Additional Information, you may obtain a free copy by calling or writing the Company at the address below. For your convenience, an order form for the Statement of Additional Information may be found on page 25 of this Prospectus. Before ordering, you may wish to review the Table of Contents of the Statement of Additional Information on page 24 of this Prospectus. The Statement of Additional Information has been incorporated by reference into this Prospectus. Northbrook Life Insurance Company P.O. Box 94040 Palatine, Illinois 60094-4040 (800) 654-2397 This Prospectus is Valid Only When Accompanied or Preceded By A Current Prospectus For The Dean Witter Variable Investment Series THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE The Date of This Prospectus is December 31, 1996. The Contracts are available in all states (except New York), Puerto Rico and the District of Columbia. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. TABLE OF CONTENTS Glossary.................................................... 3 Introduction................................................ 5 Summary of Separate Account Expenses........................ 7 Condensed Financial Information............................. 9 Performance Data............................................ 11 Financial Statements........................................ 11 Northbrook Life Insurance Company and the Variable Account.................................................... 11 Northbrook Life Insurance Company......................... 11 Dean Witter Reynolds Inc.................................. 11 The Variable Account...................................... 12 Dean Witter Variable Investment Series.................... 12 The Contracts............................................... 13 Purchase of the Contracts................................. 13 Crediting of Initial Purchase Payments.................... 13 Allocation of Purchase Payments........................... 13 Value of Variable Account Accumulation Units.............. 14 Transfers................................................. 14 Surrender and Withdrawals................................. 15 Default................................................... 15 Charges and Other Deductions................................ 15 Deductions from Purchase Payments......................... 15 Early Withdrawal Charge................................... 15 Contract Maintenance Charge............................... 16 Administrative Expense Charge............................. 16 Mortality and Expense Risk Charge......................... 16 Taxes..................................................... 17 Dean Witter Variable Investment Series Expenses........... 17 Benefits Under the Contract................................. 17 Death Benefits Prior to the Payout Start Date............. 17 Death Benefits After the Payout Start Date................ 18 Income Payments............................................. 18 Payout Start Date......................................... 18 Amount of Variable Annuity Income Payments................ 18 Income Plans.............................................. 19 The Fixed Account........................................... 19 General Description....................................... 20 Transfers, Surrenders, and Withdrawals.................... 20 General Matters............................................. 20 Owner..................................................... 20 Beneficiary............................................... 20 Delay of Payments......................................... 21 Assignments............................................... 21 Modification.............................................. 21 Customer Inquiries........................................ 21 Federal Tax Matters......................................... 21 Introduction.............................................. 21 Taxation of Annuities in General.......................... 21 Tax Deferral............................................ 21 Non-Natural Owners...................................... 21 Diversification Requirements............................ 21 Investor Control........................................ 22 Taxation of Partial and Full Withdrawals................ 22 Taxation of Annuity Payments............................ 22 Taxation of Annuity Death Benefits...................... 22 Penalty Tax on Premature Distributions.................. 22 Aggregation of Annuity Contracts........................ 22 Tax Qualified Contracts................................... 22 Restrictions Under Section 403(b) Plans................. 22 Income Tax Withholding.................................... 22 Voting Rights............................................... 23 Sales Commission............................................ 23 Statement of Additional Information: Table of Contents...... 24 Order Form.................................................. 25 2 GLOSSARY - ----------------------------------------------------------- ACCUMULATION UNIT--An accounting unit used to calculate the Cash Value in the Variable Account prior to the Payout Start Date. Each Sub-Account of the Variable Account has its own distinct Accumulation Unit value. AGE--Age on last birthday. ANNUITANT--Includes Annuitant and any Joint Annuitant. A natural person(s) whose life determines the duration of annuity payments involving life contingencies. ANNUITY UNIT--An accounting unit used to calculate Variable Annuity payments. Each Sub-Account has a distinct Annuity Unit value. AUTOMATIC ADDITIONS--Additional Purchase Payments of $25 or more which are made automatically from the Owner's bank account or Dean Witter Active Assets-TM- Account. BENEFICIARY--The person(s) designated in the Contract who, after the death of any Owner or last surviving annuitant, may elect to receive the Death Benefit or continue the Contract as described in "Benefits Under the Contract" on page 17. CASH VALUE--The sum of the value of all Accumulation Units for the Variable Account plus the value in the Fixed Account. COMPANY--The issuer of the Contract, Northbrook Life Insurance Company, which is a wholly owned subsidiary of Allstate Life Insurance Company. CONTRACT/CERTIFICATE--The Flexible Premium Deferred Variable Annuity Contract known as the "Northbrook Variable Annuity II" that is described in this prospectus. CONTRACT ANNIVERSARY--An anniversary of the date that the Contract was issued to the Owner. CONTRACT YEAR--The year commencing on either the Issue Date or a Contract Anniversary. DATE OF DEATH--The Date that an Owner and/or Annuitant dies causing a Death Benefit to be due. DEATH BENEFIT--Prior to the Payout Start Date, the amount payable on the death of the Owner or Annuitant. DEATH BENEFIT ANNIVERSARY--Every sixth Contract Anniversary. For example, the 6th, 12th and 18th Contract Anniversaries are the first three Death Benefit Anniversaries. DOLLAR COST AVERAGING--A method to transfer $100 or more of the Cash Value in the Money Market Sub-Account automatically to the other Sub-Accounts on a monthly basis or other frequencies that may be offered by the Company. DUE PROOF OF DEATH--One of the following: (a) A copy of a certified death certificate. (b) A copy of a certified decree of a court of competent jurisdiction as to the finding of death. (c) Any other proof satisfactory to the Company. EARLY WITHDRAWAL CHARGE--The charge that may be assessed by the Company on full or partial withdrawals of the Purchase Payments in excess of the Free Withdrawal Amount. ENHANCED DEATH BENEFIT--An additional Death Benefit option which can be selected at the time the Contract is Purchased. FIXED ACCOUNT--All of the assets of the Company that are not in separate accounts. Contributions made to the Fixed Account are invested in the general account of the Company. FIXED ANNUITY--An annuity with payments having a guaranteed amount. FREE WITHDRAWAL AMOUNT--A portion of the Cash Value which may be annually withdrawn during the course of the Contract Year without incurring an Early Withdrawal Charge, i.e., 15% of all Purchase Payments. FUND--The Dean Witter Variable Investment Series. GUARANTEE PERIOD--The period of time for which a credited rate on an allocation or transfer to the Fixed Account is guaranteed. INCOME PAYMENTS--A series of periodic annuity payments made by the Company to the Owner or Beneficiary. 3 INVESTMENT ALTERNATIVE--The Fixed Account and the thirteen Sub-Accounts of the Variable Account constitute the fourteen Investment Alternatives. JOINT ANNUITANT--The person, along with the Annuitant, whose life determines the duration of annuity payments under a joint and last survivor annuity. NET INVESTMENT FACTOR--The factor for a particular Sub-Account used to determine the value of an Accumulation Unit and Annuity Unit in any Valuation Period. NON-QUALIFIED CONTRACTS--Contracts that do not qualify for special federal income tax treatment. OWNER--With respect to individual Contracts, the person or person(s) designated as the Owner(s) in the Contract. With respect to group Contracts, an individual participant(s) under the Contract. PAYOUT START DATE--The date Income Payments are to begin under the Contract. PORTFOLIOS--The mutual fund portfolios of The Dean Witter Variable Investment Series. The Dean Witter Variable Investment Series has thirteen separate Portfolios: the Money Market Portfolio, the Quality Income Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Income Builder Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio, the Capital Appreciation Portfolio, the Equity Portfolio and the Strategist Portfolio. PURCHASE PAYMENTS--The premiums paid by the Owner to the Company. QUALIFIED CONTRACTS--Contracts issued under plans that qualify for special federal income tax treatment. REQUIRED MINIMUM DISTRIBUTION--For Qualified Contracts, partial withdrawals equal to the IRS Required Minimum Distribution may be taken from the Cash Value and sent to the Owner or deposited in the Owner's bank account or Dean Witter Active Assets-TM- Account. SETTLEMENT VALUE--The Cash Value less any applicable Early Withdrawal Charges and premium tax. The Settlement Value will be calculated at the end of the valuation period coinciding with a request for payment. SUB-ACCOUNT--A sub-division of the Variable Account. Each Sub-Account invests exclusively in shares of a specified Portfolio. SYSTEMATIC WITHDRAWALS--Partial withdrawals of $100 or more may be taken from the Cash Value and deposited in the Owner's bank account or Dean Witter Active Assets-TM- Account or sent directly to the Owner. VALUATION DATE--Each day that the New York Stock Exchange is open for business, except for days in which there is an insufficient degree of trading in the Variable Account's portfolio securities that the value of Accumulation or Annuity Units might not be materially affected by changes in the value of the portfolio securities. The Valuation Date does not include such Federal and non-Federal holidays as are observed by the New York Stock Exchange. VALUATION PERIOD--The period between successive Valuation Dates, commencing on the close of business of each Valuation Date and ending at the close of business of the next succeeding Valuation Date. VARIABLE ACCOUNT--Northbrook Variable Annuity Account II, a separate investment account established by the Company to receive and invest the Purchase Payments paid under the Contracts. VARIABLE ANNUITY--An annuity with payments that have no predetermined or guaranteed dollar amounts. The payments will vary in amounts depending upon the investment experience of one or more of the Portfolios. 4 INTRODUCTION - ----------------------------------------------------------- 1. What is the purpose of the Contract? The Contracts described in this Prospectus seek to allow you to accumulate funds and to receive annuity payments ("Income Payments"), when desired, at rates which depend upon the return achieved from the types of investments chosen. THERE IS NO ASSURANCE THAT THIS GOAL WILL BE ACHIEVED. In attempting to achieve this goal, the Owner can allocate Purchase Payments to one or more of the Variable Account Portfolios. (Certain limitations may apply during the free-look period of your Contract. See "Allocation of Purchase Payments," page 13.) Because Income Payments and Cash Values invested in the Variable Account depend on the investment experience of the selected Portfolios, the Owner bears the entire investment risk for amounts allocated to the Variable Account. See "Value of Variable Account Accumulation Units," page 14 and "Income Payments," page 18. 2. How do I purchase a Contract? You may purchase the Contract from Dean Witter, the Company's authorized sales representative. The first Purchase Payment must be at least $4,000 (for Qualified Contracts, $1,000). Presently, the Company will accept an initial Purchase Payment of at least $1,000, but reserves the right to increase the minimum initial Purchase Payment amount to $4,000. See "Purchase of the Contracts," page 13. At the time of purchase, you will allocate your Purchase Payment among the Investment Alternatives, subject to certain limitations described in the "Allocation of Purchase Payments" section on page 13. All allocations must be in whole percents from 0% to 100% and must total 100%. Allocations of amounts of no less than $100 may also be made. Allocations may be changed by notifying the Company in writing. See "Allocation of Purchase Payments," page 13. 3. What types of investments underlie the Variable Account? The Variable Account invests exclusively in shares of the Dean Witter Variable Investment Series (the "Fund"), a mutual fund managed by Dean Witter InterCapital Inc., a wholly owned subsidiary of Dean Witter, Discover & Co. The Fund has thirteen Portfolios: the Money Market Portfolio, the Quality Income Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Income Builder Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio, the Capital Appreciation Portfolio, the Equity Portfolio and the Strategist Portfolio. The assets of each Portfolio are held separately from the other Portfolios and each has distinct investment objectives and policies which are described in the accompanying Prospectus for the Fund. In addition to the Variable Account, Owners can also allocate all or part of their Purchase Payments to the Fixed Account. See "The Fixed Account," on page 19. 4. Can I transfer amounts among the Investment Alternatives? Transfers must be at least $100 or the entire amount in the Investment Alternative, whichever is less. Transfers to any Guarantee Period of the Fixed Account must be at least $500. Dollar Cost Averaging automatically moves funds on a monthly basis (or other frequencies that may be offered by the Company) from the Money Market Sub-Account to other Sub-Accounts of your choice. Certain transfers may be restricted. See "Transfers," page 14. 5. Can I get my money if I need it? All or part of the Settlement Value can be withdrawn before the earliest of the Payout Start Date, the death of an Owner or the death of the last surviving Annuitant. No Early Withdrawal Charges will be deducted on amounts up to the annual Free Withdrawal Amount, i.e., 15% of Purchase Payments made. Amounts withdrawn in excess of the Free Withdrawal Amount may be subject to an Early Withdrawal Charge of 0% to 6% depending on how long the withdrawn Purchase Payments have been invested in the Contract. THE COMPANY GUARANTEES THAT THE AGGREGATE SURRENDER CHARGES WILL NEVER EXCEED 6% OF THE PURCHASE PAYMENTS. Withdrawals and surrenders may be subject to income tax and a 10% tax penalty. In addition, federal and state income tax may be withheld from withdrawal and surrender amounts. Additional restrictions may apply to Qualified Contracts. See "Surrender and Withdrawals," page 15, and "Taxation of Annuities in General," page 21. 6. What are the charges and deductions under the Contract? To meet its Death Benefit obligations and to pay expenses not covered by the Contract Maintenance Charge, the Company deducts a Mortality and Expense Risk Charge of 1.25% and an Administrative Expense Charge of .10%. For Contracts with the optional Enhanced Death Benefit provision, an additional Mortality and Expense Risk Charge of .13% is assessed bringing the total charges for Contracts with 5 the Enhanced Death Benefit provision to a Mortality and Expense Risk Charge of 1.38% and an Administrative Expense Risk Charge of .10%. See "Mortality and Expense Risk Charge," page 16 and "Administrative Expense Charge," page 16. Annually, the Company deducts $30 for maintaining the Contract. See "Contract Maintenance Charge," page 16. Additional deductions may be made for certain taxes. See "Taxes," page 17. 7. Does the Contract pay any guaranteed Death Benefits? The Contracts provide that if any Owner or the last surviving Annuitant dies prior to the Payout Start Date, a Death Benefit may be paid to the new Owner or Beneficiary. If the Annuitant, not also an Owner dies, then the Death Benefit may be paid to the Owner in a lump sum. If requested to be paid in a lump sum within 180 days from the Date of Death, the Death Benefit will be the greatest of (1) the sum of all Purchase Payments less any amounts deducted in connection with partial withdrawals including any Early Withdrawal Charges and premium tax; or (2) the Cash Value on the date we receive Due Proof of Death; or (3) the Cash Value on the most recent Death Benefit Anniversary less any amounts deducted in connection with partial withdrawals, including any Early Withdrawal Charges and premium tax deducted from the Cash Value since that anniversary. For Contracts with the optional Enhanced Death Benefit provision, the Death Benefit will be the greatest of (1) through (3) above, or (4) the Enhanced Death Benefit. If the Enhanced Death Benefit option is selected, it applies only at the death of the Owner. It does not apply to the death of the Annuitant if different from the Owner unless the Owner is a non-natural person. See "Death Benefits Prior to the Payout Start Date," page 17, for a full description of Death Benefit options. Prior to the Payout Start Date the Beneficiary has 180 days from the Date of Death of the Owner(s) or Annuitant(s) to either elect an income plan or to take a lump sum payment. Death Benefits after the Payout Start Date, if any, will depend on the income plan chosen. See "Benefits Under the Contract," page 17. 8. Is there a free-look provision? The Owner(s) may cancel the Contract anytime within 20 days after receipt of the Contract, or longer if required by State law, and receive a full refund of Purchase Payments allocated to the Fixed Account. Unless a refund of Purchase Payments is required by State or Federal law, Purchase Payments allocated to the Variable Account will be returned after an adjustment to reflect investment gain or loss, less any applicable Contract expenses that occurred from the date of allocation through the date of cancellation. 6 SUMMARY OF SEPARATE ACCOUNT EXPENSES - ----------------------------------------------------------- The following fee table illustrates all expenses and fees that the Owner will incur. The expenses and fees set forth in the table are based on charges under the contracts and on the expenses of the separate account and the underlying Fund for the fiscal year ended December 31, 1995. Owner Transaction Expenses (all Sub-Accounts) Sales Load Imposed on Purchases (as a percentage of Purchase Payments).............................. None Early withdrawal charge (as a percentage of Purchase Payments)...................................... *
APPLICABLE SALES CHARGE NUMBER OF COMPLETE CONTRACT YEARS SINCE PURCHASE PAYMENT BEING WITHDRAWN WAS MADE PERCENTAGE - -------------------------------------------------------------------------------------------------------------- ---------------- 0 years....................................................................................................... 6% 1 year........................................................................................................ 5% 2 years....................................................................................................... 4% 3 years....................................................................................................... 3% 4 years....................................................................................................... 2% 5 years....................................................................................................... 1% 6 years or more............................................................................................... 0%
Exchange Fee........................................................................................ None Annual Contract Fee................................................................................. $ 30
Separate Account Annual Expenses (as a percentage of average account value) Mortality and Expense Risk Charge................................................................ 1.38%** Administrative Expense Charge.................................................................... .10% Total Separate Account Annual Expenses........................................................... 1.48%** - ------------------------ *There are no Contingent Deferred Sales Charges on amounts up to the Free Withdrawal Amount. **For Contracts without an Enhanced Death Benefit provision, the Mortality and Expense Risk Charge is 1.25% resulting in total Separate Account Annual Expenses of 1.35%.
Dean Witter Variable Investment Series ("Fund") Expenses (as a percentage of Fund average assets)
TOTAL FUND MANAGEMENT OTHER ANNUAL PORTFOLIO FEES EXPENSES EXPENSES - ---------------------------------------- ---------- -------- -------------- Money Market............................ .50 % .03% .53% Quality Income Plus..................... .50 %(1) .04% .54% High Yield.............................. .50 % .04% .54% Utilities............................... .65 %(2) .03% .68% Income Builder(5)....................... .75 % .07% .82% Dividend Growth......................... .59 %(3) .02% .61% Capital Growth.......................... .65 % .09% .74% Global Dividend Growth.................. .75 % .13% .88% European Growth......................... 1.00 % .17% 1.17% Pacific Growth.......................... 1.00 % .44% 1.44% Capital Appreciation(5)................. .75 % .07% .82% Equity.................................. .50 %(4) .04% .54% Strategist.............................. .50 % .02% .52%
- ------------------------ (1) This percentage is applicable to Portfolio net assets of up to $500 million. For net assets which exceed $500 million, the management fee will be 0.45%. (2) This percentage is applicable to Portfolio net assets of up to $500 million. For net assets which exceed $500 million, the management fee will be 0.55%. (3) The management fee will be 0.625% for net assets of up to $500 million. For net assets which exceed $500 million, but do not exceed $1 billion, the management fee will be 0.50% and for net assets that exceed $1 billion, the management fee will be 0.475%. (4) This percentage is applicable to Portfolio net assets of up to $1 billion. For net assets which exceed $1 billion, the management fee will be 0.475%. (5) The Income Builder Portfolio and the Capital Appreciation Portfolio are anticipated to commence operations on January 21, 1997. Dean Witter InterCapital Inc. has undertaken to assume all expenses for both the Income Builder Portfolio and the Capital Appreciation Portfolio until such time as the pertinent Portfolio has $50 million of net assets or until six months from the date of the Portfolio's commencement of operations, whichever occurs first. 7 Example You (the Owner) would pay the following expenses on a $1,000 investment, assuming a 5% annual return under the following circumstances: If you surrender your Conract at the end of the applicable time period (or if you annuitize for a specified period of less than 120 months):
(WITH ENHANCED DEATH BENEFIT PROVISION**) 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Money Market Sub-Account.......................... $64 $91 $121 $241 Quality Income Plus Sub-Account................... $64 $91 $121 $242 High Yield Sub-Account............................ $64 $91 $121 $242 Utilities Sub-Account............................. $65 $96 $129 $257 Income Builder Sub-Account........................ $67 $100 $136 $271 Dividend Growth Sub-Account....................... $65 $93 $125 $250 Capital Growth Sub-Account........................ $66 $97 $132 $263 Global Dividend Growth Sub-Account................ $67 $102 $139 $278 European Growth Sub-Account....................... $70 $111 $154 $307 Pacific Growth Sub-Account........................ $73 $119 $167 $333 Capital Appreciation Sub-Account.................. $67 $100 $136 $271 Equity Sub-Account................................ $64 $91 $121 $242 Strategist Sub-Account............................ $64 $91 $120 $240 (WITHOUT ENHANCED DEATH BENEFIT PROVISION***) 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Money Market Sub-Account.......................... $62 $87 $114 $227 Quality Income Plus Sub-Account................... $63 $87 $115 $228 High Yield Sub-Account............................ $63 $87 $115 $228 Utilities Sub-Account............................. $64 $92 $122 $243 Income Builder Sub-Account........................ $65 $96 $129 $258 Dividend Growth Sub-Account....................... $63 $89 $118 $236 Capital Growth Sub-Account........................ $65 $93 $125 $250 Global Dividend Growth Sub-Account................ $66 $98 $132 $264 European Growth Sub-Account....................... $69 $107 $147 $294 Pacific Growth Sub-Account........................ $72 $115 $161 $321 Capital Appreciation Sub-Account.................. $65 $96 $129 $258 Equity Sub-Account................................ $63 $87 $115 $228 Strategist Sub-Account............................ $62 $87 $113 $226
If you do not surrender your contract or if you annuitize* for a specified period of 120 months or more, at the end of the applicable time period:
(WITH ENHANCED DEATH BENEFIT PROVISION**) 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Money Market Sub-Account.......................... $21 $66 $112 $241 Quality income Plus Sub-Account................... $21 $66 $113 $242 High Yield Sub-Account............................ $21 $66 $113 $242 Utilities Sub-Account............................. $23 $70 $120 $257 Income Builder Sub-Account........................ $24 $74 $127 $271 Dividend Growth Sub-Account....................... $22 $72 $123 $263 Capital Growth Sub-Account........................ $23 $72 $123 $263 Global Dividend Growth Sub-Account................ $25 $76 $130 $278 European Growth Sub-Account....................... $28 $85 $145 $307 Pacific Growth Sub-Account........................ $31 $93 $159 $333 Capital Appreciation Sub-Account.................. $24 $74 $127 $271 Equity Sub-Account................................ $21 $66 $113 $242 Strategist Sub-Account............................ $21 $65 $112 $240 (WITHOUT ENHANCED DEATH BENEFIT PROVISION***) 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- Money Market Sub-Account.......................... $20 $61 $105 $227 Quality Income Plus Sub-Account................... $20 $62 $106 $228 High Yield Sub-Account............................ $20 $62 $106 $228 Utilities Sub-Account............................. $21 $66 $113 $243 Income Builder Sub-Account........................ $23 $70 $121 $258 Dividend Growth Sub-Account....................... $21 $64 $110 $236 Capital Growth Sub-Account........................ $22 $68 $116 $250 Global Dividend Growth Sub-Account................ $23 $72 $124 $264 European Growth Sub-Account....................... $26 $81 $139 $294 Pacific Growth Sub-Account........................ $29 $89 $152 $321 Capital Appreciation Sub-Account.................. $23 $70 $121 $258 Equity Sub-Account................................ $20 $62 $106 $228 Strategist Sub-Account............................ $20 $61 $105 $226
The above example should not be considered a representation of past or future expense. Actual expenses may be greater or lesser than those shown. The purpose of the example is to assist you in understanding the various costs and expenses that you will bear directly or indirectly. Premium taxes are not reflected in the example but may be applicable. - -------------------------- *Early Withdrawal Charges may be deducted from the Cash Value before it is applied to an income plan with a specified period of less than 120 months. **Total Separate Account Annual Expenses of 1.48% ***Total Separate Account Annual Expenses of 1.35% 8 CONDENSED FINANCIAL INFORMATION - ----------------------------------------------------------- Accumulation Unit Values and Number of Accumulation Units Outstanding for Each Sub-Account since Inception*
FOR THE YEARS BEGINNING JANUARY 1 AND ENDING DECEMBER 31 ----------------------------------------------------------------- 1990 1991 1992 1993 1994 1995 ------- --------- --------- ---------- ---------- ---------- MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... $10.000 $10.111 $10.549 $10.765 $10.913 $11.178 Accumulation Unit Value, End of Period.......... $10.111 $10.549 $10.765 $10.913 $11.178 $11.653 Number of Units Outstanding, End of Period...... 345,667 1,864,548 3,481,984 7,643,579 19,047,342 17,483,665 QUALITY INCOME PLUS SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... $10.000 $10.403 $12.163 $12.993 $14.487 $13.344 Accumulation Unit Value, End of Period.......... $10.403 $12.163 $12.993 $14.487 $13.344 $16.373 Number of Units Outstanding, End of Period...... 175,839 1,221,348 6,701,534 26,314,453 25,348,646 26,735,500 HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... $10.000 $8.932 $13.982 $16.336 $20.022 $19.264 Accumulation Unit Value, End of Period.......... $8.932 $13.982 $16.336 $20.022 $19.264 $21.859 Number of Units Outstanding, End of Period...... 1,574 64,097 377,434 2,451,231 4,082,485 5,536,230 UTILITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... $10.000 $10.471 $12.454 $13.840 $15.798 $14.180 Accumulation Unit Value, End of Period.......... $10.471 $12.454 $13.840 $15.798 $14.180 $17.999 Number of Units Outstanding, End of Period...... 130,114 1,615,460 6,626,508 25,354,331 22,552,568 22,626,178 INCOME BUILDER SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... -- -- -- -- -- -- Accumulation Unit Value, End of Period.......... -- -- -- -- -- -- Number of Units Outstanding, End of Period...... -- -- -- -- -- -- DIVIDEND GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... $10.000 $11.037 $13.911 $14.844 $16.746 $15.981 Accumulation Unit Value, End of Period.......... $11.037 $13.911 $14.844 $16.746 $15.981 $21.505 Number of Units Outstanding, End of Period...... 159,555 2,004,718 7,123,073 21,941,369 28,980,558 33,515,201 CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... -- $10.000 $12.697 $12.731 $11.682 $11.379 Accumulation Unit Value, End of Period.......... -- $12.697 $12.731 $11.682 $11.379 $14.923 Number of Units Outstanding, End of Period...... -- 901,617 2,655,336 3,556,779 3,411,788 3,917,752 GLOBAL DIVIDEND GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... -- -- -- -- $10.000 $9.912 Accumulation Unit Value, End of Period.......... -- -- -- -- $9.912 $11.935 Number of Units Outstanding, End of Period...... -- -- -- -- 12,306,690 15,325,898 EUROPEAN GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... -- $10.000 $10.020 $10.280 $14.290 $15.278 Accumulation Unit Value, End of Period.......... -- $10.020 $10.280 $14.290 $15.278 $18.976 Number of Units Outstanding, End of Period...... -- 248,922 719,495 4,448,126 8,491,681 8,587,679 PACIFIC GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... -- -- -- -- $10.000 $9.221 Accumulation Unit Value, End of Period.......... -- -- -- -- $9.221 $9.619 Number of Units Outstanding, End of Period...... -- -- -- -- 7,080,863 8,865,898 CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... -- -- -- -- -- -- Accumulation Unit Value, End of Period.......... -- -- -- -- -- -- Number of Units Outstanding, End of Period...... -- -- -- -- -- -- EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... $10.000 $10.706 $16.799 $16.599 $19.604 $18.392 Accumulation Unit Value, End of Period.......... $10.706 $16.799 $16.599 $19.604 $18.392 $25.864 Number of Units Outstanding, End of Period...... 15,701 369,133 1,417,732 5,917,819 8,914,107 10,835,413 STRATEGIST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period.... $10.000 $10.483 $13.266 $14.035 $15.286 $15.675 Accumulation Unit Value, End of Period.......... $10.483 $13.266 $14.035 $15.286 $15.675 $16.919 Number of Units Outstanding, End of Period...... 5,854 778,440 3,385,842 11,837,077 18,218,900 17,717,645
- -------------------------- * The Money Market, Quality Income Plus, High Yield, Utilities, Dividend Growth, Equity and Strategist Sub-Accounts commenced operations on October 25, 1990. The Capital Growth and European Growth Sub-Accounts commenced operations on March 1, 1991. The Global Dividend Growth and Pacific Growth Sub-Accounts commenced operations on February 23, 1994. The Income Builder and the Capital Appreciation Sub-Accounts are anticipated to commence operations on January 21, 1997 and are anticipated to have Accumulation Unit Values initially set at $10.000. The Accumulation Unit Value for each of these Sub-Accounts was initially set at $10.000. The Accumulation Unit Values in this table reflect a Mortality and Expense Risk Charge of 1.25% and an Administrative Expense charge of .10%. 9 Accumulation Unit Values and Number of Accumulation Units Outstanding for Each Sub-Account since Inception for Contracts with the Enhanced Death Benefit Provision*
1995 ------- MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $11.579 Accumulation Unit Value, End of Period.............................. $11.651 Number of Units Outstanding, End of Period.......................... 511,096 QUALITY INCOME PLUS SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $15.746 Accumulation Unit Value, End of Period.............................. $16.370 Number of Units Outstanding, End of Period.......................... 142,004 HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $21.462 Accumulation Unit Value, End of Period.............................. $21.855 Number of Units Outstanding, End of Period.......................... 66,987 UTILITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $16.972 Accumulation Unit Value, End of Period.............................. $17.995 Number of Units Outstanding, End of Period.......................... 165,046 INCOME BUILDER SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ -- Accumulation Unit Value, End of Period.............................. -- Number of Units Outstanding, End of Period.......................... -- DIVIDEND GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $20.068 Accumulation Unit Value, End of Period.............................. $21.500 Number of Units Outstanding, End of Period.......................... 366,928 CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $13.895 Accumulation Unit Value, End of Period.............................. $14.920 Number of Units Outstanding, End of Period.......................... 36,005 GLOBAL DIVIDEND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $11.250 Accumulation Unit Value, End of Period.............................. $11.932 Number of Units Outstanding, End of Period.......................... 155,023 EUROPEAN GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $18.486 Accumulation Unit Value, End of Period.............................. $18.972 Number of Units Outstanding, End of Period.......................... 62,011 PACIFIC GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $ 9.352 Accumulation Unit Value, End of Period.............................. $ 9.617 Number of Units Outstanding, End of Period.......................... 97,952 CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ -- Accumulation Unit Value, End of Period.............................. -- Number of Units Outstanding, End of Period.......................... -- EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $24.677 Accumulation Unit Value, End of Period.............................. $25.858 Number of Units Outstanding, End of Period.......................... 215,961 STRATEGIST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period........................ $16.490 Accumulation Unit Value, End of Period.............................. $16.915 Number of Units Outstanding, End of Period.......................... 91,983
- -------------------------- * All of the above sub-accounts commenced operation on October 30, 1995, except the Income Builder Sub-Account and the Capital Appreciation Sub-Account are anticipated to commence operations on January 21, 1997. The accumulation unit values in this table reflect a Mortality and Expense Risk Charge of 1.38% and an Administrative Expense Charge of .10%. The additional .13% Mortality and Expense Risk Charge is applicable to Contract Owners who selected the Enhanced Death Benefit provision. 10 PERFORMANCE DATA - ----------------------------------------------------------- From time to time the Variable Account may publish advertisements containing performance data relating to its Sub-Accounts. The performance data for the Sub-Accounts (other than for the Money Market Sub-Account) will always be accompanied by total return quotations for the most recent one, five and ten year periods, or for a period from inception to date if the Sub-Account has not been available for one of the prescribed periods. The total return quotations for each period will be the average annual rates of return required for an initial Purchase Payment of $1,000 to equal the amount Owners would receive on a withdrawal of the Purchase Payment, after reflection of all recurring and nonrecurring charges. In addition, the Variable Account 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. Such calculations may or may not reflect the deduction of some or all of the charges which may be imposed on the Contracts by the Variable Account which, if reflected, would reduce the performance quoted. The Variable Account from time to time may also advertise the performance of the Sub-Accounts relative to certain performance rankings and indexes compiled by independent organizations. Performance figures used by the Variable Account are based on actual historical performance of its Sub-Accounts for specified periods, and the figures are not intended to indicate future performance. More detailed information on the computation is set forth in the Statement of Additional Information. FINANCIAL STATEMENTS - ----------------------------------------------------------- The financial statements of the Northbrook Variable Annuity Account II and Northbrook Life Insurance Company may be found in the Statement of Additional Information, which is incorporated by reference into this Prospectus and which is available upon request. (See Order Form on page 25.) NORTHBROOK LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT - ----------------------------------------------------------- NORTHBROOK LIFE INSURANCE COMPANY The Company is the issuer of the Contract. Incorporated in 1978 as a stock life insurance company under the laws of Illinois, the Company sells annuities and individual life insurance. The Company is currently licensed to operate in the District of Columbia, all states (except New York) and Puerto Rico. The Company's home office is located at 3100 Sanders Road, Northbrook, Illinois, 60062. The Company is a wholly owned subsidiary of Allstate Life Insurance Company ("Allstate Life"), which is a stock life insurance company incorporated under the laws of Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance Company ("Allstate"), which is a stock property-liability insurance company incorporated under the laws of Illinois. All of the outstanding capital stock of Allstate is owned by The Allstate Corporation ("Corporation"). In June 1995, Sears, Roebuck and Co. ("Sears") distributed in a tax-free dividend to its stockholders its remaining 80.3% ownership in the Corporation. As a result of the distribution, Sears no longer has an ownership interest in the Corporation. DEAN WITTER REYNOLDS INC. Dean Witter Reynolds Inc. ("Dean Witter") is the principal underwriter of the Contract. Dean Witter is a wholly owned subsidiary of Dean Witter, Discover & Co. ("Dean Witter Discover"). Dean Witter is located at Two World Trade Center, New York, New York, 10048. Dean Witter is a member of the New York Stock Exchange and the National Association of Securities Dealers, Inc. Dean Witter Discover's wholly owned subsidiary, Dean Witter InterCapital Inc. ("InterCapital"), is the investment manager of the Dean Witter Variable Investment Series. InterCapital is registered with the Securities and Exchange Commission as an investment adviser. As compensation for investment management, the 11 Fund pays InterCapital a monthly advisory fee. These expenses are more fully described in the Fund's Prospectus attached to this Prospectus. In October, 1993, Allstate, through Allstate Life and the Company, announced a strategic alliance to develop, market and distribute proprietary annuity and life insurance products through Dean Witter account executives. THE VARIABLE ACCOUNT Established on May 18, 1990, the Variable Account is a unit investment trust registered with the Securities and Exchange Commission under the Investment Company Act of 1940, but such registration does not signify that the Commission supervises the management or investment practices or policies of the Variable Account. The investment performance of the Variable Account is entirely independent of both the investment performance of the Company's general account and the performance of any other separate account. The assets of the Variable Account are held separately from the other assets of the Company. They are not chargeable with liabilities incurred in the Company's other business operations. Accordingly, the income, capital gains and capital losses, realized or unrealized, incurred on the assets of the Variable Account are credited to or charged against the assets of the Variable Account, without regard to the income, capital gains or capital losses arising out of any other business the Company may conduct. The Variable Account has been divided into thirteen Sub-Accounts, each of which invests solely in its corresponding Portfolio of the Dean Witter Variable Investment Series. Additional Sub-Accounts may be added at the discretion of the Company. DEAN WITTER VARIABLE INVESTMENT SERIES The Variable Account will invest exclusively in the Dean Witter Variable Investment Series (the "Fund"). Shares of the Fund are also offered to separate accounts of the Company which fund other variable annuity and variable life contracts. Shares of the Fund are also offered to separate accounts of a life insurance company affiliated with the Company which fund variable annuity and variable life contracts. Shares of the Fund are also offered to separate accounts of certain non-affiliated life insurance companies which fund variable life insurance contracts. It is conceivable that in the future it may become disadvantageous for both variable life and variable annuity contract separate accounts to invest in the same underlying Fund. Although neither the Company nor the Fund currently foresees any such disadvantage, the Fund's Board of Trustees intends to monitor events in order to identify any material irreconcilable conflict between the interests of variable annuity contract owners and variable life contract owners and to determine what action, if any, should be taken in response thereto. Investors in the High Yield Portfolio should carefully consider the relative risks of investing in high yield securities, which are commonly known as junk bonds. Bonds of this type are considered to be speculative with regard to the payment of interest and return of principal. Investors in the High Yield Portfolio should also be cognizant of the fact that such securities are not generally meant for short-term investing and should assess the risks associated with an investment in the High Yield Portfolio. Shares of the Portfolios of the Fund are not deposits, or obligations of, or guaranteed or endorsed by any bank and the shares are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other agency. The Fund has thirteen portfolios: the Money Market Portfolio, the Quality Income Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Income Builder Portfolio*, the Dividend Growth Portfolio, the Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio, the Capital Appreciation Portfolio*, the Equity Portfolio and the Strategist Portfolio. Each Portfolio has different investment objectives and policies and operates as a separate investment fund. The Money Market Portfolio seeks high current income, preservation of capital, and liquidity by investing in certain money market instruments, principally U.S. government securities, bank obligations, and high grade commercial paper. The Quality Income Plus Portfolio seeks, as its primary objective, to earn a high level of current income and, as a secondary objective, capital appreciation, but only when consistent with its primary objective, by investing primarily in debt securities issued by the U.S. Government, its agencies and instrumentalities, including zero coupon securities and in fixed-income securities rated A or higher by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("Standard & Poor's") or non-rated securities of comparable quality, and by writing covered call and put options against such securities. The High Yield Portfolio seeks, as its primary objective, to earn a high level of current income by investing in a professionally managed diversified portfolio consisting principally of fixed-income securities rated Baa or lower by Moody's or BBB or lower by Standard & Poor's or non-rated securities of comparable quality, which are commonly known as junk bonds, and, as a secondary objective, capital appreciation when consistent with its primary objective. The Utilities Portfolio seeks to provide current income and long-term growth of income and capital by investing primarily in equity and fixed-income securities of companies engaged in the public utilities industry. The Income Builder Portfolio seeks, as its primary objective, reasonable income by investing primarily in common stock of large-cap companies which have a record of paying dividends and the potential for maintaining dividends, in preferred stock and in securities convertible into common stocks of small and mid-cap companies and, as its secondary objective, growth of capital. *These Portfolios are anticipated to commence operations on January 21, 1997. 12 The Dividend Growth Portfolio seeks to provide reasonable current income and long-term growth of income and capital by investing primarily in common stock of companies with a record of paying dividends and the potential for increasing dividends. The Capital Growth Portfolio seeks to provide long-term capital growth by investing principally in common stocks. The Global Dividend Growth Portfolio seeks to provide reasonable current income and long-term growth of income and capital by investing primarily in common stock of companies, issued by issuers worldwide, with a record of paying dividends and the potential for increasing dividends. The European Growth Portfolio seeks to maximize the capital appreciation on its investments by investing primarily in securities issued by issuers located in Europe. The Pacific Growth Portfolio seeks to maximize the capital appreciation of its investments by investing primarily in securities issued by issuers located in Asia, Australia and New Zealand. The Capital Appreciation Portfolio seeks long-term capital appreciation by investing primarily in common stocks of U.S. companies that offer the potential for either superior earnings growth and/or appear to be undervalued. The Equity Portfolio seeks, as its primary objective, growth of capital through investments in common stock of companies believed by the Investment Manager to have potential for superior growth and, as a secondary objective, income when consistent with its primary objective. The Strategist Portfolio seeks a high total investment return through a fully managed investment policy utilizing equity securities, fixed-income securities rated Baa or higher by Moody's or BBB or higher by Standard & Poor's (or non-rated securities of comparable quality), and money market securities, and the writing of covered options on such securities and the collateralized sale of stock index options. All dividends and capital gains distributions from the Portfolios are automatically reinvested in shares of the distributing Portfolio at their net asset value. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ATTAIN THEIR RESPECTIVE STATED OBJECTIVES. Additional information concerning the investment objectives and policies of the Portfolios can be found in the current prospectus for the Fund accompanying this Prospectus. THE PROSPECTUS OF THE FUND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR PORTFOLIO. THE CONTRACTS - ----------------------------------------------------------- PURCHASE OF THE CONTRACTS The Contracts may be purchased through sales representatives of Dean Witter. The first Purchase Payment must be at least $4,000 unless the Contract is a Qualified Contract, in which case the first Purchase Payment must be at least $1,000. Presently, the Company will accept an initial Purchase Payment of at least $1,000, but reserves the right to increase the minimum initial Purchase Payment amount to $4,000. All subsequent Purchase Payments must be $25 or more and may be made at any time prior to the Payout Start Date. Additional Purchase Payments may also be made from your bank account or your Dean Witter Active Assets-TM- Account through Automatic Additions. Please consult with your Dean Witter Account Executive for detailed information about Automatic Additions. The Company reserves the right to limit the amount of Purchase Payments it will accept. CREDITING OF INITIAL PURCHASE PAYMENTS A Purchase Payment accompanied by completed information will be credited to the Contract within two business days of receipt by the Company at its home office. If the information is not complete, the Company will credit the Purchase Payments to the Contract within five business days or return it at that time unless the applicant specifically consents to the Company holding the Purchase Payment until the information is complete. The Company reserves the right to reject any proposed purchase of the Contract. Subsequent Purchase Payments will be credited to the Contract at the close of the Valuation Period in which the Purchase Payment is received. ALLOCATION OF PURCHASE PAYMENTS At the time of purchase the Owner instructs the Company how to allocate the Purchase Payment among the fourteen Investment Alternatives. Purchase Payments may be allocated in whole percents, from 0% to 100%, to any Investment Alternative so long as the total allocation equals 100%. Purchase Payments may be allocated in amounts of no less than $100. Unless the Owner notifies the Company otherwise, subsequent Purchase Payments are allocated according to the original instructions. In those states where the Company is required to return the Purchase Payment upon a free-look of the Contract and where it 13 has been approved by the state, the Company reserves the right to allocate all Purchase Payments made prior to the expiration of the free-look provision to the Money Market Sub-Account of the Variable Account. Thereafter, Purchase Payments may be made at any time during the accumulation phase into any of the Investment Alternatives. After the expiration of the free-look provision the Owner may instruct the Company how to allocate the Purchase Payment(s) among the fourteen Investment Alternatives. Purchase Payments may be allocated in whole percents, from 0% to 100%, to any Investment Alternative so long as the total allocation equals 100%. Purchase Payments may be allocated in amounts of no less than $100. If, after the free-look period, the Owner does not affirmatively request a transfer to other Sub-Accounts, the Purchase Payments will remain in the Money Market Sub-Account indefinitely. Please consult with your Account Executive for applicability of this provision. Each Purchase Payment will be credited to the Contract as Variable Account Accumulation Units equal to the amount of the Purchase Payment allocated to each Sub-Account divided by the Accumulation Unit value for that Sub-Account next computed after the Purchase Payment is credited to the Contract. For example, if a $10,000 Purchase Payment is credited to the Contract when the Accumulation Unit value equals $10, then 1,000 Accumulation Units would be credited to the Contract. The Variable Account, in turn, purchases shares of the corresponding Portfolio (see "Value of Variable Account Accumulation Units," page 14). For a brief summary of how Purchase Payments allocated to the Fixed Account are credited to the Contract, see "The Fixed Account" on page 19. VALUE OF VARIABLE ACCOUNT ACCUMULATION UNITS The Accumulation Units in each Sub-Account of the Variable Account are valued separately. The value of Accumulation Units may change each Valuation Period according to the investment performance of the shares purchased by each Sub-Account and the deduction of certain expenses and charges. A Valuation Period is the period between successive Valuation Dates. It begins at the close of business of each Valuation Date and ends at the close of business of the next succeeding Valuation Date. A Valuation Date is each day that the New York Stock Exchange is open for business except for any day in which there is an insufficient degree of trading in the Variable Account's portfolio securities that the value of Accumulation or Annuity Units might not be materially affected by changes in the value of the portfolio securities. Valuation Dates do not include such Federal and non-Federal holidays as are observed by the New York Stock Exchange. The New York Stock Exchange currently observes the following holidays: New Year's Day (January 1); President's Day (the third Monday in February); Good Friday (the Friday before Easter); Memorial Day (the last Monday in May); Independence Day (July 4); Labor Day (the first Monday in September); Thanksgiving Day (the fourth Thursday in November); and Christmas Day (December 25). The value of an Accumulation Unit in a Sub-Account for any Valuation Period equals the value of the Accumulation Unit as of the immediately preceding Valuation Period, multiplied by the Net Investment Factor for that Sub-Account for the current Valuation Period. The Net Investment Factor is a number representing the change on successive Valuation Dates in value of Sub-Account assets due to investment income, realized or unrealized capital gains or loss, deductions for taxes, if any, and deductions for the Mortality and Expense Risk Charge and Administrative Expense Charge. TRANSFERS Transfers must be at least $100 or the total amount in the Investment Alternative whichever is less. Transfers to any Guarantee Period of the Fixed Account must be at least $500. Currently there is no charge for transfers among the fourteen Investment Alternatives. The Company, however, reserves the right to assess a $25.00 charge on all transfers in excess of twelve per Contract Year. If you are required to allocate Purchase Payments to the Money Market Sub-Account of the Variable Account during the free-look period of your Contract, the first transfer made following the end of the free-look period will not be counted as a transfer for purposes of assessing this charge. The Company will notify Owners at least 30 days prior to imposing the transfer charge. If, under the terms of the free-look provision, your Purchase Payments have been allocated to the Money Market Sub-Account of the Variable Account, you may not transfer amounts out of the Money Market Sub-Account, until the free-look provision has expired. After the free-look provision has expired and prior to the payout start date, you may make transfers among all Investment Alternatives. Transfers out of any Sub-Account before the Payout Start Date may be made at any time. After the Payout Start Date, transfers among Sub-Accounts of the Variable Account, or from the Variable Account to the Fixed Account may be made only once every six months and may not be made during the first six months following the Payout Start Date. Transfers may be made pursuant to telephone instructions if the Owner authorizes telephone transfers at the time of purchase, or subsequently on a form provided by the Company. Telephone transfer requests will be accepted by the Company if received at 800/654-2397 by 3:00 p.m. Central Time. Telephone transfer requests received at any other telephone number or after 3:00 p.m. Central Time will not be accepted by the Company. Telephone transfer requests received before 3:00 p.m. Central Time are effected at the next computed value. Otherwise, transfer requests must be in writing, on a form provided by the Company. Transfers may also be made automatically through Dollar Cost Averaging prior to the Payout Start Date. Dollar Cost Averaging permits the Owner to transfer a specified amount every month (or other frequencies that may be offered by the Company) from the Money Market Sub-Account to any other Sub-Account. Transfers made through Dollar Cost Averaging must be $100 or more. Dollar 14 Cost Averaging cannot be used to transfer amounts to the Fixed Account. Please consult with your Dean Witter Account Executive for detailed information about Dollar Cost Averaging. Transfers from Sub-Accounts of the Variable Account will be made based on the Accumulation Unit values next computed after the Company receives the transfer request at its home office. For transfers involving the Fixed Account, see page 20. SURRENDER AND WITHDRAWALS The Owner may withdraw all or part of the Cash Value at anytime prior to the earlier of the death of the last surviving Annuitant, death of any Owner or the Payout Start Date. The amount available for withdrawal is the Cash Value next computed after the Company receives the request for a withdrawal at its home office, less any Early Withdrawal Charges, Contract Maintenance Charges or any remaining charge for premium taxes. Withdrawals from the Variable Account will be paid within seven days of receipt of the request, subject to postponement in certain circumstances. See "Delay of Payments," page 21. For withdrawals from the Fixed Account, see page 20. The minimum partial withdrawal is $100. If the Cash Value after a partial withdrawal would be less than $500, then the Company will treat the request as one for a total surrender of the Contract and the entire Cash Value, less any charges and premium taxes, will be paid out. Partial withdrawals may also be taken automatically through monthly Systematic Withdrawals. Systematic Withdrawals of $100 or more may be requested at any time prior to the Payout Start Date. Please consult with your Dean Witter Account Executive for detailed information about Systematic Withdrawals. For Qualified Contracts, the Company will at the request of the Owner, automatically calculate and withdraw the IRS Required Minimum Distribution. Withdrawals taken to satisfy IRS required minimum distribution rules will have any applicable withdrawal charges waived. This waiver is permitted only for withdrawals which satisfy distributions resulting from this Contract. Please consult with your Dean Witter Account Executive for detailed information about the Required Minimum Distribution program. Withdrawals and surrenders may be subject to income tax and a 10% tax penalty. This tax and penalty is explained in "Federal Tax Matters" on page 21. The full Contract Maintenance Charge will be deducted at the time of total surrender. The total amount paid at surrender may be more or less than the total Purchase Payments due to prior withdrawals, any deductions, and investment performance. To complete the partial withdrawals, the Company will cancel Accumulation Units in an amount equal to the withdrawal and any applicable Early Withdrawal Charge and premium taxes. The Owner must name the Investment Alternative from which the withdrawal is to be made. If none is named, then the withdrawal request is incomplete and cannot be honored. DEFAULT So long as the Cash Value is not reduced to zero or a withdrawal does not reduce it to less than $500, the Contract will stay in force until the Payout Start Date even if no Purchase Payments are made after the first Purchase Payment. CHARGES AND OTHER DEDUCTIONS - ----------------------------------------------------------- DEDUCTIONS FROM PURCHASE PAYMENTS No deductions are currently made from Purchase Payments. Therefore the full amount of every Purchase Payment is invested in the Investment Alternative(s) to increase the potential for investment gain. EARLY WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE) The Owner may withdraw the Cash Value at any time before the earliest of the Payout Start Date, the death of any Owner or the last surviving Annuitant's death. There are no Early Withdrawal Charges on amounts up to the Free Withdrawal Amount. A Free Withdrawal Amount will be available in each Contract Year. The Free Withdrawal Amount may not be available in the first Contract Year if not approved in your state of residence. The annual Free Withdrawal Amount is 15% of the amount of Purchase Payments. Amounts withdrawn in excess of the Free Withdrawal Amount may be subject to an Early Withdrawal Charge. Free Withdrawal Amounts not withdrawn in a Contract Year do not increase the Free Withdrawal Amount in later Contract Years. Early Withdrawal Charges, if applicable, will be deducted from the amount paid. In certain cases, distributions required by federal tax law (see the Statement of Additional Information for "IRS Required Distribution at Death Rules") may be subject to an Early Withdrawal 15 Charge. Early Withdrawal Charges may be deducted from the Cash Value before it is applied to an income plan with a specified period of less than 120 months. Free Withdrawals and other partial withdrawals will be allocated on a first in, first out basis to Purchase Payments. For purposes of calculating the amount of the Early Withdrawal Charge, withdrawals are assumed to come from Purchase Payments first, beginning with the oldest payment. Unless the Company is instructed otherwise, for partial withdrawals, the Early Withdrawal Charge will be deducted from the amount paid, rather than from the remaining Cash Value. Once all Purchase Payments have been withdrawn, additional withdrawals will not be assessed an Early Withdrawal Charge. Early Withdrawal Charges will be applied to amounts withdrawn in excess of a Free Withdrawal Amount as set forth below:
APPLICABLE COMPLETE CONTRACT YEARS SINCE WITHDRAWAL PURCHASE PAYMENT BEING CHARGE WITHDRAWN WAS MADE PERCENTAGE - -------------------------------------------------------------------- ---------- 0 years............................................................. 6% 1 year.............................................................. 5% 2 years............................................................. 4% 3 years............................................................. 3% 4 years............................................................. 2% 5 years............................................................. 1% 6 years or more..................................................... 0%
THE CUMULATIVE TOTAL OF ALL EARLY WITHDRAWAL CHARGES IS GUARANTEED NEVER TO EXCEED 6% OF AN OWNER'S PURCHASE PAYMENTS. Early Withdrawal Charges will be used to pay sales commissions and other promotional or distribution expenses associated with the marketing of the Contracts. The Company does not anticipate that the Early Withdrawal Charges will cover all distribution expenses in connection with the Contract. In addition, federal and state income tax may be withheld from withdrawal and surrender amounts. Certain surrenders may also be subject to a federal tax penalty. See "Federal Tax Matters," page 21. CONTRACT MAINTENANCE CHARGE A Contract Maintenance Charge is deducted annually from the Cash Value to reimburse the Company for its actual costs in maintaining each Contract and the Variable Account. THE COMPANY GUARANTEES THAT THE AMOUNT OF THIS CHARGE WILL NOT EXCEED $30 PER CONTRACT YEAR OVER THE LIFE OF THE CONTRACT. Maintenance costs include but are not limited to expenses incurred in billing and collecting Purchase Payments; keeping records; processing death claims and cash surrenders; policy changes and proxy statements; calculating Accumulation Unit and Annuity Unit values; and issuing reports to Owners and regulatory agencies. The Company does not expect to realize a profit from this charge. On each Contract Anniversary, the Contract Maintenance Charge will be deducted from the Investment Alternatives in the same proportion that the Owner's interest in each bears to the total Cash Value. After the Payout Start Date, a pro rata share of the annual Contract Maintenance Charge will be deducted from each Income Payment. For example, 1/12 of the $30 or $2.50 will be deducted if there are twelve Income Payments during the Contract Year. The Contract Maintenance Charge will be deducted from the amount paid on a total surrender. Prior to October 4, 1993 Vantage Computer Systems, Inc. was under contract with the Company to provide contract recordkeeping services. As of October 4, 1993, the Company provides all contract recordkeeping services. ADMINISTRATIVE EXPENSE CHARGE The Company will deduct an Administrative Expense Charge which is equal, on an annual basis to .10% of the daily net assets in the Variable Account. This charge is designed to cover actual administrative expenses which exceed the revenues from the Contract Maintenance Charge. The Company does not intend to profit from this charge. The Company believes that the Administrative Expense Charge and Contract Maintenance Charge have been set at a level that will recover no more than the actual costs associated with administering the Contract. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributable to that Contract. MORTALITY AND EXPENSE RISK CHARGE A Mortality and Expense Risk Charge will be deducted daily at a rate equal on an annual basis to 1.25% of the daily net assets in the Variable Account. The Company estimates that .85% is attributed to the assumption of mortality risks and .40% is attributed to the assumption of expense risks. For Contracts with the Enhanced Death Benefit provision, the Mortality and Expense Risk Charge will be deducted daily, at a rate equal on an annual basis, to 1.38% of the daily net assets in the Variable Account. The assessment of the additional .13% for the Enhanced Death Benefit is attributed to the assumption of additional mortality risks. (see pages 17-18, for a full description of Death Benefit options) THE COMPANY GUARANTEES THAT THE AMOUNT OF THIS CHARGE WILL NOT INCREASE OVER THE LIFE OF THE CONTRACT. If the Mortality and Expense Risk Charge is insufficient to cover the Company's mortality costs and excess expenses, the Company will bear the loss. If the Charge is more than sufficient, the Company will retain the balance as profit. The Company currently expects a profit from this charge. Any such profit, as well as any other profit realized by the Company and held in its general account, (which supports insurance and annuity obligations), would be available for any proper corporate purpose, including, but not limited to, payment of distribution expenses. 16 The mortality risk arises from the Company's guarantee to cover all death benefits and to make Income Payments in accordance with the Income Payment Tables, thus, relieving the Annuitants of the risk of outliving funds accumulated for retirement. The expense risk arises from the possibility that the Contract Maintenance and Early Withdrawal Charges, both of which are guaranteed not to increase, will be insufficient to cover actual administrative expenses. TAXES The Company will deduct any state premium taxes incurred or other taxes incurred relative to the Contract (collectively referred to as "premium taxes") either at the Payout Start Date, or when a total withdrawal occurs. Current premium tax rates range from 0 to 3.5%. The Company reserves the right to deduct any incurred premium taxes from the Purchase Payments. At the Payout Start Date, any charge for premium taxes will be deducted from each Investment Alternative in the proportion that the Owner's interest in the Investment Alternative bears to the total Cash Value. DEAN WITTER VARIABLE INVESTMENT SERIES ("FUND") EXPENSES A complete description of the expenses and deductions from the Portfolios are found in the Fund's prospectus which is attached to this prospectus. BENEFITS UNDER THE CONTRACT - ----------------------------------------------------------- DEATH BENEFITS PRIOR TO THE PAYOUT START DATE If any Owner or the last surviving Annuitant dies prior to the Payout Start Date, and a Death Benefit is elected, it will be paid to the new Owner or Beneficiary. If requested to be paid in a lump sum within 180 days from the Date of Death, the Death Benefit will be the greatest of: (a) the sum of all Purchase Payments less any amounts deducted in connection with partial withdrawals including any applicable Early Withdrawal Charges or premium taxes; or (b) the Cash Value on the date we receive Due Proof of Death, or (c) the Cash Value on the most recent Death Benefit Anniversary less any amounts deducted in connection with partial withdrawals, including any applicable Early Withdrawal Charges and premium taxes deducted from the Cash Value, since that anniversary. The Death Benefit Anniversary is every sixth Contract Anniversary. For example, the 6th, 12th and 18th Contract Anniversaries are the first three Death Benefit Anniversaries. If the Enhanced Death Benefit option is selected, it applies only at the death of the Owner. It does not apply to the death of the Annuitant if different from the Owner unless the Owner is a non-natural Owner. For Contracts with the optional Enhanced Death Benefit provision, the Death Benefit will be the greater of (a) through (c) above, or (d) the Enhanced Death Benefit. The Enhanced Death Benefit on the date of issue is equal to the initial purchase payment. On each Contract Anniversary, but not beyond the Contract Anniversary preceding all owners' 75th birthdays, the Enhanced Death Benefit will be recalculated as follows: The Enhanced Death Benefit as of the prior Contract Anniversary multiplied by 1.05 which results in an increase of 5% annually. Further, for all ages, the Enhanced Death Benefit will be adjusted on each Contract Anniversary, or upon receipt of a death claim, as follows: The Enhanced Death Benefit will be reduced by the percentage of any Cash Value withdrawn since the prior Contract Anniversary. Any additional purchase payments since the prior Contract Anniversary will be added. The Enhanced Death Benefit will never be greater than the maximum death benefit allowed by any non-forfeiture laws which govern the Contract. The Company will not settle any death claim until it receives Due Proof of Death. If an Owner dies prior to the Payout Start Date, the new Owner will be the surviving Owner, if any, otherwise the new Owner will be the Beneficiary. Generally, this new Owner has the following options: 1. The new Owner may elect, within 180 days of the date of receipt by the Company of Due Proof of Death, to receive the Death Benefit in a lump sum; 2. The new Owner may elect, within 180 days of the date of receipt by the Company of Due Proof of Death, to receive the Settlement Value (the Settlement Value is the Cash Value less any 17 applicable Early Withdrawal Charges and premium tax on the date payment is requested) payable within five years of the date of death. 3. The new Owner may elect to apply an amount equal to the Death Benefit to one of the income plans. Payments must begin within one year of the date of death and must be over the life of the new Owner, or a period not to exceed the life expectancy of the new Owner. 4. If the new Owner is the spouse of the deceased Owner, the new Owner may elect one of the above options or may continue the Contract. If the new Owner who is not the spouse of the deceased Owner does not make one of these elections, the Settlement Value will be paid in a lump sum to the new Owner five years after the date of death. If the new Owner is a non-natural person, then the new Owner must receive the Death Benefit in a lump sum, and the options listed above are not available. If any Annuitant dies who is not also an Owner, the Owner must elect an applicable option listed below. If the option selected is 1(a) or 1(b)(ii) below, the new Annuitant will be the youngest Owner, unless the Owner names a different Annuitant. 1. If the Owner is a natural person: a. The Owner may choose to continue the Contract as if the death had not occurred; or b. If the Company receives due proof of death within 180 days of the date of the Annuitant's death, then the Owner may alternatively choose to: i. Receive the Death Benefit in a lump sum; or ii. Apply the Death Benefit to an income plan which must begin within one year of the date of death and must be for a period equal to or less than the life expectancy of the Owner. 2. If the Owner is a non-natural person: The Owner must receive the Death Benefit in a lump sum. The value of the Death Benefit will be determined at the end of the Valuation Period during which the Company receives a complete request for payment of the Death Benefit, which includes Due Proof of Death. DEATH BENEFITS AFTER THE PAYOUT START DATE If the Annuitant and Joint Annuitant, if applicable, dies after the Payout Start Date, the Company will pay the Death Benefit, if any, contained in the particular income plan. If the Owner, who is not the Annuitant, dies after the Payout Start Date, payments will continue to be made under the particular income plan. The Beneficiary will be the recipient of any such payment. INCOME PAYMENTS - ----------------------------------------------------------- PAYOUT START DATE The Payout Start Date is the day that Income Payments will start under the Contract. The Owner may change the Payout Start Date at any time by notifying the Company in writing of the change at least 30 days before the current Payout Start Date. The Payout Start Date must be (a) at least a month after the issue date; (b) the first day of a calendar month; and (c) no later than the first day of the calendar month after the Annuitant reaches age 85, or the 10th anniversary date, if later. Unless the Owner notifies the Company in writing otherwise, the Payout Start Date will be the later of the first day of the calendar month after the Annuitant reaches age 85 or the 10th anniversary date. AMOUNT OF VARIABLE ANNUITY INCOME PAYMENTS The amount of Variable Annuity Income Payments depends upon the investment experience of the Portfolios selected by the Owner, any premium taxes, the age and sex of the Annuitant(s), and the income plan chosen. The Company guarantees that the Income Payments will not be affected by (1) actual mortality experience and (2) the amount of the Company's administration expenses. The Contracts offered by this Prospectus (except in states which require unisex annuity tables) contain life annuity tables that provide for different benefit payments to men and women of the same age. Nevertheless, in accordance with the U.S. Supreme Court's decision in ARIZONA GOVERNING COMMITTEE V. NORRIS, in certain employment-related situations, annuity tables that do not vary on the basis of sex may be used. Accordingly, if the Contract is to be used in connection with an employment-related retirement or benefit plan, consideration should be given, in consultation with legal counsel, to 18 the impact of NORRIS on any such plan before making any contributions under these Contracts. For qualified plans where it is appropriate, a unisex endorsement is available. The sum of Income Payments made may be more or less than the total Purchase Payments made because (a) Variable Annuity Income Payments vary with the investment results of the underlying Portfolios; (b) the Owner bears the investment risk with respect to all amounts allocated to the Variable Account, and (c) Annuitants may die before the actuarially expected Date of Death. As such, the total amount of Income Payments cannot be predicted. The duration of the income plan may affect the dollar amounts of each Income Payment. For example, if an income plan guaranteed for life is chosen, the Income Payments may be greater or lesser than Income Payments under an income plan for a specified period depending on the life expectancy of the Annuitant. If the actual net investment experience is less than the assumed investment rate, then the dollar amount of the Income Payments will decrease. The dollar amount of the Income Payments will stay level if the net investment experience equals the assumed investment rate and the dollar amount of the Income Payments will increase if the net investment experience exceeds the assumed investment rate. For purposes of the Variable Annuity Income Payments, the assumed investment rate is found in the Contract. If the Cash Value to be applied to an income plan is less than $2,000, or if the monthly payments determined under the Income Plan are less than $20, the Company may pay the Cash Value in a lump sum or change the payment frequency to an interval which results in Income Payments of at least $20. INCOME PLANS The Owner may elect a completely Fixed Annuity, a completely Variable Annuity or a combination Fixed and Variable Annuity. Up to 30 days before the Payout Start Date, the Owner may change the income plan or request any other form of Income Plan agreeable to both the Company and the Owner. Subsequent changes will not be permitted. If an income plan is chosen which depends on the Annuitant or Joint Annuitant's life, proof of age will be required before Income Payments begin. Premium taxes may be assessed. The income plans include: INCOME PLAN 1--LIFE WITH PAYMENTS GUARANTEED FOR 120 MONTHS Monthly payments will be made for as long as the Annuitant lives. If the Annuitant dies before 120 monthly payments have been made, the remainder of the 120 guaranteed monthly payments will be paid to the Owner, or if deceased, to the surviving Beneficiary. INCOME PLAN 2--JOINT AND LAST SURVIVOR Monthly payments beginning on the Payout Start Date will be made for as long as either the Annuitant or Joint Annuitant is living. It is possible under this option that only one monthly payment will be made if the Annuitant and Joint Annuitant both die before the second payment is made, or only two monthly payments will be made if they both die before the third payment, and so forth. INCOME PLAN 3--PAYMENTS FOR A SPECIFIED PERIOD Monthly payments beginning on the Payout Start Date will be made for a specified period. An Early Withdrawal Charge may apply if the specified period is less than 120 months. Payments under this option do not depend on the continuation of the Annuitant's life. If the Owner dies before the end of the specified period, the remaining payments will be paid to the surviving beneficiary. The Mortality and Expense Risk Charge is deducted from payments even though the Company does not bear any mortality risk. If Income Plan 3 is chosen and the proceeds are derived from the Variable Account, the Owner or Beneficiary may surrender the Contract at any time by notifying the Company in writing. In the event that an income plan is not selected, the Company will make Income Payments in accordance with Income Plan 1. At the Company's discretion, other income plans may be available upon request. The Company currently uses sex-distinct annuity tables. However, if legislation is passed by Congress or the states, the Company reserves the right to use Income Payment tables which do not distinguish on the basis of sex. THE FIXED ACCOUNT - ----------------------------------------------------------- CONTRIBUTIONS UNDER THE FIXED PORTION OF THE ANNUITY CONTRACT AND TRANSFERS TO THE FIXED PORTION BECOME PART OF THE GENERAL ACCOUNT OF THE COMPANY, WHICH SUPPORTS INSURANCE AND ANNUITY OBLIGATIONS. BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE GENERAL ACCOUNT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933 ACT"), NOR IS THE GENERAL ACCOUNT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940 ("1940 ACT"). ACCORDINGLY, NEITHER THE GENERAL ACCOUNT NOR ANY INTERESTS THEREIN ARE GENERALLY SUBJECT TO THE PROVISIONS OF THE 1933 OR 1940 ACTS AND THE COMPANY HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS WHICH RELATE TO THE FIXED PORTION. DISCLOSURES REGARDING THE FIXED PORTION OF THE ANNUITY CONTRACT AND THE GENERAL ACCOUNT, HOWEVER, MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES. 19 GENERAL DESCRIPTION Contributions made to the Fixed Account are invested in the general account of the Company. The general account is made up of all of the general assets of the Company, other than those in the Variable Account and any other segregated asset account. Instead of the Owner bearing the investment risk as is the case for amounts in the Variable Account, the Company bears the full investment risk for all amounts contributed to the general account. The Company has sole discretion to invest the assets of the general account, subject to applicable law. The Company guarantees that the amounts allocated to the Fixed Account will be credited interest at a net effective interest rate of at least the minimum guaranteed rate found in the Contract. (This interest rate is net of separate account asset based charges of 1.35% or 1.48% if the Enhanced Death Benefit has been selected). Currently the amount of interest credited in excess of the guaranteed rate will vary periodically in the sole discretion of the Company. Any interest held in the general account does not entitle an Owner to share in the investment experience of the general account. Money deposited in the Fixed Account earns interest at the current rate in effect at the time of allocation or transfer for the Guarantee Period. After the Guarantee Period, a renewal rate will be declared. Subsequent renewal dates will be on anniversaries of the first renewal date. On or about each renewal date, the Company will notify the Owner of the interest rate(s). The interest rate will be guaranteed by the Company for a full year and will not be less than the guaranteed rate found in the Contract. The Company may declare more than one interest rate for different monies based upon the date of allocation or transfer to the Fixed Account and based upon the Guarantee Period. The Company will offer a one year Guarantee Period. Additional Guarantee Periods are offered at the sole discretion of the Company. The Company currently offers a 1 year and a 6 year Guarantee Period. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF THE GUARANTEED RATE FOUND IN THE CONTRACT WILL BE DETERMINED IN THE SOLE DISCRETION OF THE COMPANY. TRANSFERS, SURRENDERS, AND WITHDRAWALS Amounts may be transferred from the Sub-Accounts of the Variable Account to the Fixed Account, and prior to the Payout Start Date amounts may also be transferred from the Fixed Account to Sub-Accounts of the Variable Account. The maximum amount in any Contract Year which may be transferred from the Fixed Account to the Variable Account or between Guarantee Periods of the Fixed Account is limited to the greater of (1) 25% of the value in the Fixed Account as of the most recent Contract Anniversary; if 25% of the value as of the most recent Contract Anniversary is greater than zero but less than $1,000, then up to $1,000 may be transferred; or (2) 25% of the sum of all Purchase Payments and transfers to the Fixed Account as of the most recent Contract Anniversary. If the first renewal interest rate is less than the current rate that was in effect at the time money was allocated or transferred to the Fixed Account, the transfer restriction for that money and the accumulated interest thereon will be waived during the 60-day period following the first renewal date. After the Payout Start Date no transfers may be made from the Fixed Account. Transfers from the Variable Account to the Fixed Account may not be made for six months after the Payout Start Date and may be made thereafter only once every six months. Surrenders and withdrawals from the Fixed Account may be delayed for up to six months. After the Payout Start Date no surrenders or withdrawals may be made from the Fixed Account. GENERAL MATTERS - ----------------------------------------------------------- OWNER The Owner has the sole right to exercise all rights and privileges under the Contract, except as otherwise provided in the Contract. These rights include the right to name and change the Owner, Beneficiary and Annuitant. The Annuitant can be changed only if the Owner is a natural person. Generally, an Owner who is not a natural person is required to include in income each year any increase in the Cash Value to the extent the increase is attributable to contributions to the Contract made after February 28, 1986. BENEFICIARY Subject to the terms of any irrevocable Beneficiary, the Owner may change the Beneficiary while the Annuitant is living by notifying the Company in writing. Any change will be effective at the time it is signed by the Owner, whether or not the Annuitant is living when the change is received by the Company. The Company will not, however, be liable as to any payment or settlement made prior to receiving the written notice. Unless otherwise provided in the Beneficiary designation, the rights of any Beneficiary predeceasing the Annuitant will revert to the Owner or the Owner's estate. Multiple Beneficiaries may be 20 named. Unless otherwise provided in the Beneficiary designation, if more than one Beneficiary survives the Annuitant, the surviving Beneficiaries will share equally in any amounts due. DELAY OF PAYMENTS Payment of any amounts due from the Variable Account under the Contract will occur within seven days, unless: 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 Securities and Exchange Commission; or 3. The Securities and Exchange Commission permits delay for the protection of the Owners. For payment or transfers from the Fixed Account, see page 19. ASSIGNMENTS The Owner may not assign an interest in a Contract as collateral or security for a loan. Otherwise, the Owner may assign benefits under the Contract prior to the Payout Start Date. No Beneficiary may assign benefits under the Contract until they are due. No assignment will bind the Company unless it is signed by the Owner and filed with the Company. The Company is not responsible for the validity of an assignment. MODIFICATION The Company may not modify the Contract without the consent of the Owner except to make the Contract meet the requirements of the Investment Company Act of 1940, or to make the Contract comply with any changes in the Internal Revenue Code or required by the Code or by any other applicable law. CUSTOMER INQUIRIES The Owners or any persons interested in the Contract may make inquiries regarding the Contract by calling or writing their Dean Witter Account Executive. FEDERAL TAX MATTERS - ----------------------------------------------------------- INTRODUCTION THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE COMPANY 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 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 ANNUITIES IN GENERAL Tax Deferral. Generally, an annuity contract owner is not taxed on increases in the Contract Value until a distribution occurs. This rule applies only where (1) the Owner is a natural person, (2) the investments of the Variable Account are "adequately diversified" in accordance with Treasury Department ("Treasury") regulations and (3) the Company, instead of the annuity Owner, 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 nonnatural persons are not treated as annuity contracts for federal income tax purposes and the income on such Contracts is taxed as ordinary income received or accrued by the Owner during the taxable year. There are several exceptions to the general rule for Contracts owned by non-natural persons which are discussed in the Statement of Additional Information. 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" in accordance with the standards provided in the Treasury regulations. If the investments in the Variable Account are not adequately diversified, then the Contract will not be treated as an annuity contract for federal income tax purposes and the Contract Owner will be taxed on the excess of the Contract Value over the investment in the Contract. Although the Company does not have control over the Fund or its investments, the Company expects the Fund to meet the diversification requirements. 21 Investor Control. In connection with the issuance of the regulations on the adequate diversification standards, Treasury announced that the regulations do not provide guidance concerning the extent to which Contract Owners may direct their investments among Sub-Accounts of a Variable Account. The Internal Revenue Service has previously stated in published rulings that a variable Contract Owner will be considered the Owner of separate account assets if the Owner possesses 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, Treasury announced that guidance would be issued in the future regarding the extent that Owners could direct their investments among Sub-Accounts without being treated as Owners of the underlying assets of the Variable Account. It is possible that Treasury's position, when announced, may adversely affect the tax treatment of existing Contracts. The Company, therefore, reserves the right to modify the Contract as necessary to attempt to prevent the Contract Owner from being considered the federal tax owner of the assets of the Variable Account. Taxation of Partial and Full Withdrawals. In the case of a partial withdrawal under a Non-Qualified Contract, amounts received are taxable to the extent the Contract value before the withdrawal exceeds the investment in the Contract. In the case of 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 bears to the Contract value, can be excluded from income. In the case of 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. If an individual transfers an annuity contract without full and adequate consideration to a person other than the individual's spouse (or to a former spouse incident to a divorce), the Owner will be taxed on the difference between the Contract Value and the investment in the Contract at the time of transfer. Other than in the case of certain Qualified Contracts, any amount received 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 payments received from an annuity contract provides for the return of the Owner's investment in the Contract in equal tax-free amounts over the payment period. The balance of each payment received is taxable. In the case of 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. In the case of 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. Taxation of Annuity Death Benefits. Amounts may be distributed from an annuity contract because of the death of an Owner or Annuitant. Generally, such amounts are includible 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. Penalty Tax on Premature Distributions. There is a 10% penalty tax on the taxable amount of any premature distribution from a non-qualified annuity contract. The penalty tax generally applies to any distribution made prior to the owner attaining age 59 1/2. However, there should be no penalty tax on distributions to Owners (1) made on or after the Owner attains age 59 1/2; (2) made as a result of the Owner's death or disability; (3) made in substantially equal periodic payments over life or life expectancy; or (4) made under an immediate annuity. Similar rules apply for distributions under certain Qualified Contracts. Please see the Statement of Additional Information for a discussion of other situations in which the penalty tax may not apply. Aggregation of Annuity Contracts. All Non-Qualified Contracts issued by the Company (or its affiliates) to the same 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 Annuity contracts may be used as investments with certain tax qualified plans such as: (1) Individual Retirement Annuities under Section 408(b) of the Code; (2) Simplified Employee Pension Plans under Section 408(k) of the Code; (3) Tax Sheltered Annuities under Section 403(b) of the Code; (4) Corporate and Self Employed Pension and Profit Sharing Plans; and (5) State and Local Government and Tax-Exempt Organization Deferred Compensation Plans. In the case of certain tax 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 for tax-deferred retirement savings plans for employees of certain non-profit and educational organizations. In accordance with the requirements of Section 403(b), any annuity contract used for a 403(b) plan must provide that distributions attributable to salary reduction contributions made after 12/31/88, and all earnings on salary reduction contributions, may be made only after 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 on the account of hardship). INCOME TAX WITHHOLDING The Company is required to withhold federal income tax at a rate of 20% on all "eligible rollover distributions" unless an individual elects to make a "direct rollover" of such amounts to another 22 qualified plan or Individual Retirement Account or Annuity ("IRA"). 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 the life (joint lives) of the participant (and beneficiary). For any distributions from non-qualified annuity contracts, or distributions from Qualified Contracts which are not considered eligible rollover distributions, the Company may be required to withhold federal and state income taxes unless the recipient elects not to have taxes withheld and properly notifies the Company of such election. VOTING RIGHTS - ----------------------------------------------------------- The Owner or anyone with a voting interest in the Sub-Account of the Variable Account may instruct the Company on how to vote at shareholder meetings of the Fund. The Company will solicit and cast each vote according to the procedures set up by the Fund and to the extent required by law. The Company reserves the right to vote the eligible shares in its own right, if subsequently permitted by the Investment Company Act of 1940, its regulations or interpretations thereof. Before the Payout Start Date, the Owner holds the voting interest in the Sub-Account. (The number of votes for the Owner will be determined by dividing the Cash Value attributable to a Sub-Account by the net asset value per share of the applicable eligible Portfolio.) After the Payout Start Date, the person receiving Income Payments has the voting interest. After the Payout Start Date, the votes decrease as Income Payments are made and as the reserves for the Contract decrease. That person's number of votes will be determined by dividing the reserve for such Contract allocated to the applicable Sub-Account by the net asset value per share of the corresponding eligible Portfolio. SALES COMMISSION - ----------------------------------------------------------- From its profits the Company may pay a maximum sales commission of 6.0% of Purchase Payments and an annual sales administration expense allowance of up to 0.125% of the average net assets of the Fixed Account to Dean Witter Reynolds Inc., the principal underwriter of the Contracts. Dean Witter will pay annually to its Registered Representatives from its profits, an amount equal to .10% of the net assets of the Variable Account attributable to Contracts. 23 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
Page --- The Contract........................................................................................ 3 Purchase of Contracts........................................................................... 3 Value of Variable Account Accumulation Units.................................................... 3 Performance Data................................................................................ 3 Standardized Total Return........................................................................... 4 Other Total Returns............................................................................. 5 Transfers....................................................................................... 6 Tax-free Exchanges (1035 Exchanges, Rollovers, Transfers)....................................... 6 General Matters..................................................................................... 7 Recordkeeping Services.......................................................................... 7 Additions, Deletions or Substitution of Investments............................................. 7 Reinvestment.................................................................................... 7 Incontestability................................................................................ 7 Settlements..................................................................................... 7 Safekeeping of the Variable Account's Assets.................................................... 8 Experts......................................................................................... 8 Legal Matters................................................................................... 8 Federal Tax Matters................................................................................. 8 Introduction.................................................................................... 8 Taxation of Northbrook Life Insurance Company................................................... 8 Exceptions to the Non-Natural Owner Rule........................................................ 9 Penalty Tax on Premature Distributions.......................................................... 9 IRS Required Distribution at Death Rules........................................................ 9 Qualified Plans................................................................................. 9 Types of Qualified Plans............................................................................ 10 Individual Retirement Annuities................................................................. 10 Simplified Employee Pension Plans............................................................... 10 Tax Sheltered Annuities......................................................................... 10 Corporate and Self-Employed Pension and Profit Sharing Plans.................................... 10 State and Local Government and Tax-Exempt Organization Deferred Compensation Plans.............. 10 Voting Rights....................................................................................... 10 Sales Commissions................................................................................... 11 Financial Statements................................................................................ F-1
24 ORDER FORM - ----------------------------------------------------------- / / Please send me a copy of the most recent Statement of Additional Information for the Northbrook Variable Annuity II. - ------------------------ --------------------------------------------- (Date) (Name) --------------------------------------------- (Street Address) --------------------------------------------- (City) (State) (Zip Code)
Send to: Northbrook Life Insurance Company P.O. Box 94040 Palatine, IL 60094-4040 Attn: Annuity Services 25 (This page intentionally left blank) 26 STATEMENT OF ADDITIONAL INFORMATION NORTHBROOK VARIABLE ANNUITY ACCOUNT II OF NORTHBROOK LIFE INSURANCE COMPANY P.O. BOX 94040 PALATINE, IL 60094-4040 GROUP AND INDIVIDUAL VARIABLE ANNUITY CONTRACTS DISTRIBUTED BY DEAN WITTER REYNOLDS INC. TWO WORLD TRADE CENTER NEW YORK, NEW YORK 10048 ------------------- This Statement of Additional Information supplements the information in the Prospectus for the group or individual Flexible Premium Deferred Variable Annuity Contract (as used herein "Contract" includes "Certificates" and "Contracts") offered by Northbrook Life Insurance Company ("Company"), a wholly owned subsidiary of Allstate Life Insurance Company. The group and individual Contract is primarily designed to aid individuals in long-term financial planning and it can be used for retirement planning regardless of whether the plan qualifies for special federal income tax treatment. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT. You may obtain a copy of the Prospectus from Dean Witter Reynolds Inc. ("Dean Witter"), the principal underwriter and distributor of the Contract, by calling or writing Dean Witter at the address listed above. The Prospectus, dated December 31, 1996, has been filed with the United States Securities and Exchange Commission. DATED DECEMBER 31, 1996 TABLE OF CONTENTS
PAGE ----- THE CONTRACT...................................... 3 Purchase of Contracts........................... 3 Value of Variable Account Accumulation Units.... 3 Performance Data................................ 3 STANDARDIZED TOTAL RETURN......................... 4 Other Total Returns............................. 5 Transfers....................................... 6 Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers)................................. 6 GENERAL MATTERS................................... 7 Recordkeeping Services.......................... 7 Additions, Deletions or Substitutions of Investments.................................... 7 Reinvestment.................................... 7 Incontestability................................ 7 Settlements..................................... 7 Safekeeping of the Variable Account's Assets.... 8 Experts......................................... 8 Legal Matters................................... 8 FEDERAL TAX MATTERS............................... 8 PAGE ----- Introduction.................................... 8 Taxation of Northbrook Life Insurance Company... 8 Exceptions to the Non-Natural Owner Rule........ 9 Penalty Tax on Premature Distributions.......... 9 IRS Required Distribution at Death Rules........ 9 Qualified Plans................................. 9 TYPES OF QUALIFIED PLANS.......................... 10 Individual Retirement Annuities................. 10 Simplified Employee Pension Plans............... 10 Tax Sheltered Annuities......................... 10 Corporate and Self-Employed Pension and Profit Sharing Plans................................... 10 State and Local Government and Tax-Exempt Organization Deferred Compensation Plans........ 10 VOTING RIGHTS..................................... 10 SALES COMMISSIONS................................. 11 FINANCIAL STATEMENTS.............................. F-1
2 THE CONTRACT - -------------------------------------------------------------------------------- PURCHASE OF CONTRACTS The Contracts are offered to the public through brokers licensed under the federal securities laws and state insurance laws. The offering of the Contracts is continuous and the Company does not anticipate discontinuing the offering of the Contracts. However, the Company reserves the right to discontinue the offering of the Contracts. VALUE OF VARIABLE ACCOUNT ACCUMULATION UNITS The value of Variable Account Accumulation Units will vary in accordance with investment experience of the Portfolio in which the Sub-Account invests. The number of such Accumulation Units credited to a Contract will not, however, change as a result of any fluctuations in the Accumulation Unit value. The Accumulation Units in each Sub-Account of the Variable Account are valued separately. The value of Accumulation Units in any Valuation Period will depend upon the investment performance of the shares purchased by each Sub-Account in a particular Portfolio. The value of an Accumulation Unit in a Sub-Account for any Valuation Period equals the value of such a unit as of the immediately preceding Valuation Period, multiplied by the "Net Investment Factor" for that Sub-Account for the current Valuation Period. The Net Investment Factor for each Sub-Account for any Valuation Period is determined by dividing (A) by (B) and subtracting (C), where: (A) is the sum of: (1) the net asset value per share of the Portfolio(s) underlying the 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(s) underlying the Sub-Account during the current Valuation Period. (B) is the net asset value per share of the Portfolio(s) underlying the Sub-Account determined as of the end of the immediately preceding valuation period. (C) is the annualized Mortality and Expense Risk and Administrative Expense Charges divided by 365 and then multiplied by the number of calendar days in the current valuation period. PERFORMANCE DATA From time to time the Variable Account May publish advertisements containing performance data relating to its Sub-Accounts. The performance data for the Sub-Accounts (other than for the Money Market Sub-Account) will always be accompanied by total return quotations. A Sub-Account's "average annual total return" represents an annualization of the Sub-Account's total return over a particular period and is computed by finding the annual percentage rate which will result in the ending redeemable value of a hypothetical $1,000 Purchase Payment made at the beginning of a one, five or ten year period, or for a period from the date of commencement of the Sub-Account's operations, if shorter than any of the foregoing. The formula for computing the average annual total return involves a percentage obtained by dividing the ending redeemable value, including deductions for any Early Withdrawal Charges or Contract Maintenance Charges imposed on the Contracts by the Variable Account, by the initial hypothetical $1,000 Purchase Payment, taking the "n"th root of the quotient (where "n" is the number of years in the period) and subtracting 1 from the result. The Early Withdrawal Charges assessed upon redemption are computed as follows: The Free Withdrawal Amount is not assessed an Early Withdrawal Charge. Early Withdrawal Charges are charged on the amount of redemption equal to the Purchase 3 Payment, reduced by the Free Withdrawal Amount, if any. The remaining amount of the redemption, if any, is not assessed an Early Withdrawal Charge. The Early Withdrawal Charge Schedule specifies rates based on the Contract Year in which the Purchase Payment was made. One rate is specified for Purchase Payments made in the current Contract Year, another rate for Purchase Payments made in the prior Contract Year, another rate for Purchase Payments made in the second prior Contract Year, and so on until a rate for Purchase Payments made in the sixth prior Contract Year or prior to it is reached. For a one year total return calculation the second rate, (i.e., the rate for Purchase Payments made in the prior Contract Year), is assessed. The Contract Maintenance Charge ($30 per contract) used in the total return calculation is normally prorated using the following method: The total amount of annual Contract fees collected during the year is divided by the total average net assets of all the Sub-Accounts. The resulting percentage is then multiplied by the ending Cash Value. STANDARDIZED TOTAL RETURN - -------------------------------------------------------------------------------- The standardized average annual returns for the Sub-Accounts for the one-year, five-year and since inception periods ending December 31, 1995 are presented below: (WITHOUT ENHANCED DEATH BENEFIT)
SUB-ACCOUNT ONE-YEAR FIVE-YEARS SINCE INCEPTION* - ------------------------------------- --------- -------------------- Capital Growth.............. 26.83% N/A 8.33% Dividend Growth............. 30.25% 14.12% 15.80% Equity...................... 36.31% 19.17% 20.02% European Growth............. 19.89% N/A 13.91% Global Dividend Growth...... 16.09% N/A 7.83% High Yield.................. 9.16% 19.48% 16.17% Money Market................ N/A N/A N/A Pacific Growth.............. 0.01% N/A (4.52)% Quality Income Plus......... 18.38% 9.32% 9.82% Strategist.................. 3.62% 9.88% 10.53% Utilities................... 22.62% 11.28% 11.86% (WITH ENHANCED DEATH BENEFIT) (NOT ANNUALIZED) SUB-ACCOUNT SINCE INCEPTION** - ---------------------------- -------------------- Capital Growth.............. 2.21% Dividend Growth............. 1.97% Equity...................... (0.38)% European Growth............. (2.54)% Global Dividend Growth...... 0.90% High Yield.................. (3.33)% Money Market................ N/A Pacific Growth.............. (2.33)% Quality Income Plus......... (1.21)% Strategist.................. (2.58)% Utilities................... 0.86%
- -------------------------- * The Money Market, Quality Income Plus, High Yield, Utilities, Dividend Growth, Equity and Strategist Sub-Accounts commenced operation on October 25, 1990. The Capital Growth and European Growth Sub-Accounts commenced operation on March 1, 1991. The Global Dividend Growth and Pacific Growth Sub-Accounts commenced operation on February 23, 1994. ** The Sub-Accounts commenced operation on October 30, 1995. From time to time, sales literature or advertisements may also quote average annual total returns for periods prior to the date the Variable Account commenced operations. Such performance information for the Sub-Accounts will be calculated based on the performance of the Portfolios and the assumption that the Sub-accounts were in existence for the same periods as those indicated for the Portfolios, with the level of Contract charges currently in effect. 4 Such average annual total return information for the Sub-Accounts (including deduction of the Surrender Charge) is as follows: (WITHOUT ENHANCED DEATH BENEFIT)
SUB-ACCOUNT AND DATE 10-YEARS OR OF INCEPTION OF SINCE INCEPTION (IF CORRESPONDING PORTFOLIO 1 YEAR 5-YEARS LESS) - ---------------------------------- --------- -------------------- Capital Growth****....... 26.83% N/A 8.33% Dividend Growth***....... 30.25% 14.12% 10.22% Equity*.................. 36.31% 19.17% 11.96% European Growth****...... 19.89% N/A 13.91% Global Dividend Growth*****............. 16.09% N/A 7.83% High Yield*.............. 9.16% 19.48% 6.35% Money Market*............ N/A N/A N/A Pacific Growth*****...... 0.01% N/A (4.52)% Quality Income Plus**.... 18.38% 9.32% 8.05% Strategist**............. 3.62% 9.88% 7.92% Utilities***............. 22.62% 11.28% 10.22%
- -------------------------- *Portfolio inception date of March 9, 1984 **Portfolio inception date of March 1, 1987 ***Portfolio inception date of March 1, 1990 ****Portfolio inception date of March 1, 1991 *****Portfolio inception date of February 23, 1994 (WITH ENHANCED DEATH BENEFIT)
SUB-ACCOUNT AND DATE OF INCEPTION OF 10-YEARS OR SINCE CORRESPONDING PORTFOLIO 1 YEAR 5-YEARS INCEPTION (IF LESS) - ---------------------------------- --------- -------------------- Capital Growth****....... 26.66% N/A 8.18% Dividend Growth***....... 30.07% 13.97% 10.07% Equity*.................. 36.13% 19.01% 11.82% European Growth****...... 19.73% N/A 13.76% Global Dividend Growth*****............. 15.94% N/A 7.69% High Yield*.............. 9.01% 19.31% 6.21% Money Market*............ N/A N/A N/A Pacific Growth*****...... (0.13)% N/A (4.65)% Quality Income Plus**.... 18.22% 9.18% 7.90% Strategist**............. 3.48% 9.74% 7.77% Utilities***............. 22.45% 11.14% 10.07%
- -------------------------- *Portfolio inception date of March 9, 1984 **Portfolio inception date of March 1, 1987 ***Portfolio inception date of March 1, 1990 ****Portfolio inception date of March 1, 1991 *****Portfolio inception date of February 23, 1994 OTHER TOTAL RETURNS From time to time, sales literature or advertisements may also quote average annual total returns that do not reflect the Surrender Charge. These are calculated in exactly the same way as the average annual total returns described above, except that the ending redeemable value of the hypothetical account for the period is replaced with an ending value for the period that does not take into account any charges on amounts surrendered. Sales literature or advertisements may also quote such average annual total returns for periods prior to the date the Variable Account commenced operations, calculated based on the performance of the Portfolios and the assumption that the Sub-Accounts were in existence for the same periods as those indicated for the Portfolios, with the level of Contract charges currently in effect except for the Surrender Charge. Such average annual total return information for the Sub-Accounts (not including deduction of the Surrender Charge) is as follows: (WITHOUT ENHANCED DEATH BENEFIT)
SUB-ACCOUNT AND DATE 10-YEARS OR OF INCEPTION OF SINCE INCEPTION CORRESPONDING PORTFOLIO 1 YEAR 5-YEARS (IF LESS) - -------------------------- ----------- ----------- ----------------- Capital Growth****........ 31.14% N/A 8.64% Dividend Growth***........ 34.56% 14.27% 10.35% Equity*................... 40.63% 19.29% 12.01% European Growth****....... 24.21% N/A 14.17% Global Dividend Growth*****.............. 20.41% N/A 10.04% High Yield*............... 13.47% 19.60% 6.41% Money Market*............. N/A N/A N/A Pacific Growth*****....... 4.32 % N/A (2.08)% Quality Income Plus**..... 22.70 % 9.49 % 8.09 % Strategist**.............. 7.93 % 10.05 % 7.96 % Utilities***.............. 26.93 % 11.44 % 10.35 %
- -------------------------- *Portfolio inception date of March 9, 1984 **Portfolio inception date of March 1, 1987 ***Portfolio inception date of March 1, 1990 ****Portfolio inception date of March 1, 1991 *****Portfolio inception date of February 23, 1994 5 (WITH ENHANCED DEATH BENEFIT)
SUB-ACCOUNT AND DATE 10-YEARS OR OF INCEPTION OF SINCE INCEPTION CORRESPONDING PORTFOLIO 1-YEAR 5-YEARS (IF LESS) - ------------------------- ----------- ----------- ----------------- Capital Growth****....... 30.97% N/A 8.49% Dividend Growth***....... 34.39% 14.12% 10.21% Equity*.................. 40.45% 19.14% 11.86% European Growth****...... 24.05% N/A 14.02% Global Dividend Growth*****............. 20.25% N/A 9.89% High Yield*.............. 13.33% 19.44% 6.27% Money Market*............ N/A N/A N/A Pacific Growth*****...... 4.19% N/A (2.21)% Quality Income Plus**.... 22.54% 9.35% 7.95% Strategist**............. 7.79% 9.90% 7.82% Utilities***............. 26.77% 11.30% 10.21%
- -------------------------- *Portfolio inception date of March 9, 1984 **Portfolio inception date of March 1, 1987 ***Portfolio inception date of March 1, 1990 ****Portfolio inception date of March 1, 1991 *****Portfolio inception date of February 23, 1994 The Variable Account may also advertise the performance of the Sub-Accounts relative to certain performance rankings and indexes compiled by independent organizations, such as: (a) Lipper Analytical Services, Inc.; (b) the Standard & Poor's 500 Composite Stock Price Index ("S & P 500"); and, (c) A.M. Best Company. TRANSFERS The Owner may transfer amounts from one investment alternative to another prior to the Payout Start Date. Transfers are subject to the following restrictions: 1. The minimum amount that may be transferred from an investment alternative is $100; if the total amount in an investment alternative is less than $100, the entire amount may be transferred. 2. The minimum transfer to any Guarantee Period of the Fixed Account is $500. 3. The maximum amount in any Contract Year which may be transferred from the Fixed Account to the Variable Account or between Guarantee Periods of the Fixed Account is limited to the greater of (1) 25% of the value in the Fixed Account as of the most recent Contract Anniversary; if 25% of the value as of the most recent Contract Anniversary is greater than zero but less than $1,000, then up to $1,000 May be transferred; or (2) 25% of the sum of all Purchase Payments and transfers to the Fixed Account as of the most recent Contract Anniversary. 4. If the first renewal interest rate is less than the current rate that was in effect at the time money was allocated or transferred to the Fixed Account, the 25% transfer restriction for that money and the accumulated interest thereon will be waived during the 60 day period following the first renewal date. The Company reserves the right to assess transfer fees. TAX-FREE EXCHANGES (1035 EXCHANGES, ROLLOVERS AND TRANSFERS) The Company accepts Purchase Payments which are the proceeds of a Contract in a transaction qualifying for a tax-free exchange under Section 1035 of the Internal Revenue Code. Except as required by federal law in calculating the basis of the Contract, the Company does not differentiate between Section 1035 Purchase Payments and non-Section 1035 Purchase Payments. The Company also accepts "rollovers" and transfers from Contracts qualifying as tax-sheltered annuities (TSAs), individual retirement annuities or accounts, (IRAs), or any other Qualified Contract which is eligible to "rollover" into an IRA. The Company differentiates between Non-Qualified Contracts, TSAs, IRAs and other Qualified Contracts to the extent necessary to comply with federal tax laws. For example, the Company restricts the assignment, transfer or pledge of TSAs and IRAs so the 6 Contracts will continue to qualify for special tax treatment. An 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. GENERAL MATTERS - -------------------------------------------------------------------------------- RECORDKEEPING SERVICES In 1993, the Company paid $336,207.59 to Vantage for its services from January 1, 1993 through October 3, 1993. The basis for the fee was an annual fee of $16 per policy, plus out-of-pocket expenses for fees for enhancements. As of October 4, 1993, the Company performs all Contract recordkeeping services. ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS The Company retains the right, subject to any applicable law, to make additions to, deletions from or substitutions for the Portfolio shares held by any Sub-Account of the Variable Account. The Company reserves the right to eliminate the shares of any of the Portfolios and to substitute shares of another Portfolio of the Fund, or of another open-end, registered investment company, if the shares of the Portfolio are no longer available for investment, or if, in the Company's judgment, investment in any Portfolio would become inappropriate in view of the purposes of the Variable Account. Substitutions of shares attributable to an Owner's interest in a Sub-Account will not be made until the Owner has been notified of the change, and until the Securities and Exchange Commission has approved the change, to the extent such notification and approval is required by the Investment Company Act of 1940. 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 Owners. The Company may also establish additional Sub-Accounts of the Variable Account. Each additional Sub-Account would purchase shares in a new Portfolio of the Fund or in another mutual fund. New Sub-Accounts may be established when, in the sole discretion of the Company, marketing needs or investment conditions warrant. Any new Sub-Accounts will be made available to existing Owners on a basis to be determined by the Company. The Company may also eliminate one or more Sub-Accounts if, in its sole discretion, marketing, tax or investment conditions so warrant. In the event of any such substitution or change, the Company may, by appropriate endorsement, make such changes in the Contract as may be necessary or appropriate to reflect such substitution or change. If deemed to be in the best interests of persons having voting rights under the policies, the Variable Account may be operated as a management company under the Investment Company Act of 1940 or it may be deregistered under such Act in the event such registration is no longer required. REINVESTMENT All dividends and capital gains distributions from the Portfolios are automatically reinvested in shares of the distributing Portfolio at their net asset value. INCONTESTABILITY The Contract will not be contested after it is issued. SETTLEMENTS The Contract must be returned to the Company prior to any settlement. Due proof of the Owner(s) or the Annuitant's (and any Joint Annuitant's) death must be received prior to settlement of a death claim. 7 SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS The Company holds title to the assets of the Variable Account. The assets are kept physically segregated and held separate and apart from the Company's general corporate assets. Records are maintained of all purchases and redemptions of the Portfolio shares held by each of the Sub-Accounts. The Dean Witter Variable Investment Series ("Fund") does not issue certificates and, therefore, the Company holds the Account's assets in open account in lieu of stock certificates. See the Fund's Prospectus for a more complete description of the Fund's custodian. EXPERTS The financial statements of the Variable Account and the financial statements and financial statement schedule of the Company appearing in this Statement of Additional Information (which is incorporated by reference in the prospectus of Northbrook Variable Annuity Account II of Northbrook Life Insurance Company) have been audited by Deloitte & Touche LLP, Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, Illinois, independent auditors, as stated in their reports appearing herein and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. LEGAL MATTERS Legal advice regarding certain matters relating to the federal securities laws applicable to the issue and sale of the Contracts has been provided by Routier and Johnson, P.C., of Washington, D.C.. All matters of Illinois law pertaining to the Contracts, including the validity of the Contracts and the Company's right to issue such Contracts under Illinois insurance law, have been passed upon by Michael J. Velotta, General Counsel of Northbrook Life Insurance Company. FEDERAL TAX MATTERS - -------------------------------------------------------------------------------- INTRODUCTION THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE COMPANY 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 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 The Company is taxed as a life insurance company under Part I of Subchapter L of the Internal Revenue Code. The following discussion assumes that the Company is taxed as a life insurance company under Part I of Subchapter L. Since the Variable Account is not an entity separate from the Company, and its operations form a part of the Company, it will not be taxed separately as a "regulated Investment Company" under Subchapter M of the Code. Investment income and realized capital gains are automatically applied to increase reserves under the contract. Under existing federal income tax law, the Company believes that the Variable Account investment income and realized net capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the contract. Accordingly, the Company does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore the Company does not intend to make provisions for any such taxes. However, if changes in the federal tax laws or interpretations thereof result in the Company being taxed on income or gains attributable to 8 the Variable Account, then the Company may impose a charge against the Variable Account (with respect to some or all contracts) in order to set aside provisions to pay such taxes. EXCEPTIONS TO THE NON-NATURAL OWNER RULE There are several exceptions to the general rule that 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. PENALTY TAX ON PREMATURE DISTRIBUTIONS There is a 10% penalty tax on the taxable amount of any payment received from a non-qualified annuity contract unless: (1) made after the owner reaches 59 1/2; (2) attributable to the owner's disability; (3) attributable to investment before August 14, 1982, including earnings on pre-August 14, 1982 investment; (4) made from certain qualified contracts; (5) made after the death of the owner; (6) made under an immediate annuity contract; (7) made from an annuity purchased and held by an employer upon the termination of a qualified retirement plan; (8) made under a qualified funding asset; (9) made as part of a series of substantially equal periodic payments (not less frequently than annually) for the life of or life expectancy of the owner or the joint lives of joint life expectancies of the owner and designated beneficiary. Similar rules apply in the case of qualified contracts. 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 This annuity contract may be used with several types of qualified plans. The tax rules applicable to participants in such qualified plans vary according to the type of plan and the terms and conditions of the plan itself. Adverse tax consequences may result from excess contributions, premature distributions, distributions that do not conform to specified commencement and minimum distribution rules, excess distributions and in other circumstances. Owners and participants under the plan and annuitants and beneficiaries under the contract may be subject to 9 the terms and conditions of the plan regardless of the terms of the contract. TYPES OF QUALIFIED PLANS INDIVIDUAL RETIREMENT ANNUITIES Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity. Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence. Certain distributions from other types of qualified plans may be "rolled over" on a tax-deferred basis into an Individual Retirement Annuity. SIMPLIFIED EMPLOYEE PENSION PLANS Section 408(k) of the Code allows employers to establish simplified employee pension plans for their employees using the employees' individual retirement annuities if certain criteria are met. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employees to their individual retirement annuities. 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 after the employee attains age 59 1/2, separates from service, dies, becomes disabled or in the case of hardship (earnings on salary reduction contributions may not be distributed for hardship). 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. Generally, under the non-natural owner rules, such contracts are not treated as annuity contracts for federal income tax purposes. VOTING RIGHTS - -------------------------------------------------------------------------------- The number of votes which a person has the right to instruct will be calculated separately for each Sub-Account. That number will be determined by applying his/her percentage interest, if any, in a particular Sub-Account to the total number of votes attributable to the Sub-Account. The number of votes of the Portfolio which an Owner has a right to instruct will be determined as of the date coincident with the date established by that Portfolio for determining shareholders eligible to vote at the meeting of the Fund. Voting instructions will be solicited by written communication prior to such meeting in accordance with procedures established by the Fund. Fund shares as to which no timely instructions are received will be voted in proportion to the voting instructions which are received with respect to all Contracts participating in that Sub-Account. Voting 10 instructions to abstain on any item to be voted upon will be applied on a pro rata basis to reduce the votes eligible to be cast. Each person having a voting interest in a Sub-Account will receive proxy material, reports and other materials relating to the appropriate Portfolio. SALES COMMISSIONS - -------------------------------------------------------------------------------- The Company pays Dean Witter for its underwriting and general agent's services a sales commission of up to 6.0% of the Purchase Payments and sales administration expense allowance of up to 0.125% of the average net assets of the Fixed Account. These commissions are intended to cover Dean Witter's expenses in distributing and selling the Contracts. In addition, sale of the Contract may count toward incentive program awards for the Registered Representative. In accordance with the Underwriting and General Agent's Agreements between Dean Witter and the Company, Dean Witter offers for sale and sells the Contracts, prepares sales or promotional literature and prints and distributes the Prospectuses to prospective purchasers. The Company paid Dean Witter sales commission in the amount of $32,937,708 in 1995, $42,196,817 in 1994 and $65,164,096 in 1993 for its services under these agreements. These fees are based on sales commissions. Under the Underwriting Agreement and Managing General Agent's Agreement between Dean Witter and the Company, Dean Witter is responsible for paying costs and expenses associated with licensing its agents, paying agent's commissions, printing, mailing and distributing the Prospectus to prospective purchasers; and preparing, printing and distributing sales literature. In the event the commissions fail to adequately compensate Dean Witter for these expenses, Dean Witter will pay these expenses from its own funds. 11 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 as of December 31, 1995 and 1994, and the related Statements of Operations, Shareholder's Equity and Cash Flows for each of the three years in the period ended December 31, 1995. Our audits also included Schedule IV -- Reinsurance. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Northbrook Life Insurance Company as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, Schedule IV - -- Reinsurance, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 3 to the financial statements, in 1993 the Company changed its method of accounting for investment in fixed income securities. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois March 1, 1996 F-1 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, -------------------------- 1995 1994 ------------ ------------ ($ IN THOUSANDS) Assets Investments Fixed income securities Available for sale, at fair value (amortized cost $59,142 and $61,581)............... $ 63,229 $ 59,191 Short-term............................................................................. 8,049 3,374 ------------ ------------ Total investments.................................................................. 71,278 62,565 Reinsurance recoverable from Allstate Life Insurance Company............................. 2,636,981 3,085,781 Cash..................................................................................... 87 59 Deferred income taxes.................................................................... 77 Net receivable from Allstate Life Insurance Company...................................... 6,183 8,895 Other assets............................................................................. 2,164 2,233 Separate Accounts........................................................................ 3,354,910 2,604,623 ------------ ------------ Total assets....................................................................... $ 6,071,603 $ 5,764,233 ------------ ------------ ------------ ------------ Liabilities Reserve for life insurance policy benefits............................................... $ 139,509 $ 134,942 Contractholder funds..................................................................... 2,497,278 2,950,532 Income taxes payable..................................................................... 233 4,634 Deferred income taxes.................................................................... 2,798 Separate Accounts........................................................................ 3,354,910 2,604,623 ------------ ------------ Total liabilities.................................................................. 5,994,728 5,694,731 ------------ ------------ 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 Unrealized net capital gains (losses).................................................... 2,657 (1,553) Retained income.......................................................................... 15,118 11,955 ------------ ------------ Total shareholder's equity......................................................... 76,875 69,502 ------------ ------------ Total liabilities and shareholder's equity......................................... $ 6,071,603 $ 5,764,233 ------------ ------------ ------------ ------------
See notes to financial statements. F-2 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- ($ IN THOUSANDS) Revenues Net investment income................................................................... $ 4,782 $ 2,881 $ 2,934 Realized capital gains and losses....................................................... 67 (193) 323 --------- --------- --------- Income before income taxes................................................................ 4,849 2,688 3,257 Income tax expense........................................................................ 1,686 955 750 --------- --------- --------- Net income................................................................................ $ 3,163 $ 1,733 $ 2,507 --------- --------- --------- --------- --------- ---------
See notes to financial statements. F-3 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF SHAREHOLDER'S EQUITY
UNREALIZED ADDITIONAL NET CAPITAL COMMON CAPITAL GAINS RETAINED STOCK PAID-IN (LOSSES) INCOME TOTAL ----------- ----------- ----------- --------- --------- ($ IN THOUSANDS) Balance, December 31, 1992.................................. $ 2,500 $ 31,600 $ 7,715 $ 41,815 Net income................................................ 2,507 2,507 Change in unrealized net capital gains and losses......... $ 747 747 ----------- ----------- ----------- --------- --------- Balance, December 31, 1993.................................. 2,500 31,600 747 10,222 45,069 Net income................................................ 1,733 1,733 Change in unrealized net capital gains and losses......... (2,300) (2,300) Capital contribution...................................... 25,000 25,000 ----------- ----------- ----------- --------- --------- Balance, December 31, 1994.................................. 2,500 56,600 (1,553) 11,955 69,502 Net income................................................ 3,163 3,163 Change in unrealized net capital gains and losses......... 4,210 4,210 ----------- ----------- ----------- --------- --------- Balance, December 31, 1995.................................. $ 2,500 $ 56,600 $ 2,657 $ 15,118 $ 76,875 ----------- ----------- ----------- --------- --------- ----------- ----------- ----------- --------- ---------
See notes to financial statements. F-4 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- ($ IN THOUSANDS) Cash flows from operating activities Net income....................................................................... $ 3,163 $ 1,733 $ 2,507 Adjustments to reconcile net income to net cash from operating activities Realized capital (gains) losses................................................ (67) 193 (323) Amortization and other non-cash items.......................................... 903 640 415 Net change in reserve for policy benefits and contractholder funds............. 113 (58) 18,338 Change in deferred income taxes................................................ 608 (114) 1,227 Changes in other operating assets and liabilities.............................. (2,705) (3,835) (19,325) ---------- ---------- ---------- Net cash from operating activities........................................... 2,015 (1,441) 2,839 ---------- ---------- ---------- Cash flows from investing activities Fixed income securities Proceeds from sales............................................................ 5,423 1,256 14,279 Investment collections......................................................... 7,108 7,626 10,375 Investment purchases........................................................... (9,843) (36,071) (29,778) Change in short-term investments, net............................................ (4,675) 3,475 2,369 ---------- ---------- ---------- Net cash from investing activities........................................... (1,987) (23,714) (2,755) ---------- ---------- ---------- Cash flows from financing activities Capital contribution............................................................. 25,000 ---------- ---------- ---------- Net cash from financing activities........................................... 25,000 ---------- ---------- ---------- Net increase (decrease) in cash.................................................... 28 (155) 84 Cash at beginning of year.......................................................... 59 214 130 ---------- ---------- ---------- Cash at end of year................................................................ $ 87 $ 59 $ 214 ---------- ---------- ---------- ---------- ---------- ----------
See notes to financial statements. F-5 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS ($ IN THOUSANDS) 1. ORGANIZATION AND NATURE OF OPERATIONS Northbrook Life Insurance Company (the "Company") is wholly owned by Allstate Life Insurance Company ("Allstate Life"), which is wholly owned by Allstate Insurance Company ("Allstate"), a wholly-owned subsidiary of The Allstate Corporation (the "Corporation"). On June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed its 80.3% ownership in the Corporation to Sears common shareholders through a tax-free dividend (the "Distribution"). The Company develops and markets single and flexible premium annuities and flexible premium deferred and variable annuity contracts to individuals in the United States through Dean Witter Reynolds ("Dean Witter")(Note 4). Other products include universal life and single premium life insurance. Annuity contracts issued by the Company are subject to discretionary withdrawal or surrender by the contractholder, subject to applicable surrender charges. These contracts are reinsured with Allstate Life (Note 4) which selects assets to meet the anticipated cash flow requirements of the assumed liabilities. Allstate Life utilizes various modeling techniques in managing the relationship between assets and liabilities and employs strategies to maintain investments which are sufficiently liquid to meet obligations to contractholders in various interest rate scenarios. The Company monitors economic and regulatory developments which have the potential to impact its business. Currently there is proposed federal legislation which would permit banks greater participation in securities businesses, which could eventually present an increased level of competition for sales of the Company's annuity contracts. Furthermore, the federal government may enact changes which could possibly eliminate the tax-advantaged nature of annuities or eliminate consumers' need for tax deferral, thereby reducing the incentive for customers to purchase the Company's products. While it is not possible to predict the outcome of such issues with certainty, management evaluates the likelihood of various outcomes and develops strategies, as appropriate, to respond to such challenges. Certain reclassifications have been made to the prior year financial statements to conform to the presentation for the current year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES LIFE INSURANCE ACCOUNTING The Company writes long-duration insurance contracts with terms that are not fixed and guaranteed and single premium life insurance contracts, which are considered universal life-type contracts. The Company also sells long-duration contracts that do not involve significant risk of policyholder mortality or morbidity (principally single and flexible premium annuities, structured settlement annuities and supplemental contracts when sold without life contingencies) which are considered investment contracts. Limited payment contracts (policies with premiums paid over a period shorter than the contract period), primarily consist of structured settlement annuities and supplemental contracts when sold with life contingencies. F-6 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) ($ IN THOUSANDS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) TRADITIONAL LIFE The reserve for life insurance policy benefits, which relates to structured settlement annuities and supplementary contracts when sold with life contingencies, is computed on the basis of assumptions as to future investment yields, mortality, morbidity, terminations and expenses. These assumptions, which for traditional life are applied using the net level premium method, include provisions for adverse deviation and generally vary by such characteristics as plan, year of issue and policy duration. Reserve interest rates ranged from 7.3% to 9.5% during 1995. UNIVERSAL LIFE-TYPE CONTRACTS Reserves for universal life-type contracts are established using the retrospective deposit method. Under this method, liabilities are equal to the account balance that accrues to the benefit of the policyholder. CONTRACTHOLDER FUNDS Contractholder funds arise from the issuance of individual contracts that include an investment component, including universal life-type contracts. Payments received are recorded as interest-bearing liabilities. Contractholder funds are equal to deposits received and interest accrued to the benefit of the contractholder less withdrawals, mortality charges and administrative expenses. During 1995, credited interest rates on contractholder funds ranged from 3.0% to 8.0% for those contracts with fixed interest rates and from 3.0% to 8.7% for those with flexible rates. SEPARATE ACCOUNTS The Company issues flexible premium deferred variable annuity contracts, the assets and liabilities of which are legally segregated and reflected in the accompanying statements of financial position as assets and liabilities of the Separate Accounts. Assets and liabilities of the Separate Accounts represent funds of Northbrook Variable Annuity Account and Northbrook Variable Annuity Account II ("Separate Accounts"), unit investment trusts registered with the Securities and Exchange Commission. The assets of the Separate Accounts are carried at fair value. Investment income and realized gains and losses of the Separate Accounts accrue directly to the contractholders and, therefore, are not included in the accompanying statements of operations. Revenues to the Company from the Separate Accounts consist of contract maintenance fees, administrative fees and mortality and expense risk charges, which are entirely ceded to Allstate Life. REINSURANCE Premiums, contract charges, credited interest, and policy benefits are ceded and reflected net of such cessions in the statements of operations. Reinsurance recoverable and the related reserves for policy benefits and contractholder funds are reported separately in the statements of financial position. INVESTMENTS Fixed income securities include bonds and mortgage-backed securities. Fixed income securities are carried at fair value. The difference between amortized cost and fair value, net of deferred income taxes, is reflected as a F-7 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) ($ IN THOUSANDS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) component of shareholder's equity. Provisions are made to write down the value of fixed income securities for declines in value that are other than temporary. Such writedowns are included in realized capital gains and losses. Short-term investments are carried at cost which approximates fair value. Investment income consists primarily of interest, which 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. Realized capital gains and losses are determined on a specific identification basis. INCOME TAXES The income tax provision is calculated under the liability method. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities and the enacted tax rates. Deferred income taxes also arise from unrealized capital gains or losses on fixed income securities carried at fair value. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. ACCOUNTING CHANGE Effective December 31, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS No. 115 requires that investments classified as available for sale be carried at fair value. Previously, fixed income securities classified as available for sale were carried at the lower of amortized cost or fair value, determined in the aggregate. Unrealized holding gains and losses are reflected as a separate component of shareholder's equity, net of deferred income taxes. The net effect of adoption of this statement increased shareholder's equity at December 31, 1993 by $747, with no impact on net income. 4. RELATED PARTY TRANSACTIONS REINSURANCE The Company reinsures substantially all business with Allstate Life. Premiums and contract charges ceded to Allstate Life were $2,284 and $52,348 in 1995, $1,886 and $38,306 in 1994, and $2,688 and $22,446 in 1993. Credited interest, policy benefits and other expenses ceded to Allstate Life amounted to $229,525, $243,326, and $525,467 in 1995, 1994, and 1993, respectively. Investment income earned on the assets which support contractholder funds was excluded from the Company's financial statements as those assets were transferred to Allstate Life under the terms of reinsurance treaties. Reinsurance ceded arrangements do not discharge the Company as the primary insurer. F-8 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) ($ IN THOUSANDS) 4. RELATED PARTY TRANSACTIONS (CONTINUED) BUSINESS OPERATIONS The Company utilizes services and business facilities owned or leased, and operated by Allstate in conducting its business activities. The Company reimburses Allstate for the operating expenses incurred by Allstate. The cost to the Company is determined by various allocation methods and is primarily related to the level of services provided. Operating expenses, including compensation and retirement and other benefit programs, allocated to the Company were $5,341, $5,483 and $5,301 in 1995, 1994 and 1993, respectively. Investment-related expenses are retained by the Company. All other costs are assumed by Allstate Life under reinsurance agreements. DEAN WITTER The Company and Allstate Life have formed a strategic alliance with Dean Witter to develop, market and distribute proprietary annuity and life insurance products through Dean Witter account executives. Dean Witter provides a portion of the funding for these products through loans to an affiliate of the Company. Under the terms of the strategic alliance, which is cancelable by either party, the Company has agreed to use Dean Witter as an exclusive distribution channel for the Company's products. Dean Witter is also the investment manager for the Dean Witter Variable Investment Series, the fund in which the assets of the Separate Accounts are invested. 5. INCOME TAXES Allstate Life and its life insurance subsidiaries, including the Company, will file a consolidated federal income tax return. Tax liabilities and benefits realized by the consolidated group are allocated as generated by the respective subsidiaries, whether or not such benefits generated by the subsidiaries would be available on a separate return basis. The Corporation and its domestic subsidiaries, including the Company (the "Allstate Group"), will be eligible to file a consolidated tax return beginning in the year 2000. Prior to the Distribution, the Allstate Group joined with Sears and its domestic business units (the "Sears Group") in the filing of a consolidated federal income tax return (the "Sears Tax Group") and were parties to a federal income tax allocation agreement (the "Tax Sharing Agreement"). As a member of the Sears Tax Group, the Corporation was jointly and severally liable for the consolidated income tax liability of the Sears Tax Group. Under the Tax Sharing Agreement, the Company, through the Corporation, paid to or received from the Sears Group the amount, if any, by which the Sears Tax Group's federal income tax liability was affected by virtue of inclusion of the Allstate Group in the consolidated federal income tax return. Effectively, this resulted in the Company's annual income tax provision being computed as if the Company filed a separate return, except that items such as net operating losses, capital losses, foreign tax credits, or similar items which might not be immediately recognizable in a separate return, were allocated according to the Tax Sharing Agreement and reflected in the Company's provision to the extent that such items reduced the Sears Tax Group's federal tax liability. The Allstate Group and Sears Group have entered into an agreement which governs their respective rights and obligations with respect to federal income taxes for all periods prior to the Distribution ("Consolidated Tax Years"). The agreement provides that all Consolidated Tax Years will continue to be governed by the Tax Sharing F-9 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) ($ IN THOUSANDS) 5. INCOME TAXES (CONTINUED) Agreement with respect to the Company's federal income tax liability and taxes payable to or recoverable from the Sears Group. The components of the deferred income tax assets and liabilities at December 31, 1995 and 1994 are as follows:
1995 1994 --------- --------- Deferred assets Unrealized net capital losses on fixed income securities.................... $ $ 837 --------- --------- Total deferred assets..................................................... 837 --------- --------- Deferred liabilities Difference in tax bases of investments...................................... (1,368) (760) Unrealized net capital gains on fixed income securities..................... (1,430) --------- --------- Total deferred liabilities................................................ (2,798) (760) --------- --------- Net deferred (liability) asset................................................ $ (2,798) $ 77 --------- --------- --------- ---------
F-10 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) ($ IN THOUSANDS) 5. INCOME TAXES (CONTINUED) The components of income tax expense are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Current................................................................. $ 1,078 $ 1,069 $ 641 Deferred................................................................ 608 (114) 109 --------- --------- --------- Income tax expense...................................................... $ 1,686 $ 955 $ 750 --------- --------- --------- --------- --------- ---------
The Company paid income taxes of $4,206, $4,219 and $1,175 in 1995, 1994 and 1993, respectively under the Tax Sharing Agreement. Included in these amounts are $2,651, $2,826 and $1,111 reimbursed to the Company by Allstate Life under the terms of reinsurance agreements for 1995, 1994 and 1993, respectively. The Company had income taxes payable to Allstate Life of $233 and $4,634 at December 31, 1995 and 1994, respectively. A reconciliation of the statutory federal income tax rate to the effective federal income tax rate is as follows:
YEAR ENDED DECEMBER 31, ------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Statutory federal income tax rate..................................... 35.0% 35.0% 35.0% Dividends received deduction.......................................... (10.6) Tax-exempt income..................................................... (1.7) Other................................................................. (0.3) 0.5 0.3 --- ----- ----- Effective federal income tax rate..................................... 34.7% 35.5% 23.0% --- ----- ----- --- ----- -----
F-11 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) ($ IN THOUSANDS) 6. INVESTMENTS FAIR VALUES The amortized cost, fair value and gross unrealized gains and losses for fixed income securities are as follows:
GROSS UNREALIZED AMORTIZED -------------------- FAIR COST GAINS LOSSES VALUE ----------- --------- --------- --------- AT DECEMBER 31, 1995 U.S. government and agencies...................................... $ 8,619 $ 880 $ $ 9,499 Municipal......................................................... 1,583 83 1,666 Corporate......................................................... 4,967 349 5,316 Mortgage-backed securities........................................ 43,973 3,003 228 46,748 ----------- --------- --------- --------- Totals........................................................ $ 59,142 $ 4,315 $ 228 $ 63,229 ----------- --------- --------- --------- ----------- --------- --------- --------- GROSS UNREALIZED AMORTIZED -------------------- FAIR COST GAINS LOSSES VALUE ----------- --------- --------- --------- AT DECEMBER 31, 1994 U.S. government and agencies...................................... $ 9,619 $ 49 $ 825 $ 8,843 Municipal......................................................... 1,642 77 3 1,716 Corporate......................................................... 3,172 63 3,109 Mortgage-backed securities........................................ 47,148 75 1,700 45,523 ----------- --------- --------- --------- Totals........................................................ $ 61,581 $ 201 $ 2,591 $ 59,191 ----------- --------- --------- --------- ----------- --------- --------- ---------
SCHEDULED MATURITIES The scheduled maturities for fixed income securities at December 31, 1995 are as follows:
AMORTIZED COST FAIR VALUE --------------- ----------- Due in one year or less......................................................... $ 270 $ 272 Due after one year through five years........................................... 3,021 3,182 Due after five years through ten years.......................................... 4,647 5,124 Due after ten years............................................................. 7,231 7,903 ------- ----------- 15,169 16,481 Mortgage-backed securities...................................................... 43,973 46,748 ------- ----------- Total....................................................................... $ 59,142 $ 63,229 ------- ----------- ------- -----------
Actual maturities may differ from those scheduled as a result of prepayments by the issuers. F-12 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) ($ IN THOUSANDS) 6. INVESTMENTS (CONTINUED) UNREALIZED NET CAPITAL GAINS AND LOSSES Unrealized net capital gains and losses on fixed income securities included in shareholder's equity at December 31, 1995 are as follows:
UNREALIZED NET AMORTIZED COST FAIR VALUE GAINS/(LOSSES) --------------- ----------- --------------- Fixed income securities........................................ $ 59,142 $ 63,229 $ 4,087 ------- ----------- ------- ----------- Deferred income taxes.......................................... (1,430) ------- Total...................................................... $ 2,657 ------- -------
The change in unrealized net capital gains and losses for fixed income securities is as follows:
YEAR ENDED DECEMBER 31, -------------------- 1995 1994 --------- --------- Fixed income securities................................................................. $ 6,477 $ (3,539) Deferred income taxes................................................................... (2,267) 1,239 --------- --------- Change in unrealized net capital gains and losses................................... $ 4,210 $ (2,300) --------- --------- --------- ---------
COMPONENTS OF INVESTMENT INCOME Investment income by type of investment is as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Investment income: Fixed income securities....................................................... $ 4,633 $ 2,735 $ 2,793 Short-term.................................................................... 215 192 172 --------- --------- --------- Investment income, before expense............................................... 4,848 2,927 2,965 Investment expense.............................................................. 66 46 31 --------- --------- --------- Net investment income....................................................... $ 4,782 $ 2,881 $ 2,934 --------- --------- --------- --------- --------- ---------
REALIZED CAPITAL GAINS AND LOSSES Realized capital gains and losses on investments are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Fixed income securities............................................................. $ 67 $ (193) $ 323 Income tax (expense) benefit........................................................ (23) 68 (113) --- --------- --------- Net realized gains (losses)......................................................... $ 44 $ (125) $ 210 --- --------- --------- --- --------- ---------
F-13 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) ($ IN THOUSANDS) 6. INVESTMENTS (CONTINUED) PROCEEDS FROM SALES OF FIXED INCOME SECURITIES The proceeds from sales of investments in fixed income securities, excluding calls, and related gross realized gains and losses are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Proceeds...................................................................... $ 5,423 $ 1,256 $ 14,279 --------- --------- --------- --------- --------- --------- Gross realized gains.......................................................... $ 67 $ 318 Gross realized losses......................................................... $ (179) (34) --------- --------- --------- Net realized gains (losses)................................................... $ 67 $ (179) $ 284 --------- --------- --------- --------- --------- ---------
SECURITIES ON DEPOSIT At December 31, 1995, fixed income securities with a carrying value of $8,041 were on deposit with regulatory authorities as required by law. 7. FINANCIAL INSTRUMENTS In the normal course of business, the Company invests in various financial assets and incurs various financial liabilities. The assets and liabilities of the Separate Accounts are carried at the fair value of the funds in which the assets are invested. The fair value of all financial assets other than fixed income securities and all liabilities other than contractholder funds approximates their carrying value as they are short-term in nature. Fair values for fixed income securities are based on quoted market prices. The December 31, 1995 and 1994 fair values and carrying values of fixed income securities are discussed in Note 6. The fair value of contractholder funds related to investment contracts is based on the terms of the underlying contracts. Reserves on investment contracts with no stated maturities (single premium and flexible premium deferred annuities) are valued at the fund balance less surrender charge. The fair value of immediate annuities and annuities without life contingencies with fixed terms are estimated using discounted cash flow calculations based on interest rates currently offered for contracts with similar terms and duration. Contractholder funds on investment contracts had a carrying value of $2,294,536 at December 31, 1995 and a fair value of $2,274,053. The carrying value and fair value at December 31, 1994 were $2,738,823 and $2,685,448, respectively. F-14 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) ($ IN THOUSANDS) 8. STATUTORY FINANCIAL INFORMATION The following tables reconcile net income and shareholder's equity as reported herein in conformity with generally accepted accounting principles with statutory net income and capital and surplus, determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities:
NET INCOME ------------------------------- YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Balance per generally accepted accounting principles............................ $ 3,163 $ 1,733 $ 2,507 Income taxes.................................................................. (88) (114) 825 Non-admitted assets and statutory reserves.................................... (775) (27) (91) --------- --------- --------- Balance per statutory accounting principles..................................... $ 2,300 $ 1,592 $ 3,241 --------- --------- --------- --------- --------- ---------
SHAREHOLDER'S EQUITY DECEMBER 31, -------------------- 1995 1994 --------- --------- Balance per generally accepted accounting principles................................... $ 76,875 $ 69,502 Income taxes......................................................................... (1,614) (77) Unrealized net capital gains (losses)................................................ (4,087) 2,390 Non-admitted assets and statutory reserves........................................... 1,891 (1,086) --------- --------- Balance per statutory accounting principles............................................ $ 73,065 $ 70,729 --------- --------- --------- ---------
PERMITTED STATUTORY ACCOUNTING PRACTICES The Company prepares its statutory financial statements in accordance with accounting principles and practices prescribed or permitted by the insurance department of the State of Illinois. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners, 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 material effect on statutory surplus or risk-based capital. 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 insurance companies without the prior approval of the state insurance regulator is limited to formula amounts based on net income and capital and surplus, determined in accordance with statutory accounting practices, as well as the timing and amount of dividends paid in the preceding twelve months. The maximum amount of dividends that the Company can distribute during 1996 without prior approval of both the Illinois and California Departments of Insurance is $7,057. F-15 NORTHBROOK LIFE INSURANCE COMPANY SCHEDULE IV--REINSURANCE ($ IN THOUSANDS) YEAR ENDED DECEMBER 31, 1995 GROSS NET AMOUNT CEDED AMOUNT -------- -------- ------ Life insurance in force...................... $610,478 $610,478 $ -------- -------- ------ -------- -------- ------ Premiums and contract charges: Life and annuities......................... $ 54,632 $ 54,632 $ -------- -------- ------ -------- -------- ------ YEAR ENDED DECEMBER 31, 1994 GROSS NET AMOUNT CEDED AMOUNT -------- -------- ------ Life insurance in force...................... $661,356 $661,356 $ -------- -------- ------ -------- -------- ------ Premiums and contract charges: Life and annuities......................... $ 40,192 $ 40,192 $ -------- -------- ------ -------- -------- ------ YEAR ENDED DECEMBER 31, 1993 GROSS NET AMOUNT CEDED AMOUNT -------- -------- ------ Life insurance in force...................... $702,975 $702,975 $ -------- -------- ------ -------- -------- ------ Premiums and contract charges: Life and annuities......................... $ 25,134 $ 25,134 $ -------- -------- ------ -------- -------- ------ F-16 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, 1995, and the related Statements of Operations for the year then ended and Changes in Net Assets for each of the two years in the period ended December 31, 1995 of the Money Market, High Yield, Equity, Quality Income Plus, Strategist, Dividend Growth, Utilities, European Growth, Capital Growth, Global Dividend Growth and Pacific Growth portfolios that comprise the Account. These financial statements are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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, 1995. 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 Account as of December 31, 1995, and the results of its operations for the year then ended and the changes in its net assets for each of the two years in the period ended December 31, 1995 of each of the portfolios comprising the Account, in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois March 1, 1996 F-17 NORTHBROOK VARIABLE ANNUITY ACCOUNT II STATEMENT OF NET ASSETS DECEMBER 31,1995 ($ and shares in thousands)
ASSETS Investments in the Dean Witter Variable Investment Series: Money Market Portfolio 209,700 shares (cost $209,700)................................................. $ 209,700 High Yield Portfolio 19,555 shares (cost $130,706).................................................. 122,505 Equity Portfolio 10,535 shares (cost $228,556).................................................. 285,869 Quality Income Plus Portfolio 40,167 shares (cost $428,048).................................................. 440,092 Strategist Portfolio 24,214 shares (cost $300,626).................................................. 301,342 Dividend Growth Portfolio 46,736 shares (cost $579,345).................................................. 728,687 Utilities Portfolio 27,937 shares (cost $362,476).................................................. 410,249 European Growth Portfolio 9,364 shares (cost $129,564)................................................... 164,151 Capital Growth Portfolio 3,876 shares (cost $46,593).................................................... 59,013 Global Dividend Growth Portfolio 15,811 shares (cost $161,238).................................................. 184,781 Pacific Growth Portfolio 8,890 shares (cost $85,307).................................................... 86,235 ---------- Total assets................................................................. 2,992,624 LIABILITIES Payable to Northbrook Life Insurance Company -- accrued contract maintenance charges............................................. 932 ---------- Net assets................................................................... $2,991,692 ---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS. F-18 NORTHBROOK VARIABLE ANNUITY ACCOUNT II STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995
QUALITY MONEY HIGH INCOME DIVIDEND MARKET YIELD EQUITY PLUS STRATEGIST GROWTH ($ in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------- --------- --------- --------- ----------- ---------- INVESTMENT INCOME: Dividends...................................... $ 11,158 $ 12,774 $ 2,326 $ 27,080 $ 26,439 $ 27,541 Less charges from Northbrook Life: Mortality and expense risk................... (2,528) (1,266) (2,649) (4,813) (3,669) (7,298) Administrative expense....................... (202) (101) (212) (385) (294) (584) --------- --------- --------- --------- ----------- ---------- Net investment income (loss)................... 8,428 11,407 (535) 21,882 22,476 19,659 --------- --------- --------- --------- ----------- ---------- REALIZED AND UNREALIZED GAINS AND LOSSES ON INVESTMENTS: Realized gains and losses from sales of investments: Proceeds from sales.......................... 75,444 3,552 8,558 13,626 30,784 10,369 Cost of investments sold..................... (75,444) (3,831) (8,272) (14,382) (31,294) (9,437) --------- --------- --------- --------- ----------- ---------- Net realized gains and losses.................... -- (279) 286 (756) (510) 932 --------- --------- --------- --------- ----------- ---------- Change in unrealized gains and losses............ -- 1,677 71,559 57,216 467 149,094 --------- --------- --------- --------- ----------- ---------- Net gains and losses on investments.............. -- 1,398 71,845 56,460 (43) 150,026 --------- --------- --------- --------- ----------- ---------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS... $ 8,428 $ 12,805 $ 71,310 $ 78,342 $ 22,433 $ 169,685 --------- --------- --------- --------- ----------- ---------- --------- --------- --------- --------- ----------- ----------
SEE NOTES TO FINANCIAL STATEMENTS. F-19
GLOBAL EUROPEAN CAPITAL DIVIDEND PACIFIC UTILITIES GROWTH GROWTH GROWTH GROWTH ($ in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL --------- ---------- --------- ---------- ---------- ------------ INVESTMENT INCOME: Dividends.................................. $ 15,698 $ 6,356 $ 267 $ 3,802 $ 644 $ 134,085 Less charges from Northbrook Life: Mortality and expense risk............... (4,461) (1,812) (597) (1,858) (900) (31,851) Administrative expense................... (357) (145) (48) (149) (72) (2,549) --------- ---------- --------- ---------- ---------- ------------ Net investment income (loss)............... 10,880 4,399 (378) 1,795 (328) 99,685 --------- ---------- --------- ---------- ---------- ------------ REALIZED AND UNREALIZED GAINS AND LOSSES ON INVESTMENTS: Realized gains and losses from sales of investments: Proceeds from sales...................... 18,110 12,465 5,003 2,508 10,733 191,152 Cost of investments sold................. (18,108) (10,836) (4,406) (2,422) (11,117) (189,549) --------- ---------- --------- ---------- ---------- ------------ Net realized gains and losses................ 2 1,629 597 86 (384) 1,603 --------- ---------- --------- ---------- ---------- ------------ Change in unrealized gains and losses........ 75,255 24,572 12,700 25,883 3,987 422,410 --------- ---------- --------- ---------- ---------- ------------ Net gains and losses on investments.......... 75,257 26,201 13,297 25,969 3,603 424,013 --------- ---------- --------- ---------- ---------- ------------ CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.................................. $ 86,137 $ 30,600 $ 12,919 $ 27,764 $ 3,275 $ 523,698 --------- ---------- --------- ---------- ---------- ------------ --------- ---------- --------- ---------- ---------- ------------
F-20 NORTHBROOK VARIABLE ANNUITY ACCOUNT II STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1995
QUALITY MONEY INCOME DIVIDEND ($ and units in thousands, MARKET HIGH YIELD EQUITY PLUS STRATEGIST GROWTH except value per unit) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ---------- ---------- ---------- ---------- ---------- ---------- FROM OPERATIONS: Net investment income (loss)............. $ 8,428 $ 11,407 $ (535) $ 21,882 $ 22,476 $ 19,659 Net realized gains and losses............ (279) 286 (756) (510) 932 Net change in unrealized gains and losses.................................. 1,677 71,559 57,216 467 149,094 ---------- ---------- ---------- ---------- ---------- ---------- 8,428 12,805 71,310 78,342 22,433 169,685 ---------- ---------- ---------- ---------- ---------- ---------- FROM CAPITAL TRANSACTIONS: Deposits................................. 90,983 30,088 48,365 42,505 31,559 106,405 Benefit payments......................... (3,903) (1,357) (1,786) (5,370) (4,215) (6,901) Payments on termination.................. (25,297) (6,748) (13,887) (20,886) (16,319) (34,408) Contract maintenance charges............. (83) (67) (161) (241) (170) (449) Transfers among the portfolios and with the Fixed Account, net.................. (73,404) 9,102 17,994 7,342 (17,627) 30,986 ---------- ---------- ---------- ---------- ---------- ---------- (11,704) 31,018 50,525 23,350 (6,772) 95,633 ---------- ---------- ---------- ---------- ---------- ---------- Increase (decrease) in net assets.......... (3,276) 43,823 121,835 101,692 15,661 265,318 Net assets, beginning of period............ 212,911 78,644 163,945 338,263 285,587 463,142 ---------- ---------- ---------- ---------- ---------- ---------- Net assets, end of period.................. $ 209,635 $ 122,467 $ 285,780 $ 439,955 $ 301,248 $ 728,460 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE PER UNIT, END OF PERIOD.... $ 11.65 $ 21.86 $ 25.86 $ 16.37 $ 16.92 $ 21.51 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ENHANCED DEATH BENEFIT: NET ASSET VALUE PER UNIT, END OF PERIOD.................................. $ 11.54 $ 21.66 $ 25.62 $ 15.60 $ 16.13 $ 21.03 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- UNITS OUTSTANDING, END OF PERIOD........... 17,484 5,536 10,835 26,736 17,718 33,515 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ENHANCED DEATH BENEFIT: UNITS OUTSTANDING, END OF PERIOD........... 511 67 216 142 92 367 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS. F-21
GLOBAL EUROPEAN CAPITAL DIVIDEND PACIFIC ($ and units in thousands, UTILITIES GROWTH GROWTH GROWTH GROWTH except value per unit) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL ---------- ---------- --------- ---------- --------- ------------ FROM OPERATIONS: Net investment income (loss)............. $ 10,880 $ 4,399 $ (378) $ 1,795 $ (328) $ 99,685 Net realized gains and losses............ 2 1,629 597 86 (384) 1,603 Net change in unrealized gains and losses.................................. 75,255 24,572 12,700 25,883 3,987 422,410 ---------- ---------- --------- ---------- --------- ------------ 86,137 30,600 12,919 27,764 3,275 523,698 ---------- ---------- --------- ---------- --------- ------------ FROM CAPITAL TRANSACTIONS: Deposits................................. 31,144 18,112 7,568 34,383 16,415 457,527 Benefit payments......................... (5,388) (1,480) (443) (1,695) (682) (33,220) Payments on termination.................. (19,877) (9,858) (3,391) (8,436) (3,661) (162,768) Contract maintenance charges............. (264) (98) (36) (108) (50) (1,727) Transfers among the portfolios and with the Fixed Account, net.................. (1,427) (2,908) 3,555 10,831 5,621 (9,935) ---------- ---------- --------- ---------- --------- ------------ 4,188 3,768 7,253 34,975 17,643 249,877 ---------- ---------- --------- ---------- --------- ------------ Increase (decrease) in net assets.......... 90,325 34,368 20,172 62,739 20,918 773,575 Net assets, beginning of period............ 319,796 129,732 38,823 121,984 65,290 2,218,117 ---------- ---------- --------- ---------- --------- ------------ Net assets, end of period.................. $ 410,121 $ 164,100 $ 58,995 $ 184,723 $ 86,208 $ 2,991,692 ---------- ---------- --------- ---------- --------- ------------ ---------- ---------- --------- ---------- --------- ------------ NET ASSET VALUE PER UNIT, END OF PERIOD.... $ 18.00 $ 18.98 $ 14.92 $ 11.93 $ 9.62 ---------- ---------- --------- ---------- --------- ---------- ---------- --------- ---------- --------- ENHANCED DEATH BENEFIT: NET ASSET VALUE PER UNIT, END OF PERIOD.................................. $ 17.40 $ 18.38 $ 14.72 $ 11.67 $ 9.46 ---------- ---------- --------- ---------- --------- ---------- ---------- --------- ---------- --------- UNITS OUTSTANDING, END OF PERIOD........... 22,626 8,588 3,918 15,326 8,866 ---------- ---------- --------- ---------- --------- ---------- ---------- --------- ---------- --------- ENHANCED DEATH BENEFIT: UNITS OUTSTANDING, END OF PERIOD........... 165 62 36 155 98 ---------- ---------- --------- ---------- --------- ---------- ---------- --------- ---------- ---------
F-22 NORTHBROOK VARIABLE ANNUITY ACCOUNT II STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1994
QUALITY MONEY INCOME DIVIDEND ($ and units in thousands, MARKET HIGH YIELD EQUITY PLUS STRATEGIST GROWTH except value per unit) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ---------- ---------- ---------- ---------- ---------- ---------- FROM OPERATIONS: Net investment income (loss)............. $ 3,937 $ 7,907 $ 11,131 $ 27,457 $ 10,297 $ 7,411 Net realized gains and losses............ (708) (601) (6,255) 36 196 Net change in unrealized gains and losses.................................. (11,093) (20,729) (53,902) (4,450) (27,664) ---------- ---------- ---------- ---------- ---------- ---------- 3,937 (3,894) (10,199) (32,700) 5,883 (20,057) ---------- ---------- ---------- ---------- ---------- ---------- FROM CAPITAL TRANSACTIONS: Deposits................................. 175,691 36,052 63,695 81,803 77,194 134,871 Benefit payments......................... (3,032) (1,268) (1,658) (5,881) (2,785) (5,288) Payments on termination.................. (12,993) (3,479) (4,745) (16,192) (7,609) (15,924) Deduction for contract maintenance charges................................. (104) (50) (106) (218) (182) (332) Transfers among the portfolios and with the Fixed Account, net.................. (34,004) 2,209 982 (69,831) 32,119 2,297 ---------- ---------- ---------- ---------- ---------- ---------- 125,558 33,464 58,168 (10,319) 98,737 115,624 ---------- ---------- ---------- ---------- ---------- ---------- Increase (decrease) in net assets.......... 129,495 29,570 47,969 (43,019) 104,620 95,567 ---------- ---------- ---------- ---------- ---------- ---------- Net assets, beginning of period............ 83,416 49,074 115,976 381,282 180,967 367,575 ---------- ---------- ---------- ---------- ---------- ---------- Net assets, end of period.................. $ 212,911 $ 78,644 $ 163,945 $ 338,263 $ 285,587 $ 463,142 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE PER UNIT, END OF PERIOD.... $ 11.18 $ 19.26 $ 18.39 $ 13.34 $ 15.68 $ 15.98 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS. F-23
GLOBAL EUROPEAN CAPITAL DIVIDEND PACIFIC ($ and units in thousands, UTILITIES GROWTH GROWTH GROWTH GROWTH except value per unit) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO TOTAL ---------- ---------- --------- ---------- --------- ------------ FROM OPERATIONS: Net investment income (loss)............. $ 12,221 $ 2,951 $ (59) $ 484 $ (278) $ 83,459 Net realized gains and losses............ (3,189) 465 (41) 15 (23) (10,105) Net change in unrealized gains and losses.................................. (49,925) 2,060 (987) (2,340) (3,059) (172,089) ---------- ---------- --------- ---------- --------- ------------ (40,893) 5,476 (1,087) (1,841) (3,360) (98,735) ---------- ---------- --------- ---------- --------- ------------ FROM CAPITAL TRANSACTIONS: Deposits................................. 65,745 45,006 7,644 61,362 35,008 784,071 Benefit payments......................... (5,377) (1,406) (302) (608) (476) (28,081) Payments on termination.................. (14,947) (2,758) (1,657) (1,421) (960) (82,685) Deduction for contract maintenance charges................................. (243) (85) (30) (67) (36) (1,453) Transfers among the portfolios and with the Fixed Account, net.................. (85,168) 19,937 (7,285) 64,559 35,114 (39,071) ---------- ---------- --------- ---------- --------- ------------ (39,990) 60,694 (1,630) 123,825 68,650 632,781 ---------- ---------- --------- ---------- --------- ------------ Increase (decrease) in net assets.......... (80,883) 66,170 (2,717) 121,984 65,290 534,046 Net assets, beginning of period............ 400,679 63,562 41,540 1,684,071 ---------- ---------- --------- ---------- --------- ------------ Net assets, end of period.................. 319,796 129,732 38,823 121,984 65,290 2,218,117 ---------- ---------- --------- ---------- --------- ------------ ---------- ---------- --------- ---------- --------- ------------ NET ASSET VALUE PER UNIT, END OF PERIOD.... $ 14.18 $ 15.28 $ 11.38 $ 9.91 $ 9.22 ---------- ---------- --------- ---------- --------- ---------- ---------- --------- ---------- ---------
F-24 NORTHBROOK VARIABLE ANNUITY ACCOUNT II NOTES TO FINANCIAL STATEMENTS TWO YEARS ENDED DECEMBER 31, 1995 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"), which is wholly owned by Allstate Life Insurance Company ("Allstate Life"), a wholly-owned subsidiary of Allstate Insurance Company ("Allstate"), which is wholly owned by The Allstate Corporation (the "Corporation'). Northbrook Life writes certain annuity contracts, the proceeds of which are invested at the discretion of the contractholder. Contractholders primarily invest in units of the portfolios comprising the Account but may also invest in the general account of Northbrook Life ("Fixed Account"). The Account, in turn, invests solely in shares of the portfolios of the Dean Witter Variable Investment Series ("Fund"). Northbrook Life provides administrative and insurance services to the Account for a fee. Dean Witter Reynolds, Inc. ("Dean Witter") is the sole distributor of Northbrook Life's flexible premium deferred variable annuity contracts and certain single and flexible premium annuities and is the investment manager for the Fund. In October, 1993, Allstate Life and Northbrook Life announced a strategic alliance to develop, market and distribute proprietary annuity and life insurance products through Dean Witter account executives. Dean Witter receives investment management fees from the Fund. Effective September 1, 1995, the name of the Managed Assets Portfolio of the Fund changed to the Strategist Portfolio. While certain of the investment policies of the portfolio have changed, the overall investment strategy has remained the same. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES VALUATION OF INVESTMENTS Investments consist of shares in the portfolios of the Fund, and are stated at fair value based on quoted market prices. INVESTMENT INCOME Investment income consists of dividends declared by the portfolios of the Fund, and is recognized on the date of record. REALIZED GAINS AND LOSSES Realized gains and losses on the sale of shares by the Account are computed on a weighted average ("cost") basis. FEDERAL INCOME TAXES Net investment income and realized gains and losses on investments of the Account are reported to contractholders generally upon distribution. Accordingly, no provision for income taxes has been recorded. F-25 NORTHBROOK VARIABLE ANNUITY ACCOUNT II NOTES TO FINANCIAL STATEMENTS (CONTINUED) TWO YEARS ENDED DECEMBER 31, 1995 3. MORTALITY AND EXPENSE CHARGES Northbrook Life assumes mortality and expense risks related to the operations of the Account and deducts charges daily at a rate , on an annual basis, equal to 1.25% of the daily net assets of the Account. Northbrook Life guarantees that the amount of this charge will not increase over the life of the contract. Beginning in October 1995, Northbrook Life offers contractholders an enhanced death benefit, which guarantees that the death benefit will provide a cumulative return greater than or equal to a specified level ("Enhanced Death Benefit"). Northbrook Life deducts daily an additional charge equal to .13%, on an annual basis, of the daily net assets of the Account which are attributable to contractholders who have elected the enhanced death benefit. 4. ADMINISTRATIVE EXPENSE CHARGE AND CONTRACT MAINTENANCE CHARGES Northbrook Life deducts administrative expense charges daily at a rate, on an annual basis, equal to .10% of the daily net assets of the Account. This charge is designed to cover additional administrative expense. For each year or portion of a year a contract is in effect, Northbrook Life deducts a fixed annual contract maintenance charge of $30 as reimbursement for expenses related to the maintenance of each contract and the Account. The amount of this charge is guaranteed not to increase over the life of the contract. F-26 NORTHBROOK VARIABLE ANNUITY ACCOUNT II NOTES TO FINANCIAL STATEMENTS (CONTINUED) TWO YEARS ENDED DECEMBER 31, 1995 5. UNITS ISSUED AND REDEEMED Units issued and redeemed by the Account during 1995 for contracts with and without the Enhanced Death Benefit were as follows: CONTRACTS WITHOUT THE ENHANCED DEATH BENEFIT:
QUALITY MONEY HIGH INCOME MARKET YIELD EQUITY PLUS STRATEGIST (units in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------- --------- --------- --------- ---------- UNITS OUTSTANDING, DECEMBER 31, 1994..................... 19,047 4,083 8,914 25,350 18,219 Unit activity during 1995: Issued...................... 9,777 2,082 3,103 3,809 2,549 Redeemed.................... (11,340) (629) (1,182) (2,423) (3,050) --------- --------- --------- --------- ---------- UNITS OUTSTANDING, DECEMBER 31, 1995..................... 17,484 5,536 10,835 26,736 17,718 --------- --------- --------- --------- ---------- --------- --------- --------- --------- ----------
CONTRACTS WITH THE ENHANCED DEATH BENEFIT:
QUALITY MONEY HIGH INCOME MARKET YIELD EQUITY PLUS STRATEGIST (units in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------- --------- --------- --------- ---------- UNITS OUTSTANDING, DECEMBER 31, 1994..................... -- -- -- -- -- Unit activity during 1995: Issued...................... 719 78 227 146 94 Redeemed.................... (208) (11) (11) (4) (2) --- --- --- --- --- UNITS OUTSTANDING, DECEMBER 31, 1995..................... 511 67 216 142 92 --- --- --- --- --- --- --- --- --- ---
UNITS REDEEMED INCLUDES UNITS DEDUCTED FOR ACCRUED CONTRACT MAINTENANCE CHARGES. F-27 NORTHBROOK VARIABLE ANNUITY ACCOUNT II NOTES TO FINANCIAL STATEMENTS (CONTINUED) TWO YEARS ENDED DECEMBER 31, 1995 5. UNITS ISSUED AND REDEEMED (CONTINUED) CONTRACTS WITHOUT THE ENHANCED DEATH BENEFIT:
GLOBAL DIVIDEND EUROPEAN CAPITAL DIVIDEND PACIFIC GROWTH UTILITIES GROWTH GROWTH GROWTH GROWTH (units in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO -------- --------- -------- --------- -------- --------- UNITS OUTSTANDING, DECEMBER 31, 1994......................... 28,981 22,553 8,490 3,411 12,307 7,080 Unit activity during 1995: Issued..................................................... 7,341 2,498 1,397 1,117 4,309 3,564 Redeemed................................................... (2,807) (2,425) (1,299) (610) (1,290) (1,778) -------- --------- -------- --------- -------- --------- UNITS OUTSTANDING, DECEMBER 31, 1995......................... 33,515 22,626 8,588 3,918 15,326 8,866 -------- --------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
CONTRACTS WITH THE ENHANCED DEATH BENEFIT:
GLOBAL DIVIDEND EUROPEAN CAPITAL DIVIDEND PACIFIC GROWTH UTILITIES GROWTH GROWTH GROWTH GROWTH (units in thousands) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO -------- --------- -------- --------- -------- --------- UNITS OUTSTANDING, DECEMBER 31, 1994......................... -- -- -- -- -- -- Unit activity during 1995: Issued..................................................... 383 171 75 48 170 116 Redeemed................................................... (16) (6) (13) (12) (15) (18) --- --- --- --- --- --- UNITS OUTSTANDING, DECEMBER 31, 1995......................... 367 165 62 36 155 98 --- --- --- --- --- --- --- --- --- --- --- ---
UNITS REDEEMED INCLUDES UNITS DEDUCTED FOR ACCRUED CONTRACT MAINTENANCE CHARGES. F-28 PART C OTHER INFORMATION 24A. FINANCIAL STATEMENTS PART B: Northbrook Life Insurance Company Financial Schedules Northbrook Variable Annuity Account II Financial Schedules 24B. EXHIBITS The following exhibits, correspond to those required by paragraph (b) of item 24 as to exhibits in Form N-4: (1) Resolution of the Board of Directors of Northbrook Life Insurance Company authorizing establishment of the Variable Annuity Account II (2) Not Applicable (3)(a) Underwriting Agreement (b) Form of General Agency Agreement (4) Form of Contract and Certificate Amendments (5) Form of application for a Contract (6)(a) Articles of Incorporation of Northbrook Life Insurance Company (b) By-laws of Northbrook Life Insurance Company (7) Not applicable (8) Participation Agreement* (9) Opinion of Robert S. Seiler, Senior Vice President, Secretary and General Counsel of Northbrook Life Insurance Company (10)(a) Consent of Accountants (b) Consent of Attorneys (11) Not applicable (12) Form of Agreement to Purchase Shares (13) Performance Data Calculations* (99) Powers of Attorney
- ------------------------ * Previously filed in Form N-4 Registration Statement No. 33-35412 dated April 30, 1996 and incorporated by reference. 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICE WITH DEPOSITOR OF THE TRUST - ------------------------------- ------------------------------------------------------------------ Louis G. Lower, II Chairman of the Board of Directors and Chief Executive Officer Michael J. Velotta Director, Vice President, Secretary and General Counsel Peter H. Heckman Director, President and Chief Operating Officer Marla G. Friedman Vice President John R. Hunter Director and Assistant Vice President Kevin R. Slawin Director and Vice President Casey J. Sylla Director and Chief Investment Officer Karen C. Gardner Vice President James P. Zils Treasurer Keith Hauschildt Assistant Vice President and Controller Sarah R. Donahue Assistant Vice President Ronald Johnson Assistant Vice President Barry S. Paul Assistant Vice President Emma M. Kalaidjian Assistant Secretary Paul N. Kierig Assistant Secretary Mary J. McGinn Assistant Secretary Robert N. Roeters Assistant Vice President Theodore A. Schnell Assistant Vice President, Assistant Secretary and Assistant Treasurer Brenda D. Sneed Assistant Secretary and Assistant General Counsel C. Nelson Strom Assistant Vice President and Corporate Actuary Charles F. Thalheimer Assistant Vice President Steven E. Shebik Assistant Treasurer
The principal business address of the foregoing officers and directors is 3100 Sanders Road, Northbrook, Illinois 60062. 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR REGISTRANT See 10-K Commission File #1-11840, The Allstate Corporation. 27. NUMBER OF CONTRACT OWNERS As of November 30, 1996 there were in force 10,153 qualified and 63,274 non-qualified contracts. The Registrant began operations on October 25, 1990. 28. INDEMNIFICATION The Managing General Agent's Agreement (Exhibit 3(b)) has 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 such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 29A. RELATIONSHIP OF PRINCIPAL UNDERWRITER TO OTHER INVESTMENT COMPANIES Dean Witter Distributors Inc. is the principal underwriter for the following investment companies: Dean Witter Liquid Asset Fund Inc. Dean Witter Tax-Free Daily Income Trust Dean Witter California Tax-Free Daily Income Trust Dean Witter Retirement Series Dean Witter Dividend Growth Securities Inc. Dean Witter Natural Resource Development Securities Inc. Dean Witter World Wide Investment Trust Dean Witter Capital Growth Securities Dean Witter Convertible Securities Trust Active Assets Tax-Free Trust Active Assets Money Trust Active Assets California Tax-Free Trust Active Assets Government Securities Trust Dean Witter Short-Term Bond Fund Dean Witter Mid-Cap Growth Fund Dean Witter U.S. Government Securities Trust Dean Witter High Yield Securities Inc. Dean Witter New York Tax-Free Income Fund Dean Witter Tax-Exempt Securities Trust Dean Witter California Tax-Free Income Fund Dean Witter Limited Term Municipal Trust Dean Witter World Wide Income Trust Dean Witter Utilities Fund Dean Witter Strategist Fund Dean Witter New York Municipal Money Market Trust Dean Witter Intermediate Income Securities Prime Income Trust Dean Witter European Growth Fund Inc. Dean Witter Developing Growth Securities Trust Dean Witter Precious Metals and Minerals Trust Dean Witter Pacific Growth Fund Inc. Dean Witter Multi-State Municipal Series Trust Dean Witter Federal Securities Trust Dean Witter Short-Term U.S. Treasury Trust Dean Witter Diversified Income Trust Dean Witter Health Sciences Trust Dean Witter Global Dividend Growth Securities Dean Witter American Value Fund Dean Witter U.S. Government Money Market Trust Dean Witter Global Short-Term Income Fund Inc. Dean Witter Premier Income Trust Dean Witter Value-Added Market Series Dean Witter Global Utilities Fund Dean Witter High Income Securities Dean Witter National Municipal Trust Dean Witter International SmallCap Fund Dean Witter Global Asset Allocation Dean Witter Balanced Income Fund Dean Witter Balanced Growth Fund Dean Witter Hawaii Municipal Trust Dean Witter Capital Appreciation Fund Dean Witter Intermediate Term U.S. Treasury Trust Dean Witter Information Fund Dean Witter Japan Fund Dean Witter Income Builder Fund Dean Witter Special Value Fund TCW/DW Core Equity Trust TCW/DW North American Government Income Trust TCW/DW Latin American Growth Fund TCW/DW Income and Growth Fund TCW/DW Small Cap Growth Fund TCW/DW Balanced Fund TCW/DW Mid-Cap Equity Trust TCW/DW Total Return Trust TCW/DW Global Telecom Trust TCW/DW Strategic Income Trust 29B. PRINCIPAL UNDERWRITER
NAME AND PRINCIPAL BUSINESS ADDRESS OF EACH SUCH PERSON POSITIONS AND OFFICES WITH UNDERWRITER - ------------------------------- ------------------------------------------------------------------ Dean Witter Reynolds Inc. Underwriter ("Dean Witter") Philip J. Purcell Chairman, Chief Executive Officer and Director Richard M. Demartini President, Chief Operating Officer and Director, Dean Witter Capital James F. Higgins President and Chief Operating Officer and Director, Dean Witter Financial Stephen R. Miller Senior Executive Vice President and Director Raymond J. Drop Executive Vice President Robert J. Dwyer Executive Vice President, National Sales Director and Director Christine A. Edwards Executive Vice President, Secretary, General Counsel and Director Charles A. Fiumefreddo Executive Vice President and Director Frederick J. Frohne Executive Vice President Alfred J. Golden Executive Vice President E. Davisson Hardman Executive Vice President Mitchell M. Merin Executive Vice President, Chief Administrative Officer and Director Laurence E. Mollner Executive Vice President Jeremiah A. Mullins Executive Vice President Richard F. Powers Executive Vice President and Director John H. Schaefer Executive Vice President Thomas C. Schneider Executive Vice President, Chief Financial Officer and Director Robert B. Sculthorpe Executive Vice President William B. Smith Executive Vice President and Director Samule H. Wolcott, III Executive Vice President Anthony Basile Senior Vice President Ronald T. Carman Senior Vice President, Associate General Counsel and Assistant Secretary Michael T. Cunningham Senior Vice President Mary E. Curran Senior Vice President Raymond F. Douglas Senior Vice President Paul J. Dubow Senior Vice President and Deputy General Counsel Michael T. Gregg Senior Vice President and Deputy General Counsel Erick R. Holt Senior Vice President and Assistant Secretary Birendra Kumar Senior Vice President and Treasurer George R. Ross Senior Vice President Robert P. Seass Senior Vice President Joseph G. Siniscalchi Senior Vice President and Controller, Dean Witter Financial Michael H. Stone Senior Vice President
NAME AND PRINCIPAL BUSINESS ADDRESS OF EACH SUCH PERSON POSITIONS AND OFFICES WITH UNDERWRITER - ------------------------------- ------------------------------------------------------------------ Lawrence Volpe Senior Vice President and Controller, Dean Witter Reynolds Inc. and Dean Witter Capital Lorena J. Kern Senior Vice President Kathryn M. McNamara Senior Vice President and Director of Governmental Affairs Michael D. Browne Assistant Secretary Marilyn Cranney Assistant Secretary Sheldon Curtis Assistant Secretary Sabrina Hurley Assistant Secretary Linda M. Butler Assistant Secretary
The principal address of Dean Witter is Two World Trade Center, New York, New York 10048. 29C. COMPENSATION OF DEAN WITTER 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 COMPENSATION UNDERWRITING OR REDEMPTION NAME OF DISCOUNTS AND OR BROKERAGE PRINCIPAL COMMISSIONS ANNUITIZATION COMMISSIONS COMPENSATION - --------------- ------------- -------------- -------------- -------------- Dean Witter Reynolds Inc. $ 32,937,708
30. LOCATION OF ACCOUNTS AND RECORDS Michael J. Velotta Northbrook Life Insurance Company 3100 Sanders Road Northbrook, Illinois 60062 31. MANAGEMENT SERVICES None 32. UNDERTAKINGS The Registrant promises to file a post-effective amendment to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted. Registrant furthermore agrees to include either as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information or a post card or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information. 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. 33. 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 ("ACLI") and that the provisions of paragraphs 1-4 of the no-action letter have been complied with. 34. REPRESENTATION REGARDING CONTRACT EXPENSES Northbrook Life Insurance Company ("Northbrook Life") represents that the fees and charges deducted under the Group and Individual Variable Annuity Contracts hereby registered by this Registration Statement, in aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Northbrook Life. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 (the "Act") 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 Registration Statement and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the Township of Northfield, State of Illinois, on the 23rd day of December, 1996. NORTHBROOK VARIABLE ANNUITY ACCOUNT II (REGISTRANT) BY: NORTHBROOK LIFE INSURANCE COMPANY (DEPOSITOR) (SEAL) Attest: /s/BRENDA D. SNEED By: /s/MICHAEL J. VELOTTA ------------------ --------------------- Brenda D. Sneed Michael J. Velotta Assistant Secretary Vice President, Secretary and And Assistant General Counsel General Counsel Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, this Registration Statement has been duly signed below by the following Directors and Officers of Northbrook Life Insurance Company on the 23rd day of December, 1996. */LOUIS G. LOWER, II Chairman of the Board of Directors and - ---------------------- Chief Executive Officer Louis G. Lower, II (Principal Executive Officer) /s/MICHAEL J. VELOTTA Vice President, Secretary, General - ---------------------- Counsel and Director Michael J. Velotta **/PETER H. HECKMAN President, Chief Operating Officer - ---------------------- and Director Peter H. Heckman */JOHN R. HUNTER Assistant Vice President - ---------------------- and Director John R. Hunter **/KEVIN R. SLAWIN Vice President and Director - ---------------------- Kevin R. Slawin */CASEY J. SYLLA Chief Investment Officer and Director - ---------------------- Casey J. Sylla **/MARLA G. FRIEDMAN Vice President - ---------------------- Marla G. Friedman **/KAREN C. GARDNER Vice President - ---------------------- Karen C. Gardner */JAMES P. ZILS Treasurer - ---------------------- James P. Zils **/KEITH HAUSCHILDT Assistant Vice President and Controller - ---------------------- (Principal Accounting Officer) Keith Hauschildt */ By Michael J. Velotta, pursuant to Power of Attorney, previously filed. **/ By Michael J. Velotta, pursuant to Power of Attorney, filed herewith. EX-1 2 EXHIBIT 1 Exhibit 1 Resolution Establishing Northbrook Variable Annuity Account II By The Board Of Directors Of Northbrook Life Insurance Company Dated May 18, 1990 BE IT RESOLVED, That the Company, pursuant to the provisions of Section 245.21 of the Illinois Insurance Code, hereby establishes a separate account designated Northbrook Variable Annuity Account II (hereinafter Variable Account II) for the following use and purposes, and subject to such conditions as hereinafter set forth. BE IT FURTHER RESOLVED, That Variable Account II shall be established for the purpose of providing for the issuance by the Company of such variable annuity or such other contracts (Contracts) as the President may designate for such purpose and shall constitute a separate account into which are allocated amounts paid to or held by the Company under such Contracts; and BE IT FURTHER RESOLVED, That the income, gains and loses, whether or not realized, from assets allocated to Variable Account II shall, in accordance with the contracts, be credited to or charged against such account without regard to other income, gains, or losses of the Company; and BE IT FURTHER RESOLVED, That the fundamental investment policy of Variable Account II shall be to invest or reinvest the assets of Variable Account II in securities issued by investment companies registered under the Investment company Act of 1940, as amended, as the Finance Committee may designate pursuant to the provisions of the contracts; and BE IT FURTHER RESOLVED, That seven investment divisions be, and hereby are, established within Variable Account II to which net payments under the Contracts will be allocated in accordance with instructions received from contractholders, and that the President be, and hereby is, authorized to increase or decrease the number of investment divisions in Variable Account II as deemed necessary or appropriate; and BE IT FURTHER RESOLVED, That each such investment division shall invest only in the shares of a single mutual fund or a single mutual fund portfolio of an investment company organized as a series fund pursuant to the Investment Company Act of 1940; and BE IT FURTHER RESOLVED, That the President and Treasurer be and they hereby are, authorized to deposit such amount in Variable Account II or in each investment division thereof as may be necessary to appropriate to facilitate the commencement of the Account's operations; and BE IT FURTHER RESOLVED, That the President of the Company be, and is hereby, authorized to change the designation of Variable Account II to such other designation as it may deem necessary or appropriate; and -2- BE IT FURTHER RESOLVED, That the appropriate officers of the Company, with such assistance from the Company's auditors, legal counsel and independent consultants or others as they may require, be, and they hereby are, authorized and directed to take all action necessary to: (a) register Variable Account II as a unit investment trust under the Investment Company Act of 1940, as amended; (b) register the Contracts in such amounts, which may be an indefinite amount, as the officers of the Company shall from time to time deem appropriate under the Securities Act of 1933; and (c) take all other actions which are necessary in connection with the offering of said contracts for sale and operation of Variable Account II in order to comply with the Investment Company Act of 1940, the Securities Exchange Act of 1934, the Securities Act of 1933, and other applicable federal laws, including the filing of any amendments to registration statements, any undertakings, and any applications for exemptions from the Investment Company Act of 1940 or other applicable federal laws as the officers of the Company shall deem necessary or appropriate; and BE IT FURTHER RESOLVED, That the President and the General Counsel, and either of them with full power to act without the other, hereby are severally authorized and empowered to prepare, execute and cause to be filed with the Securities and Exchange Commission on behalf of Variable Account II and by the Company as sponsor and depositor, a Form of Notification of Registration on Form N-8A, a Registration Statement registering Variable Account II as an investment company under the Investment Company Act of 1940, and a Registration Statement under the Securities Act of 1933; and BE IT FURTHER RESOLVED, That the appropriate officers of the Company be, and they hereby are, authorized on behalf of Variable Account II and on behalf of the Company to take any and all action that they may deem necessary or advisable in order to sell the Contracts, including any registrations, filings and qualifications of the Company, its officers, agents and employees, and the Contracts under the insurance and securities laws of any of the states of the United States of America or other jurisdictions, and in connection therewith, to prepare, execute, deliver and file all such applications, reports, covenants, resolutions, applications for exemptions, consents to service of process and other papers and instruments as may be required under such laws, and to take any and all further action which said officers or counsel of the Company may deem necessary or desirable (including entering into whatever agreements and contracts may be necessary) in order to maintain such registrations or qualifications for as long as said officers or counsel deem them to be in the best interests of Variable Account II and the Company; and BE IT FURTHER RESOLVED, That the General Counsel of the Company be, and hereby is, authorized in the names and on behalf of Variable Account II and -3- the Company to execute and file irrevocable written consents on the part of Variable Account II and of the Company to be used in such states wherein such consents to service of process may be requisite under the insurance or securities laws therein in connection with said registration or qualification of Contracts and to appoint the appropriate state official, or such other person as may be allowed by said insurance or securities laws, agent of Variable Account II and of the Company for the purpose of receiving and accepting process; and BE IT FURTHER RESOLVED, That the President of the Company be, and hereby is, authorized to establish criteria by which the Company shall institute procedures to provide for a pass-through of voting rights to the owners of such Contracts as required by the applicable laws with respect to securities owned by Variable Account II; and BE IT FURTHER RESOLVED, That the President of the Company is hereby authorized to execute such agreement or agreements on such terms and subject to such modifications as deemed necessary or appropriate (i) with a qualified entity that will be appointed principal underwriter and distributor for the Contracts and (ii) with one or more qualified banks or other qualified entities to provide administrative and/or custodial services in connection with the establishment and maintenance of Variable Account II and the design, issuance, and administration of the Contracts; and BE IT FURTHER RESOLVED, That since it is expected that Variable Account II will invest in the securities issued by one or more investment companies, the appropriate officers of the Company are hereby authorized to execute whatever agreement or agreements as may be necessary or appropriate to enable such investments to be made; and BE IT FURTHER RESOLVED, That the appropriate officers of the Company, and each of them, are hereby authorized to execute and deliver all such documents and papers and to do or cause to be done all such acts and things as they may deem necessary or desirable to carry out the foregoing resolutions and the intent and purposes thereof. -4- EX-3.(A) 3 EXHIBIT 3(A) UNDERWRITING AGREEMENT THIS UNDERWRITING AGREEMENT, made and entered into this the 9th day of February, 1984 (by and between NORTHBROOK LIFE INSURANCE COMPANY (hereinafter the "Company") on its own behalf and on behalf of the NORTHBROOK VARIABLE ANNUITY ACCOUNT (hereinafter the "Account"), a separate account of the Company, and DEAN WITTER REYNOLDS INC., (hereinafter the "Underwriter"). WHEREAS, by resolution of its Board of Directors on February 14, 1983, the Company established the Account to set aside and invest assets attributable to certain variable annuity contracts (hereinafter the "Contracts") issued by the Company; WHEREAS, the Company has registered the Account as a unit investment trust under the Investment Company Act of 1940 (hereinafter the ("1940 Act"); WHEREAS, the Company has filed the initial registration statement of the Contracts under the Securities Act of 1933 (hereinafter the "1933 Act") and will complete said registration under the 1933 Act; WHEREAS, the Underwriter is registered as a broker-dealer with the Securities and Exchange Commission (hereinafter the "SEC") under the Securities Exchange Act of 1934, as amended, (hereinafter the ("1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (hereinafter "NASD"); and WHEREAS, the Company and the Account desire to have Contracts sold and distributed through the Underwriter and the Underwriter is willing to sell and distribute such Contracts under the terms of this Agreement; NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS 1. Registration Statement -- At any time that this Agreement is in effect, the currently effective registration statement, or currently effective post- effective amendment thereto, relating to the Contracts and the Account, including financial statements included in, and all exhibits to, such registration statement or post-effective amendment. 1 2. Prospectus -- Any Prospectus required to be filed on behalf of the Account. Prospectus includes those Account Prospectuses within the registration statement, except that, if the most recently filed Account Prospectus filed pursuant to Rule 424(b) or Rule 424(c) of the 1933 Act subsequent to the date on which the Registration Statement became effective differs from the Account Prospectus on file at the time the Registration Statement became effective, the term "Prospectus" shall refer to the most recently filed Account Prospectus filed under Rule 424(b) or (c) from and after the date on which it shall have been filed. (For purposes of Article VIl and VIll of this Agreement, the terms "any Registration Statement" and "any Prospectus" mean, respectively, any document which is or at any time was a Registration Statement or a Prospectus within the meanings of paragraphs (1) or (2) of this Article 1.) ARTICLE II GENERAL PROVISIONS 3. The Company grants to the Underwriter the right to be, and the Underwriter agrees to serve as, exclusive distributor and underwriter during the first year of the term of this Agreement and as distributor and principal underwriter of the Contracts during the remaining term of this Agreement. The Underwriter agrees to sell Contracts under the terms set by the Company, to use its best efforts in soliciting applications and in selling the Contracts, and to perform all duties necessary and proper in distributing the Prospectus and all sales and promotional materials. The Company reserves the right to refuse to issue any Contract. 4. a.) The Underwriter shall act as a fiduciary on behalf of theCompany in its handling of any premiums received for deposits into the Account. b.) The Underwriter shall remit all premiums, send all applications, forms and any other necessary documents promptly to the Company or its designated representative. c.) If any Purchase Payment is paid directly to the Company, the Company agrees to remit all commissions according to Article IV of this Agreement. 5. The Company agrees to obtain and maintain approval of the Contracts in those states or other jurisdictions where the Company determines it is desirable to sell and offer the Contract. 6. The Underwriter shall not give any information or make any representations concerning the Contract or Account or the Company to any person or entity unless the information or representations are contained in the Registration Statement in the Account's Prospectus filed with the SEC or are contained in the sales or promotional 2 literature approved by the Company. The Company must approve, in writing, all sales or promotional literature to be used in selling or soliciting the Contracts. 7. The Underwriter shall be responsible for carrying out the sales and underwriting obligations of this Agreement in compliance with the NASD Rules of Fair Practice and federal securities and state securities and insurance laws and regulations. To the extent necessary to offer the Contracts, the Underwriter shall be duly registered or licensed or otherwise qualified under the insurance and securities laws of the states, including the District of Columbia but excluding the State of New York. 8. The Company agrees to file sales or promotional literature if so required by any state or other jurisdiction. ARTICLE III COSTS AND EXPENSES 9. Except as provided elsewhere in this Agreement, the Underwriter agrees to perform, at its own expense, all duties and functions which are necessary and proper for the sale of and distribution of the Contracts. 10. The Company shall bear: a.) all costs and expenses, including the fees and disbursements of its attorneys and independent accountants, which are incurred in connection with preparing and filing those registration statements and prospectuses concerning the Account and required to be filed by the Company; b.) all expenses incurred in preparing, printing, mailing and otherwise distributing the Account's annual or interim reports or prospectuses to owners of the Contracts; c.) all costs and expenses of preparing and providing camera-ready copy of the Account's Prospectuses to the Underwriter; d.) all costs and expenses incurred in obtaining approval of the Contracts by the appropriate regulatory agencies in such states or other jurisdictions where so determined by the Company; e.) all costs and expenses incurred in maintaining state or other regulatory agency approval of the Contracts until the Company determines that it is no longer desirable to continue to offer the Contracts for sale in that state or other jurisdiction; and, 3 f.) all costs and expenses incurred in obtaining any necessary state, NASD or other regulatory agency approval of sales or promotional literature which is used by the Underwriter. 11. The Underwriter shall bear: a.) all costs and expenses incurred in printing, mailing and distributing the Account's Prospectus to any prospective purchaser of the Contract or, at or near the time of the initial Purchase Payment, to contractholders. The Underwriter is not responsible for printing, mailing and distributing those Account prospectuses which, by law, must be sent at least annually to owners of the Contract; b.) all costs and expenses incurred in preparing, printing and distributing any sales or promotional literature used by the Underwriter in offering the Contracts for sale; and, c.) all costs and expenses incurred in advertising the offering of the Contracts. ARTICLE IV COMMISSIONS AND ALLOWANCES 12. The Company shall pay any commissions or other compensation payable on the sale of the Contract to the Underwriter so long as the payment of commissions or other compensation complies with insurance laws and regulations of the jurisdictions, state or otherwise, where the Company decides to offer the Contracts. 13. In any jurisdiction requiring payment of insurance commissions or other compensation to persons other than the Underwriter, the Company shall pay the commission in accordance with the laws or regulations of that jurisdiction and in a manner determined by the Company. 14. In the event the Company improperly pays a commission, insurance or otherwise, in reliance on information furnished by the Underwriter, the Underwriter must reimburse or indemnify the Company for any losses or penalties incurred as a result of such reliance as provided in Article VIII of this Agreement. 15. The Company shall compensate the Underwriter for performing its duties and functions under this Agreement as follows: 4 a.) DIRECT COMMISSIONS -- For the sale of the Contract, theUnderwriter shall receive a direct commission equal to ____ percent (__%) of all Purchase Payments which are accepted by the Company. This __% commission shall include the appropriate insurance commission which the Underwriter shall pay to its associated persons or other employees unless otherwise provided in paragraphs 12 and 13 of this Article. In the event any Contract is fully or partially surrendered during the first six (6) months after its date of issue, the Underwriter shall refund to the Company all of the direct commission earned on the amount surrendered. b.) DIRECT SALES EXPENSE ALLOWANCE. -- As additional compensation to defer the Underwriter's expense incurred in producing sales materials, printing prospectuses, licensing associated persons or other employees to sell or offer to sell the Contracts, and advertising the Contract or Account, the Underwriter shall receive an amount equal to _______ percent (___%) of all Purchase Payments on Contracts which are accepted by the Company. c.) SALES ADMINISTRATION EXPENSE ALLOWANCE As additional compensation to defer the Underwriter's expenses incurred with respect to sales administration, including general overhead, travel, sales personnel training, production of management reports, compliance and personnel expenses, the Underwriter shall receive an amount equal to ___% of the Average Net Assets of the Account attributable to Contracts sold under this Agreement. The Company shall compute Average Net Assets by multiplying (A) times (B) where: (A) is the mortality and expense guarantee charge earned by the Company in the Account on Contracts sold by the Underwriter under this Agreement; and (B) is 100. The Company shall pay sales administration expense allowance to the Underwriter annually and no later than sixty days after the close of the calendar year. ARTICLE V ASSOCIATED PERSONS AND OTHER EMPLOYEES 16. The Underwriter will obtain and maintain all licenses, including any broker or insurance agent or general agency licenses, necessary for its associated persons or other employees to sell and service the Contracts and to fulfill their responsibilities under this Agreement. 17. The Company requires that the Contracts shall be sold and offered only by those registered and licensed associated persons or other employees of the Underwriter who are licensed by the Underwriter and appointed by the Company. 5 The Underwriter shall ensure that any associated person or other employee who offers to sell or sells the Contracts is licensed under the appropriate federal securities laws and any applicable state securities or insurance laws, including those of the District of Columbia. 18. The Underwriter agrees to train its associated persons or other employees, including those who are not involved in the sale or offering for sale of the Contracts, and to use its best efforts to comply with the NASD Rules of Fair Practice and with federal and state securities, insurance or other laws. 19. On or before January 1, 1984, the Underwriter shall establish and implement reasonable written procedures for supervising the sales practices of associated persons or other employees selling the Contracts. The Company reserves the right to veto any unreasonable sales practice. 20. The Underwriter shall ensure that its associated persons or other employees shall not recommend the purchase of a Contract nor sell a Contract to an applicant in the absence of reasonable grounds to believe that the purchase of the Contract is suitable for such applicant on the basis of information furnished after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and any other information known to the insurer or to the agent making the recommendation. 21. The Underwriter shall not withhold from its associated persons or employees any monies lawfully payable as commission or compensation for sale of the Contracts pursuant to this Agreement. 22. The Underwriter shall apply for the proper insurance licenses in the appropriate states or jurisdictions for its associated persons or other employees. The Company shall reimburse the Underwriter for any fees paid by the Underwriter for insurance agent licenses. 23. The Company shall appoint those associated persons and other employees of the Underwriter who are found eligible by state insurance departments and NASD to act as variable annuity agents. The Company reserves the right to reasonably refuse to appoint any proposed associated person or other employee as an agent and the right to terminate an agent once appointed. 6 ARTICLE VI RECORDS 24. All records concerning the Account or Contract shall be the exclusive property of the Company, free from any claim or retention of rights by the Underwriter. "Records" means all cumulative data, including but not limited to books, files, reports, data bases, facsimile signature devices or other materials concerning the Account or Contracts, which are intended to perpetuate a knowledge of the activities of the Account or Contracts. "Records" does not include reports or other data which are not produced at the request of or on behalf of the Company and which do not contain identifiable information about the contractholder. 25. Neither party shall disclose voluntarily any tape, books, reference manuals, instructions or data which concern either party's business and which are exchanged during the negotiation and performance of this Agreement. When this Agreement terminates or expires, the parties shall return all such tapes, books, reference manuals, instructions, information or data in their possession. This paragraph shall not apply to those "Records" in Paragraph 24 of this Article. 26. The Company shall have full and free access during normal business hours to any Records which concern the Account or Contracts and which are maintained by the Underwriter. 27. The Underwriter shall keep confidential any Records concerning the contract owners, annuitants or beneficiaries or any persons who have rights arising out of the Contract. The Underwriter may disclose such Records only If the Company has authorized a disclosure and if the disclosure is permitted by the applicable federal or state law governing privacy of records held by or within control of insurance companies. In the event the Underwriter is served with a subpoena or any other Court Order which mandates disclosure, the Underwriter must notify the Company and allow the Company sufficient time to authorize disclosure or to intervene in the judicial proceeding so as to protect its interest. 28. Both the Company and the Underwriter agree to keep all records required by federal and state laws, to maintain the books, accounts and records as to clearly and accurately disclose the precise nature and details of the transaction, and to assist one another in the timely preparation of records. 29. The Company shall furnish the Underwriter with copies of all documents which must be filed with the SEC by the Company concurrently with the Company's SEC filing. Concurrent with any other filing, whether state or federal, the Company shall furnish the Underwriter with copies of the filing if it affects the Account. 7 30. The Underwriter shall submit to all regulatory and administrative bodies which have jurisdiction over the Account any information, reports or other material requested pursuant to applicable laws or regulations. 31. The Underwriter shall furnish to the Company any reports and information which the Company may request for the purpose of meeting its reporting and recordkeeping requirements under the insurance laws of the State of Illinois and any other state or jurisdiction. ARTICLE VII COMPANY'S INDEMNITY AGREEMENT 32. The Company shall indemnify and hold harmless the Underwriter and each person who controls or is associated with the Underwriter within the meaning of the 1933 Act or 1934 Act for losses, claims, damages, or liabilities, joint or several, arising out of or based on any untrue statement or an alleged untrue statement of material fact, any omission or alleged omission of a material fact required by the 1933, 1934 or 1940 Acts, or any misleading statement resulting from an omitted or misstated material fact, contained in any Registration Statement or in any Prospectus provided that the Company will not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue or alleged untrue statement, omission or alleged omission, or misleading statement made in reliance upon written information furnished to the Company by or on behalf of the Underwriter specifically for use in the preparation of any such Registration Statement or Prospectus. 33. The Company will reimburse the Underwriter for any legal or other expenses reasonably incurred by the Underwriter in investigating or defending any action or claim arising out of any action under paragraph 32 of this Article. 34. At its own expense, the Company may participate in or may assume the defense of any suit brought to enforce any such liability described in paragraph 32 of this Article. If the Company assumes its own defense, such defense shall be conducted by counsel chosen by the Company. If the Company assumes the defense of any suit and retains counsel, the Underwriter shall bear the fees and expenses of any additional counsel retained by them. If the Company does not assume the defense of any such suit, it will reimburse the Underwriter for the reasonable fees and expenses of any counsel retained by them. 35. The Company shall not indemnify the Underwriter for any action where an owner of the Contract or other person seeking legal recourse was not furnished or sent or given, at or prior to written confirmation of the sale of the Contract, a copy 8 of the most recent Prospectus (excluding documents incorporated by reference) as amended, if the Company has previously furnished copies of the most recent Prospectus in accordance with the terms of this Agreement. 36. The Company shall not indemnify the Underwriter against any liability to which the Underwriter would otherwise be liable by reason of its negligence in the performance of its duties or by reason of disregard of its obligations and duties under this Agreement. 37. The Company shall not indemnify the Underwriter against any liability if the Underwriter does not notify the Company, in writing, within a reasonable time after the Underwriter or its designated service of process agent is served with the summons or other legal process which initially notifies the Underwriter of the nature of this claim. ARTICLE VIII UNDERWRITERIS INDEMNITY AGREEMENT 38. The Underwriter shall indemnify and hold harmless the Company and each person who controls or is associated with the Company within the meaning of the 1933 Act or 1934 Act for losses, claims, damages, or liabilities, joint or several, arising out of or based on any untrue statement or an alleged untrue statement of material fact, any omission or alleged omission of a material fact required by the 1933, 1934 or 1940 Acts, or any misleading statement resulting from an omitted or misstated material fact, contained in any Registration Statement or in any Prospectus provided that the Underwriter will not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue or alleged untrue statement, omission or alleged omission, or misleading statement made in reliance upon written information furnished to the Underwriter by or on behalf of the Company specifically for use in the preparation of any such Registration Statement. Further, the Underwriter shall indemnify and hold harmless the Company for any losses, claims, damages or liabilities to which the Company or any director or officer thereof may become subject, insofar as the liabilities arise out of or are based upon any unauthorized use of sales materials or any verbal or written misrepresentations or any unlawful sales practices concerning the Contracts by the Underwriter. 39. The Underwriter shall indemnify and hold harmless the Company for any penalties or liabilities which the Company incurs by paying commissions as a result of relying on information furnished by the Under-writer. Paragraph 14 of Article IV of this Agreement is incorporated by reference. 40. The Underwriter will reimburse 9 the Company for any legal or other expenses reasonably incurred by the Company in investigating or defending any action or claim arising out of any action under paragraphs 38 and 39 of this Article. 41. At its own expense, the Underwriter may participate In or may assume the defense of any suit brought to enforce any such liability described in paragraphs 38 and 39 of this Article. If the Underwriter assumes their own defense, such defense shall be conducted by counsel chosen by the Underwriter. If the Underwriter assumes the defense of any suit and retains counsel, the Company shall bear the fees and expenses of any additional counsel retained by it. If the Underwriter does not assume the defense of any such suit, it will reimburse the Company for the reasonable fees and expenses of any counsel retained by it. 42. The Underwriter shall not indemnify the Company against any liability to which the Company would otherwise be liable by reason of its negligence in the performance of its duties or by reason of disregard of its obligations and duties under this Agreement. 43. The Underwriter shall not indemnify the Company against any liability if the Company does not notify the Underwriter, in writing, within a reasonable time after the Company or its designated service of process agent is served with a summons or other legal process which initially notifies the Company of the nature of this claim. ARTICLE IX COMPLAINTS AND INVESTIGATIONS 44. The Underwriter and the Company agree to cooperate fully in any insurance regulatory investigation or proceeding or judicial proceeding arising in connection with the Contracts marketed under this Agreement. The Underwriter and the Company further agree to cooperate fully in any securities regulatory investigation or proceeding with respect to the Underwriter, the Company, their affiliates and their registered representatives to the extent that such investigation or proceeding is in connection with Contracts marketed under this Agreement. Without limiting the foregoing: (1) The Underwriter will be notified promptly of any customer complaint or notice of any regulatory investigation or proceeding or judicial proceeding received by the Company with respect to the Underwriter or any registered representative of the Underwriter or which may affect Company's issuance of any Contract marketed under this Agreement. 10 (2) The Underwriter will promptly notify the Company of any customer complaint or notice of any regulatory investigation or proceeding received by the Underwriter or its affiliates with respect to the Underwriter, its affiliates, or any of its registered representative in connection with any Contract marketed under this Agreement or any activity in connection with any such Contract. 45. In the case of a customer complaint, the Company and the Underwriter will cooperate with each other in investigating such complaint and any response to such complaint will be sent to the other party of this Agreement for approval not less than five (5) business days of receipt prior to its being sent to the customer or regulatory authority, except that if a more prompt response is required, the proposed response shall be communicated by telephone or telegraph and confirmed in writing. ARTICLE X EFFECTIVE DATE 46. This Agreement shall be effective upon execution by both parties and will remain in effect unless terminated as provided in Article XI of this Agreement. ARTICLE XI TERMINATION 47. This Agreement shall be automatically terminated if it is assigned by the Underwriter. The term "assigned" shall not include any transaction exempted from Section 15(b)(2) of the 1940 Act. 48. This Agreement may be terminated by either the Company or the Underwriter at any time effective upon the mailing of written notice by registered mail by the terminating party to the other party not less than sixty (60) days prior to the termination date. 49. This Agreement may be terminated at any time upon the mutual written consent of the parties. 50. In the event either the Company or the Underwriter cannot or will not fulfill its responsibilities under this Agreement, the other party shall have the right to demand, in writing, that the noncompliance be corrected within thirty (30) days of the day on which the notice is received. In the event the noncompliance is not corrected within thirty (30) days, this Agreement will terminate on the 31st day after the complying party mails a termination notice by registered mail to the noncomplying party. 11 51. Upon the termination of this Agreement, the parties shall have no duties or functions under this Agreement except (a) to settle their accounts including payments of premiums or commissions subsequently received on Contracts in effect on the date of termination or issued pursuant to applications received by the Company prior to termination, and (b) to indemnify as set forth in Articles Vil and VIII of this Agreement. On any contract, partially or fully surrendered within the first six (6) months after Its date of issue, the Underwriter shall refund any commission in accordance with Article IV of this Agreement. ARTICLE XII MODIFICATION 52. Both parties declare that there are no oral or other agreements or understandings between them affecting this Agreement or relating to the selling or servicing of the Account and the Contracts. This Agreement supersedes all prior agreements between the parties and constitutes the entire Agreement between the parties. 53. The parties agree that in the event any provision of this Agreement conflicts with any provision of the Managing General Agent's Contract entered into between the Company and the Underwriter, this Agreement shall supersede and take precedence over the Managing General Agent's Agreement. 54. This Agreement may be modified only if in writing and if attested to by those persons authorized to enter into Agreements on behalf of the Company and Underwriter. 55. If either party fails to require performance by the other party of any provision of this Agreement, that party does not waive its right to require such performance at a later time. If either party waives the breach of any provision of this Agreement by the other party, the waiving party still has the right to require performance of the provision and its conduct shall not be construed to waive succeeding breaches. ARTICLE XIII NOTICE 56. Unless otherwise provided in this Agreement, all notices, requests, demands and other communications which must be provided under this Agreement shall be in writing and shall be deemed to have been given on the date of service if served personally on the party to whom notice is to be given, or on the date of mailing if sent by first class mail or registered or certified, postage prepaid. 12 57. All notices, requests, demands and other communications which are sent to the Company shall be sent to: Robert S. Seiler Senior Vice President, Secretary and General Counsel Northbrook Life Insurance Co. Allstate Plaza Northbrook, IL 60062 58. All notices, requests, demands and other communications which are sent to the Underwriter shall be sent to- Thomas Peck lst Vice-President Dean Witter Reynolds Inc. Insurance Services 110 Church Street New York, NY ARTICLE XIV APPLICABLE LAWS 59. This Agreement shall be subject to the 1933, 1934 and 1940 Acts, and the rules, regulations, and rulings issued thereunder, including such exemptions as the Securities and Exchange Commission may grant. 60. Except as provided in paragraph 59 of this Article XIV, this Agreement shall be construed in accordance with the laws of the State of Illinois. 61. If any provision of this Agreement shall be held OR made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers as of the day and year first above written. NORTHBROOK LIFE INSURANCE COMPANY Attest /s/ Robert S. Seiler By:/s/Robert L. Roberts --------------------- ----------------------- Secretary ROBERT L. ROBERTS President UNDERWRITER DEAN WITTER REYNOLDS INC. Attest /s/Barbara Coffey By:/s/Charles Fiumerfreddo ------------------- ----------------------- Assistant Secretary CHARLES FIUMEFREDDO Executive Vice President 14 EX-3.(B) 4 EXHIBIT 3(B) EXHIBIT 3(b) FORM OF GENERAL AGENCY AGREEMENT THIS 1993 GENERAL AGENCY AGREEMENT (hereinafter "Agreement") is made and entered into as of October 1, 1993 by and between NORTHBROOK LIFE INSURANCE COMPANY (hereinafter "Northbrook") and DEAN WITTER REYNOLDS INC. (hereinafter "DWR"). IN CONSIDERATION OF the mutual promises exchanged by the parties in this Agreement, Northbrook grants to DWR the right to be and DWR agrees to serve as General Agent for the sale of the Policies during the term of this Agreement and the parties agree as follows: ARTICLE I. DEFINITIONS 1.01. "Agents" shall mean any DWR account executive, subproducer, employee or other person acting in a similar capacity who is appropriately licensed as an insurance agent. 1.02. "DWR shall mean Dean Witter Reynolds Inc., its duly licensed insurance agency subsidiaries, and their successors. 1.03. "Fund" shall mean the Dean Witter Variable Investment Series. 1.04. "Laws" shall mean all state (including the District of Columbia) and federal statutes and regulations, and any orders, rules or opinions of any judicial or administrative body authorized to interpret such statutes or regulations. 1.05. "Loss" shall mean any expense, cost, loss, claim, damage or liability. 1.06. "NASD" shall mean the National Association of Securities Dealers, Inc. 1.07. "Northbrook" shall mean Northbrook Life Insurance Company and its successors. "Northbrook" shall include Northbrook's separate accounts (hereinafter the "Accounts"). 1.08. "Officer" shall mean an officer of DWR from DWR's headquarters in New York, or any officer of Northbrook. 1.09. "Policies" shall be those insurance policies and contracts of the types described in Addendum 1.09, attached to and made a part of this Agreement. 1.10. "Premiums" shall mean purchase payments or premiums paid on the Policies. 1 1.11. "Prospectus" shall mean any Prospectus or amendment thereto, if any, filed with the Securities and Exchange Commission with respect to the Policies. 1.12. "Records" shall mean all data concerning the Policies, except data which is not produced at the request of or on behalf of Northbrook and which does not contain identifiable information about the Policy owner. "Records" does not include those customer lists in subparagraphs 3.03(a) and (b) of Article III of this Agreement. 1.13. "Registration Statement" shall mean any Registration Statement and all post-effective amendments thereto, if any, filed with the Securities and Exchange Commission with respect to the Policies. 1.14. "Sales or promotional material" shall mean sales or promotional pieces as defined by state insurance and federal securities laws, and by the NASD. 1.15. "Sell" or "selling" or "sales" or "sale" shall mean soliciting, negotiating or effectuating the Policies or any other activity which by law requires a person to be licensed as an agent or which under the rules of the NASD requires a person to be registered to sell SEC registered variable insurance products. 1.16. "Variable Product" shall mean the variable annuity products listed in Addendum 1.09. ARTICLE II. DWR'S DUTIES AND OBLIGATIONS 2.01. Subject to Northbrook's right to refuse to issue any Policies, DWR shall use reasonable efforts to sell the Policies and shall perform all duties necessary and proper in distributing the Prospectus and all sales and promotional material. 2.02. Further, DWR shall: (a) promptly remit premiums net of Fixed Commissions (as defined in paragraph 6.01) by bank wire transfer or check to Northbrook, send all applications, forms and any other necessary documents to Northbrook or its designated representative, and deliver the Policies to purchasers, as mutually agreed upon by the parties to this Agreement; (b) develop and publish all sales or promotional material to be used in selling the Policies. All such material shall be for the sole and exclusive use of DWR and its agents and shall be solely and exclusively DWR's property. Such material will not be used by DWR unless, prior to its use, Northbrook has approved it and has not, at the time of any subsequent use, withdrawn approval. Withdrawal of approval by 2 Northbrook of such material shall be upon thirty (30) days prior written notice to DWR, unless a more immediate withdrawal is required by legal or regulatory considerations, in which case Northbrook will consult with DWR before making withdrawal effective. The approval of Northbrook shall not be required with respect to materials developed by DWR for internal use only; (c) file with NASD all sales or promotional material where necessary to comply with federal laws and send Northbrook a copy of such filing and any comments received thereon; (d) give only that information or make only those representations concerning the Policies or Accounts of Northbrook to prospective purchasers and Policy owners which are contained in the Registration Statements or in the Accounts' Prospectuses filed with the SEC or are contained in the sales or promotional literature expressly approved by Northbrook; and (e) carry out the sales and distribution obligations of this Agreement and train its agents to use sales practices in compliance with the NASD Rules of Fair Practice and applicable laws. To the extent necessary to sell the Policies and to receive commissions, DWR shall be duly registered or licensed or otherwise qualified under the insurance and securities laws of the states in which the Policies are authorized for sale. 2.03. DWR shall not: (a) alter or discharge any Policies on behalf of Northbrook; (b) incur any indebtedness or liability on behalf of Northbrook; (c) expend or contract for the expenditure of Northbrook's funds; (d) extend the time for payment of any premiums; (e) bind Northbrook by promising to reinstate any terminated Policies; (f) accept notes for payment of premiums; (g) fail to maintain Northbrook funds in a separate account designated solely for Northbrook; (h) adjust or settle any claim or commit Northbrook to adjust or settle any claims on any Policies; 3 (i) use Northbrook's name in any advertising or sales promotion unless approved by Northbrook in writing, such approval by Northbrook to be limited to the particular situation and not deemed to be express approval for use in other advertising or sales promotions; nor (j) use the registered marks of Northbrook without receiving prior written approval of an officer of Northbrook. ARTICLE III. NORTHBROOK'S DUTIES AND OBLIGATIONS 3.01. Northbrook represents and warrants that it has the authority to issue the Policies in the District of Columbia, Puerto Rico and all states of the United States except New York. Northbrook shall notify DWR promptly if its authority to issue the Policies is suspended, revoked or not renewed in any state or jurisdiction. 3.02. Northbrook shall: (a) pay all Commissions to DWR in accordance with Article VI and Addenda to Paragraph 6.01 of this Agreement; (b) obtain and maintain authority to sell the Policies in those states or jurisdictions where DWR and Northbrook determine it is desirable to sell the Policies; and (c) file sales or promotional material if so required by any federal, state, other local jurisdiction or regulatory organization, except as provided in Paragraph 2.02(c). 3.03. Northbrook shall not: (a) sell, assign, transfer or use, other than as contemplated by this Agreement, or, unless required by law, disclose in any manner, with or without consideration, a list, partial or complete, of the names of DWR's clients, agents or account executives, or a list, partial or complete, of the names of applicants for Policies provided to Northbrook by DWR, or a list, partial or complete, of the names of its own policyholders, unless an officer of DWR at DWR's corporate headquarters in New York consents to such action; provided, however, that this restriction shall not apply to any contacts effected through the use of a list of persons independently obtained by Northbrook and with respect to which the inclusion of the names of any such persons arises out of a relationship with an entity other than DWR or an affiliate of DWR; (b) interfere in any way with the relationship developed between DWR and its agents, account executives, employees or clients, or induce or attempt to induce or encourage DWR's agents or customers to terminate their relationship with DWR; 4 provided, however, that this subparagraph shall not apply to anything done or required to be done by law or as may be necessary under the rules and regulations of any regulatory authority having jurisdiction or as otherwise required by the terms of this Agreement; (c) contact or solicit, by mail or otherwise, any of DWR's clients, agents, account executives or employees unless Northbrook is required to do so by law, or to administer the Policies in the normal course of policyholder service, or in accordance with guidelines and procedures addressed in subparagraph (i) below. Any other contact must be authorized in advance in writing by an officer of DWR at DWR's corporate headquarters in New York in advance of such contact; (d) use DWR's name in any advertising or promotion unless expressly approved in writing by an officer of DWR at DWR's corporate headquarters in New York. Express approval by DWR shall be limited to the particular situation and shall not be deemed to be express approval for use in other advertising or sales promotions; (e) use advertising and sales promotional material developed by DWR without the express approval of an officer of DWR at DWR's headquarters in New York, or use, offer or present any of its own sales or advertising material to DWR's agents unless expressly approved in writing by an officer of DWR at DWR's headquarters in New York. Express approval by DWR shall be limited to the particular situation and shall not be deemed to be express approval for use in other advertising or sales promotions; (f) incur any indebtedness or liability on behalf of DWR; (g) expend or contract for the expenditure of DWR's funds; (h) use the registered marks of DWR without receiving prior written approval of an officer of DWR at DWR's headquarters in New York; nor (i) conduct any branch office, account executive or client meetings, visits, seminars or mailings either in person, or by any other means, except in accordance with the guidelines and control procedures established by DWR and approved by an officer of DWR at its headquarters in New York. ARTICLE IV. AGENTS 4.01. (a)DWR shall exercise its own judgment in contracting with agents. Northbrook reserves the right of final approval before appointing or, where appropriate, 5 licensing such agents to Northbrook, and reserves the right to terminate such appointment at any time. (b) DWR shall promptly notify Northbrook when DWR gives or receives notice of the termination of any such agent. Unless Northbrook directs otherwise, all such notices shall be sent to: Ronald Johnson, Assistant Vice President Northbrook Life Insurance Company 3100 Sanders Road Northbrook, Illinois 60062 Phone: 708-402-4101 Facsimile: 708-402-3673 4.02. DWR agrees that the Policies shall be sold only by licensed and appointed Agents. 4.03. DWR and Northbrook shall jointly assure that payment of agent compensation, including special awards or prizes for sales contests or promotions, complies with all applicable laws. 4.04. DWR shall ensure that its agents shall not recommend the purchase of Policies or sell Policies under the jurisdiction of the SEC or the NASD to an applicant in the absence of reasonable grounds to believe that the purchase of the Policies is suitable for such applicant on the basis of information furnished after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and any other information known to DWR or to the agent making the recommendation. 4.05. DWR shall assure that all agency contracts substantially comply with applicable laws and regulations. ARTICLE V. COSTS AND EXPENSES 5.01. Except as provided elsewhere in this Agreement, DWR shall perform, at its own expense, all duties which are necessary and proper for the sale of the Policies. DWR's expenses include but are not limited to: 6 (a) all costs and expenses incurred in printing, mailing and distributing the Accounts and Fund Prospectuses for the Variable Product to any prospective purchaser of the Variable Product in connection with the payment of the initial Premiums. DWR is not responsible for printing, mailing and distributing Accounts and Fund Prospectuses for the Variable Product for any other purpose; (b) all costs and expenses incurred in text composition, printing, mailing and distributing the Statement of Additional Information, the semi-annual reports and supplements in respect of the Fund; (c) all costs and expenses incurred in preparing, printing and distributing any sales or promotional literature used by DWR and its agents in offering the Policies for sale; (d) all costs and expenses incurred in advertising the offering of the Policies for sale; (e) all state insurance license fees and any fees directly associated with obtaining, maintaining or terminating insurance licenses for those persons employed by DWR and authorized to sell the Policies. Such fees do not include those fees for appointment as defined in sub-paragraph 5.02(j) of this Article; (f) 50% of the costs and expenses incurred for original text composition for new Variable Product Prospectuses. If the lengths of the Accounts and Fund Prospectuses are significantly different, the cost split may be adjusted by mutual agreement; (g) all costs and expenses incurred for text alterations within the DWR portions of the existing Variable Product Prospectuses and semi-annual reports; and (h) all costs and expenses, including the fees and disbursements of its attorneys and independent accountants, which are incurred in connection with preparing and filing the Fund's Registration Statement, pre and post- effective amendments thereto, and semiannual reports. DWR's expenses under this Paragraph 5.01 are for its own account and are not to be reflected as expenses in determining Contingent Commissions pursuant to Article VI hereof. The parties intend and agree that the Schedule of Fixed Commissions set out in the Addenda to Paragraph 6.01, plus a Quarterly Marketing Allowance of $125,000, shall be deemed to be appropriate recompense to DWR in respect of such expenses. 5.02. Northbrook's expenses shall include but are not limited to: 7 (a) all costs and expenses, including the fees and disbursements of its attorneys and independent accountants, which are incurred in connection with preparing and filing the Accounts' Registration Statements and the pre and post-effective amendments thereto; (b) all costs and expenses incurred in printing, mailing and distributing the Modified Custom Product Prospectus and related statements, reports and supplements, for any purpose whatsoever; (c) all costs and expenses incurred in preparing, printing, mailing and otherwise distributing the Accounts and Fund Prospectuses to owners of the Policies; (d) 50% of the costs and expenses incurred for original text composition for new Variable Product Prospectuses. If the lengths of the Accounts and Funds Prospectuses are significantly different, the cost split may be adjusted accordingly by mutual agreement; (e) all costs and expenses incurred for text alterations within the Northbrook portions of the existing Variable Product Prospectuses and semi- annual reports; (f) all costs and expenses incurred in obtaining authorization to sell the Policies by the appropriate regulatory agencies in such states or other jurisdictions as determined by Northbrook; (g) all costs and expenses incurred in obtaining and maintaining state or other regulatory agency authorization of the Policies until Northbrook and DWR determine that it is no longer desirable to continue to offer the Policies for sale in that state or other jurisdiction; (h) all costs and expenses incurred in obtaining any necessary state authorization of sales or promotional material which is used by DWR; (i) all costs and expenses incurred in developing, maintaining in force, and administering the Policies; (j) all state insurance fees necessary to obtain and maintain the appointment of DWR and agents as Northbrook's agent; and (k) all of the costs and expenses incurred in text composition, printing, mailing and distributing the Statement of Additional Information in respect of the Accounts. Northbrook's expenses under this Paragraph 5.02 are for its own account and are not to be reflected as expenses in determining Contingent Commissions pursuant to Article VI hereof. 8 The parties intend and agree that the 30 basis point Expense Allowance, plus a Quarterly Special Marketing Allowance of $12,500, shall be deemed to be appropriate recompense to Northbrook in respect of such expenses. 5.03. Entitlement to the Quarterly Special Marketing Allowances set out in Sub-Paragraph 5.01(h) and Paragraph 5.02 shall commence with a proportionate Allowance payable on June 1, 1993, full Allowances thereafter being payable on the first day of each calendar quarter. Entitlement to such Allowances shall terminate on the date this Agreement terminates, with a proportionate refund of any such Allowance being effected accordingly. ARTICLE VI. COMMISSIONS 6.01. Northbrook shall pay to DWR any commissions payable by reason of sale of the Policies as long as the payment of Commissions complies with applicable law. "Commissions" shall mean those fixed commissions described in Addenda 6.01(a), 6.01(b) and 6.01(d) ("Fixed Commissions") and those contingent commissions described in Addendum 6.01(c) ("Contingent Commissions"), in each case attached hereto and made a part hereof. 6.02. DWR shall be entitled,to receive Fixed Commissions and will promptly on demand refund all Fixed Commissions in accordance with the provisions of the Fixed Commissions Addenda to Section 6.01, attached to and made a part of this Agreement. 6.03. In compensating DWR, Northbrook reserves the right to withhold Fixed Commissions from DWR if it determines DWR is not paying commissions to its agents in accordance with applicable laws. 6.04. Subject to paragraph 6.01, DWR shall direct how Commissions are paid, provided such direction is in accordance with applicable law. 6.05. If changes in insurance laws or regulations could reasonably be expected to affect the sales and administration of Policies under this Agreement, Northbrook shall notify DWR within a reasonable time after Northbrook receives notice of those changes. Such notice shall be in writing except, if circumstances so require, the notice may be communicated by telephone or facsimile and confirmed in writing. ARTICLE VII. RECORDS 7.01. The Records shall be the exclusive property of Northbrook, subject to rights of inspection and review by DWR. 9 7.02. Unless otherwise agreed to, no party to this Agreement shall voluntarily disclose to any third party any books, reference manuals, instructions, information or data which concern the other party's business and which are exchanged during the negotiation and performance of this Agreement. When this Agreement terminates or expires, the parties shall return all such books, reference manuals, instructions, information or data in their possession. 7.03. For the purpose of determining the other party's compliance with this Agreement, each party to this Agreement shall have reasonable access during normal business hours to any Records which concern the Policies and which are maintained by the other party. 7.04. DWR and Northbrook shall keep confidential the Records and any other information concerning the Policy owners, annuitants, insureds, beneficiaries or any persons who have rights arising out of the Policies. DWR or Northbrook may disclose the Records and such information only if the other has authorized disclosure and if the disclosure is required by applicable law. In the event DWR or Northbrook is served with a subpoena, court order or demand from a regulatory organization which mandates disclosure of the Records or such information, such party must notify the other and allow such other party sufficient time to authorize disclosure or to intervene in the judicial proceeding or matter so as to protect its interest. 7.05. Both Northbrook and DWR agree to keep all information required by applicable laws, to maintain the books, accounts and records as to clearly and accurately disclose the precise nature and details of the transaction, and to assist one another in the timely preparation of any reports required by law. 7.06. DWR and Northbrook shall furnish to the other any reports and information which the other may request for the purpose of meeting reporting and record keeping requirements under the laws of Illinois or any other state or jurisdiction. ARTICLE VIII. COMPLAINTS AND INVESTIGATIONS 8.01. DWR and Northbrook agree to cooperate fully in any regulatory investigation or proceeding or any judicial proceeding, or any internal investigation of a customer complaint, arising in connection with the Policies. DWR and Northbrook further agree to cooperate fully in any securities regulatory investigation or proceeding with respect to the Policies and related matters. Without limiting the foregoing: (a) Northbrook will promptly notify DWR of any customer complaint or notice of any regulatory examination, investigation or proceeding or any judicial proceeding 10 received by Northbrook with respect to DWR which may affect the selling of any Policies. (b) DWR will promptly notify Northbrook of any customer complaint or notice of any regulatory examination, investigation or proceeding or any judicial proceeding received by DWR in connection with selling any Policies. 8.02. Northbrook and DWR will cooperate with each other in investigating customer and regulatory complaints and in responding to such complaints. DWR shall send copies of any complaints and responses to Northbrook at the address in paragraph 4.01 (b) of this Agreement. ARTICLE IX, DWR'S INDEMNITY AGREEMENT 9.01. DWR shall, for it own account, indemnify and hold harmless Northbrook: (a) and each person who controls or is associated with Northbrook within the meaning of the Securities Acts of 1933 and 1934 for any and all Losses, joint or several, arising out of or based on DWR providing Northbrook any untrue statement or an alleged untrue statement of material fact, DWR making any omission or alleged omission of a material fact required by the Securities Act of 1933 or 1934, the Investment Company Act of 1940 or applicable insurance laws or regulation, or DWR making any misleading statement resulting from an omitted or misstated material fact, contained or which should have been contained in any Registration Statement or in any Prospectus used in connection with the Policies or any investment series managed by DWR and used by the Policies; PROVIDED, that DWR will not be liable in any such case to the extent that such Loss arises out of, or is based upon, an untrue or alleged untrue statement, omission, or misleading statement made in reliance upon written information furnished to DWR by or on behalf of Northbrook specifically for use in such Registration Statement or Prospectus. For purposes of the indemnity provisions of this Article, the terms "Prospectus" or "Registration Statement" shall mean any document which is or at any time was a Prospectus or Registration Statement, respectively, within the meaning of Prospectus or Registration Statement; (b) from any and all Losses, joint or several, to which Northbrook or any of its directors, officers, or employees thereof may become subject, insofar as the Losses arise out of or are based upon any unauthorized use of sales materials or any verbal or written misrepresentation or any unlawful sales practices concerning the Policies by DWR or its agents; and (c) from any and all Losses, joint or several, to which Northbrook or any of its directors, officers, or employees thereof may become subject and which result from 11 DWR's acts or omissions which are negligent, fraudulent or unauthorized, including but not limited to the sale of Policies by, or payment of commission by DWR to, unlicensed agents or agents who have not been appointed by Northbrook; PROVIDED. however, that this indemnity shall not extend to any Loss resulting from the failure of the Policies to conform with any description developed or approved by Northbrook for use by DWR or its agents. 9.02. DWR will reimburse Northbrook, in a reasonable amount, for any legal or other expenses incurred by Northbrook in investigating or defending any action or claim arising out of any matter for which DWR is obligated to indemnify Northbrook under paragraph 9.01 of this Article. 9.03. DWR shall not indemnify Northbrook against any liability if Northbrook does not notify DWR of the proceedings and furnish to, DWR a copy of the legal documents (E.G., complaint, notice of hearing, etc.), if available, within a reasonable time after Northbrook or its designated service of process agent is served with the summons or other legal process which initially notifies Northbrook of the nature of the proceeding. ARTICLE X. NORTHBROOK'S INDEMNITY AGREEMENT 10.01. Northbrook shall, for its own account, indemnify and hold harmless DWR: (a) and each person who controls or is associated with DWR within the meaning of the Securities Acts of 1933 or 1934 for any and all Losses, joint or several, arising out of or based on Northbrook providing DWR any untrue statement or an alleged untrue statement of material fact, Northbrook making any omission or alleged omission of a material fact required by the Securities Acts of 1933 or 1934, the Investment Company Act of 1940, or applicable Insurance Laws or Regulations, or Northbrook making any misleading statement resulting from an omitted or misstated material fact, contained or which should have been contained in any Registration Statement or in any Prospectus used in connection with the Policies or any investment series managed by DWR and used by the Policies; provided, that Northbrook will not be liable in any such case to the extent that such Loss arises out of, or is based upon, an untrue or alleged untrue statement, omission, or alleged omission, or misleading statement made in reliance upon written information furnished to Northbrook by or on behalf of DWR specifically for use in any such Registration Statement or Prospectus. For purposes of the indemnity provisions of this Article, the terms "Prospectus" or "Registration Statement" shall mean any document which is or at any time was a Prospectus or Registration Statement, respectively, within the meaning of Prospectus or Registration Statement; 12 (b) from any and all Losses, joint or several, to which DWR or any of its directors, officers or employees thereof may become subject and which result from Northbrook's acts or omissions which are negligent, fraudulent or unauthorized, including but not limited to the failure of the Policies to conform with any written description developed or approved by Northbrook for the use of DWR or its agents; provided, the indemnity of DWR by Northbrook under this subparagraph 10.01(b) shall not extend to any Loss resulting from the failure of DWR to notify its agents of any changes in applicable law which affect the Policies in the event that Northbrook has fully discharged its responsibilities under Paragraph 6.05; and (c) from any and all Losses, joint or several, to which DWR or any of its directors, officers or employees thereof may become subject, insofar as such Losses arise out of or are based upon any unauthorized use of sales materials or any verbal or written misrepresentation or any unlawful sales practices concerning the Policies by Northbrook or its employees, or insofar as such Losses arise from the sale by DWR and its agents of Policies using procedures which do not require the prospective purchaser of a Policy to complete and submit a Policy application, it being acknowledged by Northbrook that DWR has relied upon Northbrook as to the compliance of such procedures with applicable law and regulation. 10.02. Northbrook will reimburse DWR, in a reasonable amount, for any legal or other expenses incurred by DWR in investigating or defending any action or claim arising out of any matter for which Northbrook is obligated to indemnify DWR under paragraph 10.01 of this Article. 10.03. Northbrook shall not indemnify DWR for any Losses arising out of an action where (a) an owner of the Policies or other person seeking legal recourse was not furnished or sent or given at or prior to written confirmation of the sale of the Policies, a copy of the most recent Prospectus if Northbrook has previously furnished copies of the most recent Prospectus to DWR in accordance with the terms of this Agreement, and (b) such losses would not have occurred if such owner or other person had been furnished with the most recent prospectus. 10.04. Northbrook shall not indemnify DWR against any Loss if DWR does not notify Northbrook of the proceedings and furnish to Northbrook the legal documents (e.g., complaint, notice of hearing, etc.), if available, within a reasonable time after DWR or its designated service or process agent is served with the summons or other legal process which initially notifies DWR of the nature of the proceeding. 13 ARTICLE XI. MODIFICATION 11.01. This Agreement may be modified only if in writing and if executed by those persons authorized to enter into Agreements on behalf of Northbrook and DWR. 11.02. If either party fails to require performance by the other party of any provision of this Agreement, that party does not waive its right to require such performance at a later time. If either party waives the breach of any provision of this Agreement by the other party, the waiving party still has the right to require future performance of the provision and its conduct shall not be construed to waive succeeding breaches. ARTICLE XII. TERMINATION 12.01. This Agreement will terminate concurrently with termination of the Business Agreement between DWR, Allstate Life Insurance Company and Northbrook dated as of October 1, 1993, or as otherwise agreed by the parties. In the event of any termination of this Agreement, unless the parties otherwise agree in writing and except as specifically provided herein, this Agreement shall continue to apply to the inforce business as of the date of termination hereof. 12.02. In the event either Northbrook or DWR does not fulfill its responsibilities under this Agreement, the other party shall have the right to demand, in writing, that the noncompliance be corrected within thirty (30) days of the day on which the notice is received. In the event the noncompliance is not corrected within thirty (30) days, this Agreement will terminate with respect to further sales of the Policies on the 30th day after the complying party mails a termination notice by registered mail to the non-complying party; such termination shall not affect the rights and obligations of the parties with respect to Policies sold prior to the time of such termination. 12.03. Notwithstanding the provisions of Paragraph 3.03 and the last sentence of Paragraph 12.01, upon the giving of notice of termination by either party to this Agreement, Northbrook shall have the right to contact its policyholders and take reasonable commercial steps to preserve its insurance business, which steps shall not in any way interfere with the relationship between DWR and its agents, account executives and employees, on the one hand, and Northbrook policyholders, on the other. 14 ARTICLE XIII. GENERAL PROVISIONS 13.01. The relationship of DWR to Northbrook under this Agreement shall be that of an independent contractor. Nothing in this Agreement shall be construed to create the relationship of employer and employee between DWR and its agents, and Northbrook. 13.02. Northbrook shall have the right to refuse to issue any Policies. 13.03. Northbrook and DWR each represent to the other that the entering into and performing of this Agreement does not and will not conflict with or cause a breach of any other agreement to which either is a party. 13.04. Unless otherwise expressly provided herein, an notice, consent, offer, demand, request or other instrument required or authorized hereunder to be given to or served on any party to this Agreement may be given by facsimile, prepaid overnight courier, or mailed by registered or certified mail, and shall be deemed sufficiently given if addressed to the party intended as the recipient thereof as follows: (i) To Northbrook: Marla G. Friedman, Vice President Northbrook Life Insurance Company 3100 Sanders Road Northbrook, Illinois 60062 Phone: 708-402-6622 Facsimile: 708-402-3673 (ii) To DWR: Milton A. Fuller, Senior Vice President Dean Witter Reynolds Inc. Two World Trade Center, 74th Floor New York, New York 10048 Phone: 212-392-4224 Facsimile: 212-392-5543 or, in any case, to such other address as any such party may specify as its address for this purpose by notice in writing to the other parties. Any instrument so sent shall be deemed to have been received: (i) if by facsimile, on the date of transmission; (ii) if by overnight courier, one day after deposit; or 15 (iii) if by mail, on the fifth day following the day of posting. 13.05. This Agreement shall be binding upon the parties and their respective successors. 13.06. This Agreement shall be governed and construed in accordance with the laws of the State of Illinois, except as to any matters which are to be governed by the Securities Acts of 1933 and 1934 and the Investment Company Act of 1940. 13.07. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 13.08. The article headings contained herein are for reference purposes only and shall not be deemed to be a part of this Agreement or to affect the meaning or interpretation hereof. 13.09. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument and all of which together shall be deemed to be one and the same instrument. 13.10. This Agreement shall be effective upon execution by both parties and will remain in effect unless terminated as provided in Article XII of this Agreement. 13.11. This Agreement shall not be assignable by either party, and shall automatically terminate in the event of an attempted assignment. 13.12. This Agreement shall be effective as of the date first written above. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 16 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. NORTHBROOK LIFE INSURANCE COMPANY By: Title: Executive Vice President DEAN WITTER REYNOLDS INC. By: Title: Executive Vice President 17 EX-4 5 EXHIBIT 4 EXHIBIT 4 NORTHBROOK LIFE INSURANCE COMPANY FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CERTIFICATE NORTHBROOK LIFE INSURANCE COMPANY, A Stock Company, Home Office: Allstate Plaza, Northbrook, Illinois 60062 This Certificate is issued pursuant to the terms of Master Policy Number 64890006 issued by Northbrook Life Insurance Company to Dean Witter Reynolds Inc., called the Master Policyholder. This Certificate is subject to the terms of the Master Policy. This Certificate is issued in the state of Delaware and is governed by Delaware law. Throughout this Certificate, "you" and "your" refer to the Certificate's owner. "We", "us" and "our" refer to Northbrook Life Insurance Company. This flexible premium deferred variable annuity provides a cash withdrawal benefit and a death benefit during the accumulation phase and periodic income payments beginning on the payout start date. This Certificate and the Master Policy do not pay dividends. THE DOLLAR AMOUNT OF INCOME PAYMENTS OR OTHER VALUES PROVIDED BY THIS CERTIFICATE, WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE VARIABLE ACCOUNT, VARY TO REFLECT THE PERFORMANCE OF THE VARIABLE ACCOUNT. PLEASE READ YOUR CERTIFICATE CAREFULLY RETURN PRIVILEGE If you are not satisfied with this Certificate for any reason, you may return it to us within 20 days after you receive it. We will refund any purchase payments allocated to the variable account, adjusted to reflect investment gain or loss from the date of allocation to the date of cancellation; plus any purchase payments allocated to the fixed account. /s/ Michael J. Velotta /s/ Louis G. Lower, II Secretary President Page 1 - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- ANNUITY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 THE PERSONS INVOLVED . . . . . . . . . . . . . . . . . . . . . . . . . . .4 ACCUMULATION PHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 PAYOUT PHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 INCOME PAYMENT TABLES. . . . . . . . . . . . . . . . . . . . . . . . . . 11 Page 2 - -------------------------------------------------------------------------------- ANNUITY DATA - -------------------------------------------------------------------------------- CERTIFICATE NUMBER:. . . . . . . . . . . . . . . . . . . . . . . . . . 44444444 ISSUE DATE:. . . . . . . . . . . . . . . . . . . . . . . . . . . . .May 7, 1996 INITIAL PURCHASE PAYMENT:. . . . . . . . . . . . . . . . . . . . . . $10,000.00 Non-Qualified OWNER: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John Doe ANNUITANT: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John Doe AGE AT ISSUE: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SEX:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Male PAYOUT START DATE: . . . . . . . . . . . . . . . . . . . . . . . . July 1, 2046 (May be changed by notifying us no later than 30 days prior to this date) INCOME PLAN: . . . . . . . . . . . . . . . . . . . . . . . Life with 10 years - Unless Changed by Owner ADMINISTRATOR: . . . . . . . . . . . . . . . .Northbrook Life Insurance Company Annuity Services Division P.O. Box 94040 Palatine, IL 60094-4040 INITIAL ALLOCATION OF PURCHASE PAYMENTS: QUALITY INCOME PLUS:. . . . . . . . . . . . . . . . . . . . . . . . . .50% DIVIDEND GROWTH:. . . . . . . . . . . . . . . . . . . . . . . . . . . .50% OWNER'S RELATIONSHIP BENEFICIARY TO OWNER PERCENTAGE - ----------- ------------ ---------- Jeff Doe Son 100% Page 3 THE PERSONS INVOLVED OWNER. Unless changed, the person(s) named at the time of application is (are) the owner(s) of this Certificate. The owner has all rights, title and interest in this Certificate. As owner, you will receive any income payments made under an income plan. You may exercise all rights and options stated in this Certificate, subject to the rights of any irrevocable beneficiary. You may change the owner or beneficiary at any time while the annuitant is alive. You may not change the annuitant under this Certificate. Once we have received a satisfactory written request for a change of owner or beneficiary, the change will take effect as of the date you signed it. We are not liable for any payment we make or other action we take before receiving any such written request from you. You may not assign an interest in this Certificate as collateral or security for a loan. Otherwise, you may assign benefits under this Certificate prior to the payout start date. No beneficiary may assign benefits under the Certificate until they are due. No assignment will bind us unless it is signed by you and filed with us. We are not responsible for the validity of an assignment. If the owner is more than one person: "owner" as used in this Certificate means any and all persons named as the owner, unless otherwise indicated; any assignment or request for a change must be signed by all the persons named as the owner; and on the death of any one person named as owner, ownership rights, title and interest shall be retained by the surviving person(s) named as the owners. See the section titled Accumulation Phase for the details concerning the death of an owner. ANNUITANT. The annuitant is the person whose life may affect the timing or amount of the payout under this Certificate. The owner is the annuitant unless a different annuitant has been designated. BENEFICIARY. The death benefit is payable to the beneficiary if the sole surviving owner dies during the accumulation phase, subject to any prior claims. Details, including the special treatment of a beneficiary who is the owner's spouse,are stated in the section titled Accumulation Phase. If the owner dies during the payout phase the surviving owner(s) will become the payee of any income payments scheduled to continue after the owner's death. If there are no surviving owners the beneficiary will become the payee of any such payments. The beneficiary is as named in the most recent written request we have received from you. If you do not name a beneficiary or if the beneficiary named by you is no longer living when the death benefit becomes payable, the beneficiary will be: your spouse if living; otherwise your children equally if living; otherwise your estate. Page 4 ACCUMULATION PHASE ACCUMULATION PHASE DEFINED. The accumulation phase is the first of two phases in the life of your Certificate. During this period your cash value results from purchase payments made, investment experience of the variable account, interest credited to the fixed account, and charges deducted. Any withdrawals you make and associated charges, if any, will reduce your cash value. The accumulation phase begins on the issue date stated on the Annuity Data page. This phase will continue until the payout start date unless the Certificate is terminated before that date. Time during the accumulation phase is measured in certificate years. Certificate years are those years that begin with the issue date or an anniversary of the issue date. Your certificate will stay in force until the payout start date, unless your cash value is reduced to zero. PURCHASE PAYMENTS. Purchase payments may be made at any time during the accumulation phase. While this certificate allows purchase payments after the initial purchase payment, they are not required. We may limit the amount of purchase payments we will accept. We will invest the purchase payments in the investment alternatives you select. You may allocate any portion of your purchase payment in whole percents from 0% to 100% to any of the investment alternatives. The total allocation must equal 100%. For each purchase payment, the minimum amount that may be allocated to the fixed account is $500. Allocation of your purchase payments will be made as you requested at the time of application. You may change the allocation of subsequent purchase payments at any time, without charge, simply by giving us written notice. Any change will be effective at the time we receive this notification. INVESTMENT ALTERNATIVES. Investment alternatives are the sub-accounts of the variable account and the fixed account. VARIABLE ACCOUNT. The variable account for this Certificate is the Northbrook Variable Annuity Account II. This variable account is our separate investment account to which we allocate certain assets contributed under this and other certificates. These assets remain our property but will not be charged with liabilities arising from any other business we may have. SUB-ACCOUNTS. The variable account is divided into sub-accounts. Each sub-account invests solely in the shares of the mutual fund(s) underlying that sub-account. FIXED ACCOUNT. Money in the fixed account will earn interest at the current rate in effect at the time of allocation or transfer to the fixed account for a period of one year. After the first year, a renewal rate will be declared. Subsequent renewal dates will be on anniversaries of the first renewal date. The current rate and the renewal rate(s) will never be less than 4.5%. Interest is credited to the fixed account daily during the accumulation phase. The rates we quote when referring to interest credits are effective annual interest rates. "Effective annual rate" means the yield earned when interest credits at the underlying daily rate have compounded for a full year. CASH VALUE. Your cash value is equal to the sum of: the number of accumulation units you hold in each sub-account of the variable account multiplied by the accumulation unit value for that sub-account on the most recent valuation date; plus the total value you have in the fixed account. ACCUMULATION UNITS. Amounts which you allocate to a sub-account of the variable account are used to purchase accumulation units in that sub-account. The accumulation unit value for each sub-account at the end of any valuation period is calculated by multiplying the prior value by the sub-account's net investment factor for the valuation period. The accumulation unit values may go up or down. Additions or transfers to sub-accounts of the variable account will increase the number of accumulation units for that sub-account. Withdrawals or transfers from sub-accounts of the variable account will result in cancellation of accumulation units from that sub-account. VALUATION PERIOD. A valuation period is the time interval between the closing of the New York Stock Exchange on consecutive valuation dates. A valuation date is any date the New York Stock Exchange is open for trading except for days in which there is insufficient trading in the variable account's portfolio securities such that the value of accumulation or annuity units might not be materially affected by changes in the value of the portfolio securities. NET INVESTMENT FACTOR. For each sub-account of the variable account, the net investment factor for a valuation period is (A) divided by (B), minus (C) where: (A)is the sum of: (1) the net asset value per share of the mutual fund(s) underlying the 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 mutual fund(s) underlying the sub-account during the current valuation period. Page 5 (B) is the net asset value per share of the mutual fund(s) underlying the sub-account determined as of the end of the immediately preceding valuation period. (C) is the sum of the annualized administrative expense and the annualized mortality and expense risk charges divided by 365 and then multiplied by the number of calendar days in the current valuation period. TRANSFERS. Prior to the payout start date, you may transfer amounts between investment alternatives. You may make 12 transfers per certificate year without charge. Each transfer after the 12th transfer in any certificate year will be assessed a $25 transfer fee. Transfers are subject to the following restrictions: the minimum amount that may be transferred from an investment alternative is $100; if the total amount in an investment alternative is less than $100, the entire amount may be transferred; the minimum transfer to the fixed account is $500; the maximum amount which may be transferred from the fixed account to the variable account in any certificate year is limited to 25% of the value in the fixed account on the most recent certificate anniversary. If 25% of the most recent value is greater than zero but less than $1,000, then up to $1,000 may be transferred; if the first renewal interest rate is less than the current rate that was in effect at the time money was allocated or transferred to the fixed account, the 25% transfer restriction for that money and the accumulated interest thereon will be waived during the 60 day period following the first renewal date. We reserve the right to waive the transfer fees and/or restrictions contained in this Certificate. CHARGES. The charges for this Certificate include taxes as defined below, certificate maintenance charges, administrative expense charges, and mortality and expense risk charges. If withdrawals are made, the Certificate may be subject to early withdrawal charges. TAXES. Any premium taxes or other taxes imposed on amounts relating to this Certificate may be deducted from purchase payments or cash values when the tax is incurred or at a later time. CERTIFICATE MAINTENANCE CHARGE. The certificate maintenance charge will be deducted each year from your cash value to reimburse us for the expenses of maintaining this Certificate. This charge will never be greater than $30 per certificate year. Prior to the payout start date, the certificate maintenance charge will be deducted from your cash value on each certificate anniversary. The charge will be deducted on a pro-rata basis from each investment alternative in the proportion that your investment in each bears to your cash value. The certificate maintenance charge will also be deducted in full if the Certificate is surrendered on any date other than a certificate anniversary. ADMINISTRATIVE EXPENSE CHARGE. Both before and after the payout start date, we will deduct an administrative expense charge from the assets in the variable account on a daily basis. The administrative expense charge is to reimburse us for administrative expenses incurred in maintaining this Certificate that are not covered by the certificate maintenance charge. The annualized administrative expense charge will never be greater than 0.10%. (See the calculation under Net Investment Factor). This charge will also be reflected in the net interest rate credited to assets in the fixed account. MORTALITY AND EXPENSE RISK CHARGE. Both before and after the payout start date, we will deduct a mortality and expense risk charge from the assets in the variable account on a daily basis. The annualized mortality and expense risk charge will never be greater than 1.25%. (See the calculation under Net Investment Factor). This charge will also be reflected in the net interest rate credited to assets in the fixed account. Our expense and mortality experience will not adversely affect the dollar amount of variable benefits or other contractual payments or values under this Certificate. WITHDRAWAL AND SURRENDER. You have the right to make a partial withdrawal or full surrender at any time during the accumulation phase. You must specify the investment alternative(s) from which you wish to make a withdrawal. The amount of any withdrawal you request, plus an early withdrawal charge and premium taxes when applicable, will reduce your cash value. Any withdrawal must be at least $500. If a withdrawal would leave a cash value of less than $500, we will treat the request as a full surrender. If you surrender your Certificate, we will pay you its cash value, less any applicable early withdrawal charges and premium taxes, and the Certificate will terminate. EARLY WITHDRAWAL CHARGE. An early withdrawal charge may be applied to a full surrender or partial withdrawal of cash value in excess of the free withdrawal amount. For the purpose of assessing an early withdrawal charge, withdrawals are assumed to come from purchase payments first, beginning with the oldest payment. Early withdrawal charges will be based on the age(s) of the purchase payment(s) associated with the withdrawal according to the following schedule: Page 6 Maximum Complete Certificate Withdrawal Years since Purchase Charge Payment was made Percent ------------------------------------------------ 0 6% 1 5% 2 4% 3 3% 4 2% 5 1% 6 or more 0% Once all purchase payments have been withdrawn, additional withdrawals will not be assessed an early withdrawal charge. The maximum aggregate early withdrawal charge is 6% of your purchase payments. FREE WITHDRAWAL AMOUNT. A free withdrawal amount will be available in each certificate year. This free withdrawal amount may be withdrawn over the course of the certificate year without incurring early withdrawal charges. The free withdrawal amount is 15% of the amount of purchase payments as of the issue date or the most recent certificate anniversary, whichever is later. As with all withdrawals, the free withdrawal amount will be assumed to come from the oldest remaining purchase payments first. Free withdrawal amounts not withdrawn in a certificate year are not carried over to increase the free withdrawal amount in a subsequent certificate year. DEATH OF OWNER OR ANNUITANT. If you die prior to the payout start date, the new owner will be the surviving owner(s). If there is (are) no surviving owner(s), the new owner will be the beneficiary(ies). The new owner will have the options described in the Options of New Owner subsection below. If you are owner and annuitant and you die, then the new annuitant will be the oldest new owner. However, if the new owner is a corporation, trust, or other non-natural person, the Certificate will terminate, the death benefit as described below will be paid to the new owner, and the new owner will not have the options described below. If the annuitant, not also an owner, dies prior to the payout start date, we will pay you the death benefit described below, the Certificate will terminate, and you will not have the options described below. OPTIONS OF NEW OWNER. If the sole new owner is your spouse: Your spouse may elect, within 60 days of the date of your death, to receive the death benefit described below. If your spouse does not make this election, then the accumulation phase continues as if the death had not occurred. All ownership rights under the Certificate are then available to your spouse as the new owner. If the new owner is not your spouse, then this new owner has the following options: The new owner may elect, within 60 days of the date of your death, to receive the death benefit described below. The new owner may elect, within 60 days of the date of your death, to receive the settlement value payable in a lump sum within 5 years of your date of death. The new owner may elect, within one year of the date of your death, to receive the settlement value paid out under one of the income plans described in the Payout Phase section. The payout start date must be within one year of your date of death. Income payments must be over the life of the new owner or over a period not to exceed the life expectancy of the new owner. If the new owner does not make one of the above described elections, the settlement value will be paid to the new owner on the mandatory distribution date 5 years after your date of death. Under any of these options, all ownership rights are available to the new owner from the date of your death to the date on which the death benefit or settlement value is paid. DEATH BENEFIT. The death benefit is the greater of: the sum of all purchase payments, less any withdrawals, applicable early withdrawal charges and premium tax; or the cash value on the date we receive due proof of death; or the cash value on the most recent death benefit anniversary, less any withdrawals, applicable early withdrawal charges and premium tax deducted from the cash value since that anniversary. The death benefit anniversaries are those certificate anniversaries that are multiples of 6 certificate years, beginning with the 6th certificate anniversary. For example, the 6th, 12th and 18th certificate anniversaries are the first three death benefit anniversaries. We will calculate the value of the death benefit at the end of the valuation period coinciding with our receipt of a complete request for payment of the death benefit. A complete request includes due proof of death. SETTLEMENT VALUE. The settlement value is the cash value less any applicable early withdrawal charges and premium tax. We will calculate the settlement value at the end of the valuation period coinciding with the receipt of a request for payment or on the mandatory distribution date of 5 years after the date of death. Page 7 PAYOUT PHASE PAYOUT PHASE DEFINED. The payout phase is the second of the two phases in the life of your Certificate. During this period the cash value is applied to the income plan you choose and is paid out as provided under that plan. The payout phase begins on the payout start date. It continues until we make the last payment as provided by the income plan chosen. PAYOUT START DATE. The anticipated payout start date is shown on the Annuity Data page. You may change the payout start date by writing to us at least 30 days prior to the payout start date. The latest payout start date is the later of: the annuitant's 85th birthday; or the 10th anniversary of this Certificate's issue date. Unless changed as described above, we will use the payout start date shown on the Annuity Data page. INCOME PLANS. An income plan is an arrangement for disbursing the cash value in installments. The cash value on the payout start date, less any applicable premium tax, will be applied to your choice of income plan from the following list: 1. LIFE INCOME WITH 120 MONTHS GUARANTEED. We will make monthly payments for as long as the annuitant lives. If the annuitant dies before 120 monthly payments have been made, we will pay the remainder of the 120 guaranteed monthly payments to the owner. 2. JOINT AND SURVIVOR LIFE INCOME. We will make monthly payments for as long as either the annuitant or any joint annuitant named by you lives. No income payments will be made after the deaths of both the annuitant and the joint annuitant. 3. PAYMENTS FOR A SPECIFIED PERIOD. We will make monthly payments beginning on the payout start date for a specified period. These payments do not depend on the annuitant's life. Income payments for less than 120 months may be subject to early withdrawal charges. We reserve the right to accept other income plans. INCOME PAYMENTS. Income payments may be based on the variable account, the fixed account or both. Your initial income payment will be based on the division of your cash value between the investment alternatives on the payout start date. Each income payment represents a sum of payments derived from each investment alternative in which you have an interest. A portion of the certificate maintenance charge will be deducted from each income payment. VARIABLE ACCOUNT. Income payments attributable to sub-accounts of the variable account will vary in accordance with the investment results of the mutual funds underlying the sub-accounts. The amount of the first income payment from a sub-account of the variable account is calculated by applying the portion of cash value allocated to the sub-account, less any applicable premium tax, to the Income Payment Tables. Subsequent income payments are based on the number of annuity units derived from dividing the first income payment by the sub-account's annuity unit value on the payout start date. The number of annuity units will remain the same unless a transfer is made between sub-accounts or the fixed account. Variable account income payments after the first will be equal to the number of annuity units for each sub-account multiplied by the corresponding annuity unit value on the date of payment. ANNUITY UNIT VALUE. The annuity unit value for each sub-account of the variable account at the end of any valuation period is calculated by: multiplying the prior value by the sub-account's net investment factor during the period; and then dividing the product by 1.000 plus the assumed investment rate for the period. The assumed investment rate is an effective annual rate of 3%. FIXED ACCOUNT. Income payment amounts derived from the fixed account are guaranteed for the duration of the income plan. Cash value from the fixed account, less any applicable premium tax, will be used to purchase a Single Premium Immediate Annuity from us. Income payments from the fixed account will at least be equal to an amount determined from the Income Payment Tables. TRANSFERS. After the payout start date, no transfers may be made from the fixed account. Transfers between sub-accounts of the variable account, or from the variable account to the fixed account may not be made for six months subsequent to the payout start date. Transfers may be made once every six months thereafter. Transfers out of a sub-account of the variable account after the payout start date will cancel annuity units from that sub-account. Page 8 PAYOUT TERMS AND CONDITIONS. The income payments are subject to the following terms and conditions: Income payments will start on the first day of the calendar month that coincides with or next follows the payout start date. If we do not receive a written choice of income plan from you at least 30 days before the payout start date, we will use the income plan listed on the Annuity Data page. If you choose an income plan which depends on any person's life, we may require proof of age and sex before income payments begin. We may require proof that the annuitant or joint annuitant is still alive before we make any payment that depends on their continued life. After the cash value has been applied to an income plan on the payout start date, the income plan cannot be changed and no withdrawals can be made. Should the cash value be less than $2,000, or not be enough to provide an initial payment of at least $20, we reserve the right to: change the payment frequency to make the payment at least $20, or terminate the Certificate and pay you the cash value in a lump sum. Page 9 GENERAL PROVISIONS THE ENTIRE CERTIFICATE. The entire Certificate consists of the Master Policy, the Master Policy application, written enrollments, and any attached endorsements. All statements made in written enrollments are representations and not warranties. No statement will be used by us in defense of a claim or to void a Certificate unless it is included in a written enrollment. Only our officers may change the Master Policy or Certificate or waive a right or requirement. No other individual may do this. The Master Policy may be amended by us, terminated by us, or terminated by the Master Policyholder without the consent of any other person. No termination completed after the issue date of this Certificate will adversely affect your rights under this Certificate. We may not modify this Certificate without your consent, except to make it comply with any changes in the Internal Revenue Code or as required by any other applicable law. INCONTESTABLE. We will not contest the validity of this Certificate after the issue date. MISSTATEMENT OF AGE OR SEX. If any age or sex has been misstated, we will pay the amounts which would have been provided at the correct age or sex. If we find the misstatement of age or sex after the income payments begin, we will: pay promptly the sum of all amounts that we underpaid plus due interest; or stop payments until the total of the omitted payments at the corrected amount plus due interest is equal to the total of the overpayments plus due interest. For purposes of the Misstatement of Age or Sex provision, due interest will be calculated at an effective annual rate of 6%. ANNUAL STATEMENT. At least once a year, prior to the payout start date, we will send you a statement containing information required by any applicable law. SETTLEMENTS. We may require that this Certificate be returned to us prior to any settlement. We must receive due proof of death of the owner or annuitant prior to settlement of a death claim. Due proof of death is one of the following: a copy of a certified death certificate; or a copy of a certified decree of a court of competent jurisdiction as to a finding of death; or any other proof acceptable to us. Any cash surrender or death benefit under this Certificate will not be less than the minimum benefits required by any statute of the state in which the Master Policy is issued. DEFERMENT OF PAYMENTS. We will pay any amounts due from the variable account under this Certificate within seven days, unless: the New York Stock Exchange is closed for other than usual weekends or holidays, or trading on such Exchange is restricted; an emergency exists as defined by the Securities and Exchange Commission; or the Securities and Exchange Commission permits delay for the protection of Certificate holders. We reserve the right to postpone payments or transfers from the fixed account for up to six months. VARIABLE ACCOUNT MODIFICATIONS. We reserve the right, subject to applicable law, to make additions to, deletions from, or substitutions for the mutual fund shares underlying the sub-accounts of the variable account. We will not substitute any shares attributable to your interest in a sub-account of the variable account without notice to you and prior approval of the Securities and Exchange Commission, to the extent required by the Investment Company Act of 1940. We reserve the right to establish additional sub-accounts of the variable account, each of which would invest in shares of another mutual fund. You may then instruct us to allocate purchase payments to such sub-accounts, subject to any terms set by us or the mutual fund. In the event of any such substitution or change, we may by endorsement, make such changes as may be necessary or appropriate to reflect such substitution or change. If we deem it to be in the best interests of persons having voting rights under the certificates, the variable account may be operated as a management company under the Investment Company Act of 1940 or it may be deregistered under such Act in the event such registration is no longer required. Page 10 INCOME PAYMENT TABLES The Income Payment Tables show the initial monthly income payment per $1,000 of cash value applied for each of the income plans listed in the Payout section. The Income Payment Tables are based on 3% interest and the 1983 Table a Annuity Mortality Tables with the following age adjustment. The age(s) of the annuitant and any joint annuitant at his or her last birthday on or prior to the payout start date will be set back one year for each six full years between January 1, 1983 and the payout start date. Income payments for ages not shown in this section will be determined on a basis consistent with that used to determine those that are shown.
INCOME PLAN 1 - LIFE WITH 120 MONTHS GUARANTEED First Income Payment for Each $1,000 of Cash Value - -------------------------------------------------------------------------------------------------------------------------------- Annuitant's Annuitant's Annuitant's Age Male Female Age Male Female Age Male Female - -------------------------------------------------------------------------------------------------------------------------------- 35 $ 3.43 $ 3.25 49 $ 4.15 $ 3.82 63 $5.52 $4.97 36 3.47 3.28 50 4.22 3.88 64 5.66 5.09 37 3.51 3.31 51 4.29 3.94 65 5.80 5.22 38 3.55 3.34 52 4.37 4.01 66 5.95 5.35 39 3.60 3.38 53 4.45 4.07 67 6.11 5.49 40 3.64 3.41 54 4.53 4.14 68 6.27 5.64 41 3.69 3.45 55 4.62 4.22 69 6.44 5.80 42 3.74 3.49 56 4.71 4.29 70 6.61 5.96 43 3.79 3.53 57 4.81 4.38 71 6.78 6.13 44 3.84 3.58 58 4.92 4.46 72 6.96 6.31 45 3.90 3.62 59 5.02 4.55 73 7.13 6.50 46 3.96 3.67 60 5.14 4.65 74 7.31 6.69 47 4.02 3.72 61 5.26 4.75 75 7.49 6.88 48 4.08 3.77 62 5.39 4.86
INCOME PLAN 2 - JOINT AND SURVIVOR First Income Payment for Each $1,000 of Cash Value - ------------------------------------------------------------------------------------------------------------------------------- Male Female Annuitant's Age Annuitant's ----------------------------------------------------------------------------------------------------------- Age 35 40 45 50 55 60 65 70 75 - ------------------------------------------------------------------------------------------------------------------------------- 35 $3.09 3.16 3.23 3.28 3.32 3.36 3.39 3.41 3.42 40 3.13 3.22 3.31 3.39 3.46 3.52 3.56 3.59 3.62 45 3.17 3.28 3.39 3.50 3.60 3.69 3.76 3.82 3.86 50 3.19 3.32 3.45 3.60 3.74 3.87 3.99 4.08 4.14 55 3.21 3.35 3.51 3.68 3.87 4.06 4.23 4.38 4.49 60 3.23 3.37 3.55 3.75 3.98 4.23 4.48 4.71 4.91 65 3.24 3.39 3.58 3.80 4.07 4.38 4.72 5.06 5.38 70 3.24 3.40 3.60 3.84 4.13 4.50 4.92 5.40 5.89 75 3.25 3.41 3.61 3.86 4.18 4.58 5.08 5.68 6.37
INCOME PLAN 3 - PAYMENTS FOR A SPECIFIED PERIOD First Income Payment for Each Specified Period $1,000 of Cash Value - ------------------------------------------------------------------------------ 10 Years $9.61 11 Years 8.86 12 Years 8.24 13 Years 7.71 14 Years 7.26 15 Years 6.87 16 Years 6.53 17 Years 6.23 18 Years 5.96 19 Years 5.73 20 Years 5.51 Page 11 NORTHBROOK LIFE INSURANCE COMPANY (HEREIN CALLED "WE" OR "US") FIXED ACCOUNT CERTIFICATE AMENDMENT THE FOLLOWING REPLACES THE FIXED ACCOUNT SUBSECTION IN THE ACCUMULATION PHASE SECTION OF YOUR CERTIFICATE: FIXED ACCOUNT. Money in the fixed account will earn interest at the current rate in effect at the time of allocation or transfer to the fixed account for the guarantee period. We will offer a one year guarantee period. Other guarantee periods will be offered at our discretion. After the guarantee period, a renewal rate will be declared. Subsequent renewal dates will be on anniversaries of the first renewal date. The current rate and the renewal rate(s) will never be less than 3%. Interest is credited to the fixed account daily during the accumulation phase. The rates we quote when referring to interest credits are effective annual interest rates. "Effective annual rate" means the yield earned when interest credits at the underlying daily rate have compounded for a full year. THE FOLLOWING REPLACES THE TRANSFERS SUBSECTION IN THE ACCUMULATION PHASE SECTION OF YOUR CERTIFICATE: TRANSFERS. Prior to the payout start date, you may transfer amounts between investment alternatives. You may make 12 transfers per certificate year without charge. Each transfer after the 12th transfer in any certificate year will be assessed a $25 transfer fee. Transfers are subject to the following restrictions: the minimum amount that may be transferred from an investment alternative is $100; if the total amount in an investment alternative is less than $100, the entire amount may be transferred; the minimum transfer to any one guarantee period of the fixed account is $500; the maximum amount which may be transferred from the fixed account to the variable account or between guarantee periods of the fixed account in any certificate year is limited to the greater of: 25% of the value in the fixed account on the most recent certificate anniversary. If 25% of the most recent value is greater than zero but less than $1,000, then up to $1,000 may be transferred; or 25% of the sum of purchase payments allocated to the fixed account and transfers to the fixed account, all as of the most recent certificate anniversary. if the first renewal interest rate is less than the current rate that was in effect at the time money was allocated or transferred to the fixed account, the 25% transfer restriction for that money and the accumulated interest thereon will be waived during the 60 day period following the first renewal date. We reserve the right to waive the transfer restrictions contained in this Certificate. /s/ Michael J. Velotta /s/ Louis G. Lower, II Secretary President NORTHBROOK LIFE INSURANCE COMPANY HEREIN CALLED ("WE OR US") GROUP INSURANCE CERTIFICATE AMENDMENT I. The third and fourth paragraphs in the Owner provision on page 4 of your Certificate are deleted and replaced by the following: You may change the owner or beneficiary at any time. If you are a natural person, you may change the annuitant prior to the Payout Start Date. Once we have received a satisfactory written request for an owner, beneficiary or annuitant change, the change will take effect as of the date you signed it. We are not liable for any payment we make or other action we take before receiving any written request from you. We are not responsible for the tax consequences of an owner, beneficiary or annuitant change. II. The third paragraph in the Death of Owner or Annuitant provision on page 7 of your Certificate is deleted and replaced by the following: If any annuitant dies who is not also an owner, the owner must elect an applicable option listed below. If the option selected is 1(a) or 1(b)(ii) below, the new annuitant will be the youngest owner, unless the owner names a different annuitant. 1. IF THE OWNER IS A NATURAL PERSON: a. The owner may choose to continue this Certificate as if the death had not occurred; or b. If we receive due proof of death within 180 days of the date of the annuitant's death, then the owner may alternatively choose to: i. Receive the Death Benefit in a lump sum; or ii. Apply the Death Benefit to an Income Plan which must begin within one year of the date of death and must be for a period equal to or less than the life expectancy of the owner. 2. IF THE OWNER IS A NON-NATURAL PERSON: The owner must receive the Death Benefit in a lump sum. III. The following provision is added to the Free Withdrawal Amount provision on page 7 of your Certificate: Withdrawal charges will be waived on partial withdrawals taken to satisfy qualified plan required minimum distribution rules as described in the Internal Revenue Code. This waiver is permitted only for withdrawals which satisfy distributions resulting from this Certificate. Except as amended, the Certificate remains unchanged. /s/ Michael J. Velotta /s/ Louis G. Lower, II Michael J. Velotta Louis G. Lower, II Secretary President NORTHBROOK LIFE INSURANCE COMPANY ENHANCED DEATH BENEFIT RIDER This rider was issued because you selected the Enhanced Death Benefit for the death of any owner at the time you applied for this annuity. Unlike your current DEATH BENEFIT GUARANTEE, the Enhanced Death Benefit does not apply to the death of the annuitant if the annuitant is different than the owner (unless the owner is a non-natural person). The Death Benefit and Mortality and Expense Risk Charge provisions of your Certificate are modified as follows: I. The Death Benefit will be the greatest of the values stated in the Death Benefit provision on page 7 of your Certificate, or the value of the Enhanced Death Benefit. The Enhanced Death Benefit is: A. On the date of issue, the Enhanced Death Benefit is equal to the initial purchase payment. B. On each certificate anniversary, but not beyond the certificate anniversary preceding all owner(s)' 75th birthday(s), the Enhanced Death Benefit will be recalculated as follows: _ The Enhanced Death Benefit as of the PRIOR certificate anniversary multiplied by 1.05 which results in an increase of 5% annually. C. Further, FOR ALL AGES, the Enhanced Death Benefit will be adjusted on each certificate anniversary, or upon receipt of a death claim, as follows: _ The Enhanced Death Benefit will be reduced by the percentage of any Account Value withdrawn since the prior certificate anniversary. _ Any additional purchase payments since the prior certificate anniversary will be added. The Enhanced Death Benefit will never be greater than the maximum death benefit allowed by any non-forfeiture laws which govern this Certificate. II. The annualized mortality and expense risk charge of 1.25% stated on page 6 of your Certificate is changed. The annualized mortality and expense risk charge will never be greater than 1.38%. Except as amended, the Certificate remains unchanged. /s/ Michael J. Velotta /s/ Louis G. Lower, II Michael J. Velotta Louis G. Lower, II Secretary President NORTHBROOK LIFE INSURANCE COMPANY (HEREIN CALLED "WE" OR "US") CERTIFICATE AMENDMENT FOR IRA PLANS The following provisions are added to your Certificate: 1. The owner of this Certificate must be the annuitant. 2. You may not: a. transfer; b. sell; c. assign; d. discount; or e. pledge this Certificate for any purpose. 3. Your rights in this Certificate are nonforfeitable. This Certificate is for the exclusive benefit of you and your beneficiaries. 4. Except as described below, the annual premium under the Certificate shall not exceed the lesser of $2,000 or 100% of compensation. In the case of a spousal IRA, the maximum contribution shall not exceed the lesser of $2,250 or 100% of compensation, but no more than $2,000 can be paid to either spouse's IRA. The exceptions are: a. The above limits shall not apply to "rollover contributions" as that term is described in Sections 402(a)(5), 402(a)(7), 403(a)(4), 403(b)(8) and 408(d)(3) of the Internal Revenue Code. b. In addition to any amounts you contribute, your employer can contribute annually up to the lesser of 15% of your compensation or $30,000 under 408(k) of the Internal Revenue Code. c. Any or all of the above contribution limits shall change in step with changes to such limits in the Internal Revenue Code. 5. Your entire interest must be or begin to be distributed by April 1 following the calendar year in which you reach age 70 1/2. The distribution may be made in a single sum or in periodic payments over: a. your life; or b. the lives of you and your "designated beneficiary"; or c. a period certain not extending beyond your life expectancy; or d. a period certain not extending beyond the life expectancy of you and your "designated beneficiary". For purposes of this amendment "designated beneficiary" is the joint annuitant that you may name prior to the payout start date. 6. The minimum amount you are required to receive for any tax year is at least equal to: a. the value of the Certificate at the end of the prior year; divided by b. your life expectancy (or the joint life and last survivor expectancy of you and your "designated beneficiary") using the age(s) as of your birthday(s) in that year. 7. If your spouse is not the "designated beneficiary": a. the minimum amount you are required to receive beginning with the first calendar year for which distributions are required is: 1) the value of the Certificate at the end of the prior year; divided by 2) the lesser of: a) the applicable life expectancy; or b) the applicable divisor contained in 1.401(a)(9)-2 of the Proposed Income Tax Regulations. b. if payments are made in the form of a period certain annuity, the maximum period certain at the required beginning date is defined in 1.401(a)(9)-2. c. if the payments are made in the form of joint and survivor annuity, the payment to the survivor must not exceed the applicable percentage as defined in 1.401(a)(9)-2. 8. For purposes of calculating the minimum annual distribution from this Certificate, life expectancies are determined by the return multiples contained in 1.72-9 of the Income Tax Regulations. Life expectancies of you and your spouse (if your spouse is the "designated beneficiary") may be recalculated annually. The life expectancy of a non-spousal "designated beneficiary" may not be recalculated. Your life expectancy and any spousal "designated beneficiary's" life expectancy will be redetermined annually using 1.72-9 unless you elect otherwise prior to the start of the required distributions. If you elect not to have life expectancies redetermined annually, then life expectancies will be calculated only once, at the time of the first payment, and will thereafter decrease at the rate of 1 year per year elapsed. If made, this election is irrevocable and will apply to all subsequent years. 9. If you die before distribution has begun and your beneficiary is your surviving spouse, your spouse must elect one of the following forms of distribution: a. a life annuity; or b. one or more certain payments over a period no longer than his/her own life expectancy; or c. treat the account as his/her own IRA. If the form of distribution elected is a. or b. above, equal or substantially equal payments will be made over your spouse's life or life expectancy. The form of distribution must be elected within five years after your death or the calendar year in which you would have attained age 70 1/2, whichever is earlier. If the form of distribution is a. or b. above, payments must commence within one year of your death or the year in which you would have attained age 70 1/2, whichever is later. If your surviving spouse makes a regular IRA contribution to the account, makes a rollover to or from the account, or fails to elect any of the three forms of distribution listed above, c. is automatically assumed. Any amount paid to a child of the owner will be treated as if it were paid to the surviving spouse if the remainder of the interest becomes payable to the surviving spouse when the child reaches age of majority. 10. If you die before distribution has begun and your beneficiary is not your surviving spouse, the beneficiary must either: a. start receiving payments within one year of your death as a life annuity or one or more certain payments over a period not longer than his/her life expectancy; or b. have the proceeds totally distributed within five years of your death. Distribution will be made in equal or substantially equal payments over the life or life expectancy of your beneficiary. 11. For the purpose of the distribution rules described in the two preceding sections, the payments to be received by your beneficiary will be computed using the return multiples specified in section 1.72-9 of the Income Tax Regulations. Life expectancies of a surviving spousal beneficiary may be recalculated annually. The life expectancy of a non-spousal beneficiary may not be recalculated. If the beneficiary is your spouse, his/her life expectancy will be redetermined annually using 1.72-9 unless he/she elects otherwise prior to the start of the required distributions. If your spouse is the beneficiary and does not elect to have life expectancies redetermined annually, or if your beneficiary is not your spouse, then life expectancies will be calculated only once, at the time of the first payment, and will thereafter decrease at the rate of 1 year per year elapsed. If made, this election is irrevocable and will apply to all subsequent years. 12. If you die after distribution has begun, any remaining payments shall continue to be paid to your beneficiaries at least as rapidly as under the method of distribution in effect. /s/ Michael J. Velotta /s/ Louis G. Lower, II Secretary President NORTHBROOK LIFE INSURANCE COMPANY (HEREIN CALLED "WE" OR "US") CERTIFICATE AMENDMENT FOR UNISEX PLANS All references to sex are deleted from your certificate. The Income Payment Tables show the initial monthly income payment per $1,000 of cash value applied for each of the income plans listed in the Payout section. The tables below are to be used in place of "Income Plan 1 - Life with 120 Months Guaranteed" and "Income Plan 2 - Joint and Survivor" tables in the Income Payment Tables section. The Unisex Income Payment Tables below are based on 3% interest and an 80% female, 20% male blend of the sex distinct 1983 Table a Annuity Mortality Tables with the following age adjustment. The age(s) of the annuitant and any joint annuitant at his or her last birthday on or prior to the payout start date will be set back one year for each six full years between January 1, 1983 and the payout start date. Income payments for ages not shown in this section will be determined on a basis consistent with that used to determine those that are shown.
INCOME PLAN 1 - LIFE WITH 120 MONTHS GUARANTEED First Income Payment for Each $1,000 of Cash Value - ----------------------------------------------------------------------------------------------------------------------------- Annuitant's Annuitant's Annuitant's Age Amount Age Amount Age Amount - ----------------------------------------------------------------------------------------------------------------------------- 35 $3.29 49 $3.89 63 $5.08 36 3.32 50 3.95 64 5.20 37 3.35 51 4.01 65 5.34 38 3.38 52 4.08 66 5.47 39 3.42 53 4.15 67 5.61 40 3.46 54 4.22 68 5.77 41 3.50 55 4.30 69 5.93 42 3.54 56 4.37 70 6.09 43 3.58 57 4.47 71 6.26 44 3.63 58 4.55 72 6.44 45 3.68 59 4.64 73 6.63 46 3.73 60 4.75 74 6.81 47 3.78 61 4.85 75 7.00 48 3.83 62 4.97
INCOME PLAN 2 - JOINT AND SURVIVOR First Income Payment for Each $1,000 of Cash Value - -------------------------------------------------------------------------------------------------------------------------------- Annuitant's Joint Annuitant's Age Age ---------------------------------------------------------------------------------------------------------------- 35 40 45 50 55 60 65 70 75 - -------------------------------------------------------------------------------------------------------------------------------- 35 $3.07 3.12 3.17 3.20 3.23 3.25 3.26 3.27 3.28 40 3.12 3.20 3.26 3.32 3.36 3.39 3.42 3.44 3.45 45 3.17 3.26 3.35 3.44 3.51 3.56 3.61 3.64 3.66 50 3.20 3.32 3.44 3.55 3.66 3.75 3.82 3.88 3.91 55 3.23 3.36 3.51 3.66 3.81 3.95 4.07 4.17 4.23 60 3.25 3.39 3.56 3.75 3.95 4.16 4.34 4.50 4.62 65 3.26 3.42 3.61 3.82 4.07 4.34 4.62 4.88 5.09 70 3.27 3.44 3.64 3.88 4.17 4.50 4.88 5.27 5.63 75 3.28 3.45 3.66 3.91 4.23 4.62 5.09 5.63 6.20
/s/ Michael J. Velotta /s/ Louis G. Lower, II Secretary President NORTHBROOK LIFE INSURANCE COMPANY (HEREIN CALLED "WE" OR "US") AMENDATORY ENDORSEMENT FOR 403(B) ANNUITIES The following provisions are added to your Certificate: 1. The owner of this Certificate must be the annuitant. 2. You may not: a. transfer; b. sell; c. assign; d. discount; or e. pledge this Certificate for any purpose, to any person but us. 3. Account balances accruing after December 31, 1986 must begin to be paid out by the April 1 after the calendar year in which you reach age 70 1/2. The distribution may be made in a single sum or in periodic payments. a. The payments must be over: 1) your life; or 2) the lives of you and your "designated beneficiary"; or 3) a period certain not extending beyond your life expectancy; or 4) a period certain not extending beyond the life expectancy of you and your "designated beneficiary". For the purpose of this amendment, the "designated beneficiary" is the natural person that you name prior to the payout start date. b. The minimum amount you are required to receive for any tax year is: 1) the account balance of the Certificate at the end of the prior year, divided by; 2) your life expectancy (or the joint and last survivor expectancy of you and your "designated beneficiary") using the age(s) as of your birthday(s) in that year. 4. For account balances accruing after December 31, 1988 distributions of contributions made under a salary reduction agreement may only occur upon: a. or after attainment of age 59 1/2; or b. separation from service; or c. death; or d. disability (as defined in Internal Revenue Code Section 72(m)(7)); or e. hardship. In the case of hardship distributions, earnings due to these purchase payments cannot be withdrawn. The plan administrator will be responsible for determining whether an individual's circumstances meet the definition of hardship as set forth in the Internal Revenue Code and Regulations. 5. For the purpose of this amendment, "account balances" includes: a. any contributions made after the specified date: 1) December 31, 1986; or 2) December 31, 1988 whichever is applicable; and b. all earnings credited after the specified date. You are permitted to directly rollover all or a portion of any eligible rollover distribution which you receive, to an eligible retirement plan (i.e., IRA, 401(a), or 403(b) ). In the case of an eligible rollover distribution to your surviving spouse, an eligible retirement plan is limited to an IRA. An eligible rollover distribution is any distribution from your account except: 1. one of a series of payments pursuant to a life or a joint life income option, or 2. one of a series of payments pursuant to a period certain income option based on your life expectancy (or joint life expectancy of you and your designated beneficiary), or 3. one of a series of substantially equal periodic payments for a specified period of ten years or more, or 4. one that qualifies as a required minimum distribution as defined by section 401(a)(9) of the Internal Revenue Code. /s/ Michael J. Velotta /s/ Louis G. Lower, II Secretary Chief Executive Officer EX-5 6 EXHIBIT 5 DEAN WITTER VARIABLE ANNUITY II ISSUED BY: Northbrook Life Insurance Company, Northbrook, Illinois PO Box 94040, Palatine, IL 60094-4040 - ------------------------------------------------------------------------------------------- OWNER(S) Name / / M / / F Birthdate / / -------------------------------------------- --- --- --- Address ---------------------------------------- City State Zip Soc. Sec. No. - - --- -- ---- Name / / M / / F Birthdate / / -------------------------------------------- --- --- --- Address ---------------------------------------- City State Zip Soc. Sec. No. - - --- -- ---- - ------------------------------------------------------------------------------------------- ANNUITANT Leave blank if Annuitant is the same as sole Owner; otherwise complete. Name / / M / / F Birthdate / / -------------------------------------------- --- --- --- Address ---------------------------------------- City State Zip Soc. Sec. No. - - --- -- ---- Relationship to Owner ------------------------- - ------------------------------------------------------------------------------------------- BENEFICIARY(IES) Leave blank if Spouse of sole Owner; otherwise complete. Name Relationship to Owner ---------------------------------- ------------------------------ Name Relationship to Owner ---------------------------------- ------------------------------ Name Relationship to Owner ---------------------------------- ------------------------------ - ------------------------------------------------------------------------------------------- PURCHASE PAYMENT/ PLAN OPTIONS TOTAL PURCHASE PAYMENT $_____________________ ENHANCED DEATH BENEFIT OPTION / / Yes / / No PORTFOLIO SELECTION / / Money Market Portfolio ____% / / Income Builder Portfolio ____% / / Quality Income Plus Portfolio ____% / / Capital Growth Portfolio ____% / / High Yield Portfolio ____% / / European Growth Portfolio ____% / / Equity Portfolio ____% / / Global Div. Growth Portfolio ____% / / Strategist Portfolio ____% / / Pacific Growth Portfolio ____% / / Dividend Growth Portfolio ____% / / Fixed Account Portfolio ____% / / Utilities Portfolio ____% / / Fixed Account Portfolio (6 yr.) ____% / / Capital Appreciation Portfolio ____% Total 100 % ---- - ------------------------------------------------------------------------------------------- REPLACEMENT INFORMATION Will this annuity replace or change any existing annuity or life insurance? / / Yes / / No (If Yes, complete the following.) Company Policy No. ---------------------------------------------- --------------------------------- Cost basis amount Policy Date ------------------------------------- --------------------------------- - ------------------------------------------------------------------------------------------- TAX QUALIFIED PLAN / / Yes / / No (If Yes, complete the following.) / / IRA Rollover / / IRA/Year of Contribution / / 401 (a) (pension) / / Other ------- ------------------- / / IRA Transfer / / SEP/Year of Contribution / / 403 (b) (TSA) (attach Form 5305) ------- ----------------------------- - ------------------------------------------------------------------------------------------- SPECIAL INSTRUCTIONS - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- SIGNATURE(S) A copy of this enrollment signed by the Account Executive will be the receipt for the first purchase payment. If Northbrook Life Insurance Company ("Northbrook") declines this enrollment, Northbrook will have no liability except to return the first purchase payment. I have read the above statements and represent that they are complete and true to the best of my knowledge and belief. I agree that this enrollment shall be a part of the Certificate issued by Northbrook. Northbrook may add to or correct the enrollment in the space provided above. By accepting the Certificate issued, I agree to any additions or corrections to this enrollment. Northbrook will obtain written agreement from me for any change in the investment allocation, benefits, type of plan, or birthdates. I UNDERSTAND THAT CERTIFICATE VALUES AND INCOME PAYMENTS BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT ARE VARIABLE AND NOT GUARANTEED AS TO DOLLAR AMOUNT. I ACKNOWLEDGE RECEIPT OF THE CURRENT PROSPECTUS FOR THE DEAN WITTER VARIABLE ANNUITY II. Signed at Date / / ---------------------------------------------------- ----- ----- ----- City State Owner(s) ---------------------------------------------------------------------------------- Annuitant --------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------- ACCOUNT EXECUTIVE USE ONLY Will the Certificate applied for replace or change any existing annuity or life insurance? / / Yes / / No AE Name (Please print) Phone No. ( ) ----------------------------------------------------- -------------------- AE Signature Branch/AE No. -------------------------------------------------------------- ---------------------- NLR433 (11/96) 40125
EX-6.(A) 7 EXHIBIT 6(A) Exhibit 6(a) ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF NORTHBROOK LIFE INSURANCE COMPANY AS AMENDED SEPTEMBER 12, 1984 FIRST: (a) The name of the company shall be NORTHBROOK LIFE INSURANCE COMPANY. (b) The principal office of the company shall be located in the township of Northfield, County of Cook, in the State of Illinois. (c) The period of duration of the company shall be perpetual. SECOND: The objects and purposes of this corporation shall be to make, write and issue the following classes and kinds of insurance: (a) LIFE: Insurance on the lives of persons and every insurance appertaining thereto or connected therewith and granting, purchasing or disposing of annuities. Policies of life or endowment insurance or annuity contracts or contracts supplemental thereto which contain provisions for additional benefits in case of death by accidental means and provisions operating to safeguard such policies or contracts against lapse or to give a special surrender value, or special benefit, or an annuity, in the event, that the insured or annuitant shall become totally and permanently disabled as defined by the policy or contract, shall be deemed to be policies of life or endowment insurance or annuity contracts within the intent of this clause. (b) ACCIDENT AND HEALTH: Insurance against bodily injury, disablement or death by accident and against disablement resulting from sickness or old age and every insurance appertaining thereto. (c) LEGAL EXPENSE: Insurance which involves the assumption of a contractual obligation to reimburse the beneficiary against or pay on behalf of the beneficiary, all or a portion of his fees, costs or expenses related to or arising out of services performed by or under the supervision of an attorney licensed to practice in the jurisdiction wherein the services are performed, regardless of whether the payment is made by the beneficiaries individually or by a third person for them, but does not include the provision of or reimbursement for legal services incidental to other insurance coverages. THIRD: (a) The number of Directors shall be as provided in the By-Laws, but shall not be less than three, or more than twenty-one. The Directors shall be elected at each annual meeting of the shareholders for a term of one year. Vacancies in the Board of Directors shall be filled by vote of the shareholders. (b) The corporate powers of the corporation shall be vested in the Board of Directors who shall have power to do any and all acts the corporation may do under the law and not otherwise to be performed by the shareholders, and shall have power to adopt By-Laws not inconsistent with law for the government and regulation of business. FOURTH: The amount of authorized capital of the corporation shall be Two Million Five Hundred Thousand ($2,500,000.) Dollars; the aggregate number of common shares which the corporation shall have authority to issue shall be Twenty-Five Thousand (25,000) shares of the par value of One Hundred ($100) Dollars per share. FIFTH: The designation of the general officers shall be Chairman of the Board, President, two or more Vice-Presidents, Treasurer, Secretary and Controller. SIXTH: The fiscal year shall commence on the first day of January and terminate on the 31st day of December of each year. SEVENTH: The corporation is a survivor of a merger in accordance with he Illinois Insurance Code, and the age of the corporation shall be calculated from December 16, 1959. NORTHBROOK LIFE INSURANCE COMPANY By: s/s Robert S. Seiler -------------------------------- Senior Vice President, Secretary and General Counsel (SEAL) Attest: s/s Kieran T. Ridge - ---------------------- Assistant Secretary Approved this 12th day of October, 1984. s/s John E. Washburn ---------------------------------------- John E. Washburn, Director of Insurance EX-6.(B) 8 EXHIBIT 6(B) NORTHBROOK LIFE INSURANCE COMPANY BY-LAWS AMENDED JUNE 8, 1995 AMENDED BY-LAWS OF NORTHBROOK LIFE INSURANCE COMPANY ARTICLE I DIRECTORS SECTION 1. The property, business and affairs of the Company shall be managed and controlled by a Board of Directors composed of seven members. The Directors shall be elected at each annual meeting of the shareholders of the Company for a term of one year. Each Director shall hold office for the term for which elected, and until the election and qualification of a successor. SECTION 2. In the event of a vacancy occurring in the Board of Directors, the shareholders of the Company shall, by a majority vote at a special meeting called for that purpose or at the next annual meeting of shareholders, elect a Director to fill such vacancy, who shall hold office during the unexpired portion of the term of the Director whose place he was elected to fill. SECTION 3. The Board of Directors may declare dividends payable out of the surplus funds of the Company when warranted by law. SECTION 4. The Board of Directors shall elect all the general officers of the Company hereafter provided and may prescribe additional descriptive titles for any such officers. The Board of Directors may from time to time appoint an Actuary, Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant Actuaries and other officers of the Company. The Board of Directors may prescribe the duties and fix the compensation of any elected or appointed officer and may require from any officer security for his faithful service and for his proper accounting for monies and property from time to time in his possession. All officers of the Company shall hold office at the will of the Board of Directors. SECTION 5. The Board of Directors shall designate in what bank or banks the funds of the Company shall be deposited and the person or persons who may sign, on behalf of the Company, checks or drafts against such deposits. Such designations may also be made by such person or persons as shall be appointed for that purpose by the Board of Directors. SECTION 6. The Board of Directors shall have the power to make rules and regulations not inconsistent with the laws of this State, the Articles of Incorporation of the Company, 2 or these By-Laws, for the conduct of its own meetings and the management of the affairs of the Company. SECTION 7. The Board of Directors may authorize payment of compensation to Directors for their services as Directors, and fix the amount thereof. SECTION 8. The Board of Directors shall have the power to appoint committees and to grant them powers not inconsistent with the laws of this State, the Articles of Incorporation of the Company, or these By-Laws. SECTION 9. An annual meeting of the Board of Directors shall be held each year immediately after the adjournment of the annual meeting of the shareholders. Other meetings of the Board of Directors may be held at such time, as the Board of Directors may determine or when called by the Chairman of the Board or by a majority of the Board of Directors. Notice of every meeting of the Directors other than the stated annual meeting shall be given by letter or telegraph sent to each Director at his business address, not less than three days prior to the meeting. Any Director may, in writing, waive notice of any meeting, and the presence of a Director at any meeting shall be considered a waiver by him of notice of such meeting, except as otherwise provided by law. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any Committee thereof, may be taken without a meeting if all members of the Board or such Committee, as the case may be, consent thereto in writing. Such writing or writings shall be filed with the minutes of proceedings of the Board or such Committee. SECTION 10. A majority of the whole Board of Directors shall constitute a quorum for the transaction of business, but if at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting, from time to time, until a quorum shall have been obtained. ARTICLE II OFFICERS SECTION 1. The general officers of the Company shall consist of a Chairman of the Board, President, two or more Vice Presidents, a Secretary, a Treasurer, and a Controller, who shall be elected annually by the Board of Directors at the stated annual meeting held upon adjournment of the annual shareholders' meeting, and if not elected at such meeting, such officers may be elected at any meeting of the Board of Directors held thereafter. Such officers shall be elected by a majority of the Directors, and shall hold office for one year and until their respective successors are elected 3 and qualified, subject to removal at will by the Board of Directors. In case of a vacancy in any of the general offices of the Company, such vacancy may be filled by the vote of a majority of the Board of Directors. Any two of the aforesaid offices may be filled by the same person, with the exception of the offices of President and Vice President, or President and Secretary. SECTION 2. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors. He shall be the Chief Executive Officer of the Company, shall have general and active management of the business of the Company subject to the supervision of the Board of Directors, and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall also perform such other duties as shall be prescribed from time to time by the Board of Directors. SECTION 3. The President shall have general administrative control and supervision over the operations of the company subject to the supervision of the Chairman Board. He shall, in the absence or inability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. He shall also perform such other duties as may properly belong to his office or as shall be prescribed from time to time by the Chairman of the Board or by the Board of Directors. SECTION 4. Each Vice President shall have such powers and shall perform such duties as may be assigned to him by the Chairman of the Board, or by the President or by the Board of Directors. In the absence or in the case of the inability of the Chairman of the Board and the President to act, the Board of Directors may designate which one of the Vice Presidents shall be the acting Chief Executive Officer of the Company during such absence or inability, whereupon such acting Chief Executive Officer shall have all the powers and perform all of the duties incident to the office of the Chairman during the absence or inability of the Chairman and President to act. SECTION 5. The Secretary shall keep the minutes of all meetings of the Board of Directors, and of all meetings of the shareholders, in books provided by the Company for such purpose. He shall attend to the giving of all notices of meetings of the Board of Directors or shareholders. He may sign with the Chairman of the Board, the President or a Vice President in the name of the Company when authorized by the Board of Directors so to do, all contracts and other instruments requiring the seal of the Company and may affix the seal thereto. He shall, in general, perform all of the duties which are incident to the office of Secretary and such other duties as the Board of Directors or Chairman of the Board may from time to time prescribe. SECTION 6. The Treasurer shall deposit the monies of the Company in the Company's name in depositories designated by the Board of Directors, or by such person or persons as shall be appointed for that purpose by the Board of Directors. He shall, in general, perform all of the duties which are incident to the office of Treasurer and such other duties as the Board of 4 Directors or Chairman of the Board may from time to time prescribe. The Board of Directors may, in its discretion, require him to give bond for the faithful discharge of his duties. SECTION 7. The Controller shall have such powers and perform such duties as the Board of Directors or the Chairman of the Board may from time to time prescribe. ARTICLE III SHAREHOLDERS' MEETING SECTION 1. The annual meeting of the shareholders shall be held at the principal office of the Company in Northfield Township, Cook County, Illinois, or at such other location within or without the State of Illinois as may be set forth in the notice of call, on the third Tuesday in February of each year, except when such day shall be a legal holiday, in which case the meeting shall be held on the next succeeding business day. The Chairman of the Board or the Board of Directors may at any time call a special meeting of the shareholders, and the Chairman of the Board shall call such special meeting when requested, in writing, so to do by the owners of not less than one-fifth of the outstanding share of the Company. SECTION 2. Notice of every meeting of the shareholders shall be given by mailing notice thereof at least ten days before such meeting to all the shareholders at their respective post office addresses last furnished by them, respectively, to the Company. The shareholders may waive notice of any such meeting, in writing, and the presence of a shareholder, either in person or by proxy, shall be considered a waiver of notice, except as otherwise provided by law. SECTION 3. The presence at such meeting in person or by proxy of shareholders of the Company representing at least fifty-one percent of the then outstanding shares of the Company shall be necessary to constitute a quorum for the purpose of transacting business, except as otherwise provided by law, but a smaller number may adjourn the meeting from time to time until a quorum shall be obtained. Each shareholder shall be entitled to cast one vote in person or by proxy for each share of stock of the Company held and of record in his or her name on the books of the Company. SECTION 4. A shareholder may vote at any meeting of the shareholders either in person or by proxy duly constituted in writing. No special form of proxy shall be necessary. 5 ARTICLE IV SHARES SECTION 1. Share certificates shall be signed by the President or a Vice President and countersigned by the Secretary, shall be sealed with the corporate seal of the Company, and shall be registered upon the Share Register of the Company. Each certificate shall express on its face the name of the Company, the number of the certificate, the number of shares for which it is issued, the name of the person to whom it is issued, the par value of each of the said shares, and the amount actually received by the Company for each share represented by said certificate. SECTION 2. Transfer of shares of the Company shall be made only on the books of the Company by the holder thereof in person or by his attorney duly authorized, in writing, and upon the surrender of the certificates or certificate for the share transfer, upon which surrender and transfer new certificates will be issued. The Board of Directors may, by resolution, close the share transfer books of the Company for a period not exceeding ten days before the holding of any annual or special meeting of the shareholders. The Board of Directors may, by resolution, also close the transfer books of the Company for a period not exceeding ten days before the payment of any dividends which may be declared upon the shares of the Company. ARTICLE V INSURANCE POLICIES SECTION 1. All policies of insurance issued by this Company shall comply with the laws of the respective states or territories in which the policies are issued. All policies of insurance issued by this Company shall be signed, either manually or by facsimile, by the President and the Secretary or by such other officer or officers as the President may designate, and shall be countersigned by a duly licensed resident agent where so required by law or regulation. 6 ARTICLE VI MISCELLANEOUS SECTION 1. (a) As used in this Article: (i) "acted properly" as to any person shall mean that such person (A) acted in good faith; (B) acted in a manner not clearly opposed to any written policy of the corporation or which he reasonably believed to be in the best interests of the corporation; and (C) with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act properly. (ii) "agent" shall mean any person who is or was (A) a Director, officer or employee of the corporation and/or any subsidiary; (B) a trustee or a fiduciary under any employee pension, profit sharing, welfare or similar plan or trust of the corporation and/or any subsidiary; (C) serving at the request of the corporation as a Director, officer and/or employee of or in a similar capacity in another corporation, partnership, joint venture, trust or other enterprise, (which shall, for the purpose of this Article be deemed to include not-for-profit or for-profit entities of any type), whether acting in such capacity or in any other capacity including, without limitation, as a trustee or fiduciary under any employee pension, profit sharing, welfare or similar plan of trust. 7 (iii) "expenses" shall include attorneys' fees and any expenses of establishing a right to indemnification under this Article. (iv) "proceeding" shall mean any threatened, pending or completed action or completed action or proceeding, whether civil or criminal, and whether judicial, legislative or administrative and shall include investigative action by any person or body. (v) "subsidiary" shall mean a corporation, 50% or more of the shares of which at the time outstanding having voting power for the election of Directors, is owned directly or indirectly by the corporation or by one or more subsidiaries or by the corporation and one or more subsidiaries. (b) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was an agent against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such proceeding if such person acted properly. (c) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an agent against amounts paid in settlement and against expenses actually and reasonably incurred by him in connection with the defense or settlement of such proceeding if he acted properly, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (d) Expenses incurred in defending a proceeding shall be paid by the corporation to or on behalf of an agent in advance of the final disposition of such proceeding if: (i) there is a reasonable basis to believe that such agent may be entitled to indemnification under this Article; (ii) such advance payments would not result in undue financial hardship to the corporation; and 8 (iii) the corporation shall have received an undertaking by or on behalf of such agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this Article. (e) Any indemnification or advance under paragraphs (b), (c) or (d) of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific proceeding upon a determination that indemnification or advancement to such person is proper in the circumstances. Such determination shall be made: (i) by the Chairman of the Board and General Counsel so long as neither was made a party to such proceeding, or (ii) if the Chairman of the Board or General Counsel was made a party, by the Board of Directors, by a majority vote of a quorum consisting of Directors who were not made parties to such proceedings, or (iii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (iv) if a quorum of disinterested Directors is not obtainable or if a majority of the disinterested Directors so directs by the shareholders. (f) The corporation shall indemnify or advance funds to any person described in Section (a)(ii)(c) only after such person shall have sought indemnification or an advance from the corporation, partnership, joint venture, trust or other enterprise in which he was serving at the corporation's request, shall have failed to receive such indemnification or advance and shall have assigned irrevocably to the corporation any right to receive indemnification which he might be entitled to assert against such other corporation, partnership, joint venture, trust or other enterprise. (g) The indemnification provided to an agent by this Article: (i) shall not be deemed exclusive of any other rights to which such agent may be entitled by law or under any articles of incorporation, by-law, agreement, vote of shareholders or disinterested Directors or otherwise; and (ii) shall inure to the benefit of the legal representatives of such agent or his estate, whether such representatives are court- appointed or otherwise designated, and to the benefit of the heirs of such agent. (h) The indemnification and advances provided to an agent by this Article shall extend to and include claims for such payments arising out of any proceeding commenced or 9 based on actions of an agent taken prior to the effective date of this Article; provided that payment of such claims had not been agreed to or denied by the corporation at the effective date. (i) The corporation shall have power to purchase and maintain insurance on behalf of any agent against any liability asserted against him and incurred by him as agent or arising out of his status of such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article. The corporation shall also have power to purchase and maintain insurance to indemnify the corporation for any obligation which it may incur as a result of the indemnification of agents under provisions of this Article. (j) The invalidity or unenforceability of any provision in this Article shall not affect the validity or enforceability of the remaining provisions of this Article. SECTION 2. The fiscal year of the Company shall begin in each year on the first day of January, and end on the thirty-first day of the December following. SECTION 3. The common seal of the Company shall be circular in form and shall contain the name of the Company and the words: "CORPORATE SEAL" and "ILLINOIS". SECTION 4. These By-Laws may be amended or repealed by the vote of a majority of the Directors present at any meeting at which a quorum is present. 10 EX-9 9 EXHIBIT 9 NORTHBROOK LIFE INSURANCE COMPANY 3100 SANDERS ROAD NORTHBROOK, IL 60062 Home Office Life Law & Regulation June 8, 1990 To: Northbrook Life Insurance Company 3100 Sanders Road Northbrook, Illinois 60062 From: Robert S. Seiler, Senior Vice President, Secretary and General Counsel Re: Form N-4 Registration Statement Under the Investment Company Act of 1940 I have examined the above-mentioned document and the laws that I consider necessary and appropriate. On the basis of such examination, it is my opinion that: 1. The Northbrook Life Insurance Company is duly organized and validly existing under the laws of the State of Illinois and has been duly authorized to issue variable annuity contracts by the Illinois Department of Insurance; 2. The Northbrook Variable Annuity Separate Account II is a duly authorized and separately existing account established pursuant to Section 245.21 of the Illinois Insurance Code by Board Resolution dated May 18, 1990, and; 3. The flexible premium variable annuity contracts when issued as contemplated by the Form N-4 Registration Statement will constitute legally and validly issued and binding obligations of Northbrook Life Insurance Company. s/s Robert S. Seiler --------------------------------- Robert S. Seiler, Senior Vice President, Secretary and General Counsel EX-10.(A) 10 EXHIBIT 10(A) EXHIBIT 10(a) CONSENT OF ACCOUNTANTS INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 13 to Registration Statement No. 33-35412 on Form N-4 of our report dated March 1, 1996 related to the financial statements of Northbrook Variable Annuity Account II and our report dated March 1, 1996 related to the financial statements and financial statement schedule of Northbrook Life Insurance Company contained in the Statement of Additional Information (which is incorporated by reference in the Prospectus of Northbrook Variable Annuity Account II of Northbrook Life Insurance Company) which is part of such Registration Statement, and to the reference to us under the heading "Experts" in such Statement of Additional Information. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois December 27, 1996 EX-10.(B) 11 EXHIBIT 10(B) CONSENT OF COUNSEL We hereby consent to the reference to this firm under the caption "Legal Matters" in the Statement of Additional Information forming part of Post- Effective Amendment No. 13 to the Registration Statement on Form N-4 for Northbrook Variable Annuity Account II (File No. 33-35412). Routier and Johnson, P.C. By: /s/ Gregor B. McCurdy -------------------------- Gregor B. McCurdy EX-12 12 EXHIBIT 12 FORM OF AGREEMENT TO PURCHASE SHARES THIS AGREEMENT, made and entered into this the 30th day of June, 1993, and amended as of the 15th day of March, 1995, by and between NORTHBROOK LIFE INSURANCE COMPANY (hereinafter the "Company"), on its own behalf and on behalf of the Northbrook Variable Annuity Account II (hereinafter the "Account"), a separate account of the Company, and DEAN WITTER VARIABLE INVESTMENT SERIES, an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts (hereinafter the "Trust") and DEAN WITTER DISTRIBUTORS INC. (hereinafter the "Distributor"). WHEREAS, by resolution of its Board of Directors on May 18, 1990, the Company established the Account to set aside and invest assets attributable to certain variable annuity contracts (hereinafter the "Contracts") issued by the Company; WHEREAS, the Company has registered the Account as a unit investment trust under the Investment Company Act of 1940, as amended, (hereinafter the "1940 Act"); WHEREAS, the Securities and Exchange Commission (hereinafter "S.E.C.") declared the Account's registration statement of the Contract filed under the Securities Act of 1933, as amended, (hereinafter the "1933 Act") effective on September 25, 1990; WHEREAS, the Trust is engaged in business as an open-end management investment company and is registered as such under the 1940 Act and has filed its registration statement with the S.E.C. which declared such registration statement effective on October 5, 1983; WHEREAS, the Distributor is registered as a broker-dealer with the S.E.C. under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (hereinafter "NASD"); WHEREAS, the Trust is available to act as the investment vehicle for separate accounts established for variable annuity contracts and variable life insurance contracts offered or to be offered by insurance companies which have entered into agreements to purchase shares or participation agreements with the Trust and the Distributor (hereinafter "Participating Insurance Companies"); WHEREAS, the Trust has obtained an order from the S.E.C., dated November 23, 1994 (File No. 812-9128), granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive Order"); WHEREAS, the Trust is presently comprised of eleven Portfolios designated as the Money Market Portfolio, the Quality Income Plus Portfolio, the High Yield Portfolio, the Utilities Portfolio, the Dividend Growth Portfolio, the Capital Growth Portfolio, the Global Dividend Growth Portfolio, the European Growth Portfolio, the Pacific Growth Portfolio, the Equity Portfolio and the Managed Assets Portfolio, and other Portfolios may be subsequently established by the Trust (hereinafter the "Portfolios"); WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends by purchasing shares of the Portfolios on behalf of the Account to fund the Contracts and the Distributor is authorized to sell such shares to the Company for the benefit of the Account at net asset value without the imposition of any charges; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Trust and the Distributor agree as follows: 1. PURCHASE OF SHARES. In accordance with the Trust's and the Distributor's Distribution Agreement dated June 30, 1993, as amended as of March 15, 1995, (the "Distribution Agreement"), the Company agrees to purchase and redeem the Trust shares of each Portfolio offered by the then current prospectus 1 of the Trust (hereinafter the "Prospectus") included in the Trust's registration statement (hereinafter "the Registration Statement") most recently filed from time to time with the S.E.C. and effective under the 1933 and 1940 Acts or as the Prospectus may be amended or supplemented and filed with the S.E.C. pursuant to the 1933 Act. 2. SALE OF SHARES. The Distributor agrees to sell shares of the Trust to the Company for allocation to the Account as orders from the Company are received at the next determined net asset value per share after receipt by the Trust or its designee of the order for shares of the Trust, of the applicable Portfolio determined as set forth in the Prospectus. 3. REDEMPTION OF SHARES. At the Company's request, the Trust agrees to redeem for cash without charge, any full or fractional shares of the Trust held by the Company, executing such requests on a daily basis at the net asset value of applicable Portfolio computed after receipt of the redemption request provided, however, that the Trust reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption of the shares of any Portfolio under the circumstances and for the period of time specified in the Prospectus. 4. AVAILABILITY OF SHARES. Subject to Sections 3(c) and 4(b) of the Distribution Agreement, the terms of which are incorporated herein by reference, the Trust agrees to make its shares available indefinitely for purchase by the Company. 5. PAYMENT OF SHARES. The Company shall pay for Trust shares within five days after it places the order for Trust shares. The Trust reserves the right to delay issuing or transferring Trust shares and/or to delay accruing or declaring dividends in accordance with any policy set forth in its then current prospectus with respect to such shares until any payment check has cleared. If the Trust or the Distributor does not receive payment within the five days period, the Trust may, without notice, cancel the order and require the Company to reimburse the Trust promptly for any loss the Trust suffered by reason of the Company failing to timely pay for its shares. 6. FEE FOR SHARES. The Company shall purchase and redeem shares in the Trust at net asset value and the Company shall not pay any commission, dealers fee or other fee to the Distributor or any other broker dealer. 7. TRUST'S REGISTRATION STATEMENT AND PROSPECTUS. The Trust shall amend the Registration Statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares and, at its own expense, shall provide the Company with as many copies of its current prospectus as the Company may reasonably request. 8. INVESTMENT OF ASSETS. The Trust agrees to invest its assets in accordance with the representations made to the Internal Revenue Service in connection with the Company's request for a private letter ruling regarding the ownership of the Trust's shares attached as Exhibit "A" and in accordance with Section 817(h) of the Internal Revenue Code and Treasury Regulation 1.817-5, as amended from time to time, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity contracts and any amendments or other modifications to such Section or Regulations. 9. ADMINISTRATION OF CONTRACTS. The Company shall be responsible for administering the Contracts and keeping records on the Contracts. 10. STOCKHOLDER INFORMATION. The Trust shall furnish the Company copies of its proxy material, reports to stockholders and other communication to stockholders in such quantity as the Company shall reasonably require for distributing to owners or participants under the Contracts. The Company will distribute these materials to such owners or participants as required. 11. VOTING. (a) To the extent required by law, the Company shall vote Trust shares in accordance with instructions received from contract owners. If, however, the 1940 Act or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result the Company determines that it is permitted to vote the Trust's shares in its own right, it may elect to do so. The Company shall vote shares of a Portfolio for which no instructions have been received in the same proportion as the vote of shareholders of such Portfolio from which instructions have been received. 2 Neither the Company nor persons under its control shall recommend action in connection with solicitation of proxies for Trust shares allocated to the Account. The Company shall also vote shares it owns that are not attributable to contract owners in the same proportion. Participating Insurance Companies shall be responsible for assuring that each of their separate accounts participating in the Trust calculates voting privileges in a manner consistent with other Participating Insurance Companies. (b) The Trust will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Trust will either provide for annual meetings or comply with Section 16(c) of the 1940 Act (although the Trust is not one of the trusts described in Section 16(c) of that Act) as well as with Section 16(a) and, if and when applicable, 16(b). Further, the Trust will act in accordance with the S.E.C.'s interpretation of the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rules the S.E.C. may promulgate with respect thereto. 12. COMPANY APPROVAL. The Trust and the Distributor agree that the approval of the Company will be required prior to the Trust and the Distributor entering into any new agreements to sell shares of the Trust to other Participating Companies. 13. TRUST'S WARRANTY. The Trust represents and warrants that Trust shares sold pursuant to this Agreement shall be registered under the 1933 Act and duly authorized for issuance in accordance with all applicable federal and state laws. 14. COMPANY'S WARRANTY. The Company represents and warrants that it is an insurance company duly organized and in good standing under Illinois law and that it has legally and validly established the Account under Section 245.21 of the Illinois Insurance Code and has registered the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for certain Contracts. The Company further represents and warrants that the Contracts will be registered under the 1933 Act and the Contracts will be issued and sold in compliance with all applicable Federal and State laws. 15. DISTRIBUTOR'S WARRANTY. The Distributor represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the S.E.C. under the 1934 Act. The Distributor further represents that it will sell and distribute the shares in accordance with the 1933, 1934 and 1940 Acts and will not make any representations concerning the Account except those contained in the then current registration statement or related prospectus and any sales literature approved by the Trust. For purposes of this paragraph, Section 6 of the Distribution Agreement is incorporated in this Agreement. 16. TERMINATION OF AGREEMENT. The parties may terminate this Agreement as follows: (1)(a) at the option of the Company or the Trust or the Distributor upon 90 days' written notice to the other party; (b) at the option of the Company if, for any reason, except for those specified in Sections 3(c) and 4(b) of the Distribution Agreement, Trust shares are not available to meet the requirements of the Contracts as determined by the Company; or (c) at the option of the Trust upon the NASD, the S.E.C., the Illinois Insurance Commissioner or any other regulatory body instituting legal proceedings against the Company regarding its duties under this Agreement. (2) This Agreement shall automatically terminate in the event of its assignment. 17. COMPANY'S INDEMNIFICATION AGREEMENT. (a) The Company agrees to indemnify and hold harmless the Trust or Distributor and each of their Directors or Trustees who is not an "interested person" of the Trust, as defined in the 1940 Act (collectively, the "Indemnified Parties" for purposes of this paragraph 17) against any losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or expenses or actions to which such Indemnified Parties may become subject, under the Federal securities laws or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements arise as a result of any failure by the 3 Company to provide the services and furnish the materials under terms of this Agreement or which arise from erroneous instructions by the Company to the Distributor concerning the particular Portfolio or Portfolios whose shares are to be allocated to the Account. This indemnity agreement is in addition to any liability which the Company may otherwise have. Provided, however, that in no case is the indemnity of the Company in favor of the Distributor deemed to protect the Distributor against any liability to the Trust or its shareholders to which the Distributor would otherwise be subject by reason of its bad faith, wilful misfeasance or negligence in the performance of its duties or by reason of reckless disregard of its obligations and duties under this Agreement. (b) The Company will reimburse the Indemnified Parties for any legal or other expenses reasonably incurred by the Indemnified Parties in connection with investigating or defending of any such loss, claim, damage, liability or action. (c) Promptly after receipt by any of the Indemnified Parties of notice of the commencement of any action, or the making of any claim for which indemnity may apply under this paragraph, the Indemnified Parties will, if a claim thereof is to be made against the Trust, notify the Company of the commencement thereof; but the omission so to notify the Company will not relieve the Company from any liability which it may have to the Indemnified Parties otherwise than under this Agreement. In case any such action is brought against the Indemnified Parties, and the Company is notified of the commencement thereof, the Company will be entitled to participate therein and to assume the defense thereof, with counsel satisfactory to the party named in the action, and after notice from the Company to such party of the Company's election to assume the defense thereof, the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 18. TRUST AND DISTRIBUTOR INDEMNIFICATION AGREEMENTS. (a) The Trust and Distributor each agree to indemnify and hold harmless the Company and each of its Directors who is not an "interested person" of the Company, as defined in the 1940 Act (collectively the "Company's Indemnified Parties" for purposes of this paragraph 18) against any losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Trust) or expenses or actions to which such Indemnified Parties may become subject, under the Federal securities laws or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (i) arise as a result of any failure by the Trust or Distributor to provide the services and furnish the materials under the terms of this Agreement; or (ii) arise out of the Trust's or Distributor's failure, whether unintentional or in good faith or otherwise, to comply with the representations made to the Internal Revenue Service attached as Exhibit "A" in connection with the request for a private letter ruling regarding the ownership of Trust shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in registration statement or prospectus or sales literature of the Trust (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to the Company's Indemnified Parties if such statement or omission was made in reliance upon and in conformity with information furnished to the Trust or Distributor by or on behalf of the Company for use in the registration statement or prospectus for the Trust or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Trust shares; or (iv) arise out of or result from any material breach of any representation and/or warranty made by the Trust or the Distributor in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust or the Distributor, including a failure, whether unintentional or in good faith or otherwise, to comply with the requirements specified in paragraph 8 of this Agreement. 4 (b) The Trust represents and warrants that the Trust will at all times invest its assets in such a manner as to ensure that the Contracts will be treated as an annuity under the Internal Revenue Code and the regulations thereunder. Without limiting the scope of the foregoing, the Trust will at all times comply with Section 817(h) of the Code and Treas. Reg. Sec. 1.817-5, as amended from time to time, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity contracts and any amendments or other modifications to such section or Regulations. (c) Trust shares will not be sold to any person or entity that would result in the Contracts not being treated as annuity contracts in accordance with the statutes and regulations referred to in the preceding paragraph. (d) The Trust and the Distributor will reimburse the Company for any legal or other expenses reasonably incurred by the Company's Indemnified Parties in connection with investigating or defending of any such loss, claim, damage, liability or action. (e) Promptly after receipt by any of the Company's Indemnified Parties of notice of the commencement of any action, or the making of any claim for which indemnity may apply under this paragraph, the Company's Indemnified Parties will, if a claim in respect thereof is to be made against the Company, notify the Trust or the Distributor of commencement thereof; but the omission so to notify the Trust or the Distributor will not relieve the Trust or the Distributor from any liability which it may have to the Company's Indemnified Parties otherwise than under this Agreement. In case any such action is brought against the Company's Indemnified Parties, and the Trust or the Distributor is notified of the commencement thereof, the Trust or the Distributor will be entitled to participate therein and to assume the defense thereof, with counsel satisfactory to the party named in the action, and after notice from the Trust or the Distributor to such party of the Trust's or the Distributor's election to assume the defense thereof, the Trust or the Distributor will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 19. INDEMNIFICATION OF TRUST BY OR OF DISTRIBUTOR. For purposes of this Agreement, the Trust and the Distributor shall indemnify each other according to the terms of the Distribution Agreement the terms of which are incorporated by reference. 20. POTENTIAL CONFLICTS. (a) The Trustees of the Trust will monitor the operations of the Trust for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Trust. An irreconcilable material conflict may arise for a variety of reasons, including: (i) an action by any state insurance regulatory authority; (ii) a change in applicable Federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no- action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (iii) an administrative or judicial decision in any relevant proceeding; (iv) the manner in which the investments of any Portfolio are being managed; (v) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (vi) a decision by an insurer to disregard the voting instructions of contract owners. The Trustees shall promptly inform the Company if they determine that an irreconcilable material conflict exists and the implications thereof. (b) The Company will report any potential or existing conflicts of which it is aware to the Trustees of the Trust. The Company will assist the Trustees in carrying out their responsibilities under the Shared Funding Exemptive Order, by providing the Trustees with all information reasonably necessary for the Trustees to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Trustees whenever contract owner voting instructions are disregarded. (c) If it is determined by a majority of the Trustees, or a majority of the Trustees who are not parties to this Agreement or interested persons of any such party and who have no direct or indirect financial interest in this Agreement or any agreement related thereto (the "Independent Trustees"), that a material irreconcilable conflict exists, the Company shall, at its expense and to the extent reasonably practicable (as determined by a majority of the Independent Trustees), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (i) withdrawing the assets allocable 5 to the Account from the Trust or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Trust, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of variable annuity contract owners invested in the Account from those of any other appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the contract owners the option of making such a change; and (ii) establishing a new registered management investment company or managed separate account. (d) If a material irreconcilable conflict arises because of a decision by the Company to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Trust's election, to withdraw the Account's investment in the Trust and terminate this Agreement; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the Independent Trustees. Any such withdrawal and termination must take place within six (6) months after the Trust gives written notice that this provision is being implemented, and until the end of that six month period the Distributor and Trust shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Trust. (e) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the Account's investment in the Trust and terminate this Agreement within six months after the Trustees inform the Company in writing that they have determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the Independent Trustees. Until the end of the foregoing six month period, the Distributor and Trust shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Trust. (f) For purposes of sections (c) through (f) of this paragraph, a majority of the Independent Trustees shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Trust be required to establish a new funding medium for the Contracts. The Company shall not be required by section (c) to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Trustees determine that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Trust and terminate this Agreement within six (6) months after the Trustees inform the Company in writing of the foregoing determination, provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the Independent Trustees. (g) If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then (a) the Trust and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are applicable; and (b) paragraphs 11(a), 11(b), 20(a), 20(b), 20(c), 20(d), 20(e) and 20(f) of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such paragraphs are contained in such Rule(s) as so amended or adopted. 21. DURATION OF THIS AGREEMENT. This Agreement, as amended, shall remain in force until April 30, 1995 and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by the Trustees of the Trust, or by the vote of a majority of the outstanding voting securities of the Trust, cast in person or by proxy. This Agreement also may be terminated in accordance with paragraph 16 hereof. 6 The terms "vote of a majority of the outstanding voting securities","assignment" and "interested person", when used in this Agreement, shall have the respective meanings specified in the 1940 Act. 22. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by the parties only if such amendment is specifically approved by (i) the Trustees of the Trust, or by the vote of a majority of outstanding voting securities of the Trust, and (ii) a majority of those Trustees of the Trust who are not parties to this Agreement or interested persons of any such party and who have no direct or indirect financial interest in this Agreement or in any agreement related thereto, cast in person at a meeting called for the purpose of voting on such approval. 23. GOVERNING LAW. This Agreement shall be construed in accordance with the law of the State of Illinois and the applicable provisions of the 1933, 1934 and 1940 Acts and the rules and regulations and rulings thereunder including such exemptions from those statutes, rules and regulations as the S.E.C. may grant and the terms hereof shall be interpreted and construed in accordance therewith. To the extent the applicable law of the State of Illinois, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise the remainder of the Agreement shall not be affected thereby. 24. PERSONAL LIABILITY. The Declaration of Trust establishing Dean Witter Variable Investment Series, dated February 24, 1983, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of the Commonwealth of Massachusetts, provides that the name Dean Witter Variable Investment Series refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of Dean Witter Variable Investment Series shall be held to any personal liability, nor shall resort be had to their private property for the satisfaction of any obligation or claim or otherwise, in connection with the affairs of said Dean Witter Variable Investment Series, but the Trust Estate only shall be liable. IN WITNESS WHEREOF, the parties hereto have caused this Agreement, as amended, to be duly executed as of March 15, 1995. COMPANY: ATTEST: NORTHBROOK LIFE INSURANCE COMPANY /s/ By: /s/ - ----------------------------------- ------------------------------- TRUST: ATTEST: DEAN WITTER VARIABLE INVESTMENT SERIES /s/ By: /s/ - ----------------------------------- ------------------------------- DISTRIBUTOR: ATTEST: DEAN WITTER DISTRIBUTORS INC. /s/ By: /s/ - ----------------------------------- ------------------------------- 7 EXHIBIT A INDEX NUMBER: 0061.19-00 "This document may not be used or cited as precedent. Section 6110(j)(3) of the Internal Revenue Code." Mr. Paul J. Overberg Mr. J.C. Strickland Senior Vice President and Chief Actuary (202) 566-4495 Northbrook Life Insurance Co. Allstate Plaza CC:C:C:3:3--3G6488 Northbrook, Illinois 60062 Dec. 01, 1983 Company = Northbrook Life Insurance Company EIN: 36-3001527 Corp. P = Allstate Insurance Company Corp. GP = Sears, Roebuck and Co. Corp. S-1 = Dean Witter Reynolds Inc. Account S = Northbrook Variable Annuity Account Fund F = Dean Witter Variable Annuity Investment Series Portfolio 1 = Money Market Portfolio of Fund F Portfolio 2 = High Yield Portfolio of Fund F Portfolio 3 = Equity Portfolio of Fund F State X = Illinois State Y = Massachusetts the Contract = flexible premium, deferred, variable annuity contract, number NLU2, to be issued by the Company Dear Mr. Overberg: This is in reply to a letter dated July 25, 1983, requesting rulings concerning the federal income tax consequences of the sale and administration of certain annuity contracts. Additional information was submitted in letters dated September 1 and September 9, 1983. The information submitted for our consideration is substantially summarized below. The Company is a stock life insurance company organized and operated under the laws of State X. It is a life insurance company as defined by section 801(a) of the Internal Revenue Code. It is a wholly-owned subsidiary of Corp. P. which, in turn, is a wholly-owned subsidiary of Corp. GP. The Company has developed a flexible premium, deferred, "variable" annuity contract ("the Contract") with reserves based on a separate account (Account S) established and regulated in accordance with the insurance laws of State X. Account S is a unit investment trust and is registered with A-1 the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940 (the 1940 Act). The Contracts provide for the allocation of all amounts received under the Contracts to the general account of the Company, one or more of the sub-accounts of Account S or any combination of the foregoing, in accordance with the Contract owner's allocation specified in the contract application or in a subsequent written notice to the Company. Account S has been divided into three subaccounts, each of which invests solely in the shares of a specific Portfolio of Fund F. Fund F is a diversified, open-end management investment company organized under the laws of State Y as a business trust and is registered with the SEC under the 1940 Act. Fund F has three Portfolios (Portfolios 1-3) which have different investment strategies. The investment performance of a Portfolio has no effect on the investment performance of any other Portfolio. The manager and investment adviser of Fund F is Corp. S-1 which is a second tier wholly-owned subsidiary of Corp. GP. Corp. S-1 is also the distributor of the Contracts. Corp. S-1 is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940 and is paid a management fee by Fund F. The Contract will be issued by Company to a contract owner who may or may not be the annuitant. The Contract will be available for purchase by individuals covered under certain tax qualified annuity or retirement plans (e.g. plans adopted pursuant to section 403(b) and individual retirement annuities under section 408 of the Code), for individuals covered under retirement plans which do not qualify for special tax treatment, and for individuals not covered under any retirement plan. The Contract provides for a minimum first purchase payment of at least $5,000 unless the Contract is issued under a tax qualified annuity or retirement plan, in which case the minimum first purchase payment must be at least $50. Future purchase payments must be at least $50 or more. The amount of subsequent payments are determined by the contract owner. However, the Company has the right to limit annual payments after the first contract year to three times the total payments made in the first contract year. The amount of each payment, net of any taxes, will be allocated to the general account of the Company, one or more sub-accounts of Account S, or any combination of the above, in accordance with the contract owner's allocation (as specified in the Contract application or subsequent written notice to the Company). Payments allocated to the Company's general account are applied to purchase accumulation units in the general account (fixed accumulation units). Interest is credited to the fixed accumulation units at a rate which may differ depending on the date of the underlying payments. Interest will be guaranteed for at least one year and will not be less than a minimum annual effective rate of 4 percent. Payments allocated to a sub-account of Account S are applied to purchase accumulation units in the sub-account (variable accumulation units). The variable accumulation units in each sub-account of Account S represent a proportionate interest in the net value of the assets (i.e., shares of one series of Fund F) of the sub-account. The value of the variable accumulation units will vary depending on the value of the Fund F stock held by the sub- account. The value of the Fund F stock will vary depending on the investment experience of Fund F. Payments allocated to the Company's general account become a part of the assets held by the general account. The general account maintains a diversified portfolio of investments. Payments allocated to each sub-account of Account S under the Contracts are used to purchase, at their net asset value, shares of a Portfolio of Fund F (Portfolio 1 through Portfolio 3), each of which has its own investment strategy. All dividends and capital gain distributions from a Portfolio of Fund F are reinvested in shares of the distributing Portfolio at their net asset value and such shares are credited to the appropriate sub- account of Account S. The Company may substitute shares of other registered open-end management investment companies upon notice to the contract owners and, to the extent required by the 1940 Act, upon approval by the SEC. The Company may establish additional sub-accounts of Account S to invest in shares of other Portfolios of Fund F that could be established in the future. A-2 The Company imposes certain charges with respect to the Contracts. An annual contract maintenance charge is deducted from the value of the accumulation units. The Company also deducts a daily mortality and expense risk charge. Annuity benefits begin on the "income starting date" selected by the contract owner, which must be the first day of a calendar month and at least one month after the issue date of the Contract. The income starting date cannot be later than the first day of the calendar month following the annuitant's 75th birthday. The owner may elect one of several annuity options. A contract owner may surrender the Contract (in whole or in part) for the value of the accumulation units held under the Contract at any time before the earlier of the income starting date or the death of the annuitant. Such withdrawals may be subject to surrender charges depending upon how long the original payments were held by the Company. In connection with the issuance and administration of the Contracts, the following representations have been made: (a) No variable annuity contract owner will have a legally binding right to require the Company, Account S or Fund F to acquire any particular investment item with purchase payments or other amounts paid to, or earned by, the Company, Account S, or Fund F. Furthermore, there will be no prearranged plan between any contract owner and the Company for the Company, Account S, or Fund F to invest any purchase payments or other amounts they receive in any particular investment item. However, contract owners may be informed of the general investment strategy to be followed. Contract owners will be permitted to choose among broad investment strategies which initially will include stocks, bonds, and money market instruments such as instruments of financial institutions, instruments of government bodies, and U.S. Government securities. (b) No contract owner will have any legal, equitable, direct, indirect, or other interest in any specific investment item held by the Company, Account S, or Fund F. A contract owner will have only a contractual claim against the Company for cash as a result of purchasing an annuity. (c) The Company, in its general account, will maintain a diversified portfolio of investments. Within 365 calendar days of the later of the formation of Account S or the date of receipt of the first purchase payment income (directly, indirectly, constructively or otherwise) by the Company or Account S from the sale of the Contract, each Portfolio of Fund F will diversify its respective portfolio of investments. Thereafter, each Portfolio of Fund F will maintain a diversified portfolio of investments. For purposes of this representation, a portfolio is diversified if: (1) No more than 10 percent of the fair market value of the total assets of the portfolio is invested in securities of any one issuer, in any one real property project, or in any one commodity; (2) investments in financial institutions are restricted, so that no single type of portfolio investment (for example, certificates of deposit, mortgages originating in and serviced by the financial institution, and demand deposits) in financial institutions accounts for more than 55 percent of the fair market value of the total assets of the portfolio; (3) Notwithstanding the 10 percent limitation in (1) above, the direct and indirect investment in U.S. Treasury securities may total but not exceed 55 percent of the fair market value of the total assets of the portfolio; (4) the total, direct and indirect, investment in U.S. Treasury securities and certificates of deposit in financial institutions (that is, savings and loan associations, banks, and savings banks) does not exceed 65 percent of the total fair market value of the total assets of the portfolio; (5) the portfolio meets the requirements of (1) and through (4) above on the last day of each calendar month. Active business checking accounts are excluded in determining whether there is diversification. For the first 10 working days after receipt (including the day of receipt), newly acquired annuity purchase payments are excluded in determining whether there is diversification. A-3 For purposes of this representation, the term "security" is defined as any certificate of deposit, mortgage, money market account, time deposit, repurchase agreement, mortgage participation certificate, and any item defined as a security in section 2(a)(36) of the 1940 Act, 15 U.S.C.A. section 80a-2(a)(36). For purposes of this representation the term "issuer" is defined as the U.S. Treasury, an agency or instrumentality of the U.S. Government, a State, an agency, instrumentality or political subdivision of a State (whether incorporated or not), a foreign government or instrumentality thereof, and any person as defined in section 2(a)(28) of the 1940 Act. For purposes of this representation the term "real property project" is defined as a single, identifiable tract, group of tracts, building, group of buildings, or combination of tracts and buildings. For purposes of this representation the term "commodity" is defined as any grouping of tangible personal property whose individual elements are usually considered to be fungible. A commodity can be a raw material, a refined material, or a manufactured product. The term commodity includes, for example, but is not limited to, agricultural products (including livestock), timber and timber products, gold, silver, copper, diamonds, any foreign currency, oil, natural gas, and all contracts involving the current or future purchase or sale of a commodity. If an investment item is defined in this paragraph and is also defined as a security, it will be considered to be defined only in this paragraph. Each Portfolio of Fund F intends to operate on a continuing basis. There is no plan or intention for any Portfolio of Fund F to liquidate, to transfer its assets to any individual or entity, to merge with any entity or to otherwise cease operations. There is no plan or intention for the Company to form any separate account, subsidiary, or other entity; to cause any exchange, cancellation, or modification of any annuity or insurance policy; or to otherwise use any device to extend beyond 365 days the time in which diversification will be obtained. (d) If FSLIC, FDIC or other governmental insurance is available in connection with any investment item, it inures only to the benefit of the Company, Account S, or Fund F and not directly to the benefit of any individual annuity policyholder. (e) For purposes of determining the treatment of the interest to be credited to the fixed accumulation units under the Contract, the Contract will be either (1) a "qualified contract" within the meaning of section 805(f) of the Code to which "qualified guaranteed interest" under section 805(e)(5) is credited or (2) a contract described in section 805(d) to which the alternative limitation allowed by section 809(f)(2)(A) is applicable. Rev. Rul. 77-85, 1977-1 C.B. 12, holds that the purchaser of an "investment" annuity contract, by means of which the purchaser selected and controlled one or more investments in a portfolio which comprised a separate account of the life insurance company issuing the contract, was considered the owner of those investments for federal income tax purposes. Rev. Rul. 80-274, 1980-2 C.B. 27, holds that the purchaser of an annuity contract, who was able to direct the funding of his annuity by specifying the savings and loan association and the certificates of deposit in which his purchase payments would be invested, was considered the owner of those certificates for federal income tax purposes. Rev. Rul. 81-225, 1981-2 C.B. 12, clarified the applicability of the previously cited revenue rulings to mutual fund investments by holding that the policyholders of certain variable annuity contracts, whose purchase payments were invested solely in publicly available mutual fund shares, would be considered the owners of those shares for federal income tax purposes. Situation 5 of that ruling holds that under certain circumstances the policyholders will not be considered to be the owners of the mutual fund shares. Rev. Rul. 82-54, 1982-1 C.B. 11, concerns an insurance company which had funded its deferred annuity contracts through a separate account whose assets were invested in three mutual funds, the shares A-4 of which were not sold to the general public. The policyholders could direct that their annuity purchase payments be invested in shares of any or all of the three mutual funds. Rev. Rul. 82-54 holds that the insurance company, and not the policyholder, is the owner of the mutual fund shares for federal income tax purposes. Based solely on the information submitted and the representations set forth above, and provided the conditions listed below are met, it is held as follows: (1) For federal income tax purposes, the assets held by the Company in its general account and/or by the Portfolios of Fund F, pursuant to the provisions of the Contracts described above, are owned by the Company and/or by Fund F (or the Portfolios if appropriate) and not by the contract owners, or by any annuitant or beneficiary under the Contracts. (2) For federal income tax purposes, any income, gain, or loss recognized with respect to the assets held by the Company in its general account and by Fund F (or the Portfolios if appropriate), pursuant to the provisions of the Contracts, is includible in the computation of income of the Company or Fund F (or the Portfolios if appropriate) respectively, and is not the income, gain or loss of the contract owners, or of any annuitant or beneficiary under the Contracts. (3) For federal income tax purposes, the stock of Fund F held by the Company (through Account S), pursuant to the provisions of the Contracts described above, is owned by the Company and not by the contract owners, or by any annuitant or beneficiary under the Contracts. (4) For federal income tax purposes, any income, gain, or loss recognized with respect to the stock of Fund F held by the Company (through Account S), pursuant to the provisions of the Contracts, is includible in the computation of income of the Company and is not the income, gain, or loss of the contract owners, or of any annuitant or beneficiary under the Contracts. With respect to the general account of the Company the rulings above are subject to the condition that the general account not only meets the representations indicated but also meets the following condition: (A) The general account must meet the diversification tests of representation (c) above. The diversification tests of representation (c) above apply only to investment assets. Assets held by the general account and Fund F that are not investment assets are excluded in making the percentage calculations. No opinion is expressed about the tax treatment of any conditions existing at the time of, or effects resulting from, the sale and/or administration of the Contracts that are not specifically covered by the rulings in this letter. This ruling letter is directed only to the taxpayer who requested it. Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used or cited as precedent. A copy of this letter should be attached to the federal income tax return(s) of the taxpayer involved for the taxable year(s) in which the Contracts are sold and/or administered. Pursuant to the power attorney on file in this office a copy of this letter is being sent to your authorized representative. Sincerely yours, Anthony Manzanares, Jr. Chief, Corporation Tax Branch A-5 EX-99 13 EXHIBIT 99 EXHIBIT 99 POWER OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY VARIABLE ANNUITY ACCOUNT II CONTRACT Know all men by these presents that Peter H. Heckman whose signature appears below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and each of them, his attorneys-in-fact, with power of substitution, and him in any and all capacities, to sign any registration statements and amendments thereto for the Northbrook Life Insurance Company Variable Annuity Account II Contract and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. December 6, 1996 ---------------------------------- Date /s/Peter H. Heckman ---------------------------------- Peter H. Heckman President, Chief Operating Officer and Director Northbrook Life Insurance Company POWER OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY VARIABLE ANNUITY ACCOUNT II CONTRACT Know all men by these presents that Kevin R. Slawin whose signature appears below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and each of them, his attorneys-in-fact, with power of substitution, and him in any and all capacities, to sign any registration statements and amendments thereto for the Northbrook Life Insurance Company Variable Annuity Account II Contract and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. December 6, 1996 -------------------------------------- Date /s/Kevin R. Slawin -------------------------------------- Kevin R. Slawin Vice President and Director Northbrook Life Insurance Company POWER OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY VARIABLE ANNUITY ACCOUNT II CONTRACT Know all men by these presents that Marla G. Friedman whose signature appears below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and each of them, her attorneys-in-fact, with power of substitution, and her in any and all capacities, to sign any registration statements and amendments thereto for the Northbrook Life Insurance Company Variable Annuity Account II Contract and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. December 6, 1996 -------------------------------------- Date /s/Marla G. Friedman -------------------------------------- Marla G. Friedman Vice President Northbrook Life Insurance Company POWER OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY VARIABLE ANNUITY ACCOUNT II CONTRACT Know all men by these presents that Karen C. Gardner whose signature appears below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and each of them, her attorneys-in-fact, with power of substitution, and her in any and all capacities, to sign any registration statements and amendments thereto for the Northbrook Life Insurance Company Variable Annuity Account II Contract and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. December 6, 1996 -------------------------------------- Date /s/ Karen C. Gardner -------------------------------------- Karen C. Gardner Vice President Northbrook Life Insurance Company POWER OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY VARIABLE ANNUITY ACCOUNT II CONTRACT Know all men by these presents that Keith Hauschildt whose signature appears below, constitutes and appoints Louis G. Lower, II, and Michael J. Velotta, and each of them, his attorneys-in-fact, with power of substitution, and his in any and all capacities, to sign any registration statements and amendments thereto for the Northbrook Life Insurance Company Variable Annuity Account II Contract and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. December 17, 1996 -------------------------------------- Date /s/ Keith Hauschildt -------------------------------------- Keith Hauschildt Assistant Vice President and Controller Northbrook Life Insurance Company -----END PRIVACY-ENHANCED MESSAGE-----