As filed with the Securities and Exchange Commission on August 22, 1997.
Registration No.333-25057
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------------
FORM S-6
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
(Exact Name of Trust)
NORTHBROOK LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
3100 SANDERS ROAD
NORTHBROOK, IL 60062
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL J. VELOTTA, ESQ.
NORTHBROOK LIFE INSURANCE COMPANY
3100 SANDERS ROAD
NORTHBROOK, IL 60062
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPY TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND, ASBILL & BRENNAN LLP
1275 PENNSYLVANIA, AVENUE, N.W.
WASHINGTON, D.C. 20004-2404
SECURITIES BEING OFFERED -- MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
CONTRACTS.
-----------------------------------------------
The registrant hereby declares that it is registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Approximate date of proposed public offering: As soon as practical after the
effective date of this registration statement.
The Registrant hereby amends this registration statement on such dates as may be
necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a), may determine.
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<PAGE>
RECONCILIATION AND TIE BETWEEN FORM N-8B-2 and PROSPECTUS
<TABLE>
<CAPTION>
ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS
<S> <C>
1. Cover Page
2. Cover Page; Additional Information about the Company
3. Not applicable
4. The Company; Distribution of the Contracts
5. The Variable Account - General
6. The Variable Account - General
7. Not required by Form S-6
8. Not required by Form S-6
9. Legal Proceedings
10. Summary; The Variable Account - Fund; The Contract -
Application for a Contract; Contract Benefits and Rights;
Other Matters - Voting Rights, Dividends
11. Summary; The Variable Account - Fund
12. Summary; The Variable Account - Fund
13. Summary; Deductions and Charges; Distribution of the
Contracts; Federal Tax Matters
14. The Contract - Application for a Contract, Premiums,
Allocation of Premiums
15. Summary; The Contract - Premiums, Allocation of Premiums
16. The Variable Account - Fund; The Contract - Allocation of
Premiums
17. Summary; Contract Benefits and Rights - Amount Payable on
Surrender of the Contract, Partial Withdrawals, Cancellation and Exchange
Rights
18. The Variable Account; The Contract - Allocation of Premiums; Deductions
and Charges; Federal Tax Matters
19. Other Matters - Statements to Contract Owners
20. Not applicable
21. Contract Benefits and Rights - Contract Loans; Contract
Benefits and Rights - Suspension of Valuation, Payments and Transfers
22. Not applicable
23. Safekeeping of Variable Account's Assets; Additional
Information about the Company
24. Contract Benefits and Rights - Transfer of Account Value;
Other Matters
25. The Company
26. Not applicable
27. The Company; Additional Information about the Company
28. Executive Officers and Directors of the Company
29. The Company
30. Not applicable
31. Not applicable
32. Not applicable
33. Not applicable
34. Not applicable
35. The Company; Distribution of the Contracts
36. Not required by Form S-6
37. Not applicable
38. Distribution of the Contracts
39. The Company; Distribution of the Contracts
40. Not applicable
41. The Company; Distribution of the Contracts
42. Not applicable
<PAGE>
43. Not applicable
44. The Contract - Allocation of Premiums, Accumulation Unit
Value; Contract Benefits and Rights - Account Value;
Deductions and Charges
45. Not applicable
46. Contract Benefits and Rights - Account Value, Amount Payable on Surrender
of the Contract, Partial Withdrawals;
Deductions and Charges
47. Not applicable
48. Cover Page; The Company
49. Not applicable
50. The Variable Account - General
51. Summary; The Company; The Contract; Contract Benefits and
Rights; Other Matters; Federal Tax Matters
52. The Variable Account - Fund, Investment Adviser
53. Summary; Federal Tax Matters
54. Not applicable
55. Not applicable
56. Not required by Form S-6
57. Not required by Form S-6
58. Not required by Form S-6
59. Not required by Form S-6
</TABLE>
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM
VARIABLE LIFE INSURANCE CONTRACTS
3100 SANDERS ROAD
NORTHBROOK, IL 60062
TELEPHONE (800) 654-2397
-------------------------------------
This prospectus describes the "Dean Witter Variable Life," a modified single
premium variable life insurance contract ("Contract") offered by Northbrook Life
Insurance Company (the "Company") for prospective insured persons age 0-85. The
Contract lets the Contract Owner pay a significant single premium and subject to
restrictions, additional premiums.
The Contracts are modified endowment contracts for federal income tax purposes,
except in certain cases described under "Federal Tax Matters," page . A LOAN,
DISTRIBUTION OR OTHER AMOUNT RECEIVED FROM A MODIFIED ENDOWMENT CONTRACT DURING
THE LIFE OF THE INSURED WILL BE TAXED TO THE EXTENT OF ANY ACCUMULATED INCOME IN
THE CONTRACT. ANY AMOUNTS THAT ARE TAXABLE WITHDRAWALS WILL BE SUBJECT TO A 10%
PENALTY, WITH CERTAIN EXCEPTIONS.
The minimum initial premium the Company will accept is $10,000. Premiums are
allocated to Northbrook Life Variable Life Separate Account A ("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 Morgan Stanley, Dean Witter,
Discover & Co.
The Fund has thirteen available Portfolios: (1) Money Market (2) Quality Income
Plus (3) High Yield (4) Utilities (5) Income Builder (6) Dividend Growth (7)
Capital Growth (8) Global Dividend Growth (9) European Growth (10) Pacific
Growth (11) Capital Appreciation (12) Equity and (13) Strategist.
There is no guaranteed minimum Account Value for a Contract. The Account Value
of a Contract will vary up or down to reflect the investment experience of the
Portfolios to which premiums have been allocated. The Contract Owner bears the
investment risk for all amounts so allocated. The Contract continues in effect
while the Cash Surrender Value is sufficient to pay the monthly charges under
the Contract ("Monthly Deduction Amount").
The Contracts provide for an Initial Death Benefit shown on the Contract Data
page. The death benefit ("Death Benefit") payable under a Contract may be
greater than the Initial Death Benefit but so long as the Contract continues in
effect, if no withdrawals or loans are made, will never be less than the
Initial Death Benefit. The Account Value will, and under certain circumstances
the Death Benefit of the Contract may, increase or decrease based on the
investment experience of the Portfolios to which premiums have been allocated.
At the death of the Insured, we will pay a Death Benefit to the beneficiary.
IT MAY NOT BE ADVANTAGEOUS TO PURCHASE VARIABLE LIFE INSURANCE AS A REPLACEMENT
FOR YOUR CURRENT LIFE INSURANCE OR IF YOU ALREADY OWN A VARIABLE LIFE INSURANCE
CONTRACT.
<PAGE>
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE
FUND WHICH CONTAINS A FULL DESCRIPTION OF THE PORTFOLIOS. THE PROSPECTUS SHOULD
BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE PRODUCTS DESCRIBED HEREIN ARE NOT DEPOSITS OF, OR GUARANTEED BY, ANY BANK,
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THE CONTRACTS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER 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.
THE DATE OF THIS PROSPECTUS IS OCTOBER 1, 1997.
2
<PAGE>
TABLE OF CONTENTS
Page
Summary......................................................................
Special Terms................................................................
The Company..................................................................
The Variable Account.........................................................
General....................................................................
Fund.......................................................................
The Contract.................................................................
Application for a Contract.................................................
Premiums...................................................................
Allocation of Premiums.....................................................
Accumulation Unit Values...................................................
Deductions and Charges.......................................................
Monthly Deductions.........................................................
Cost of Insurance Charge.................................................
Tax Expense Charge.......................................................
Administrative Expense Charge............................................
Other Deductions...........................................................
Mortality and Expense Risk Charge........................................
Annual Maintenance Fee...................................................
Taxes Charged Against the Variable Account...............................
Charges Against the Fund.................................................
Withdrawal Charge........................................................
Due and Unpaid Premium Tax Charge........................................
Contract Benefits and Rights.................................................
Death Benefit..............................................................
Accelerated Death Benefit..................................................
Account Value..............................................................
Transfer of Account Value..................................................
Dollar Cost Averaging......................................................
Contract Loans.............................................................
Amount Payable on Surrender of the Contract................................
Partial Withdrawals........................................................
Maturity...................................................................
Lapse and Reinstatement....................................................
Cancellation and Exchange Rights...........................................
Confinement Waiver Benefit.................................................
Suspension of Valuation, Payments and Transfers............................
Last Survivor Contracts....................................................
Other Matters................................................................
Voting Rights..............................................................
Statements to Contract Owners..............................................
Limit on Right to Contest..................................................
Misstatement as to Age and Sex.............................................
Payment Options............................................................
Beneficiary................................................................
Assignment.................................................................
Dividends..................................................................
Executive Officers and Directors of the Company..............................
Distribution of the Contracts................................................
Safekeeping of the Variable Account's Assets.................................
Federal Tax Matters..........................................................
Introduction...............................................................
3
<PAGE>
Taxation of the Company and the Variable Account..........................
Taxation of Contract Benefits.............................................
Modified Endowment Contracts..............................................
Diversification Requirements..............................................
Ownership Treatment.......................................................
Policy Loan Interest......................................................
Additional Information About the Company....................................
Legal Proceedings...........................................................
Legal Matters...............................................................
Registration Statement......................................................
Experts.....................................................................
Financial Information.......................................................
Financial Statements........................................................F-1
Appendix A .................................................................A-1
4
<PAGE>
SUMMARY
- -----------------------------------------------------------
NOTE: A GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS APPEARS AT PAGE ,
IMMEDIATELY FOLLOWING THIS SUMMARY.
THE CONTRACT
The Contracts are life insurance contracts with death benefits, cash values, and
other traditional life insurance features. The Contracts are "variable." Unlike
the fixed benefits of ordinary whole life insurance, the Account Value will
increase or decrease based on the investment experience of the investment
Portfolios of the Fund to which premiums have been allocated. Similarly, the
Death Benefit may increase or decrease under some circumstances, but so long as
the Contract remains in effect it will not decrease below the Initial Death
Benefit if no withdrawals or loans are made. The Contracts are credited with
units ("Accumulation Units") to calculate cash values. The Contract Owner may
transfer the Account Value among the Variable Account's underlying investment
Portfolios.
The Contracts can be issued on a single life or "last survivor" basis. For a
discussion of how last survivor Contracts operate differently from single life
Contracts, see "Last Survivor Contracts," page .
In some states, the Contracts may be issued in the form of a group Contract. In
those states, certificates will be issued evidencing a purchaser's rights under
the group Contract. The terms "Contract" and "Contract Owner", as used in this
Prospectus, refer to and include such a certificate and certificate owner,
respectively.
THE VARIABLE ACCOUNT AND THE FUND
The Northbrook Life Variable Life Separate Account A ("Variable Account") funds
the variable life insurance Contracts offered by this prospectus. The Variable
Account is a unit investment trust registered as such under the Investment
Company Act of 1940. It consists of multiple sub-accounts ("Variable
Sub-Accounts"), each investing in a corresponding Fund Portfolio.
Applicants should read the prospectus for the Fund in connection with the
purchase of a Contract. The investment objectives of the Fund Portfolios are
briefly summarized below under "Fund," page .
The Variable Account invests in shares of the Dean Witter Variable Investment
Series (the "Fund"). The Fund has thirteen available Portfolios: (1) Money
Market (2) Quality Income Plus (3) High Yield (4) Utilities (5) Income Builder
(6) Dividend Growth (7) Capital Growth (8) Global Dividend Growth (9) European
Growth (10) Pacific Growth (11) Capital Appreciation (12) Equity and (13)
Strategist.
The assets of each Portfolio are accounted for separately from the other
Portfolios and each has distinct investment objectives and policies which are
described in the accompanying prospectus for the Fund.
PREMIUMS
The Contract requires the Contract Owner to pay an initial premium of at least
$10,000. Additional premium payments may be made at any time, subject to the
following conditions:
5
<PAGE>
- only one payment is allowed in any Contract Year;
- the minimum payment is $500;
- the attained age of the insured must be less than age 91; and
- absent submission of new evidence of insurability of the insured, the
maximum additional payment permitted in a Contract Year is the "Guaranteed
Additional Payment." The Guaranteed Additional Payment is the lesser of $5,000
or a percentage of the initial payment (5% for attained ages 40-70, and 0% for
attained ages 20-39 and 71-90).
THE COMPANY RESERVES THE RIGHT TO OBTAIN SATISFACTORY EVIDENCE OF
INSURABILITY BEFORE ACCEPTING ANY ADDITIONAL PREMIUM PAYMENTS REQUIRING
AN INCREASE IN SPECIFIED AMOUNT. WE ALSO RESERVE THE RIGHT TO REJECT AN
ADDITIONAL PREMIUM PAYMENT FOR ANY REASON.
Additional premium payments may require an increase in the Specified Amount in
order for the Contract to meet the definition of a life insurance contract under
the Internal Revenue Code. Additional Premiums may also be paid at any time and
in any amount necessary to avoid termination of the Contract.
DEDUCTIONS AND CHARGES
On each Monthly Activity Date, the Company will deduct a Monthly Deduction
Amount from the Account Value. The Monthly Deduction Amount will be made pro
rata respecting each Variable Sub-Account to which Account Value is allocated.
The Monthly Deduction Amount includes a cost of insurance charge, tax expense
charge and an administrative expense charge. The monthly cost of insurance
charge is to cover the Company's anticipated mortality costs. In addition, the
Company will deduct monthly from the Account Value a tax expense charge equal to
an annual rate of 0.40% for the first ten Contract Years. This charge
compensates the Company for premium taxes imposed by various states and local
jurisdictions and for federal taxes resulting from the application of Section
848 of the Code. The charge includes a premium tax deduction of 0.25% and a
federal tax deduction of 0.15%. The premium tax deduction represents an average
premium tax of 2.5% of premiums over ten years. The Company will deduct from the
Account Value a monthly administrative charge equal to an annual rate of 0.25%.
This charge compensates the Company for administrative expenses incurred in the
administration of the Variable Account and the Contracts. The Company will also
deduct from the Variable Account a daily charge equal to an annual rate of 0.90%
for the mortality risks and expense risks the Company assumes in relation to the
Contracts. If the Cash Surrender Value is not sufficient to cover a Monthly
Deduction Amount due on any Monthly Activity Date, the Contract may lapse. See
"Deductions and Charges--Monthly Deductions," page , and "Contract Benefits and
Rights--Lapse and Reinstatement," page .
An Annual Maintenance Fee of $30 will be deducted on each Contract Anniversary
from all Variable Sub-Accounts to which Account Value is allocated, in
proportion to the amounts so allocated. This fee will help reimburse the Company
for administrative and maintenance costs of the Contracts. Currently, this
charge is waived for Contracts which have an aggregate premium which equals or
exceeds the dollar amount indicated on your Contract data page. See "Deductions
and Charges--Other Deductions--Annual Maintenance Fee," page .
6
<PAGE>
Applicants should review the prospectus for the Fund which accompanies this
prospectus for a description of the charges and expenses borne by the Fund in
connection with its operations. See "Deductions and Charges -- Funds Expenses,"
page .
Withdrawals in excess of the Free Withdrawal Amount will be subject to a
withdrawal charge as set forth below:
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL PREMIUM
CONTRACT YEAR WITHDRAWN
- -------------------------------------------------- ---------------
<S> <C>
1................................................. 7.75%
2................................................. 7.75%
3................................................. 7.75%
4................................................. 7.25%
5................................................. 6.25%
6................................................. 5.25%
7................................................. 4.25%
8................................................. 3.25%
9................................................. 2.25%
10+............................................... 0.00%
</TABLE>
The Withdrawal Charge is imposed to cover a portion of the sales expense
incurred by the Company in distributing the Contracts. This expense includes
agents' commissions, advertising and the printing of prospectuses. See
"Deductions and Charges--Other Deductions--Withdrawal Charge," page . See
"Deductions and Charges," page and "Withdrawal Charge," page .
During the first nine Contract Years, an additional premium tax charge will be
imposed on full or partial withdrawals.
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL PREMIUM
YEAR WITHDRAWN
- -------------------------------------------------- ---------------
<S> <C>
1................................................. 2.25%
2................................................. 2.00%
3................................................. 1.75%
4................................................. 1.50%
5................................................. 1.25%
6................................................. 1.00%
7................................................. 0.75%
8................................................. 0.50%
9................................................. 0.25%
10+............................................... 0.00%
</TABLE>
No Withdrawal Charge will be imposed on any withdrawl to the extent that
aggregate Withdrawl Charges and the federal tax portion of the tax expense
charge imposed would otherwise exceed 9% of total premiums paid prior to the
withdrawal.
See "Deductions and Charges--Other Deductions--Due and Unpaid--Premium Tax
Charge," page . For a discussion of the tax consequences of a full or a partial
withdrawal, see "Federal Tax Matters," page .
DEATH BENEFIT
At the death of the Insured while the Contract is in force, we will pay the
Death Benefit (less any Indebtedness and certain due and unpaid Monthly
Deduction Amounts) to the beneficiary. The Death Benefit determined on the date
of the Insured's death is the greater of (1) the Specified Amount, or (2)
7
<PAGE>
the Account Value multiplied by the death benefit ratio as found in the
Contract. See "Contract Benefits and Rights--Death Benefit," page .
ACCOUNT VALUE
The Account Value of the Contract will increase or decrease to reflect (1) the
investment experience of the Fund Portfolios underlying the Variable Sub-Account
to which Account Value is allocated, and (2) deductions for the mortality and
expense risk charge, the Monthly Deduction Amount, and the Annual Maintenance
Fee. There is no minimum guaranteed Account Value and the Contract Owner bears
the risk of the investment in the Fund Portfolios. See "Contract Benefits and
Rights--Account Value," page .
CONTRACT LOANS
A Contract Owner may obtain one or both of two types of cash loans from the
Company. Both types of loans are secured by the Contract. The maximum amount
available for such loans is 90% of the Contract's Cash Value, less the amount of
all loans existing on the date of the loan request (including loan interest to
the next Contract Anniversary), less any Annual Maintenance Fee due on or before
the next Contract Anniversary, and less any due and unpaid Monthly Deduction
Amounts. See "Contract Benefits and Rights--Contract Loans," page .
LAPSE
Under certain circumstances a Contract may terminate if the Cash Surrender Value
on any Monthly Activity Date is less than the required Monthly Deduction Amount.
The Company will give written notice to the Contract Owner and a 61 day grace
period during which additional amounts may be paid to continue the Contract. See
"Contract Benefits and Rights--Contract Loans," page and "Lapse and
Reinstatement," page .
CANCELLATION AND EXCHANGE RIGHTS
A Contract Owner has a limited right to return his or her Contract for
cancellation. If the Contract Owner returns the Contract for cancellation, by
mail or hand delivery, to the Account Executive who sold the Contract, within 10
days after delivery of the Contract to the Contract Owner (in some states, this
free-look period is longer), the Company will return to the Contract Owner
within 7 days thereafter the premiums paid for the Contract adjusted to reflect
any investment gain or loss resulting from allocation to the Variable Account
prior to the date of cancellation, unless state law requires a return of premium
without such adjustments. In those states where the Company is required to
return the premiums paid upon a free-look of the Contract and where it has been
approved by the state, the Company reserves the right to allocate all premium
payments made prior to the expiration of the free-look period to the Money
Market sub-account of the Variable Account.
In addition, once the Contract is in effect it may be exchanged during the first
24 months after its issuance for a permanent life insurance contract on the life
of the Insured without submitting proof of insurability. See "Contract Benefits
and Rights--Cancellation and Exchange Rights," page .
TAX CONSEQUENCES
The current Federal tax law generally excludes all death benefit payments from
the gross income of the
8
<PAGE>
Contract beneficiary. The Contracts generally will be treated as modified
endowment contracts. This status does not affect the Contracts' classification
as life insurance, nor does it affect the exclusion of death benefit payments
from gross income. However, loans, distributions or other amounts received under
a modified endowment contract are taxed to the extent of accumulated income in
the Contract (generally, the excess of Account Value over premiums paid) and may
be subject to a 10% penalty tax. See "Federal Tax Matters," page .
SPECIAL TERMS
- -----------------------------------------------------------
AS USED IN THIS PROSPECTUS, THE FOLLOWING TERMS HAVE THE INDICATED MEANINGS:
ACCOUNT VALUE:--The aggregate value under a Contract of the Variable
Sub-Accounts and the Loan Account.
ACCUMULATION UNIT:--An accounting unit of measure used to calculate the value of
a Variable Sub-Account.
AGE:--The Insured's age at the Insured's last birthday.
CASH VALUE:--The Account Value less any applicable withdrawal charges and due
and unpaid Premium Tax Charges.
CASH SURRENDER VALUE:--The Cash Value less all Indebtedness and the Annual
Maintenance Fee, if applicable.
CODE:--The Internal Revenue Code of 1986, as amended.
CONTRACT ANNIVERSARY:--The same day and month as the Contract Date for each
subsequent year the Contract remains in force.
CONTRACT DATE:--The date on or as of which coverage under a Contract becomes
effective and the date from which Contract Anniversaries, Contract Years and
Contract months are determined.
CONTRACT OWNER:--The person having rights to benefits under the Contract during
the lifetime of the Insured; the Contract Owner may or may not be the Insured.
CONTRACT YEARS:--Annual periods computed from the Contract Date.
DEATH BENEFIT:--The greater of (1) the Specified Amount or (2) the Account Value
on the date of death multiplied by the death benefit ratio as specified in the
Contract.
FREE WITHDRAWAL AMOUNT:--The amount of a surrender or partial withdrawal that is
not subject to a Withdrawal Charge. This amount in any Contract Year is 15% of
total premiums paid.
INITIAL DEATH BENEFIT:--The Initial Death Benefit under a Contract is shown on
the Contract Data page.
9
<PAGE>
FUND:--The registered management investment company in which assets of the
Variable Account may be invested.
INDEBTEDNESS:--All Contract loans, if any, and accrued loan interest.
INSURED:--The person whose life is insured under a Contract.
LOAN ACCOUNT:--An account in the Company's General Account, established for any
amounts transferred from the Variable Sub-Accounts for requested loans. The Loan
Account credits a fixed rate of interest that is not based on the investment
experience of the Variable Account.
MONTHLY ACTIVITY DATE:--The day of each month on which the Monthly Deduction
Amount is deducted from the Account Value of the Contract. Monthly Activity
Dates occur on the same day of the month as the Contract Date. If there is no
date equal to the Monthly Activity Date in a particular month, the Monthly
Activity Date will be the last day of that month.
MONTHLY DEDUCTION AMOUNT:--A deduction on each Monthly Activity Date for the
cost of insurance charge, a tax expense charge and an administrative expense
charge.
SPECIFIED AMOUNT:--The minimum death benefit under a Contract, equal to the
Initial Death Benefit on the Contract Date. Thereafter it may change in
accordance with the terms of the partial withdrawal and the subsequent premium
provisions of the Contract.
VALUATION DAY:--Every day the New York Stock Exchange is open for trading. The
value of the Variable Account is determined at the close of regular trading on
the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on such days.
VALUATION PERIOD:--The period between the close of regular trading on the New
York Stock Exchange on successive Valuation Days.
VARIABLE ACCOUNT:--Northbrook Life Variable Life Separate Account A, an account
established by the Company to separate the assets funding the Contracts from
other assets of the Company.
VARIABLE SUB-ACCOUNT:--The subdivisions of the Variable Account used to allocate
a Contract Owner's Account Value, less Indebtedness, among the Portfolios of the
Fund.
THE COMPANY
- ------------------------------------------------------------------------------
The Company is the issuer of the Contract. Incorporated in 1978 as a stock life
insurance company under the laws of the State of Illinois. The Company is
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"), a stock life insurance company incorporated under the laws
of the State of Illinois. Allstate Life is a wholly owned subsidiary of
Allstate Insurance Company ("Allstate"), a stock property-liability insurance
10
<PAGE>
company incorporated under the laws of Illinois. All of the outstanding capital
stock of Allstate is owned by The Allstate Corporation ("Corporation").
THE VARIABLE ACCOUNT
- ------------------------------------------------------------------------------
GENERAL
Northbrook Life Variable Life Separate Account A ("Variable Account") is a
separate account of the Company established on January 15, 1996 pursuant to the
insurance laws of the State of Illinois. The Variable Account is organized as a
unit investment trust and registered as such with the Securities and Exchange
Commission under the Investment Company Act of 1940. The Variable Account meets
the definition of "separate account" under federal securities law. Under
Illinois law, the assets of the Variable Account are held exclusively for the
benefit of Contract Owners and persons entitled to payments under the Contracts.
The assets of the Variable Account are not chargeable with liabilities arising
out of any other business which the Company may conduct.
FUND
The Variable Account will invest in shares of the Dean Witter Variable
Investment Series (the "Fund"). The Fund is registered with the Securities and
Exchange Commission as an open-end, series, management investment company.
Registration of the Fund does not involve supervision of its management,
investment practices or policies by the Securities and Exchange Commission. The
Fund Portfolios are designed to provide investment vehicles for variable
insurance contracts of various insurance companies, in addition to the Variable
Account. The Fund Portfolios available for investment by the Variable Account
are listed below:
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 risks of
investing in junk bonds are discussed in the accompanying prospectus for the
Fund, which should be read carefully before investing.
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.
11
<PAGE>
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.
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.
Dean Witter InterCapital Inc. ("InterCapital"), Two World Trade Center,
New York, New York 10048, is the Fund's Investment Manager. InterCapital is a
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
Shares 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.
12
<PAGE>
An investment in the Money Market Portfolio is neither insured nor guaranteed by
the U.S. Government. There can be no assurance that the Money Market Portfolio
will be able to maintain a stable net asset value of $1.00 per share.
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 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.
You will find more complete information about the Portfolios, including the
risks associated with each Portfolio, in the accompanying prospectus for the
Fund. You should read the prospectus for the Fund in conjunction with this
prospectus.
THE FUND'S PROSPECTUS SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR
VARIABLE SUB-ACCOUNT.
It is conceivable that in the future it may be disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
a Fund simultaneously. Although neither the Company nor the Fund currently
foresees any such disadvantages either to variable life insurance or variable
annuity contract owners, the Fund's Board of Directors intends to monitor events
in order to identify any material conflicts between variable life and variable
annuity contract owners and to determine what action, if any, should be taken in
response thereto. If the Board of Directors were to conclude that separate funds
should be established for variable life and variable annuity separate accounts,
the Company will bear the attendant expenses.
All investment income of and other distributions to each Variable Sub-Account
arising from the corresponding Portfolio are reinvested in shares of that
Portfolio at net asset value. The income and both realized and unrealized gains
or losses on the assets of each Variable Sub-Account are therefore separate and
are credited to or charged against the Variable Sub-Account without regard to
income, gains or losses from any other Variable Sub-Account or from any other
business of the Company. The Company will purchase shares in the Fund in
connection with premiums allocated to the corresponding Variable Sub-Account in
accordance with Contract Owners' directions and will redeem shares in the Fund
to meet Contract obligations or make adjustments in reserves, if any. The Fund
is required to redeem Fund shares at net asset value and to make payment within
seven days.
The Company reserves the right, subject to compliance with the law as then in
effect, to make additions to, deletions from, or substitutions for the Fund
shares underlying the Variable Sub-Accounts. If shares of the Fund should no
longer be available for investment, or if, in the judgment of the Company's
management, further investment in shares of the Fund should become inappropriate
in view of the purposes of the Contracts, the Company may substitute shares of
another Fund for shares already purchased, or to be purchased in the future,
under the Contracts. No substitution of securities will take place without
notice to Contract Owners and without prior approval of the Securities and
Exchange Commission to the extent required by the Investment Company Act of 1940
("1940 Act"). The Company reserves the right to establish additional Variable
Sub-accounts of the Variable Account, each of which
13
<PAGE>
would invest in shares of another Fund. Subject to Contract Owner approval, the
Company also reserves the right to end the registration under the 1940 Act of
the Variable Account or any other separate accounts of which it is the depositor
or to operate the Variable Account as a management company under the 1940 Act.
The Fund is subject to certain investment restrictions and policies which may
not be changed without the approval of a majority of the shareholders of the
Fund. See the accompanying prospectus for the Fund for further information.
THE CONTRACT
- -------------------------------------------------------------------------------
APPLICATION FOR A CONTRACT
Individuals wishing to purchase a Contract must submit an application to the
Company. A Contract will be issued only on the lives of Insureds age 0-85 who
supply evidence of insurability satisfactory to the Company. Acceptance is
subject to the Company's underwriting rules and the Company reserves the right
to reject an application for any lawful reason. No change in the terms or
conditions of a Contract will be made without the consent of the Contract Owner.
Applications must be submitted and approved prior to the payment of initial
premium. The Insured will be covered under the Contract as of the Contract Date.
In addition to determining when coverage begins, the Contract Date determines
Monthly Activity Dates, Contract months, and Contract Years.
PREMIUMS
The Contract is designed to permit an initial premium payment and, subject to
certain conditions, additional premium payments. The initial premium payment
purchases a Death Benefit initially equal to the Contract's Specified Amount.
The minimum initial payment is $10,000.
Under current underwriting rules, which are subject to change, proposed Insureds
are eligible for simplified underwriting without a medical examination if their
application responses and anticipated initial premium payment meet simplified
underwriting standards. Customary underwriting standards will apply to all other
proposed Insureds. The maximum initial premium currently permitted on a
simplified underwriting basis varies with the issue age of the insured according
to the following table:
14
<PAGE>
<TABLE>
<CAPTION>
SIMPLIFIED UNDERWRITING
ISSUE AGE MAXIMUM INITIAL PREMIUM
- ---------------------------------------------------------------
<S> <C>
0-34.................................... Not available
35-44................................... $ 15,000
45-54................................... $ 30,000
55-64................................... $ 50,000
65-80................................... $100,000
Over age 80............................. Not available
</TABLE>
Additional premium payments may be made at any time, subject to the following
conditions:
- only one additional premium payment may be made in any Contract Year;
- each additional premium payment must be at least $500;
- the attained age of the Insured must be less than age 91; and
- absent submission of new evidence of insurability of the insured, the
maximum additional payment permitted in a Contract Year is the "Guaranteed
Additional Payment."
- the Guaranteed Additional Payment is the lesser of $5,000 or a percentage
of the initial payment (5% for attained ages 40-70, and 0% for attained ages
20-39 and 71-90).
THE COMPANY RESERVES THE RIGHT TO OBTAIN SATISFACTORY EVIDENCE OF
INSURABILITY UPON ANY ADDITIONAL PREMIUM PAYMENTS REQUIRING AN INCREASE
IN SPECIFIED AMOUNT. WE ALSO RESERVE THE RIGHT TO REJECT ANY ADDITIONAL
PREMIUM PAYMENT FOR ANY REASON.
Additional premium payments may require an increase in Specified Amount in order
for the Contract to remain within the definition of a life insurance contract
under Section 7702 of the Code.
Unless you request otherwise in writing, any additional premium payment received
while a Contract loan exists will be applied: first, as a repayment of
Indebtedness, and second, as an additional premium payment, subject to the
conditions described above.
Additional premiums may be paid at any time and in any amount necessary to avoid
termination of the Contract without evidence of insurability.
ALLOCATION OF PREMIUMS
Upon completion of underwriting, the Company will either issue a Contract, or
deny coverage. If a Contract is issued, the initial premium payment will be
allocated on the date the Contract is issued according to the initial premium
allocation instructions specified on the application. The Company reserves the
right to allocate the initial premium to the Money Market Sub-Account during the
free look period in those states where state law requires premiums to be
returned upon exercise of the free-look right.
15
<PAGE>
ACCUMULATION UNIT VALUES
The Accumulation Unit Value for each Variable Sub-Account will vary to reflect
the investment experience of the corresponding Fund Portfolio and will be
determined on each Valuation Day by multiplying the Accumulation Unit Value of
the particular Variable Sub-Account on the preceding Valuation Day by a "Net
Investment Factor" for that Sub-Account for the Valuation Period then ended. The
Net Investment Factor for each Variable Sub-Account is determined by first
dividing (A) the net asset value per share of the corresponding Fund Portfolio
at the end of the current Valuation Period (plus the per share dividends or
capital gains by that Fund Portfolio if the ex-dividend date occurs in the
Valuation Period then ended), by (B) the net asset value per share of the
corresponding Fund Portfolio at the end of the immediately preceding Valuation
Period; and then subtracting from the result an amount equal to the daily
deductions for mortality and expense risk charges imposed during the Valuation
Period. Applicants should refer to the prospectus for the Fund which accompanies
this prospectus for a description of how the assets of the Fund are valued since
such determination has a direct bearing on the Accumulation Unit Value of the
corresponding Sub-Account and therefore the Account Value of a Contract. See
"Contract Benefits and Rights--Account Value," page .
All valuations in connection with a Contract, e.g., with respect to determining
Account Value and Cash Surrender Value and in connection with Contract loans, or
calculation of Death Benefits, or with respect to determining the number of
Accumulation Units to be credited to a Contract with each premium, other than
the initial premium and additional premiums requiring underwriting, will be made
on the date the request or payment is received in good order by the Company at
its Home Office if such date is a Valuation Day; otherwise such determination
will be made on the next succeeding date which is a Valuation Day.
Specialized Uses of the Contract: Because the Contract provides for an
accumulation of Cash Value as well as a death benefit, the Contract can be used
for various individual and business financial planning purposes. Purchasing the
Contract in part for such purposes entails certain risks. For example, if the
investment performance of Sub-Accounts to which Account Value is allocated is
poorer than expected or if sufficient premiums are not paid, the Contract may
lapse or may not accumulate sufficient Account Value to fund the purpose for
which the Contract was purchased. Withdrawals and Contract loans may
significantly affect current and future Account Value, Cash Surrender Value, or
Death Benefit proceeds. Depending upon Sub-Account investment performance and
the amount of a Contract loan, the loan may cause a Contract to lapse. Because
the Contract is designed to provide benefits on a long-term basis, before
purchasing a Contract for a specialized purpose a purchaser should consider
whether the long-term nature of the Contract is consistent with the purpose for
which it is being considered. Using a Contract for a specialized purpose may
have tax consequences. (See "Federal Tax Matters," Page .)
DEDUCTIONS AND CHARGES
- ------------------------------------------------------------------------------
MONTHLY DEDUCTIONS
On each Monthly Activity Date including the Contract Date, the Company will
deduct from the Account Value attributable to the Variable Account an amount
("Monthly Deduction Amount") to cover charges
16
<PAGE>
and expenses incurred in connection with a Contract. Each Monthly Deduction
Amount will be deducted pro rata from each Variable Sub-Account attributable to
the Contract such that the proportion of Account Value of the Contract
attributable to each Sub-Account remains the same before and after the
deduction. The Monthly Deduction Amount will vary from month to month. If the
Cash Surrender Value is not sufficient to cover a Monthly Deduction Amount due
on any Monthly Activity Date, the Contract may lapse. See "Contract Benefits and
Rights-- Lapse and Reinstatement," page . The following is a summary of the
monthly deductions and charges which constitute the Monthly Deduction Amount:
COST OF INSURANCE CHARGE: The cost of insurance charge covers the Company's
anticipated mortality costs for standard and substandard risks. Current cost of
insurance rates are lower after the 10th Contract Year. The current cost of
insurance charge will not exceed the guaranteed cost of insurance charge. This
charge is the maximum annual cost of insurance per $1,000 as indicated in the
Contract; multiplied by the difference between the Death Benefit and the Account
Value (both as determined on the Monthly Activity Date); divided by $1,000; and
divided by 12. For standard risks, the guaranteed cost of insurance rate is
based on the 1980 Commissioners Standard Ordinary Mortality Table, age last
birthday. (Unisex rates may be required in some states). A table of guaranteed
cost of insurance charges per $1,000 will be included in each Contract; however,
the Company reserves the right to use rates less than those shown in the table.
Substandard risks will be charged at a higher cost of insurance rate that will
not exceed rates based on a multiple of the 1980 Commissioners Standard Ordinary
Mortality Table, age last birthday. The multiple will be based on the Insured's
substandard rating.
The cost of insurance charge rates are applied to the difference between the
Death Benefit determined on the Monthly Activity Date and the Account Value on
that same date prior to assessing the Monthly Deduction Amount, because the
difference is the amount for which the Company is at risk should the Death
Benefit be then payable. The Death Benefit as computed on a given date is the
greater of (1) the Specified Amount on that date, and (2) the Account Value on
that date multiplied by the applicable Death Benefit ratio. (For an explanation
of the Death Benefit, see "Contract Benefits and Rights" on page .)
<TABLE>
EXAMPLE:
<S> <C> <C>
Specified Amount = $100,000
Account Value on the Monthly Activity Date = $30,000
Insured's attained age = 45
Death Benefit ratio for age 45 = 2.15
</TABLE>
On the Monthly Activity Date in this example, the Death Benefit as then computed
would be $100,000, because the Specified Amount ($100,000) is greater than the
Account Value multiplied by the applicable Death Benefit ratio ($30,000 X 2.15 =
$64,500). Since the Account Value on that date is $30,000, the cost of insurance
charges per $1,000 are applied to the difference ($100,000 - $30,000 = $70,000).
Assume that the Account Value in the above example was $50,000. The Death
Benefit would then be $107,500 (2.15 X $50,000), since this is greater than the
Specified Amount ($100,000). The cost of insurance rates in that case would be
applied to ($107,500 - $50,000) = $57,500.
Because the Account Value and, as a result, the amount for which the Company is
at risk under a Contract may vary from month to month, the cost of insurance
charge may also vary on each Monthly
17
<PAGE>
Activity Date. However, once a risk rating class has been assigned to an Insured
when the Contract is issued, that rating class will not change if additional
premium payments or partial withdrawals increase or decrease the Specified
Amount.
TAX EXPENSE CHARGE: The Company will deduct monthly from the Account Value a
tax expense charge equal to an annual rate of 0.40% for the first ten Contract
Years. This charge compensates the Company for premium taxes imposed by various
states and local jurisdictions and for federal taxes related to the receipt of
premiums under the Contract and that results from the application of section 848
of the Code. The charge includes a premium tax deduction of 0.25% and a federal
tax deduction of 0.15%. The 0.25% premium tax deduction over ten Contract Years
approximates the Company's average expenses for state and local premium taxes
(2.5%). Premium taxes vary, ranging from zero to 3.5%. The premium tax deduction
will be imposed regardless of a contract owner's state of residence and,
therefore, is made whether or not any premium tax applies. The deduction may be
higher or lower than the premium tax imposed. The 0.15% federal tax deduction
helps reimburse the Company for approximate expenses incurred for federal taxes
resulting from the application of Section 848 of the Code.
ADMINISTRATIVE EXPENSE CHARGE: The Company will deduct monthly from the
Account Value an administrative expense charge equal to an annual rate of 0.25%.
This charge compensates the Company for administrative expenses incurred in the
administration of the Variable Account and the Contracts.
All monthly deductions are taken by canceling Accumulation Units of the Variable
Account under your Contract.
OTHER DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE: The Company will deduct from the Variable
Account a daily charge equivalent to an annual rate of 0.90% for the mortality
risks and expense risks the Company assumes in relation to the Contracts. The
mortality risk assumed includes the risk that the cost of insurance charges
specified in the Contract will be insufficient to meet claims. The Company also
assumes a risk that the Death Benefit will exceed the amount on which the cost
of insurance charges were based on the Monthly Activity Date preceding the death
of an Insured. The expense risk assumed is that expenses incurred in issuing and
administering the Contracts will exceed the administrative charges set in the
Contract.
ANNUAL MAINTENANCE FEE: The Company will deduct from the Account Value an
Annual Maintenance Fee of $30 on each Contract Anniversary. This fee will help
reimburse the Company for administrative and maintenance costs of the Contracts.
Currently, this charge is waived for Contracts which have an aggregate premium
which equals or exceeds the dollar amount indicated on your Contract data page.
TAXES CHARGED AGAINST THE VARIABLE ACCOUNT: Currently, no charge is made to
the Variable Account for federal income taxes that may be attributable to the
operations of the Variable Account (as opposed to the federal tax related to the
receipt of premiums under the Contract). The Company may, however, make such a
charge in the future. Charges for other taxes, if any, attributable to the
Variable Account or this class of Contracts may also be made.
18
<PAGE>
CHARGES AGAINST THE FUND: The Variable Account purchases shares of the Fund
at net asset value. The net asset value of the Fund shares reflects investment
advisory fees and administrative expenses already deducted from the assets of
the Fund. Fund investment management fees are a percentage of the average daily
value of the net assets of the Portfolios:
<TABLE>
<CAPTION>
FUND EXPENSES
(AS A PERCENTAGE OF FUND ASSETS)
TOTAL FUND
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
- ---------------------------------------- ---------- -------- -----------
<S> <C> <C> <C>
Money Market............................ .50 % .02% .52%
Quality Income Plus..................... .50 %(1) .03% .53%
High Yield.............................. .50 % .01% .51%
Utilities............................... .65 %(2) .02% .67%
Income Builder(5)....................... .75 %(3) .07% .82%
Dividend Growth......................... .56 %(4) .01% .57%
Capital Growth.......................... .65 % .08% .73%
Global Dividend Growth.................. .75 % .10% .85%
European Growth......................... 1.00 % .11% 1.11%
Pacific Growth.......................... 1.00 % .37% 1.37%
Capital Appreciation(5)................. .75 %(3) .07% .82%
Equity.................................. .50 %(5) .04% .54%
Strategist.............................. .50 % .02% .52%
- ------------------------
</TABLE>
(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
commenced operations on January 21, 1997. The Investment Manager has
undertaken to assume all expenses of each of these Portfolios (except for any
brokerage fees) and waive the compensation provided for each of these
Portfolios in its Management Agreement with the Fund until such time as the
pertinent Portfolio has $50 million of net assets or until July 31, 1998,
whichever occurs first.
WITHDRAWAL CHARGE: Upon surrender of the Contract and partial withdrawals in
excess of the Free Withdrawal Amount, a Withdrawal Charge may be assessed. The
Free Withdrawal Amount in any Contract Year is 15% of total premiums paid. Any
Free Withdrawal Amount not taken in a Contract Year may not be carried forward
to increase the Free Withdrawal Amount in any subsequent year. Withdrawals in
excess of the Free Withdrawal Amount will be subject to a withdrawal charge as
set forth in the table below:
19
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL PREMIUM
CONTRACT YEAR WITHDRAWN
- -------------------------------------------------- ---------------
<S> <C>
1................................................. 7.75%
2................................................. 7.75%
3................................................. 7.75%
4................................................. 7.25%
5................................................. 6.25%
6................................................. 5.25%
7................................................. 4.25%
8................................................. 3.25%
9................................................. 2.25%
10+............................................... 0.00%
</TABLE>
After the ninth Contract Year, no Withdrawal Charges will be imposed. In
addition, no Withdrawal Charge will be imposed on any withdrawal to the extent
that aggregate Withdrawal Charges and the federal tax portion of the tax expense
charge imposed would otherwise exceed 9% of total premiums paid prior to the
withdrawal. The Withdrawal Charge may be waived under certain circumstances if
the Insured is confined to a qualified long-term care facility or hospital. See
"Contract Benefits and Rights-- Confinement Waiver Benefit", page .
The Withdrawal Charge is imposed to cover a portion of the sales expense
incurred by the Company in distributing the Contracts. This expense includes
agents' commissions, advertising and the printing of prospectuses.
DUE AND UNPAID PREMIUM TAX CHARGE: During the first nine Contract Years, a
charge for due and unpaid premium tax will be imposed on full or partial
withdrawals in excess of the Free Withdrawal Amount. This charge is shown below,
as a percent of the Account Value withdrawn:
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL PREMIUM
YEAR WITHDRAWN
- -------------------------------------------------- ---------------
<S> <C>
1................................................. 2.25%
2................................................. 2.00%
3................................................. 1.75%
4................................................. 1.50%
5................................................. 1.25%
6................................................. 1.00%
7................................................. 0.75%
8................................................. 0.50%
9................................................. 0.25%
10+............................................... 0.00%
</TABLE>
After the ninth Contract Year, no due and unpaid premium tax charge will be
imposed. The percentages indicated above are guaranteed not to increase.
20
<PAGE>
CONTRACT BENEFITS AND RIGHTS
- ------------------------------------------------------------------------------
DEATH BENEFIT
The Contracts provide for the payment of Death Benefit Proceeds to the named
beneficiary when the Insured under the Contract dies. The Proceeds payable to
the beneficiary equal the Death Benefit less any Indebtedness and less any due
and unpaid Monthly Deduction Amounts occurring during a Grace Period (if
applicable). The Death Benefit equals the greater of (1) the Specified Amount or
(2) the Account Value multiplied by the Death Benefit Ratio. The ratios vary
according to the attained age of the Insured and are specified in the Contract.
Therefore, an increase in Account Value due to favorable investment experience
may increase the Death Benefit above the Specified Amount; and a decrease in
Account Value due to unfavorable investment experience may decrease the Death
Benefit (but not below the Specified Amount).
EXAMPLES:
<TABLE>
A B
--------- ---------
<S> <C> <C>
Specified Amount: $ 100,000 $ 100,000
Insured's Age: 45 45
Account Value on Date of Death: $ 48,000 $ 34,000
Death Benefit Ratio 2.15 2.15
</TABLE>
In Example A, the Death Benefit equals $103,200, i.e., the greater of $100,000
(the Specified Amount) and $103,200 (the Account Value at the Date of Death of
$48,000, multiplied by the Death Benefit Ratio of 2.15). This amount, less any
Indebtedness and due and unpaid Monthly Deduction Amounts, constitutes the
Proceeds which we would pay to the beneficiary.
In Example B, the Death Benefit is $100,000, i.e., the greater of $100,000 (the
Specified Amount) or $73,100 (the Account Value of $34,000 multiplied by the
Death Benefit Ratio of 2.15).
All or part of the Proceeds may be paid in cash or applied under an Income Plan.
See "Other Matters--Payment Options," page .
ACCELERATED DEATH BENEFIT
If the Insured becomes terminally ill, the Contract Owner may request an
accelerated Death Benefit in an amount up to the lesser of (1) 50% of the
Specified Amount on the day we receive the request, and (2) $250,000 for all
policies issued by the Company which cover the Insured. "Terminally ill" means
an illness or physical condition of the Insured that, notwithstanding
appropriate medical care, will result in a life expectancy of 12 months or less.
If the Insured is terminally ill as the result of an illness, the accelerated
Death Benefit is not available unless the illness occurred at least 30 days
after the Issue Date. If the Insured is terminally ill as the result of an
accident, the accelerated Death Benefit is available if the accident occurred
after the Issue Date.
We will pay benefits due under the accelerated Death Benefit provision upon
receipt of a written request from the Contract Owner and due proof that the
Insured has been diagnosed as terminally ill. The Company also reserves the
right to require supporting documentation of the diagnosis and to require (at
the Company's expense) an examination of the Insured by a physician of the
Company's choice to confirm the diagnosis. The amount of the payment will be the
amount requested by the Contract Owner, reduced by the sum of (1) a 12 month
interest discount to reflect the early payment; (2) an administrative
21
<PAGE>
fee (not to exceed $250); and (3) a pro rata amount of any outstanding Contract
loan and accrued loan interest. After the payment has been made, the Specified
Amount, the Account Value and any outstanding Contract loan will be reduced on a
prorata basis.
Only one request for an accelerated Death Benefit per Insured is allowed. The
accelerated Death Benefit may not be available in all states.
ACCOUNT VALUE
The Account Value of a Contract will be computed on each Valuation Day. On the
Contract Date, the Account Value is equal to the initial premium less the
Monthly Deduction Amount for the first month. Thereafter, the Account Value will
vary to reflect the investment experience of the Fund, the value of the Loan
Account and the Monthly Deduction Amounts. There is no minimum guaranteed
Account Value.
The Account Value of a particular Contract is related to the net asset value of
the Fund to which premiums on the Contract have been allocated. The Account
Value on any Valuation Day is calculated by multiplying the number of
Accumulation Units credited to the Contract in each Variable Sub-Account as of
the Valuation Day by the then Accumulation Unit Value of that Sub-Account and
then summing the result for all the Sub-Accounts credited to the Contract and
the value of the Loan Account. See "The Contract--Accumulation Unit Values,"
page .
TRANSFER OF ACCOUNT VALUE
While the Contract remains in force and subject to the Company's transfer rules
then in effect, the Contract Owner may request that part or all of the Account
Value of a particular Variable Sub-Account be transferred to other Variable
Sub-Accounts. The Company reserves the right to impose a $25 charge on each such
transfer in excess of 12 per Contract Year. However, there are no charges on
transfers at the present time. The minimum amount that can be transferred is
shown on the Contract Data page (currently $100) or the total amount in the
Variable Sub-Account whichever is less.
Telephone transfer requests will be accepted by the Company if received at
1(800)654-2397 by 4:00 p.m., Eastern Time. Telephone transfer requests received
at any other telephone number or after 4:00 p.m., Eastern Time will not be
accepted by the Company. Telephone transfer requests received before 4:00 p.m.,
Eastern Time are effected at the next computed value. Transfers by telephone may
be made by the Contract Owner's Account Executive or attorney-in-fact pursuant
to a power of attorney. Telephone transfers may not be permitted in some states.
The policy of the Company and its agents and affiliates is that they will not be
responsible for losses resulting from acting upon telephone requests reasonably
believed to be genuine. The Company will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine; otherwise, the Company
may be liable for any losses due to unauthorized or fraudulent instructions. The
procedures the Company follows for transactions initiated by telephone include
requirements that callers on behalf of a Contract Owner identify themselves and
the Contract Owner by name and social security number or other identifying
information. All transfer instructions by telephone are tape recorded.
Otherwise, transfer requests must be in writing, on a form provided by the
Company.
As a result of a transfer, the number of Accumulation Units credited to the
Variable Sub-Account from which the transfer is made will be reduced by the
number obtained by dividing the amount transferred by
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the Accumulation Unit Value of the Sub-Account from which the transfer is made
on the Valuation Date the Company receives the transfer request. The number of
Accumulation Units credited to the Sub-Account to which the transfer is made
will be increased by the number obtained by dividing the amount transferred by
the Accumulation Unit Value of that Sub-Account on the Valuation Day the Company
receives the transfer request.
DOLLAR COST AVERAGING
Transfers may be made automatically through Dollar Cost Averaging while the
Contract is in force. Dollar Cost Averaging permits the Owner to transfer a
specified amount every month (or some other frequency as may be determined by
the Company) from the Money Market Sub-Account to any other Variable Sub-
Account. The minimum amount that can be transferred is shown on the Contract
Data page (currently $100) or the total amount in the Variable Sub-Account
whichever is less. The theory of Dollar Cost Averaging is that, if purchases of
equal dollar amounts are made at fluctuating prices, the aggregate average cost
per unit will be less than the average of the unit prices on the same purchase
dates. However, participation in the Dollar Cost Averaging program does not
assure you of a greater profit from your purchases under the program; nor will
it prevent or alleviate losses in a declining market. There are no additional
charges imposed upon participants in the Dollar Cost Averaging Program.
Transfers under Dollar Cost Averaging are not included in the count toward the
12 free transfers per year currently permitted.
CONTRACT LOANS
While the Contract is in force, a Contract Owner may obtain, without the consent
of the beneficiary (provided the designation of beneficiary is not irrevocable),
one or both of two types of cash loans from the Company. These types are
Preferred Loans (described below) and non-Preferred Loans. Both types of loans
are secured by the Contract. The maximum amount available for a loan is 90% of
the Contract's Cash Value, less the amount of all Contract loans existing on the
date of the loan (including loan interest to the next Contract Anniversary),
less any due and unpaid Monthly Deduction Amounts, and less any Annual
Maintenance Fee due on or before the next Contract Anniversary.
The loan amount will be transferred pro rata from each Variable Sub-Account
attributable to the Contract (unless the Contract Owner specifies otherwise) to
the Loan Account. The amounts allocated to the Loan Account will be credited
with interest at the loan credited rate set forth in the Contract. Loans will
bear interest at rates determined by the Company from time to time, but which
will not exceed the maximum rate indicated in the Contract (currently, 8% per
year). The amount of the Loan Account that equals the difference between the
Account Value and the total of all premiums paid under the Contract net of any
premiums returned due to partial withdrawals and net of any prior loan balance,
as determined on each Contract Anniversary, is considered a "Preferred Loan."
Preferred Loans bear interest at a rate not to exceed the Preferred Loan rate
set forth in the Contract. The difference between the value of the Loan
Account and the Indebtedness will be transferred on a pro-rata basis from the
Variable Sub-Accounts to the Loan Account on each Contract Anniversary. If the
aggregate outstanding loan(s) and loan interest secured by the Contract exceeds
the Cash Value of the Contract, the Company will give written notice to the
Contract Owner that unless the Company receives an additional payment within
61 days to reduce the aggregate outstanding loan(s) secured by the Contract,
the Contract may lapse.
All or any part of any loan secured by a Contract may be repaid while the
Contract is still in effect. When loan repayments or interest payments are made,
the repayment will be allocated among the
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Variable Sub-Accounts in the same percentage as subsequent payments are
allocated (unless the Contract Owner requests a different allocation), and an
amount equal to the payment will be deducted from the Loan Account. Any
outstanding loan at the end of a Grace Period must be repaid before the Contract
will be reinstated. See "Contract Benefits and Rights-- Lapse and
Reinstatement," page .
A loan, whether or not repaid, will have a permanent effect on the Account Value
because the investment results of each Variable Sub-Account will apply only to
the amount remaining in that Sub-Account. The longer a loan is outstanding, the
greater the effect is likely to be. The effect could be favorable or
unfavorable. If the Variable Sub-Accounts earn more than the annual interest
rate for amounts held in the Loan Account, a Contract Owner's Account Value will
not increase as rapidly as it would have had no loan been made. If the Variable
Sub-Accounts earn less than that rate, the Contract Owner's Account Value will
be greater than it would have been had no loan been made. Also, if not repaid,
the aggregate outstanding loan(s) will reduce the Death Benefit Proceeds and
Cash Surrender Value otherwise payable.
AMOUNT PAYABLE ON SURRENDER OF THE CONTRACT
While the Contract is in force, a Contract Owner may elect, without the consent
of the beneficiary (provided the designation of beneficiary is not irrevocable),
to fully surrender the Contract. Upon surrender, the Contract Owner will receive
the Cash Surrender Value determined as of the day the Company receives the
Contract Owner's written request or the date requested by the Contract Owner,
whichever is later. The Cash Surrender Value equals the Cash Value less the
Annual Maintenance Fee and any Indebtedness. The Company will pay the Cash
Surrender Value of the Contract within seven days of receipt by the Company of
the written request or on the effective surrender date requested by the Contract
Owner, whichever is later.
The Contract will terminate on the date of receipt of the written request, or
the date the Contract Owner requests the surrender to be effective, whichever is
later. For a discussion of the tax consequences of surrendering the Contract,
see "Federal Tax Matters," page .
The Contract Owner may elect to apply the surrender proceeds to an Income Plan
(see "Other Matters--Payment Options," page ).
PARTIAL WITHDRAWALS
While the Contract is in force, a Contract Owner may elect by written request to
make partial withdrawals from the Cash Surrender Value of at least $100, or the
total amount in the Variable Sub-Account, whichever is less. The Cash Surrender
Value, after the partial withdrawal, must at least equal $2,000; otherwise, the
request will be treated as a request for full surrender. The partial withdrawal
will be deducted pro rata from each Variable Sub-Account, unless the Contract
Owner instructs otherwise. The Specified Amount after the partial withdrawal
will be the greater of:
- the Specified Amount prior to the partial withdrawal reduced
proportionately to the reduction in Account Value; or
- the minimum Specified Amount necessary in order to meet the definition of
a life insurance contract under section 7702 of the Code.
Partial withdrawals in excess of the Free Withdrawal Amount may be subject to
a Withdrawal Charge
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and any due and unpaid premium tax charges. See "Deductions and Charges--Other
Deductions--Withdrawal Charge" and "Premium Tax Charge." For a discussion of the
tax consequences of partial withdrawals, see "Federal Tax Matters," page .
MATURITY
The Contract has no maturity date.
LAPSE AND REINSTATEMENT
The Contract will remain in force until the Cash Surrender Value is insufficient
to cover a Monthly Deduction Amount due on a Monthly Activity Date. The Company
will give written notice to the Contract Owner that if an amount shown in the
notice (which will be sufficient to cover the Monthly Deduction Amount(s) due)
is not paid within 61 days ("Grace Period"), there is a danger of lapse.
The Contract will continue through the Grace Period, but if no payment is
forthcoming, it will terminate at the end of the Grace Period. If the Insured
dies during the Grace Period, the Proceeds payable under the Contract will be
reduced by the Monthly Deduction Amount(s) due and unpaid. See "Contract
Benefits and Rights--Death Benefit," page .
If the Contract lapses, the Contract Owner may apply for reinstatement of the
Contract by payment of the reinstatement premium (and any applicable charges)
required under the Contract. A request for reinstatement must be made within
five years of the date the Contract entered a Grace Period. If a loan was
outstanding at the time of lapse, the Company will require repayment of the loan
before permitting reinstatement. In addition, the Company reserves the right to
require evidence of insurability satisfactory to the Company. The reinstatement
premium is equal to an amount sufficient to (1) cover all Monthly Deduction
Amounts and Annual Maintenance Fee due and unpaid during the Grace Period, and
(2) keep the Contract in force for three months after the date of reinstatement.
The Specified Amount upon reinstatement cannot exceed the Specified Amount of
the Contract at its lapse. The Account Value on the reinstatement date will
reflect the Account Value at the time of termination of the Contract plus the
premiums paid at the time of reinstatement. Withdrawal charges and due and
unpaid premium tax charges, Cost of Insurance, and Tax Expense Charges will
continue to be based on the original Contract Date.
CANCELLATION AND EXCHANGE RIGHTS
A Contract Owner has a limited right to return a Contract for cancellation. If
the Contract is returned for cancellation by mail or personal delivery to the
Company or to the Account Executive who sold the Contract within 10 days after
delivery of the Contract to the Contract Owner (a longer free-look period is
provided in certain states), the Company will return to the Contract Owner
within 7 days the sum of (1) the Account Value on the date the returned Contract
is received by the Company or its agent; and (2) any deductions under the
Contract or by the Fund for taxes, charges or fees. Some states may require the
Company to return the premiums paid for the returned Contract.
Once the Contract is in effect, it may be exchanged during the first 24 months
after its issuance for a non-variable permanent life insurance contract offered
by the Company on the life of the Insured. The Company reserves the right to
make available a permanent life insurance contract offered by the
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Company's account or any affiliated company without evidence of insurability.
The amount at risk to the Company (i.e., the difference between the Death
Benefit and the Account Value) under the new contract will be equal to or less
than the amount at risk to the Company under the exchanged Contract on the date
of exchange. Premiums under the new Contract will be based on the same risk
classification as the exchanged Contract. The exchange is subject to adjustments
in premiums and Account Value to reflect any variance between the exchanged
Contract and the new contract. The Company reserves the right to make such a
contract available that is offered by the Company's parent or by any affiliate
of the Company.
CONFINEMENT WAIVER BENEFIT
Under the terms of an amendatory endorsement to the Contract, the Company will
waive any Withdrawal Charges on Partial Withdrawals and surrenders of the
Contract requested while the Insured is confined to a qualified long-term care
facility or hospital for a period of more than 90 consecutive days beginning 30
days or more after the Issue Date, or within 90 days after the Insured is
discharged from such confinement. The confinement must have been prescribed by a
licensed medical doctor or a licensed doctor of osteopathy, operating within the
scope of his or her license, and must be medically necessary. The prescribing
doctor may not be the Insured, the Contract Owner, or any spouse, child, parent,
grandchild, grandparent, sibling or in-law of the Contract Owner. "Medically
necessary" means appropriate and consistent with the diagnosis and which could
not have been omitted without adversely affecting the Insured's condition. The
confinement waiver benefit may not be available in all states. The Company
reserves the right to discontinue the offering of the confinement waiver benefit
amendatory endorsement upon the purchase of a new contract.
SUSPENSION OF VALUATION, PAYMENTS AND TRANSFERS
The Company will suspend all procedures requiring valuation of the Variable
Account (including transfers, surrenders and loans) on any day the New York
Stock Exchange is closed or trading is restricted due to an existing emergency
as defined by the Securities and Exchange Commission, or on any day the
Commission has ordered that the right of surrender of the Contracts be suspended
for the protection of Contract Owners, until such condition has ended.
LAST SURVIVOR CONTRACTS
The Contracts are offered on a single life and "last survivor" basis. Contracts
sold on a last survivor basis operate in a manner almost identical to the single
life version. The most important difference is that the last survivor version
involves two Insureds and the Proceeds are paid only on the death of the last
surviving Insured. The other significant differences between the last survivor
and single life versions are listed below:
1. Last survivor Contracts are offered for prospective insured
persons age 18-85.
2. The cost of insurance charges under the last survivor Contracts are
determined in a manner that reflects the anticipated mortality of the two
Insureds and the fact that the Death Benefit is not payable until the death of
the second Insured. See the last survivor illustrations in "Appendix A," page
A-1.
3. To qualify for simplified underwriting under a last survivor
Contract, both Insureds must meet the simplified underwriting standards.
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4. For a last survivor Contract to be reinstated, both Insureds must
be alive on the date of reinstatement.
5. The Contract provisions regarding misstatement of age or sex,
suicide and incontestability apply to either Insured.
6. The Accelerated Death Benefit provision is only available upon
terminal illness of the last survivor.
7. The Confinement Waiver Benefit is available upon confinement of
either insured.
OTHER MATTERS
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VOTING RIGHTS
In accordance with its view of presently applicable law, the Company will vote
the shares of the Fund at regular and special meetings of the shareholders of
the Fund in accordance with instructions from Contract Owners (or the assignee
of the Contract, as the case may be) having a voting interest in the Variable
Account. The number of shares of a Fund Portfolio held in a Variable Account
which are attributable to each Contract Owner is determined by dividing the
Contract Owner's interest in that Variable Sub-Account by the per share net
asset value of the corresponding Fund Portfolio. The Company will vote shares
for which no instructions have been given and shares which are not attributable
to Contract Owners (i.e., shares owned by the Company) in the same proportion as
it votes shares for which it has received instructions. If the Investment
Company Act of 1940 or any rule promulgated thereunder should be amended,
however, or if the Company's present interpretation should change and, as a
result, the Company determines it is permitted to vote the shares of the Fund in
its own right, it may elect to do so.
The voting interests of the Contract Owner (or the assignee) in the Fund will be
determined as follows: Contract Owners are entitled to give voting instructions
to the Company with respect to Fund Portfolio shares attributable to them as
described above, determined on the record date for the shareholder meeting for
the Fund. Therefore, if a Contract Owner has taken a loan secured by the
Contract, amounts transferred from the Sub-Account(s) to the Loan Account in
connection with the loan (see "Contract Benefits and Rights--Contract Loans,"
page ) will not be considered in determining the voting interests of the
Contract Owner. Contract Owners should review the prospectus for the Fund which
accompanies this prospectus to determine matters on which Fund shareholders may
vote.
The Company may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the sub-classification or investment objective
of the Fund or to approve or disapprove an investment advisory contract for the
Fund.
In addition, the Company itself may disregard voting instructions in favor of
changes initiated by Contract Owners in the investment objectives or the
investment adviser of the Fund if the Company reasonably disapproves of such
changes. A change would be disapproved only if the proposed change is contrary
to state law or prohibited by state regulatory authorities. If the Company does
disregard voting
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instructions, a summary of that action and the reasons for such action will be
included in the next periodic report to Contract Owners.
STATEMENTS TO CONTRACT OWNERS
The Company will maintain all records relating to the Variable Account and the
Variable Sub-Accounts. At least once each Contract Year, the Company will send
to each Contract Owner a statement showing the Coverage Amount and the Account
Value of the Contract (indicating the number of Accumulation Units credited to
the Contract in each Variable Sub-Account and the corresponding Accumulation
Unit Value), and any outstanding loan secured by the Contract as of the date of
the statement. The statement will also show premium paid, and Monthly Deduction
Amounts under the Contract since the last statement, and any other information
required by any applicable law or regulation.
LIMIT ON RIGHT TO CONTEST
The Company may not contest the validity of the Contract after it has been in
effect during the Insured's lifetime for two years from the Contract Date. If
the Contract is reinstated, the two-year period is measured from the date of
reinstatement. Any increase in the Specified Amount for which evidence of
insurability was obtained is contestable for 2 years from its effective date. In
addition, if the Insured dies by suicide while sane or self destruction while
insane in the two-year period after the Contract Date, or such period as
specified in state law, the benefit payable will be limited to the premiums paid
less any Indebtedness and partial withdrawals. If the Insured dies by suicide
while sane or self-destruction while insane in the two-year period following an
increase in the Specified Amount, the benefit payable with respect to the
increase will be limited to the additional premium paid for such increase, less
any Indebtedness and partial withdrawals.
MISSTATEMENT AS TO AGE AND SEX
If the age or sex of the Insured is incorrectly stated, the Death Benefit will
be appropriately adjusted as specified in the Contract.
PAYMENT OPTIONS
The surrender proceeds or Death Benefit Proceeds under the Contracts may be paid
in a lump sum or may be applied to one of the Company's Income Plans. If the
amount to be applied to an Income Plan is less than $3,000 or if it would result
in an initial income payment of less than $20, the Company may require that the
frequency of income payments be decreased such that the income payments are
greater than $20 each, or it may elect to pay the amount in a lump sum. No
surrender or partial withdrawals are permitted after payments under an Income
Plan commence.
We will pay interest on the Proceeds from the date of the Insured's death to the
date payment is made or a payment option is elected. At such times, the Proceeds
are not subject to the investment experience of the Variable Account.
The Income Plans are fixed annuities payable from the Company's general account.
They do not reflect the investment experience of the Variable Account. Fixed
annuity payments are determined by multiplying the amount applied to the annuity
by a rate to be determined by the Company which is no
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less than the rate specified in the fixed payment annuity tables in the
Contract. The annuity payment will remain level for the duration of the annuity.
The Company may require proof of age and gender of the payee (and joint payee,
if applicable) before payments begin. The Company may also require proof that
such person(s) are living before it makes each payment.
The following options are available under the Contracts (the Company may offer
other payment options):
INCOME PLAN 1--LIFE INCOME WITH GUARANTEED PAYMENTS
The Company will make payments for as long as the payee lives. If the payee dies
before the selected number of guaranteed payments have been made, the Company
will continue to pay the remainder of the guaranteed payments.
INCOME PLAN 2--JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS
The Company will make payments for as long as either the payee or Joint payee,
named at the time of Income Plan selection, is living. If both the payee and the
Joint payee die before the selected number of guaranteed payments have been
made, the Company will continue to pay the remainder of the guaranteed payments.
The Company will make any other arrangements for income payments as may be
agreed on.
BENEFICIARY
The applicant names the beneficiary in the application for the Contract. The
Contract Owner may change the beneficiary (unless irrevocably named) during the
Insured's lifetime by written request to the Company. If no beneficiary is
living when the Insured dies, the Proceeds will be paid to the Contract Owner if
living; otherwise to the Contract Owner's estate.
ASSIGNMENT
Unless required by state law, the Contract may not be assigned as collateral for
a loan or other obligation.
DIVIDENDS
No dividends will be paid under the Contracts.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
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The directors and executive officers of the Company are listed below, together
with information as to their ages, dates of election and principal business
occupations during the last five years (if other than their present business
occupations).
LOUIS G. LOWER, II, 52, Chief Executive Officer and Chairman of the Board
(1995)*
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Also Director (1986-Present) and Senior Vice President (1995-Present) of
Allstate Insurance Company; Director (1991-Present) of Allstate Life Financial
Services, Inc.; Director (1986-Present) and President (1990-Present) Allstate
Life Insurance Company; Director (1983-Present) and Chairman of the Board
(1990-Present) of Allstate Life Insurance Company of New York; Chairman of the
Board of Directors and Chief Executive Officer (1995-Present), Chairman of the
Board of Directors and President (1990-1995) of Glenbrook Life Insurance
Company; Director (1992-Present), Chairman of the Board of Directors and Chief
Executive Officer (1995-Present) of Glenbrook Life and Annuity Company; Director
and Chairman of the Board (1995-Present) of Laughlin Group Holdings, Inc.;
Director and Chairman of the Board of Directors and Chief Executive Officer
(1989-Present) Lincoln Benefit Life Company; Chairman of the Board of Directors
and Chief Executive Officer (1995-Present) Surety Life Insurance Company; and
Trustee (1991-Present) and Vice President (1995-Present) The Allstate
Foundation.
PETER H. HECKMAN, 52, President, Chief Operating Officer and Director (1996)*
Also Director and Vice President (1988-Present) of Allstate Life Insurance
Company; Director (1990-1996), Vice President (1989-Present), Allstate Life
Insurance Company of New York; Director (1991-1993) of Allstate Life Financial
Services, Inc.; Director (1990-Present), President and Chief Operating Officer
(1996-Present), and Vice President (1990-1996), Glenbrook Life Insurance
Company; Director (1992-Present) President and Chief Operating Officer
(1996-Present), and was Vice President (1995-1996), Glenbrook Life and Annuity
Company; Director (1995-Present) and Vice Chairman of the Board (1996-Present)
Laughlin Group Holdings, Inc.; Director (1990-Present) and Vice Chairman of the
Board (1996-Present) Lincoln Benefit Life Company; and Director (1995-Present)
and Vice Chairman of the Board (1996-Present) Surety Life Insurance Company.
MICHAEL J. VELOTTA, 51, Vice President, Secretary, General Counsel, and Director
(1992)*
Also Director and Secretary (1993 - Present) of Allstate Life Financial
Services, Inc.; Director (1992-Present) Vice President, Secretary and General
Counsel (1993-Present) Allstate Life Insurance Company; Director (1992-Present)
Vice President, Secretary and General Counsel (1993-Present) Allstate Life
Insurance Company of New York; Director (1992-Present) Vice President, Secretary
and General Counsel (1993-Present) Glenbrook Life Insurance Company; Director
(1992-Present) Vice President, Secretary and General Counsel (1993-Present)
Glenbrook Life and Annuity Company; Director and Secretary (1995-Present)
Laughlin Group Holdings, Inc.; Director (1992- Present) and Assistant Secretary
(1995-Present) Lincoln Benefit Life Company; and Director and Assistant
Secretary (1995-Present) Surety Life Insurance Company.
JOHN R. HUNTER, 42, Director (1996)*
Also Assistant Vice President (1990-Present) Allstate Life Insurance Company;
Assistant Vice President (1996-Present) Allstate Life Insurance Company of New
York; Director (1996-Present) Glenbrook Life Insurance Company; and Director
(1996-Present) and Senior Vice President -Product Management (1995-Present)
Glenbrook Life and Annuity Company.
MARLA G. FRIEDMAN, 43, Vice President (1996)*
Also Director (1991-Present) and Vice President (1988-Present) Allstate Life
Insurance Company;
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<PAGE>
Director (1993-1996) Allstate Life Financial Services, Inc.; Assistant Vice
President (1996-Present) Allstate Life Insurance Company of New York; Director
(1995-1996) Allstate Settlement Corporation; Director (1991-1996), President and
Chief Operating Officer (1995-1996) and Vice President (1990-1995) and
(1996-Present) Glenbrook Life Insurance Company; Director (1992-1996), President
and Chief Operating Officer (1995-1996) and Vice President (1992-1995) and
(1996-Present) Glenbrook Life and Annuity Company; and Director and Vice
Chairman of the Board (1995-1996) Laughlin Group Holdings, Inc.
KAREN C. GARDNER, 44, Vice President (1996)*
Vice President (1996 - Present) Allstate Insurance Company; Vice President (1996
- - Present) Allstate Life Insurance Company; Vice President (1996 - Present)
Allstate Life Insurance Company of New York; Vice President (1996 - Present)
Glenbrook Life Insurance Company; Vice President (1996 Present) Laughlin Group
Holdings, Inc.; Assistant Vice President (1996 - Present) Lincoln Benefit Life
Company; Vice President (1996 - Present) Northbrook Life Insurance Company;
Assistant Vice President (1996 - Present) Surety Life Insurance Company. Prior
to 1996 she was a Partner (1975-1996) Ernst & Young LLP.
KEVIN R. SLAWIN, 39, Director and Vice President (1996)*
Also Assistant Vice President and Assistant Treasurer (1995-1996) Allstate
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Allstate Financial Services, Inc.; Director and Vice President (1996-Present)
and Assistant Treasurer (1995-1996) Allstate Life Insurance Company; Director
and Vice President (1996-Present) and Assistant Treasurer (1995-1996) Allstate
Life Insurance Company of New York; Director and Vice President (1996-Present)
and Assistant Treasurer (1995-1996) Glenbrook Life Insurance Company; Vice
President (1996-Present) and Assistant Treasurer (1995-1996) Glenbrook Life and
Annuity Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Laughlin Group Holdings, Inc.; Director (1996-Present) Lincoln Benefit Life
Company; Director (1996- Present) Surety Life Insurance Company; Assistant
Treasurer and Director (1994-1995) Sears Roebuck and Company; and Treasurer and
First Vice President (1986-1994) Sears Mortgage Corporation.
CASEY J. SYLLA, 54, Chief Investment Officer and Director (1995)*
Also Director (1995 - Present ) Senior Vice President and Chief Investment
Officer (1995 - Present) Allstate Insurance Company; Director (1995 - Present)
Chief Investment Officer (1995 - Present) Allstate Life Insurance Company; Chief
Investment Officer (1995 - Present) Allstate Life Insurance Company of New York;
Chief Investment Officer (1995 - Present) Glenbrook Life Insurance Company;
Chief Investment Officer (1995 - Present) Glenbrook Life and Annuity Company;
Prior to 1995 he was Senior Vice President and Executive Officer - Investments
(1992-1995) of Northwestern Mutual Life Insurance Company.
JAMES P. ZILS, 46, Treasurer (1995)*
Also Vice President and Treasurer (1995 - Present) Allstate Insurance Company;
Treasurer (1995 Present) Allstate Life Financial Services, Inc.; Treasurer (1995
- - Present) Allstate Life Insurance Company; Treasurer (1995 - Present) Allstate
Life Insurance Company of New York; Treasurer (1995 -
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<PAGE>
Present) Glenbrook Life Insurance Company; Treasurer (1995 - Present) Glenbrook
Life and Annuity Company; and Treasurer (1995 - Present) Laughlin Group
Holdings, Inc. From 1995 to 1993 he was Vice President of Allstate Life
Insurance Company. Prior to 1993 he held various management positions.
- ------------------------
*Date elected to current office
DISTRIBUTION OF THE CONTRACTS
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The Contracts will be distributed exclusively by Dean Witter which serves as the
principal underwriter of the Contracts under a general agency agreement with the
Company.
Dean Witter is a wholly owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co. ("Dean Witter Discover"). Dean Witter is located at Two World
Trade Center, New York, New York. Dean Witter is a member of the New York
Stock Exchange and the National Association of Securities Dealers.
The Company may pay up to a maximum sales commission of 6.75%. Dean Witter will
pay annually to its Account Executives from its profits, an amount equal to .10%
of the net assets of the Variable Account attributable to the Contracts. In
addition, sale of the Contract may count toward incentive program awards for the
Account Executive.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
- ------------------------------------------------------------------------------
The assets of the Variable Account are held by the Company. The assets of the
Variable Account are kept physically segregated and held separate and apart from
the General Account of the Company. The Company maintains records of all
purchases and redemptions of shares of the Fund.
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 purchase of a life insurance contract depend upon
the individual circumstances of each person. If you are concerned about any tax
consequences with regard to your individual circumstances, you should consult a
qualified tax advisor.
TAXATION OF THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code. Since the Variable Account is not an entity separate
from 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 Contracts. Under existing federal income tax law,
the Company believes that
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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 Contracts. 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 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.
TAXATION OF CONTRACT BENEFITS
In order to qualify as a life insurance contract for federal income tax
purposes, the Contract must meet the definition of a life insurance contract set
forth in Section 7702 of the Code. Section 7702 limits the amount of premiums
that may be invested in a contract that is treated as life insurance. The manner
in which Section 7702 should be applied to certain features of the Contract
offered in this prospectus is not directly addressed in Section 7702.
Nevertheless, the Company believes that the Contact will meet the Section 7702
definition of a life insurance contract. This means that:
- the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
- the Contract Owner should not be considered in constructive receipt of the
Cash Value of the Contract, including any increases, until actual cancellation
of the Contract
In addition, in the absence of final regulations or other pertinent
interpretations of Section 7702, there is necessarily some uncertainty as to
whether a substandard risk Contract will meet the statutory life insurance
contract definition. If a Contract were determined not to be a life insurance
contract for purposes of Section 7702, such Contract would not provide most of
the tax advantages normally provided by a life insurance contract. The Company
reserves the right to amend the Contracts to comply with any future changes in
the Code, any regulations or rulings under the Code and any other requirements
imposed by the Internal Revenue Service.
If you own and are the Insured under the Contract, the Death Benefit will be
included in your gross estate for federal estate tax purposes if the proceeds
are payable to your estate. If the beneficiary is other than your estate but you
retained incidents of ownership in the Contract, the Death Benefit will also be
included in your gross estate. Examples of incidents of ownership include, but
are not limited to, the right to change beneficiaries, to assign the Contract or
revoke an assignment, to pledge the Contract or to obtain a policy loan. If you
own and are the Insured under the Contract and you transfer all incidents of
ownership in the Contract, the Death Benefit will be included in your gross
estate if you die within three years from the date of the ownership transfer.
State and local estate and inheritance tax consequences may also apply. In
addition, certain transfers of the Contract or Death Benefit, either during life
or at death, to individuals (or trusts for the benefit of such individuals) two
or more generations below that of the transferor may be subject to the federal
generation skipping transfer tax.
In addition, the Contract may be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans, and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating
33
<PAGE>
the use of a Contract in any arrangement the value of which depends in part on
its tax consequences, you should be sure to consult a qualified tax advisor
regarding the tax attributes of the particular arrangement.
MODIFIED ENDOWMENT CONTRACTS
A life insurance contract is treated as a "modified endowment contract" under
Section 7702A of the Code if it meets the definition of life insurance in
Section 7702 but fails the "seven-pay" test of Section 7702A. The seven-pay test
provides that premiums cannot be paid at a rate more rapidly than that allowed
by the payment of seven annual premiums using specified computational rules
provided in Section 7702A(c). The large single premium permitted under the
Contract (which is equal to 100% of the "Guideline Single Premium" as defined in
Section 7702 of the Code) does not meet the specified computational rules for
the "seven-pay test" under Section 7702A(c). Therefore, the Contract will
generally be treated as a modified endowment contract for federal income tax
purposes. However, an exchange of a life insurance contract that is not a
modified endowment contract will not cause the new contract to be a modified
endowment contract if no additional premiums are paid. An exchange under Section
1035 of the Code of a life insurance contract that is a modified endowment
contract for a new life insurance contract will always cause the new contract to
be a modified endowment contract. A contract that is classified as a modified
endowment contract is generally eligible for the beneficial tax treatment
accorded to life insurance. Accordingly, the death benefit is excluded from
income and increments in value are not subject to current taxation. If a person
receives any amount as a policy loan from a modified endowment contract, or
assigns or pledges any part of the value of the contract, such amount is treated
as a distribution. Unlike other life insurance contracts, distributions received
before the insured's death are treated first as income (to the extent of gain)
and then as recovery of investment in the contract. Any amounts that are taxable
withdrawals will be subject to a 10% additional tax, with certain exceptions:
(1) distributions made on or after the date on which the taxpayer attains age 59
12; (2) distributions attributable to the taxpayer's becoming disabled (within
the meaning of Section 72(m)(7) of the Code); or (3) any distribution that is
part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the taxpayer or the
joint lives (or joint life expectancies) of such taxpayer and his or her
beneficiary.
All modified endowment contracts that are issued within any calendar year to the
same Contract Owner by one company or its affiliates shall be treated as one
modified endowment contract in determining the taxable portion of any loan or
distributions.
DIVERSIFICATION REQUIREMENTS
For a Contract to be treated as a variable life insurance contract for federal
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 a variable life insurance
contract for federal income tax purposes and the 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 Funds or their investments, the Company
expects the Funds to meet the diversification requirements.
34
<PAGE>
OWNERSHIP TREATMENT
In connection with the issuance of the regulations on the adequate
diversification standards, the Department of the 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, the Treasury Department 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. As of the date of this
prospectus, no such guidance has been issued.
The ownership rights under this contract are similar to, but different in
certain respects from, those described by the service in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of this contract has the choice of more investment options to
which to allocate premiums and contract values, and may be able to transfer
among investment options more frequently than in such rulings. These differences
could result in the contract owner being treated as the owner of the Variable
Account. In those circumstances, income and gain from the Variable Account
assets would be includible in the Contract Owner's gross income. In addition,
the Company does not know what standards will be set forth in the regulations or
rulings which the Treasury Department has stated it expects to issue. It is
possible that Treasury Department'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. However, the Company makes no guarantee that such modification to the
contract will be successful.
POLICY LOAN INTEREST
Interest paid on loans against a Contract is generally not deductible.
ADDITIONAL INFORMATION ABOUT THE COMPANY
- ------------------------------------------------------------------------------
The Company also acts as the sponsor for two other of its separate accounts that
are registered investment companies: Northbrook Variable Annuity Account and
Northbrook Variable Annuity Account II. The officers and employees of the
Company are covered by a fidelity bond in the amount of $5,000,000. No person
beneficially owns more than 5% of the outstanding voting stock of The Allstate
Corporation, of which the Company is an indirect wholly-owned subsidiary.
LEGAL PROCEEDINGS
- ------------------------------------------------------------------------------
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. Management, after consultation with legal counsel, does not anticipate
the ultimate liability arising from such pending or threatened litigation to
have a material effect on the financial condition of the Company or the Variable
Account.
35
<PAGE>
LEGAL MATTERS
- ------------------------------------------------------------------------------
Sutherland, Asbill & Brennan, L.L.P., of Washington, D.C., has provided advice
on certain legal matters relating to the federal securities laws applicable to
the issue and sale of the Contracts. 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 the Company.
REGISTRATION STATEMENT
- -------------------------------------------------------------------------------
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This Prospectus does
not contain all information set forth in the registration statement, its
amendments and exhibits, to all of which reference is made for further
information concerning the Variable Account, the Fund, the Company, and the
Contracts.
EXPERTS
- -------------------------------------------------------------------------------
The financial statements of the Company as of December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996 and the related
financial statement schedule included in this prospectus have been audited by
Deloitte & Touche LLP, Two Prudential Plaza, 180 North Stetson Avenue, Chicago,
IL 60601-6779, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The hypothetical Contract illustrations included in this Prospectus have been
approved by Diana Montigney, FSA, Allstate Life Insurance Company, and are
included in reliance upon her opinion as to their reasonableness.
FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
Financial statements for the Variable Account are not included herein because,
as of the date of this Prospectus, sales of the Contracts had not commenced and
the Variable Account therefore had no assets. The financial statements for the
Company appearing immediately below should be considered as bearing only on the
ability of the Company to fulfill its obligations under the Contracts. They do
not relate to the investment performance of the Variable Account.
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
NORTHBROOK LIFE INSURANCE COMPANY:
We have audited the accompanying Statements of Financial Position of
Northbrook Life Insurance Company (the "Company") as of December 31, 1996 and
1995, and the related Statements of Operations, Shareholder's Equity and Cash
Flows for each of the three years in the period ended December 31, 1996. 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 schedules 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, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles. Also, in our opinion, Schedule
IV--Reinsurance, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 21, 1997
F-1
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value (amortized
cost $65,500 and $59,142)........................... $ 67,479 $ 63,229
Short-term........................................... 6,590 8,049
---------- ----------
Total investments.................................. 74,069 71,278
Reinsurance recoverable from Allstate Life Insurance
Company............................................... 2,480,034 2,636,981
Cash................................................... -- 87
Net receivable from Allstate Life Insurance Company.... 4,505 6,183
Other assets........................................... 2,639 2,164
Separate Accounts...................................... 4,354,783 3,354,910
---------- ----------
Total assets....................................... $6,916,030 $6,071,603
========== ==========
LIABILITIES
Reserve for life-contingent contract benefits.......... $ 143,346 $ 139,509
Contractholder funds................................... 2,336,296 2,497,278
Income taxes payable................................... 814 233
Deferred income taxes.................................. 2,085 2,798
Separate Accounts...................................... 4,354,783 3,354,910
---------- ----------
Total liabilities.................................. 6,837,324 5,994,728
---------- ----------
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........................... 1,286 2,657
Retained income........................................ 18,320 15,118
---------- ----------
Total shareholder's equity......................... 78,706 76,875
---------- ----------
Total liabilities and shareholder's equity......... $6,916,030 $6,071,603
========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------ ------ ------
($ IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Net investment income.................................. $4,888 $4,782 $2,881
Realized capital gains and losses...................... (20) 67 (193)
------ ------ ------
Income before income tax expense......................... 4,868 4,849 2,688
Income tax expense....................................... 1,666 1,686 955
------ ------ ------
Net income............................................... $3,202 $3,163 $1,733
====== ====== ======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Common stock......................................... $ 2,500 $ 2,500 $ 2,500
------- ------- -------
Additional capital paid-in
Balance, beginning of year......................... 56,600 56,600 31,600
Capital contribution............................... -- -- 25,000
------- ------- -------
Balance, end of year............................... 56,600 56,600 56,600
------- ------- -------
Unrealized net capital gains
Balance, beginning of year......................... 2,657 (1,553) 747
Net (decrease) increase............................ (1,371) 4,210 (2,300)
------- ------- -------
Balance, end of year............................... 1,286 2,657 (1,553)
------- ------- -------
Retained income
Balance, beginning of year......................... 15,118 11,955 10,222
Net income......................................... 3,202 3,163 1,733
------- ------- -------
Balance, end of year............................... 18,320 15,118 11,955
------- ------- -------
Total shareholder's equity....................... $78,706 $76,875 $69,502
======= ======= =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------- ------ -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income......................................... $ 3,202 $3,163 $ 1,733
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Amortization and other non-cash items............ 782 903 640
Realized capital losses (gains).................. 20 (67) 193
(Decrease) increase in life-contingent contract
benefits and contractholder funds............... (198) 113 (58)
Change in deferred income taxes.................. 24 608 (114)
Changes in other operating assets and
liabilities..................................... 864 (2,705) (3,835)
------- ------ -------
Net cash provided by (used in) operating
activities.................................... 4,694 2,015 (1,441)
------- ------ -------
Cash flows from investing activities
Fixed income securities
Proceeds from sales.............................. 3,522 5,423 1,256
Investment collections........................... 5,770 7,108 7,626
Investment purchases............................. (15,532) (9,843) (36,071)
Change in short-term investments, net.............. 1,459 (4,675) 3,475
------- ------ -------
Net cash used in investing activities.......... (4,781) (1,987) (23,714)
------- ------ -------
Cash flows from financing activities
Capital contribution............................... -- -- 25,000
------- ------ -------
Net cash provided by financing activities...... -- -- 25,000
------- ------ -------
Net (decrease) increase in cash...................... (87) 28 (155)
Cash at beginning of year............................ 87 59 214
------- ------ -------
Cash at end of year.................................. $ -- $ 87 $ 59
======= ====== =======
</TABLE>
See notes to financial statements.
F-5
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Northbrook Life
Insurance Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). 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"). These financial statements have been
prepared in conformity with generally accepted accounting principles.
To conform with the 1996 presentation, certain items in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets life insurance contracts and various annuity products in
the United States through Dean Witter Reynolds Inc. ("Dean Witter") (see Note
4), a wholly owned subsidiary of Dean Witter, Discover & Co. ("Dean Witter
Discover"). Life insurance contracts sold by the Company include universal life
and other interest-sensitive life products. Annuities include deferred
annuities, such as variable annuities and fixed rate single and flexible premium
annuities, and immediate annuities.
Annuity and life insurance 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 ALIC (see Note
3), which invests premiums and deposits to create cash flows that will fund
future benefits and expenses. In order to support competitive credited rates,
ALIC adheres to a basic philosophy of matching assets with related liabilities
to limit interest rate risk, while maintaining adequate liquidity and a prudent
and diversified level of credit risk.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal
legislation and regulation which would allow banks greater participation in
securities and insurance businesses, which could present an increased level of
competition for sales of the Company's annuity contracts. Furthermore, the
market for deferred annuities and interest-sensitive life insurance is enhanced
by the tax incentives available under current law. Any legislative changes which
lessen these incentives are likely to negatively impact the market for these
products.
The Company is authorized to sell life and annuity products in all states
except New York, as well as the District of Columbia and Puerto Rico. The top
geographic locations for statutory premiums earned are California, Florida,
Texas and Pennsylvania for the year ended December 31, 1996. No other
jurisdiction accounted for more than 5% of statutory premiums. All premiums and
contract charges are ceded to ALIC under reinsurance agreements.
F-6
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All
fixed income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses.
Short-term investments are carried at cost 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. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Revenues on interest-sensitive life insurance contracts are comprised of
contract charges and fees, and are recognized when assessed against the
policyholder account balance. Revenues on annuities, which are considered
investment contracts, include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balances.
REINSURANCE
The Company and ALIC have reinsurance agreements under which all premiums and
deposits are transferred to ALIC. Premiums, contract charges, credited interest
and policy benefits are ceded and reflected net of such cessions in the
statements of operations. The amounts shown in the Company's statements of
operations relate to the investment of those assets of the Company that are not
transferred to ALIC under reinsurance agreements. Reinsurance recoverable and
the related reserve for life-contingent contract benefits and contractholder
funds are reported separately in the statements of financial position. The
Company continues to have primary liability as the direct insurer for risks
reinsured.
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
regulations. Deferred income taxes also arise from unrealized capital gains or
losses on fixed income securities carried at fair value.
F-7
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
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 capital gains and losses of the Separate Accounts accrue
directly to the contractholders and, therefore, are not included in the
Company's statements of operations. Revenues to the Company from the Separate
Accounts consist of contract maintenance fees, administration fees and mortality
and expense risk charges, which are ceded to ALIC.
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to structured
settlement annuities and supplemental contracts 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 type of
coverage, year of issue and policy duration. Reserve interest rates ranged from
3.96% to 11.00% during 1996.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group contracts
that include an investment component, including most annuities and
interest-sensitive life insurance contracts. Payments received are recorded as
interest-bearing liabilities. Contractholder funds are equal to deposits
received and interest credited to the benefit of the contractholder less
withdrawals, mortality charges and administrative expenses. During 1996,
credited interest rates on contractholder funds ranged from 3.10% to 9.51% for
those contracts with fixed interest rates and from 3.25% to 7.86% for those with
flexible rates.
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.
F-8
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
3. RELATED PARTY TRANSACTIONS
REINSURANCE
Premiums and contract charges ceded to ALIC were $3,024 and $60,744 in 1996,
$2,284 and $52,348 in 1995, and $1,886 and $38,306 in 1994. Credited interest,
policy benefits and expenses ceded to ALIC amounted to $207,752, $229,525 and
$243,326 in 1996, 1995 and 1994, respectively. Investment income earned on the
assets which support contractholder funds is not included in the Company's
financial statements as those assets are owned and managed by ALIC under the
terms of reinsurance agreements.
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. 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 $8,074, $5,341 and $5,483 in 1996, 1995 and 1994, respectively. Of these
costs, the Company retains investment related expenses. All other costs are
ceded to ALIC under reinsurance agreements.
4. EXCLUSIVE DISTRIBUTION AGREEMENT
The Company and ALIC have formed a strategic alliance with Dean Witter to
develop, market and distribute proprietary annuity and life insurance products
through Dean Witter account executives. Dean Witter provides a portion of the
funding for these products through loans to an affiliate of the Company.
Under the terms of the strategic alliance, which is cancelable by either
party, the Company has agreed to use Dean Witter as an exclusive distribution
channel for the Company's products. Dean Witter Discover's wholly owned
subsidiary, Dean Witter Intercapital Inc., is the investment manager for the
Dean Witter Variable Investment Series, the fund in which the assets of the
Separate Accounts are invested.
On February 5, 1997, Dean Witter Discover and Morgan Stanley Group Inc.
announced that they had entered into an agreement and plan of merger, with the
combined company to be named Morgan Stanley, Dean Witter, Discover & Co. The
parties to the merger anticipate that the transaction will close in mid-1997.
The Company does not expect the merger to have a significant impact on its
business.
F-9
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
5. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------ FAIR
AT DECEMBER 31, 1996 COST GAINS (LOSSES) VALUE
- -------------------- --------- ----- --------- -------
<S> <C> <C> <C> <C>
U.S. government and agencies............. $ 8,629 $ 193 $ (54) $ 8,768
Municipal................................ 873 48 -- 921
Corporate................................ 16,902 260 (69) 17,093
Mortgage-backed securities............... 39,096 1,883 (282) 40,697
------- -------- ------- -------
Total fixed income securities........ $65,500 $ 2,384 $ (405) $67,479
======= ======== ======= =======
<CAPTION>
AT DECEMBER 31, 1995
- --------------------
<S> <C> <C> <C> <C>
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
------- -------- ------- -------
Total fixed income securities........ $59,142 $ 4,315 $ (228) $63,229
======= ======== ======= =======
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at
December 31, 1996:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -------
<S> <C> <C>
Due in one year or less................................ $ 60 $ 60
Due after one year through five years.................. 3,416 3,525
Due after five years through ten years................. 15,706 15,958
Due after ten years.................................... 7,222 7,239
------- -------
26,404 26,782
Mortgage-backed securities............................. 39,096 40,697
------- -------
Total.............................................. $65,500 $67,479
======= =======
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers.
F-10
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
NET INVESTMENT INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Fixed income securities............................. $4,675 $4,633 $2,735
Short-term.......................................... 390 215 192
------ ------ ------
Investment income, before expense................. 5,065 4,848 2,927
Investment expense................................ 177 66 46
------ ------ ------
Net investment income............................. $4,888 $4,782 $2,881
====== ====== ======
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Fixed income securities........................ $ (20) $67 $ (193)
Income tax benefit (expense)................... 7 (23) 68
------- ------ --------
Realized capital losses and gains, after tax... $ (13) $ 44 $ (125)
======= ====== ========
</TABLE>
PROCEEDS FROM SALES OF FIXED INCOME SECURITIES
Proceeds from sales of investments in fixed income securities were $3,522,
$5,423 and $1,256 in 1996, 1995 and 1994, respectively. Gross losses of $32 and
$179 were realized on sales of fixed income securities during 1996 and 1994,
respectively, and gross gains of $67 were recognized during 1995.
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
COST/ FAIR UNREALIZED
AMORTIZED COST VALUE NET GAINS
-------------- ------- ----------
<S> <C> <C> <C>
Fixed income securities................. $65,500 $67,479 $1,979
======= =======
Deferred income taxes................... (693)
------
Unrealized net capital gains............ $1,286
======
</TABLE>
F-11
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
CHANGE IN UNREALIZED NET CAPITAL GAINS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Fixed income securities........................ $(2,108) $6,477 $(3,539)
Deferred income taxes.......................... 737 (2,267) 1,239
------- ------ -------
Change in unrealized net capital gains......... $(1,371) $4,210 $(2,300)
======= ====== =======
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1996, fixed income securities with a carrying value of $7,376
were on deposit with regulatory authorities as required by law.
6. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments are not necessarily indicative of the amounts the Company
might pay or receive in actual market transactions. Potential taxes and other
transaction costs have not been considered in estimating fair value. The
disclosures that follow do not reflect the fair value of the Company as a whole
since a number of the Company's assets (including reinsurance recoverable) and
liabilities (including deferred income taxes and reserve for life-contingent
contract benefits) are not considered financial instruments and are not carried
at fair value. Other assets and liabilities considered financial instruments,
including accrued investment income and cash, are generally of a short-term
nature. It is assumed that their carrying value approximates fair value.
FINANCIAL ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1996 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed income securities...... $ 67,479 $ 67,479 $ 63,229 $ 63,229
Short-term investments....... 6,590 6,590 8,049 8,049
Separate Accounts............ 4,354,783 4,354,783 3,354,910 3,354,910
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying value approximates fair value. Assets of the
Separate Accounts are carried in the statements of financial position at fair
value.
F-12
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
FINANCIAL LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1996 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts....... $2,143,482 $2,118,583 $2,294,536 $2,274,053
Separate Accounts........... 4,354,783 4,354,783 3,354,910 3,354,910
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Account liabilities are carried at the fair value of the underlying assets.
7. INCOME TAXES
Consolidated federal income tax returns are filed by the Corporation and its
eligible subsidiaries, including the Company. Tax liabilities and benefits
realized by the consolidated group are allocated as generated by the respective
entities.
Prior to the Distribution, the Corporation and all of its domestic
subsidiaries, including the Company (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"). 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 Company 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
or similar items, which might not be recognized in a separate return, were
allocated according to the Tax Sharing Agreement.
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 Agreement with respect to the Company's federal income tax
liability.
F-13
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
The components of the net deferred income tax liability at December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Difference in tax bases of investments................. $(1,392) $(1,368)
Unrealized net capital gains on fixed income securi-
ties.................................................. (693) (1,430)
------- -------
Total deferred liability........................... $(2,085) $(2,798)
======= =======
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current............................................. $1,642 $1,078 $1,069
Deferred............................................ 24 608 (114)
------ ------ ------
Total income tax expense........................ $1,666 $1,686 $ 955
====== ====== ======
</TABLE>
The Company paid income taxes of $2,308, $1,555 and $1,393 in 1996, 1995 and
1994, respectively, to ALIC. The Company had income taxes payable to ALIC of
$814 and $233 at December 31, 1996 and 1995, respectively.
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:
<TABLE>
<CAPTION>
NET INCOME
-----------------------
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Balance per generally accepted accounting
principles.................................... $3,202 $ 3,163 $1,733
Deferred income taxes........................ 24 608 (114)
Non-admitted assets and statutory reserves... (661) (1,471) (27)
------ ------- ------
Balance per statutory accounting practices..... $2,565 $ 2,300 $1,592
====== ======= ======
</TABLE>
F-14
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SHAREHOLDER'S EQUITY
AT DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Balance per generally accepted accounting principles... $78,706 $76,875
Deferred income taxes................................ 2,085 2,798
Unrealized gain/loss on fixed income securities...... (1,979) (4,087)
Non-admitted assets and statutory reserves........... (2,503) (2,001)
Other................................................ (1,211) (520)
------- -------
Balance per statutory accounting practices............. $75,098 $73,065
======= =======
</TABLE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Illinois
Department of Insurance. 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 1997 without prior approval of both the Illinois and
California Departments of Insurance is $7,260.
F-15
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- ------
<S> <C> <C> <C>
Life insurance in force................................ $556,242 $556,242 $--
======== ======== ====
Premiums and contract charges:
Life and annuities................................... $ 64,519 $ 64,519 $--
======== ======== ====
YEAR ENDED DECEMBER 31, 1995
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- ------
<S> <C> <C> <C>
Life insurance in force................................ $610,478 $610,478 $--
======== ======== ====
Premiums and contract charges:
Life and annuities................................... $ 54,632 $ 54,632 $--
======== ======== ====
YEAR ENDED DECEMBER 31, 1994
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- ------
<S> <C> <C> <C>
Life insurance in force................................ $661,356 $661,356 $--
======== ======== ====
Premiums and contract charges:
Life and annuities................................... $ 40,192 $ 40,192 $--
======== ======== ====
</TABLE>
F-16
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 1997
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
($ in thousands) (Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed income securities at fair value (amortized
cost $71,856 and $65,500) $ 73,609 $ 67,479
Short-term 2,039 6,590
---------- ----------
Total investments 75,648 74,069
Reinsurance recoverable from Allstate Life
Insurance Company 2,387,681 2,480,034
Cash 60 -
Net receivable from Allstate Life Insurance Company 3,953 4,505
Other assets 3,237 2,639
Separate Accounts 5,097,697 4,354,783
---------- ----------
Total assets $ 7,568,276 $ 6,916,030
========== ==========
LIABILITIES
Reserve for life-contingent contract benefits $ 144,340 $ 143,346
Contractholder funds 2,242,939 2,336,296
Income taxes payable 1,111 814
Deferred income taxes 2,021 2,085
Separate Accounts 5,097,697 4,354,783
---------- ----------
Total liabilities $ 7,488,108 $ 6,837,324
---------- ---------
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 1,139 1,286
Retained income 19,929 18,320
---------- ----------
Total shareholder's equity 80,168 78,706
---------- ----------
Total liabilities and shareholder's equity $7,568,276 $6,916,030
========== ==========
</TABLE>
See notes to financial statements.
F-17
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
($ in thousands) 1997 1996 1997 1996
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Net investment income $ 1,256 $ 1,187 $ 2,528 $ 2,407
Realized capital gains and losses (70) 9 (69) (22)
------- ------- ------- -------
INCOME BEFORE INCOME TAX
EXPENSE 1,186 1,196 2,459 2,385
INCOME TAX EXPENSE 410 419 850 835
------- ------- ------- -------
NET INCOME $ 776 $ 777 $ 1,609 $ 1,550
======= ======= ======= =======
See notes to financial statements.
</TABLE>
F-18
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
($ in thousands) 1997 1996
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,609 $ 1,550
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and other non-cash items 179 303
Realized capital gains and losses 69 22
(Decrease) Increase in life-contingent contract benefits
and contractholder funds (10) (50)
Change in deferred income taxes 16 47
Changes in other operating assets and liabilities 5 (112)
-------- -------
Net cash provided by operating activities 1,868 1,760
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,606 2,320
Investment collections 2,205 4,510
Investment purchases (10,170) (11,341)
Change in short-term investments, net 4,551 2,672
-------- --------
Net cash (used in) provided by investing activities (1,808) (1,839)
-------- --------
NET INCREASE (DECREASE) IN CASH 60 (79)
CASH AT BEGINNING OF PERIOD - 87
-------- ---------
CASH AT END OF PERIOD $ 60 $ 8
======== =========
</TABLE>
See notes to financial statements.
F-19
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Northbrook
Life Insurance Company (the "Company"), a wholly owned subsidiary of
Allstate Life Insurance Company ("ALIC"), which is wholly owned by
Allstate Insurance Company, a wholly owned subsidiary of The Allstate
Corporation.
The statements of financial position as of June 30, 1997, the statements
of operations for the three-month and six-month periods ended June 30,
1997 and 1996, and the statements of cash flows for the six-month periods
ended June 30, 1997 and 1996 are unaudited. The interim financial
statements reflect all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary for the fair
presentation of the financial position, results of operations and cash
flows for the interim periods. The financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Northbrook Life Insurance Company Annual Report on Form 10K for 1996.
The results of operations for the interim period should not be considered
indicative of results to be expected for the full year.
2. REINSURANCE
The Company and ALIC have reinsurance agreements under which all premiums
and deposits are transferred to ALIC. Premiums, contract charges,
credited interest and policy benefits are ceded and reflected net of such
cessions in the statements of operations. The amounts shown in the
Company's statements of operations relate to the investment of those
assets of the Company that are not transferred to ALIC under reinsurance
agreements. Reinsurance recoverable and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the statements of financial position. The Company continues
to have primary liability as the direct insurer for risks reinsured.
Premiums and contract charges ceded to ALIC were $258 thousand and $19.1
million for the three-month period ended June 30, 1997, $563 thousand and
$14.9 million for the three-month period ended June 30, 1996, $820
thousand and $36.6 million for the six-month period ended June 30, 1997,
and $948 thousand and $28.8 million for the six-month period ended June
30, 1996. Credited interest, policy benefits and expenses ceded to ALIC
amounted to $49.0 million and $55.4 million for the three-month periods
ended June 30, 1997 and 1996, respectively and $101.7 million and $108.8
million for the six-month periods ended June 30, 1997 and 1996,
respectively. Investment income earned on the assets which support
contractholder funds is not included in the Company's financial
statements as those assets are owned and managed by ALIC under the terms
of reinsurance agreements.
F-20
<PAGE>
APPENDIX A
ILLUSTRATIONS OF ACCOUNT VALUES, CASH SURRENDER VALUES,
DEATH BENEFITS, AND ACCUMULATED PREMIUMS
The tables in Appendix A illustrate the way the Contracts operate. They show how
the Death Benefit, Account Value and Cash Surrender Value could vary over an
extended period of time assuming hypothetical gross rates of return (investment
income and capital gains and losses, realized or unrealized) for the Variable
Account equal to annual rates of 0%, 6%, and 12%. The tables are based on an
initial premium of $10,000 and also show the initial Death Benefit based on that
premium. The insureds are assumed to be in the standard underwriting class.
Values are first given based on current Contract charges and then based on
guaranteed Contract charges. (See "Deductions and Charges.") These tables may
assist in the comparison of Death Benefits, Account Values and Cash Surrender
Values for the Contracts with those under other variable life insurance
contracts that may be issued by other companies.
Death Benefits, Account Values and Cash Surrender Values for a Contract would be
different from the amounts shown if the actual gross rates of return averaged
0%, 6% or 12%, but varied above and below that average for the period, if the
initial premium were paid in another amount, or additional payments were made.
They would also be different depending on the allocation of Account Value among
the Variable Account's Variable Sub-Accounts, or if the actual gross rate of
return for all Variable Sub-Accounts averaged 0%, 6% or 12%, but varied above or
below that average for individual Variable Sub-Accounts. They would also differ
if any Contract loan or partial withdrawal were made during the period of time
illustrated, or if the insured were in another risk class.
The Death Benefits, Account Values and Cash Surrender Values shown in the tables
reflect the fact that: a Monthly Deduction Amount (consisting of a cost of
insurance charge, tax expense charge, and an administrative expense charge) is
deducted from Account Value each Monthly Activity Date and that an Annual
Maintenance Fee of $30 is deducted on each Contract Anniversary from all
Variable Sub-Accounts to which Account Value is allocated. The values in the
tables also reflect a deduction from the Variable Account of a daily charge
equal to an annual rate of 0.90% for the mortality and expense risk charge. The
Cash Surrender Value shown in the tables reflect the fact that a Withdrawal
Charge is imposed on withdrawals in excess of the Free Withdrawal Amount. (See
"Deductions and Charges.") The amounts shown in the table are based on an
average of the investment advisory fees and operating expenses incurred by the
Portfolios, at an annual rate of .75% of the average daily net assets of the
Portfolios. (See "Charges and Expenses.")
Taking account of the average investment advisory fee and operating expenses of
the Portfolios, the gross annual rates of return of 0%, 6% and 12% correspond to
net investment experience at constant annual rates of: (-.75%, 5.25%, and
11.25%,) respectively.
The hypothetical rates of return shown in the tables do not reflect any tax
charges attributable to the Variable Account since no such charges are currently
made. If any such charges are imposed in the future, the gross annual rate of
return would have to exceed the rates shown by an amount sufficient to cover the
tax charges, in order to produce the Account Values, Cash Surrender Values, and
Death Benefits illustrated.
A-1
<PAGE>
The second column of each table shows the amount that would accumulate if the
initial premium of $10,000 were invested to earn interest, after taxes, of 5%
per year, compounded annually.
Northbrook Life will furnish upon request a personalized illustration reflecting
the proposed insured's age, sex, and underwriting classification. Where
applicable, Northbrook Life will also furnish upon request an illustration for a
Contract that is not affected by the sex of the insured.
A-2
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
SINGLE LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 45 MALE
INITIAL FACE AMOUNT: $39,998
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.25% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
----------------------------------------- -------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,853 10,003 39,998 10,776 9,926 39,998
2 11,025 11,781 10,952 39,998 11,619 10,790 39,998
3 11,576 12,791 11,984 39,998 12,535 11,727 39,998
4 12,155 13,890 13,147 39,998 13,531 12,787 39,998
5 12,763 15,087 14,449 39,998 14,615 13,978 39,998
6 13,401 16,389 15,857 39,998 15,797 15,266 39,998
7 14,071 17,805 17,380 39,998 17,084 16,659 39,998
8 14,775 19,347 19,029 39,998 18,489 18,170 39,998
9 15,513 21,025 20,813 39,998 20,023 19,810 39,998
10 16,289 22,852 22,852 39,998 21,700 21,700 39,998
11 17,103 24,964 24,964 39,998 23,634 23,634 39,998
12 17,959 27,274 27,274 39,998 25,768 25,768 39,998
13 18,856 29,801 29,801 42,318 28,128 28,128 39,998
14 19,799 32,569 32,569 44,945 30,735 30,735 42,414
15 20,789 35,601 35,601 47,705 33,595 33,595 45,017
16 21,829 38,926 38,926 50,604 36,731 36,731 47,750
17 22,920 42,560 42,560 54,477 40,159 40,159 51,403
18 24,066 46,533 46,533 58,631 43,905 43,905 55,321
19 25,270 50,875 50,875 63,085 48,001 48,001 59,521
20 26,533 55,623 55,623 67,860 52,479 52,479 64,024
25 33,864 86,898 86,898 100,801 81,877 81,877 94,977
35 55,160 214,370 214,370 225,088 201,730 201,730 211,817
</TABLE>
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates.
(2) Values reflect investment results using guaranteed cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGE 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
SINGLE LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 45 MALE
INITIAL FACE AMOUNT: $39,998
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.25% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
----------------------------------------- -----------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,266 9,416 39,998 10,189 9,339 39,998
2 11,025 10,540 9,711 39,998 10,374 9,545 39,998
3 11,576 10,822 10,014 39,998 10,554 9,746 39,998
4 12,155 11,112 10,368 39,998 10,728 9,984 39,998
5 12,763 11,411 10,773 39,998 10,895 10,258 39,998
6 13,401 11,718 11,187 39,998 11,054 10,523 39,998
7 14,071 12,035 11,610 39,998 11,201 10,776 39,998
8 14,775 12,361 12,042 39,998 11,333 11,015 39,998
9 15,513 12,697 12,484 39,998 11,448 11,236 39,998
10 16,289 13,043 13,043 39,998 11,543 11,543 39,998
11 17,103 13,466 13,466 39,998 11,662 11,662 39,998
12 17,959 13,904 13,904 39,998 11,758 11,758 39,998
13 18,856 14,357 14,357 39,998 11,829 11,829 39,998
14 19,799 14,826 14,826 39,998 11,869 11,869 39,998
15 20,789 15,311 15,311 39,998 11,877 11,877 39,998
16 21,829 15,814 15,814 39,998 11,845 11,845 39,998
17 22,920 16,333 16,333 39,998 11,765 11,765 39,998
18 24,066 16,871 16,871 39,998 11,630 11,630 39,998
19 25,270 17,427 17,427 39,998 11,428 11,428 39,998
20 26,533 18,003 18,003 39,998 11,149 11,149 39,998
25 33,864 21,196 21,196 39,998 8,131 8,131 39,998
35 55,160 29,477 29,477 39,998 * * *
*When the account value is $0 or less, the Death Benefit is only payable if
subsequent premiums are paid to keep the policy in force.
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGE 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
</TABLE>
A-4
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
SINGLE LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 45 MALE
INITIAL FACE AMOUNT: $39,998
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.75% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
----------------------------------------- ------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,679 8,829 39,998 9,601 8,751 39,998
2 11,025 9,367 8,539 39,998 9,198 8,369 39,998
3 11,576 9,065 8,257 39,998 8,789 7,982 39,998
4 12,155 8,771 8,027 39,998 8,374 7,630 39,998
5 12,763 8,486 7,848 39,998 7,950 7,313 39,998
6 13,401 8,209 7,677 39,998 7,516 6,985 39,998
7 14,071 7,940 7,515 39,998 7,069 6,644 39,998
8 14,775 7,679 7,360 39,998 6,605 6,287 39,998
9 15,513 7,425 7,213 39,998 6,122 5,909 39,998
10 16,289 7,179 7,179 39,998 5,615 5,615 39,998
11 17,103 6,975 6,975 39,998 5,104 5,104 39,998
12 17,959 6,776 6,776 39,998 4,561 4,561 39,998
13 18,856 6,582 6,582 39,998 3,985 3,985 39,998
14 19,799 6,392 6,392 39,998 3,370 3,370 39,998
15 20,789 6,207 6,207 39,998 2,713 2,713 39,998
16 21,829 6,027 6,027 39,998 2,007 2,007 39,998
17 22,920 5,851 5,851 39,998 1,242 1,242 39,998
18 24,066 5,679 5,679 39,998 409 409 39,998
19 25,270 5,512 5,512 39,998 * * *
20 26,533 5,348 5,348 39,998 * * *
25 33,864 4,588 4,588 39,998 * * *
35 55,160 3,320 3,320 39,998 * * *
</TABLE>
* When the account value is $0 or less, the Death Benefit is only payable if
subsequent premiums are paid to keep the policy in orce.
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGE 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-5
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
SINGLE LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 55 FEMALE
INITIAL FACE AMOUNT: $33,138
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.25% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
----------------------------------------- ------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,853 10,003 33,138 10,748 9,898 33,138
2 11,025 11,781 10,952 33,138 11,563 10,734 33,138
3 11,576 12,791 11,984 33,138 12,452 11,645 33,138
4 12,155 13,890 13,147 33,138 13,425 12,681 33,138
5 12,763 15,087 14,449 33,138 14,490 13,852 33,138
6 13,401 16,389 15,857 33,138 15,655 15,124 33,138
7 14,071 17,805 17,380 33,138 16,931 16,506 33,138
8 14,775 19,347 19,029 33,138 18,328 18,009 33,138
9 15,513 21,025 20,813 33,138 19,859 19,646 33,138
10 16,289 22,852 22,852 33,138 21,540 21,540 33,138
11 17,103 24,965 24,965 33,138 23,486 23,486 33,138
12 17,959 27,301 27,301 33,138 25,647 25,647 33,138
13 18,856 29,894 29,894 35,275 28,054 28,054 33,138
14 19,799 32,737 32,737 38,302 30,720 30,720 35,942
15 20,789 35,851 35,851 41,588 33,640 33,640 39,023
16 21,829 39,262 39,262 45,151 36,838 36,838 42,364
17 22,920 43,006 43,006 48,597 40,350 40,350 45,595
18 24,066 47,119 47,119 52,303 44,207 44,207 49,070
19 25,270 51,642 51,642 56,290 48,448 48,448 52,808
20 26,533 56,621 56,621 60,585 53,118 53,118 56,836
25 33,864 89,759 89,759 94,247 84,193 84,193 88,403
35 55,160 220,628 220,628 231,660 204,805 204,805 215,045
</TABLE>
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGE 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-6
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
SINGLE LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 55 FEMALE
INITIAL FACE AMOUNT: $33,138
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.25% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
----------------------------------------- ------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,266 9,416 33,138 10,161 9,311 33,138
2 11,025 10,540 9,711 33,138 10,318 9,489 33,138
3 11,576 10,822 10,014 33,138 10,471 9,663 33,138
4 12,155 11,112 10,368 33,138 10,621 9,877 33,138
5 12,763 11,411 10,773 33,138 10,766 10,128 33,138
6 13,401 11,718 11,187 33,138 10,904 10,372 33,138
7 14,071 12,035 11,610 33,138 11,031 10,606 33,138
8 14,775 12,361 12,042 33,138 11,144 10,825 33,138
9 15,513 12,697 12,484 33,138 11,236 11,023 33,138
10 16,289 13,043 13,043 33,138 11,303 11,303 33,138
11 17,103 13,466 13,466 33,138 11,390 11,390 33,138
12 17,959 13,904 13,904 33,138 11,450 11,450 33,138
13 18,856 14,357 14,357 33,138 11,483 11,483 33,138
14 19,799 14,826 14,826 33,138 11,484 11,484 33,138
15 20,789 15,311 15,311 33,138 11,449 11,449 33,138
16 21,829 15,814 15,814 33,138 11,368 11,368 33,138
17 22,920 16,333 16,333 33,138 11,229 11,229 33,138
18 24,066 16,871 16,871 33,138 11,014 11,014 33,138
19 25,270 17,427 17,427 33,138 10,702 10,702 33,138
20 26,533 18,003 18,003 33,138 10,272 10,272 33,138
25 33,864 21,196 21,196 33,138 5,361 5,361 33,138
35 55,160 29,477 29,477 33,138 * * *
</TABLE>
* When the account value is $0 or less, the Death Benefit is only payable if
subsequent premiums are paid to keep the policy in force.
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGE 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-7
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
SINGLE LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 55 FEMALE
INITIAL FACE AMOUNT: $33,138
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.75% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
----------------------------------------- ----------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ---------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,679 8,829 33,138 9,573 8,723 33,138
2 11,025 9,367 8,539 33,138 9,142 8,314 33,138
3 11,576 9,065 8,257 33,138 8,707 7,900 33,138
4 12,155 8,771 8,027 33,138 8,267 7,523 33,138
5 12,763 8,486 7,848 33,138 7,821 7,184 33,138
6 13,401 8,209 7,677 33,138 7,366 6,835 33,138
7 14,071 7,940 7,515 33,138 6,898 6,473 33,138
8 14,775 7,679 7,360 33,138 6,410 6,092 33,138
9 15,513 7,425 7,213 33,138 5,898 5,686 33,138
10 16,289 7,179 7,179 33,138 5,356 5,356 33,138
11 17,103 6,975 6,975 33,138 4,801 4,801 33,138
12 17,959 6,776 6,776 33,138 4,207 4,207 33,138
13 18,856 6,582 6,582 33,138 3,574 3,574 33,138
14 19,799 6,392 6,392 33,138 2,897 2,897 33,138
15 20,789 6,207 6,207 33,138 2,170 2,170 33,138
16 21,829 6,027 6,027 33,138 1,381 1,381 33,138
17 22,920 5,851 5,851 33,138 513 513 33,138
18 24,066 5,679 5,679 33,138 * * *
19 25,270 5,512 5,512 33,138 * * *
20 26,533 5,348 5,348 33,138 * * *
25 33,864 4,588 4,588 33,138 * * *
35 55,160 3,320 3,320 33,138 * * *
* When the account value is $0 or less, the Death Benefit is only payable if
subsequent premiums are paid to keep the policy in force.
</TABLE>
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGE 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-8
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
SINGLE LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 65 MALE
INITIAL FACE AMOUNT: $19,314
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.25% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
----------------------------------------- -----------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,853 10,003 19,314 10,672 9,822 19,314
2 11,025 11,781 10,952 19,314 11,406 10,577 19,314
3 11,576 12,791 11,984 19,314 12,212 11,404 19,314
4 12,155 13,890 13,147 19,314 13,103 12,359 19,314
5 12,763 15,087 14,449 19,314 14,093 13,456 19,314
6 13,401 16,389 15,857 19,314 15,203 14,671 19,314
7 14,071 17,811 17,386 20,126 16,453 16,028 19,314
8 14,775 19,373 19,054 21,504 17,872 17,554 19,838
9 15,513 21,085 20,873 22,983 19,450 19,237 21,200
10 16,289 22,968 22,968 24,575 21,184 21,184 22,667
11 17,103 25,144 25,144 26,402 23,190 23,190 24,349
12 17,959 27,522 27,522 28,898 25,380 25,380 26,649
13 18,856 30,116 30,116 31,622 27,770 27,770 29,158
14 19,799 32,947 32,947 34,594 30,378 30,378 31,896
15 20,789 36,033 36,033 37,834 33,221 33,221 34,882
16 21,829 39,394 39,394 41,364 36,318 36,318 38,134
17 22,920 43,057 43,057 45,210 39,688 39,688 41,672
18 24,066 47,064 47,064 49,417 43,352 43,352 45,519
19 25,270 51,446 51,446 54,018 47,329 47,329 49,695
20 26,533 56,239 56,239 59,051 51,642 51,642 54,224
25 33,864 87,846 87,846 92,238 79,129 79,129 83,086
35 55,160 215,996 215,996 218,156 190,841 190,841 192,749
</TABLE>
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGE 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-9
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
SINGLE LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 65 MALE
INITIAL FACE AMOUNT: $19,314
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.25% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
----------------------------------------- ------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,266 9,416 19,314 10,082 9,232 19,314
2 11,025 10,540 9,711 19,314 10,145 9,316 19,314
3 11,576 10,822 10,014 19,314 10,187 9,379 19,314
4 12,155 11,112 10,368 19,314 10,205 9,461 19,314
5 12,763 11,411 10,773 19,314 10,194 9,557 19,314
6 13,401 11,718 11,187 19,314 10,149 9,618 19,314
7 14,071 12,035 11,610 19,314 10,062 9,637 19,314
8 14,775 12,361 12,042 19,314 9,922 9,604 19,314
9 15,513 12,697 12,484 19,314 9,718 9,506 19,314
10 16,289 13,043 13,043 19,314 9,436 9,436 19,314
11 17,103 13,466 13,466 19,314 9,100 9,100 19,314
12 17,959 13,904 13,904 19,314 8,655 8,655 19,314
13 18,856 14,357 14,357 19,314 8,079 8,079 19,314
14 19,799 14,826 14,826 19,314 7,346 7,346 19,314
15 20,789 15,311 15,311 19,314 6,416 6,416 19,314
16 21,829 15,814 15,814 19,314 5,235 5,235 19,314
17 22,920 16,333 16,333 19,314 3,729 3,729 19,314
18 24,066 16,871 16,871 19,314 1,795 1,795 19,314
19 25,270 17,427 17,427 19,314 * * *
20 26,533 18,003 18,003 19,314 * * *
25 33,864 21,196 21,196 22,256 * * *
35 55,160 29,647 29,647 29,944 * * *
</TABLE>
*When the account value is $0 or less, the Death Benefit is only payable if
subsequent premiums are paid to keep the policy in force.
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGE 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-10
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
SINGLE LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 65 MALE
INITIAL FACE AMOUNT: $19,314
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.75% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
----------------------------------------- -------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,679 8,829 19,314 9,492 8,642 19,314
2 11,025 9,367 8,539 19,314 8,956 8,127 19,314
3 11,576 9,065 8,257 19,314 8,389 7,581 19,314
4 12,155 8,771 8,027 19,314 7,785 7,041 19,314
5 12,763 8,486 7,848 19,314 7,136 6,499 19,314
6 13,401 8,209 7,677 19,314 6,433 5,902 19,314
7 14,071 7,940 7,515 19,314 5,663 5,238 19,314
8 14,775 7,679 7,360 19,314 4,810 4,491 19,314
9 15,513 7,425 7,213 19,314 3,854 3,642 19,314
10 16,289 7,179 7,179 19,314 2,774 2,774 19,314
11 17,103 6,975 6,975 19,314 1,555 1,555 19,314
12 17,959 6,776 6,776 19,314 154 154 19,314
13 18,856 6,582 6,582 19,314 * * *
14 19,799 6,392 6,392 19,314 * * *
15 20,789 6,207 6,207 19,314 * * *
16 21,829 6,027 6,027 19,314 * * *
17 22,920 5,851 5,851 19,314 * * *
18 24,066 5,679 5,679 19,314 * * *
19 25,270 5,512 5,512 19,314 * * *
20 26,533 5,348 5,348 19,314 * * *
25 33,864 4,588 4,588 19,314 * * *
35 55,160 3,320 3,320 19,314 * * *
</TABLE>
* When the account value is $0 or less, the Death Benefit is only payable if
subsequent premiums are paid to keep the policy in force.
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGE 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-11
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
JOINT LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 55 MALE / 55 FEMALE
INITIAL FACE AMOUNT: $43,779
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.25% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
------------------------------------------- -------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ----------- ------------ ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,921 10,071 43,779 10,921 10,071 43,779
2 11,025 11,924 11,095 43,779 11,924 11,095 43,779
3 11,576 13,015 12,208 43,779 13,015 12,208 43,779
4 12,155 14,203 13,460 43,779 14,203 13,460 43,779
5 12,763 15,497 14,859 43,779 15,497 14,859 43,779
6 13,401 16,904 16,373 43,779 16,904 16,373 43,779
7 14,071 18,437 18,012 43,779 18,437 18,012 43,779
8 14,775 20,105 19,786 43,779 20,105 19,786 43,779
9 15,513 21,921 21,708 43,779 21,921 21,708 43,779
10 16,289 23,899 23,899 43,779 23,899 23,899 43,779
11 17,103 26,161 26,161 43,779 26,161 26,161 43,779
12 17,959 28,641 28,641 43,779 28,641 28,641 43,779
13 18,856 31,367 31,367 43,779 31,367 31,367 43,779
14 19,799 34,370 34,370 43,779 34,370 34,370 43,779
15 20,789 37,687 37,687 43,779 37,687 37,687 43,779
16 21,829 41,344 41,344 47,546 41,344 41,344 47,546
17 22,920 45,357 45,357 51,254 45,357 45,357 51,254
18 24,066 49,761 49,761 55,235 49,761 49,761 55,235
19 25,270 54,598 54,598 59,512 54,598 54,598 59,512
20 26,533 59,916 59,916 64,110 59,916 59,916 64,110
25 33,864 95,267 95,267 100,030 95,267 95,267 100,030
35 55,160 234,662 234,662 246,395 232,391 232,391 244,011
</TABLE>
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGES 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-12
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
JOINT LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 55 MALE / 55 FEMALE
INITIAL FACE AMOUNT: $43,779
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.25% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
------------------------------------------- -----------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ----------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,330 9,480 43,779 10,330 9,480 43,779
2 11,025 10,667 9,838 43,779 10,667 9,838 43,779
3 11,576 11,008 10,200 43,779 11,008 10,200 43,779
4 12,155 11,353 10,609 43,779 11,353 10,609 43,779
5 12,763 11,701 11,063 43,779 11,701 11,063 43,779
6 13,401 12,051 11,519 43,779 12,051 11,519 43,779
7 14,071 12,400 11,975 43,779 12,400 11,975 43,779
8 14,775 12,745 12,426 43,779 12,745 12,426 43,779
9 15,513 13,092 12,880 43,779 13,084 12,872 43,779
10 16,289 13,450 13,450 43,779 13,412 13,412 43,779
11 17,103 13,887 13,887 43,779 13,781 13,781 43,779
12 17,959 14,340 14,340 43,779 14,134 14,134 43,779
13 18,856 14,808 14,808 43,779 14,467 14,467 43,779
14 19,799 15,293 15,293 43,779 14,775 14,775 43,779
15 20,789 15,794 15,794 43,779 15,052 15,052 43,779
16 21,829 16,313 16,313 43,779 15,288 15,288 43,779
17 22,920 16,850 16,850 43,779 15,472 15,472 43,779
18 24,066 17,406 17,406 43,779 15,586 15,586 43,779
19 25,270 17,981 17,981 43,779 15,611 15,611 43,779
20 26,533 18,576 18,576 43,779 15,526 15,526 43,779
25 33,864 21,876 21,876 43,779 12,386 12,386 43,779
35 55,160 30,433 30,433 43,779 * * *
</TABLE>
* When the account value is $0 or less, the Death Benefit is only payable if
subsequent premiums are paid to keep the policy in force.
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGES 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-13
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
JOINT LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 55 MALE / 55 FEMALE
INITIAL FACE AMOUNT: $43,779
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.75% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
------------------------------------------- -----------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ----------- ------------ ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,740 8,890 43,779 9,740 8,890 43,779
2 11,025 9,479 8,650 43,779 9,479 8,650 43,779
3 11,576 9,217 8,409 43,779 9,217 8,409 43,779
4 12,155 8,952 8,208 43,779 8,952 8,208 43,779
5 12,763 8,682 8,045 43,779 8,682 8,045 43,779
6 13,401 8,406 7,875 43,779 8,406 7,875 43,779
7 14,071 8,132 7,707 43,779 8,121 7,696 43,779
8 14,775 7,865 7,546 43,779 7,823 7,505 43,779
9 15,513 7,606 7,393 43,779 7,509 7,296 43,779
10 16,289 7,355 7,355 43,779 7,173 7,173 43,779
11 17,103 7,146 7,146 43,779 6,837 6,837 43,779
12 17,959 6,943 6,943 43,779 6,468 6,468 43,779
13 18,856 6,745 6,745 43,779 6,059 6,059 43,779
14 19,799 6,552 6,552 43,779 5,604 5,604 43,779
15 20,789 6,363 6,363 43,779 5,093 5,093 43,779
16 21,829 6,179 6,179 43,779 4,515 4,515 43,779
17 22,920 5,999 5,999 43,779 3,854 3,854 43,779
18 24,066 5,823 5,823 43,779 3,086 3,086 43,779
19 25,270 5,652 5,652 43,779 2,185 2,185 43,779
20 26,533 5,485 5,485 43,779 1,120 1,120 43,779
25 33,864 4,709 4,709 43,779 * * *
35 55,160 3,416 3,416 43,779 * * *
</TABLE>
*When the account value is $0 or less, the Death Benefit is only payable if
subsequent premiums are paid to keep the policy in force.
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGES 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-14
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
JOINT LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 65 MALE / 65 FEMALE
INITIAL FACE AMOUNT: $27,688
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 12% (11.25% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
-------------------------------------------- -------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ----------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,916 10,066 27,688 10,916 10,066 27,688
2 11,025 11,905 11,076 27,688 11,905 11,076 27,688
3 11,576 12,971 12,163 27,688 12,971 12,163 27,688
4 12,155 14,122 13,378 27,688 14,122 13,378 27,688
5 12,763 15,367 14,730 27,688 15,367 14,730 27,688
6 13,401 16,715 16,184 27,688 16,715 16,184 27,688
7 14,071 18,179 17,754 27,688 18,179 17,754 27,688
8 14,775 19,773 19,454 27,688 19,773 19,454 27,688
9 15,513 21,515 21,303 27,688 21,515 21,303 27,688
10 16,289 23,431 23,431 27,688 23,431 23,431 27,688
11 17,103 25,658 25,658 27,688 25,658 25,658 27,688
12 17,959 28,143 28,143 29,551 28,143 28,143 29,551
13 18,856 30,868 30,868 32,412 30,868 30,868 32,412
14 19,799 33,849 33,849 35,542 33,849 33,849 35,542
15 20,789 37,108 37,108 38,963 37,108 37,108 38,963
16 21,829 40,666 40,666 42,700 40,666 40,666 42,700
17 22,920 44,548 44,548 46,776 44,548 44,548 46,776
18 24,066 48,778 48,778 51,217 48,778 48,778 51,217
19 25,270 53,380 53,380 56,049 53,380 53,380 56,049
20 26,533 58,380 58,380 61,299 58,380 58,380 61,299
25 33,864 91,198 91,198 95,758 90,356 90,356 94,874
35 55,160 224,384 224,384 226,628 218,847 218,847 221,035
</TABLE>
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGES 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-15
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
JOINT LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 65 MALE / 65 FEMALE
INITIAL FACE AMOUNT: $27,688
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 6% (5.25% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
------------------------------------------- ------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ------------ ------------- ----------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,326 9,476 27,688 10,326 9,476 27,688
2 11,025 10,647 9,819 27,688 10,647 9,819 27,688
3 11,576 10,962 10,154 27,688 10,962 10,154 27,688
4 12,155 11,266 10,522 27,688 11,266 10,522 27,688
5 12,763 11,570 10,932 27,688 11,558 10,920 27,688
6 13,401 11,882 11,351 27,688 11,832 11,300 27,688
7 14,071 12,204 11,779 27,688 12,082 11,657 27,688
8 14,775 12,535 12,216 27,688 12,302 11,984 27,688
9 15,513 12,876 12,663 27,688 12,483 12,270 27,688
10 16,289 13,227 13,227 27,688 12,612 12,612 27,688
11 17,103 13,656 13,656 27,688 12,732 12,732 27,688
12 17,959 14,101 14,101 27,688 12,780 12,780 27,688
13 18,856 14,561 14,561 27,688 12,743 12,743 27,688
14 19,799 15,037 15,037 27,688 12,605 12,605 27,688
15 20,789 15,530 15,530 27,688 12,342 12,342 27,688
16 21,829 16,039 16,039 27,688 11,923 11,923 27,688
17 22,920 16,567 16,567 27,688 11,308 11,308 27,688
18 24,066 17,113 17,113 27,688 10,438 10,438 27,688
19 25,270 17,677 17,677 27,688 9,236 9,236 27,688
20 26,533 18,262 18,262 27,688 7,602 7,602 27,688
25 33,864 21,503 21,503 27,688 * * *
35 55,160 29,911 29,911 30,210 * * *
</TABLE>
* When the account value is $0 or less, the Death Benefit is only payable if
subsequent premiums are paid to keep the policy in force.
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGES 6% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-16
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
JOINT LIFE OPTION
$10,000 INITIAL PREMIUM
ISSUE AGE 65 MALE / 65 FEMALE
INITIAL FACE AMOUNT: $27,688
ASSUMING HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF 0% (-0.75% NET)
<TABLE>
<CAPTION>
CURRENT CHARGES(1) GUARANTEED CHARGES(2)
------------------------------------------- -------------------------------------------
Premiums
End of Accumulated Cash Cash
Contract at 5% Interest Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ----------- ------------ ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,735 8,885 27,688 9,735 8,885 27,688
2 11,025 9,460 8,631 27,688 9,460 8,631 27,688
3 11,576 9,170 8,362 27,688 9,170 8,362 27,688
4 12,155 8,873 8,129 27,688 8,862 8,118 27,688
5 12,763 8,585 7,947 27,688 8,531 7,894 27,688
6 13,401 8,305 7,774 27,688 8,172 7,640 27,688
7 14,071 8,033 7,608 27,688 7,775 7,350 27,688
8 14,775 7,769 7,451 27,688 7,331 7,012 27,688
9 15,513 7,513 7,301 27,688 6,826 6,613 27,688
10 16,289 7,265 7,265 27,688 6,244 6,244 27,688
11 17,103 7,059 7,059 27,688 5,590 5,590 27,688
12 17,959 6,858 6,858 27,688 4,819 4,819 27,688
13 18,856 6,661 6,661 27,688 3,906 3,906 27,688
14 19,799 6,470 6,470 27,688 2,824 2,824 27,688
15 20,789 6,283 6,283 27,688 1,535 1,535 27,688
16 21,829 6,101 6,101 27,688 * * *
17 22,920 5,923 5,923 27,688 * * *
18 24,066 5,750 5,750 27,688 * * *
19 25,270 5,580 5,580 27,688 * * *
20 26,533 5,415 5,415 27,688 * * *
25 33,864 4,647 4,647 27,688 * * *
35 55,160 3,367 3,367 27,688 * * *
</TABLE>
* When the account value is $0 or less, the Death Benefit is only payable if
subsequent premiums are paid to keep the policy in force.
(1) Values reflect investment results using current cost of insurance rates,
administrative fees, and Mortality and Expense Risk Rates. (2) Values reflect
investment results using guaranteed cost of insurance rates, administrative
fees, and Mortality and Expense Risk Rates.
THE HYPOTHETICAL INVESTMENT RESULTS SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL RESULTS MAY BE MORE OR LESS THAN THOSE
SHOWN. THE DEATH BENEFIT, ACCOUNT VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT
WILL BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RETURN APPLICABLE TO
THE CONTRACT AVERAGES 0% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR
BELOW THAT AVERAGE FOR INDIVIDUAL CONTRACT YEARS. THE DEATH BENEFIT, ACCOUNT
VALUE, AND CASH SURRENDER VALUE FOR A CONTRACT WILL ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SEPARATE ACCOUNT AND
THE RATES OF RETURN OF THE SEPARATE ACCOUNT. NO REPRESENTATION CAN BE MADE THAT
THIS HYPOTHETICAL RATE OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
A-17
<PAGE>
PART II - OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATIONS AS TO FEES AND CHARGES
Northbrook Life Insurance Company represents that the fees and charge deducted
under the Modified Single Premium Variable Life Insurance Contract hereby
registered by this Registration Statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by Northbrook Life Insurance Company.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the
Investment Company Act of 1940 ("Investment Company Act").
RULE 484 UNDERTAKING
The By-Laws of Northbrook Life Insurance Company ("Depositor") which
are incorporated herein by reference as Exhibit 1 (A)(6)(b), provide that it
will indemnify its officers and directors for certain damages and expenses that
may be incurred in the performance of their duty to Depositor. No
indemnification is provided, however, when such person is adjudged to be liable
for negligence or misconduct in the performance of his or her duty, unless
indemnification is deemed appropriate by the court upon application. Insofar as
indemnification for liability arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by 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.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The Facing Sheet.
The Cross Reference Sheet pursuant to Rule 481.
The Prospectus consisting of ___ pages.
The Undertaking to File Reports.
Representations as to fees and charges.
Rule 484 Undertaking.
Representations Pursuant to Rule 6e-3(T).
The Signatures.
Written Consents of the following persons:
(a) Messrs. Sutherland, Asbill & Brennan LLP
(b) Deloitte & Touche LLP
<TABLE>
The following exhibits:
<S> <C> <C> <C> <C>
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-8B-2:
(1) Resolution of the Board of Directors of Northbrook Life Insurance
Company authorizing establishment of the Variable Life Separate
Account A.*
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement.***
(b) Selling Agreement.***
(c) See Exhibit 1(A)(3)(b).
(4) Not Applicable.
(5) Specimen Contract.*
(6) (a) Certificate of Incorporation of Northbrook Life Insurance
Company.***
(b) By-laws of Northbrook Life Insurance Company.***
(7) Not Applicable.
(8) Participation Agreement.*****
(9) Not Applicable.
(10) Form of Application for Contract.**
2. Opinion of Counsel**
3. Financial Statements omitted from the prospectus pursuant to instruction 1(b) or 1(c)
(1) Not Applicable
(2) Financial Statements pursuant to 1(c).**
4. Not Applicable
5. Financial Data Schedule ****
6. Powers of Attorney*
7. Consents
(1) Messrs. Sutherland, Asbill & Brennan LLP** (EDGAR Exhibit Ex-99.C6)
(2) Deloitte & Touche LLP** (EDGAR Exhibit Ex-99.C1)
8. Representations Pursuant to Rule 6e-3(T).*
9. Procedures Memorandum pursuant to Rule 6e-3(T)(b)(12)(3)(iii)**
10. Actuarial Opinion and Consent*
* Previously filed in Form S-6 Registration Statement No. 333-2057 dated
April 11, 1997 and incorporated by reference.
** Filed herewith.
*** Previously filed in Form N-4 Registration Statement No.33-35412 dated
December 31, 1996, and incorporated by reference.
**** Previously filed in Depositor's Form 10-K on March 31, 1997 and
incorporated by reference.
***** Previously filed in Form N-4 Registration Statement No. 2-82511
dated May 1, 1996 and incorporated by reference.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Northbrook Life Variable Life Separate Account A, 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 13th day of August,
1997.
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
(Registrant)
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, this
Registration Statement has been signed below by the following Directors and
Officers of Northbrook Life Insurance Company on the 13th day of August, 1997.
*/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 Director
- ----------------------
John R. Hunter
*/KEVIN R. SLAWIN Vice President and Director
- ----------------------
Kevin R. Slawin (Principal Financial Officer)
*/CASEY J. SYLLA Chief Investment Officer and Director
- ---------------------
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 A. Hauschildt Assistant Vice President and Controller
- ----------------------
Keith A. Hauschildt (Principal Accounting Officer)
*/ By Michael J. Velotta, pursuant to Power of Attorney previously filed.
Northbrook Life Insurance Company
P. O. Box 94042, Palatine, IL 60094
o New Application
o Policy Change Application
Contract Number ___________________________________
PART 1 - APPLICATION
1. GENERAL INFORMATION
Proposed Insured (First, Middle, Last) _______________________________________
If name has been changed in last 2 years, indicate name before change. Address
(Street, City, State, Zip) ___________________________________________ Home
Phone Number______________________________ Age _______ Birthdate
________________ State/Country of Birth ________________ Soc. Sec.
No._______________________ Occupation ______________________________ o Male o
Female Employer Name _______________________________ Date of Employment
_____________ Business Phone Number ________________________ Proposed Co-Insured
(First, Middle, Last) ____________________________________
If name has been changed in last 2 years, indicate name before change.
Address (Street, City, State, Zip) ___________________________________________
Home Phone Number ______________________________
Age _______ Birthdate ________________ State/Country of Birth ________________
Soc. Sec. No. _______________________ Occupation _____________________________
o Male o Female
Employer Name _______________________________ Date of Employment ______________
Business Phone Number ________________________
Owner (if other than Proposed Insured) (First, Middle, Last)__________________
Soc. Sec. No. _______________________ Birthdate ______________________________
Address (Street, City, State, Zip) _________________________________________
Home Phone Number___________________ Relationship to Insured _______________
<TABLE>
<S> <C> <C> <C> <C>
Beneficiary(ies) Primary Contingent Relationship to Insured % of Death Benefit
______________ o o __________________ _______________
______________ o o __________________ _______________
______________ o o __________________ _______________
______________ o o __________________ _______________
</TABLE>
2. Will this contract replace or change any pending or existing life insurance
policy or annuity policy? o Yes o No
If yes, please list company name ______________________ Policy Number __________
C-1
<PAGE>
3. MODIFIED SINGLE PREMIUM VARIABLE LIFE
Purchase Payment _____________________ Initial Death Benefit __________________
Investment Alternative Allocation - $ or % (circle one) _____ Money Market ____
Dividend Growth _____ Capital Appreciation _____ Quality Income Plus _____
Capital Growth _____ Equity _____ High Yield _____ Global Div. Growth _____
Strategist _____ Utilities _____ European Growth _____ Income Builder _____
Pacific Growth
MEDICAL HISTORY
(Questions below refer to anyone proposed for this insurance.)
4. Has anyone proposed for this insurance used any tobacco or nicotine
products in the past 24 months? o Yes o No
5. Has anyone proposed for this insurance been:
a. Hospitalized or surgically treated within the last 2 years for heart
attack, chest pain or disorder of the heart? o Yes o No b. Treated within
the last 5 years or told they have cancer (other than skin cancer,
excluding melanoma)? o Yes o No c. Diagnosed or treated by a member of the
medical profession for: stroke or other cerebrovascular disorder, diabetes
treated with insulin, kidney disorder (not to include bladder or prostate),
Alzheimer's disease or other disorder of the brain or nervous system, liver
disorder, organ transplant, Acquired Immune Deficiency Syndrome (AIDS) or
AIDS Related Complex (ARC) or sought or received treatment or advice for
alcohol or drug use? o Yes o No
6. Has anyone proposed for this insurance been:
a. Diagnosed with or treated within the last 10 years for: heart disorder
or irregular heart beat, blood pressure treated with medication, vascular
or circulatory disorder, fainting spells, emphysema or other chronic lung
or respiratory disorder, cancer (other than skin cancer, excluding
melanoma), diabetes, Crohn's disease, regional enteritis, ulcerative
colitis? o Yes o No
b. Unable to work or perform regular activities for more than 7
consecutive days within the past 6 months because of sickness or
injury? o Yes o No
7. Within the last 5 years, has anyone proposed for this insurance had surgery
or been advised to have any diagnostic test, hospitalization, or surgery
which was not completed? o Yes o No
8. Provide full details here for Questions 5, 6 and 7 answered "Yes":
C-2
<PAGE>
I HAVE READ THIS APPLICATION, AND I DECLARE THAT ALL ANSWERS WRITTEN ON THIS
APPLICATION ARE FULL AND CORRECT TO THE BEST OF MY KNOWLEDGE AND BELIEF.
I ALSO UNDERSTAND THAT:
a. Any person who, with intent to defraud or knowing that he/she is facilitating
a fraud against an insurer, submits an application or files a claim containing a
false or deceptive statement is guilty of insurance fraud.
b. This Application shall be a part of any insurance contract issued by
Northbrook.
c. Northbrook has the right to require a medical exam, test, or other
information on the person proposed for this insurance.
d. Any changes are agreed to if the contract issued is accepted, but written
agreement will be obtained from me for any changes, in insurance amount, rating
class or age at issue.
e. Insurance will start only as provided in the Receipt and Temporary Insurance
Agreement issued in connection with this Application. If no receipt is issued,
or if insurance under it has stopped and not started again, no insurance will
start by reason of this Application until the contract is delivered and the
payment is accepted by Northbrook. In this case insurance will start on the date
shown in the contract, except that no insurance will start on the start date of
the contract if the health of the person proposed for this insurance is not as
described in this Application.
f. Only an officer of Northbrook may change this Application or waive a right
or requirement. No agent may do this.
g. By signing this Application, the named Owner certifies under penalties of
perjury that: 1) the Social Security Number shown on Question 1 of this
Application is correct, and 2) that I am not subject to backup withholding
either because I have not been notified that I am subject to backup withholding
as a result of a failure to report all interest or dividends, or the Internal
Revenue Service has notified me that I am no longer subject to backup
withholding. (If you are subject to backup withholding, cross out item 2 above.)
h. I understand the Death Benefit, Cash Surrender Value and Account Value may
increase or decrease in accordance with the investment experience of the
Separate Account. I have received the current prospectus for this variable life
product. I believe that this variable product is consistent with my insurance
needs and financial objectives.
PLEASE REVIEW ALL INFORMATION BEFORE SIGNING.
Date ___________ Signature of Proposed Insured _______________________________
Signature of Owner if Other Than Insured _____________________________________
Signature of Proposed Co-Insured _____________________________________________
Agent Information and Signature ______________________________________________
BY SIGNING THIS APPLICATION, AS THE WRITING AGENT I CERTIFY THAT TO THE BEST
OF MY KNOWLEDGE, REPLACEMENT OF EXISTING LIFE INSURANCE OR ANNUITY
o IS o IS NOT INVOLVED IN THIS SALE.
Agent's Name (Please Print) ________________ Agent's Signature ______________
Agent's Phone Number ____________________ Agent/Branch No. __________________
City/State ________________________________ Date ____________________________
C-3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTICE REGARDING THE MEDICAL INFORMATION BUREAU (MIB), INC.
Information regarding your insurability will be treated as confidential.
Northbrook or its reinsurer(s) may, however, make a brief report thereon to the
Medical Information Bureau, Inc. (MIB, Inc.), a non-profit membership
organization of life insurance companies, which operates an information exchange
on behalf of its members. If you apply to another Bureau member company for life
or health insurance coverage, or a claim for benefits is submitted to such a
company, the Bureau, upon request, will supply such company with the information
in its file. Upon receipt of a request from you, the Bureau will arrange
disclosure of any information it may have in your file. If you question the
accuracy of information in the Bureau's file, you may contact the Bureau and
seek a correction in accordance with the procedures set forth in the federal
Fair Credit Reporting Act. The address of the Bureau's information office is
Post Office Box 105, Essex Station, Boston, Massachusetts 02112, telephone
number (617) 426-3660.
Northbrook or its reinsurer(s) may also release information in its file to other
life insurance companies to whom you may apply for life or health insurance.
NOTICE UNDER THE FAIR CREDIT REPORTING ACT
In compliance with the Fair Credit Reporting Act, you are hereby notified that
an Investigative Consumer Report may be made through personal interviews with
neighbors, friends, associates, or other persons concerning the character,
general reputation, personal characteristics, and mode of living (except as may
be related directly or indirectly to sexual orientation) of the person proposed
for this insurance. You may obtain additional information concerning the nature
and scope of this investigation by writing to Northbrook Life Insurance Company,
P.O. Box 94042, Palatine, Illinois, 60094. In addition, upon your written
request you will be informed whether or not an Investigative Consumer Report was
requested in connection with your application. If one was requested, you will
receive the name and address of the consumer reporting agency to whom the
request was made. You may inspect and review a copy of the Investigative
Consumer Report by contacting the consumer reporting agency.
PERMIT TO OBTAIN AND DISCLOSE CERTAIN DATA
A. Northbrook, its reinsurers, and consumer reporting agencies may get data
about my health, occupations, mode of living (except as may be related directly
or indirectly to sexual orientation), and avocations. I understand that the
information obtained by use of this authorization will be used to determine
eligibility for insurance and/or benefits.
B. Any doctor, practitioner, medical or medically related facility, the Veterans
Administration, the Medical Information Bureau, Inc. (MIB, Inc.), employer,
consumer reporting agency, or insurance company which has such data about me may
give such data to Northbrook when this permit or a copy of it is shown. All
sources but the MIB, Inc., may give such data to agencies Northbrook has hired
to retrieve the information for them. C. Data about mental illness, alcoholism,
sexually transmitted disease, and the use of drugs is to be included.
C-4
<PAGE>
D. Northbrook or its reinsurers may make a brief report about me to other
companies to which I have applied or may apply.
E. This permit is good for 30 months after it is signed.
F. Northbrook may obtain an investigative consumer report on me. n I want
to be interviewed if such report is obtained.
G. I have read this permit and have a copy. I also have the NOTICE REGARDING
MIB, INC., and the NOTICE UNDER THE FAIR CREDIT REPORTING ACT.
Date __________ Signature of Proposed Insured ________________________________
Agent's Signature ______________ Signature of Proposed Co-Insured _____________
Signature of Owner if Other Than Insured ______________________________________
RECEIPT AND TEMPORARY INSURANCE AGREEMENT
(Referred to as "Agreement")
All checks must be made payable to Northbrook Life Insurance Company. Do not
make checks payable to the agent or leave the payee blank.
$ _____________ has been received from ___________________________ as payment
for life insurance on the proposed insured as applied for on this date, except
as limited in the Amount of Insurance section below.
NO INSURANCE WILL TAKE EFFECT EXCEPT AS DESCRIBED BELOW
When Temporary Insurance Starts
- -------------------------------
If payment has been accepted by us and if Part 1 of the Application has been
completed on or before the date of this Agreement, temporary insurance under
this Agreement will start on the date of this Agreement except: if the applicant
is told that a medical exam is required, then the temporary insurance will start
when the medical exam is completed.
C-5
<PAGE>
When Temporary Insurance Will Stop
- ----------------------------------
Temporary insurance under this Agreement will stop on the first of the dates
below:
1. The date we write to the Owner indicating that we have stopped considering
the Application. We have the absolute right to stop.
2. The date we write to the Owner indicating that a medical exam is required, in
which event insurance will stop. Insurance under this Agreement will start again
when the required medical exam is done. We have the absolute right to require
such medical exam.
3. The date we agree to issue the coverage applied for in the Application. The
insurance will then be provided by the contract as of its start date and not by
this Agreement.
4. The date we offer to issue insurance other than as applied for in
the Application.
5. Sixty days from the date of this Agreement, except that in Connecticut
written notice of termination will first be sent. We will refund all payments
for which this Agreement was given if we stop considering the Application.
Amount of Insurance
If temporary insurance under this Agreement is in effect, it will have the same
benefits, provisions, and limitations and be for the same amount as the contract
applied for. However, we will provide no more than a combined total of $500,000
of temporary life insurance under this Agreement and all other Agreements issued
for pending Applications for the person to whom this receipt was issued.
Conditions Under Which There Is No Coverage
1. If in the answers in the Application, there is fraud or misrepresentation
material to the underwriter's acceptance of the risk, then no insurance starts
under this Agreement. We will pay only a refund of all payments made.
2. If the person proposed for this insurance dies by suicide while sane or
self-destruction while insane, we will pay only a refund of all payments made.
We may offer to issue insurance other than as applied for in the Application on
the person proposed for this insurance.
3. No insurance starts under this Agreement if no payment is received or if a
check or draft given as payment is not honored by the bank. No one may waive or
change any of the terms of this Agreement.
Date __________ Agent's Signature __________________________________________
NLR501
C-6
NORTHROOK LIFE INSURANCE COMPANY
LAW AND REGULATION DEPARTMENT
3100 Sanders Road, J5B
Northbrook, Illinois 60062
Direct Dial Number 847.402.2400
Facsimile 847.402.4371
Michael J. Velotta
Vice President, Secretary
and General Counsel
August 13, 1997
TO: Northbrook Life Insurance Company
Northbrook, Illinois 60062
FROM: Michael J. Velotta
Vice President, Secretary and General Counsel
RE: Form S-6 Registration Statement
Under the Securities Act of 1933
File No. 333-25057
With reference to the Registration Statement on Form S-6 filed by
Northbrook Life Insurance Company with the Securities and Exchange Commission
covering the Modified Single Premium Variable Life Insurance Contracts
("Contracts"), I have examined such documents and such law as I have considered
necessary and appropriate, and on the basis of such examination, it is my
opinion that:
1. Northbrook Life Insurance Company is duly organized and existing under
the laws of the State of Illinois and has been duly authorized to do
business and to issue Contracts by the Director of Insurance of the
State of Illinois.
2. The Separate Account is a separate account of the Company validly
existing pursuant to Illinois law and the regulations issued
thereunder.
3. The assets held in the Separate Account are not chargeable with
liabilities arising out of any other business the Company may conduct.
4. The Contracts covered by the above Registration Statement have been or
will be approved and authorized by the director of Insurance of the
State of Delaware and when issued will be valid, legal and binding
obligations of Northbrook Life Insurance Company.
I hereby consent to the filing of this opinion as an exhibit to the
above referenced Registration Statement and to the use of my name under the
caption "Legal Matters" in the Prospectus constituting a part of the
Registration Statement.
Sincerely,
/s/Michael J. Velotta
--------------------------------
Michael J. Velotta
Vice President, Secretary
and General Counsel
August 13, 1997
Northbrook Life Insurance Company
3100 Sanders Road
Northbrook, Illinois 60062
Ladies and Gentlemen:
We hereby consent to the reference to our name under the
caption "Legal Matters" in the prospectus filed as part of Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-6 (File No.333-25057)
filed by Northbrook Life Variable Life Separate Account A for certain variable
life insurance contracts. In giving this consent, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
/s/STEPHEN E. ROTH
By: -------------------
Stephen E. Roth
Independent Auditors' Consent
We consent to the use in this Pre-effective Amendment No. 1 to Registration
Statement No. 333-25057 of Northbrook Life Variable Life Separate Account A of
Northbrook Life Insurance Company of our report dated February 21, 1997
appearing in the Prospectus, which is a part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
- --------------------------
Deloitte & Touche LLP
Chicago, Illinois
August 18, 1997
August 1997
DESCRIPTION OF ISSUANCE,
TRANSFER, AND REDEMPTION PROCEDURES FOR CONTRACTS
PURSUANT TO RULE 6e-3(T)(b)(12)(iii)
FOR MODIFIED SINGLE PREMIUM
VARIABLE LIFE INSURANCE CONTRACTS
ISSUED BY
NORTHBROOK LIFE INSURANCE COMPANY
<TABLE>
This document sets forth the current administrative procedures that will be
followed by Northrook Life Insurance Company (the "Company") in connection with
its issuance of individual and group modified single premium variable life
insurance contracts (the "Contracts"), the transfer of assets held thereunder,
and the redemption by Contract owners ("Owners") of their interests in those
Contracts. Capitalized terms used herein have the same meaning as in the
prospectus for the Contract that is included in the current registration
statement on Form S-6 for the Contract as filed with the Securities and Exchange
Commission ("Commission").
<S> <C> <C>
I. Procedures Relating to Purchase and Issuance of the Contracts and
Acceptance of Premiums
A. Offer of the Contracts, Applications, Initial Premiums,
Underwriting Requirements, and Issuance of the Contracts
1. Offer of the Contracts. The Contracts will be offered and
sold for premiums pursuant to established premium schedules
and underwriting standards in accordance with state insurance
laws. Initial premium payments for the Contracts and related
insurance charges will not be the same for all Owners whose
Contracts have the same Specified Amount. Insurance is based
on the principle of pooling and distribution of mortality
risks, which assumes that each Owner pays a premium and
related insurance charges commensurate with the Insured's
mortality risk as actuarially determined utilizing factors
such as age, sex, health and occupation. A uniform premium and
insurance charge for all Insureds would discriminate unfairly
in favor of those Insureds representing greater risk. Although
there will be no uniform insurance charges for all Insureds,
there will be a uniform insurance rate for all Insureds of the
same risk class. A description of the Monthly Deduction under
the Contract, which includes a cost of insurance charge, tax
expense charge, and an administrative expense charge, is at
Appendix A to this memorandum.
2. Application. Individuals wishing to purchase a Contract
must submit an application to the Company. An application will
not be deemed to be complete unless all required information,
including without limitation age, sex, medical and other background
information, has been provided in the application.
</TABLE>
<PAGE>
A Contract will be issued only on the lives of
Insureds age 0-85 who supply evidence of insurability
satisfactory to the Company. Acceptance is subject to the
Company's underwriting rules and the Company reserves the
right to reject an application for any lawful reason.
3. Payment of Initial Premium. The Contract is
designed to permit an initial premium payment and, subject to
certain conditions, additional premium payments. The initial
premium payment purchases a Death Benefit initially equal to
the Contract's Specified Amount. The minimum initial payment
is $10,000.
Application must be submitted and approved prior to
payment of initial premium.
4. Underwriting Requirements. Under current underwriting
rules, which are subject to change, proposed Insureds are
eligible for simplified underwriting without a medical
examination if their application responses and proposed
initial premium payment meet simplified underwriting
standards. Full underwriting standards will apply to all other
proposed Insureds. The maximum initial premium currently
permitted on a simplified underwriting basis varies with the
issue age of the insured according to the following table:
<TABLE>
<CAPTION>
Simplified Underwriting
Issue Age Maximum Initial Premium
<S> <C>
0-34 Not Available
35-44 $15,000
45-54 $30,000
55-64 $50,000
65-80 $100,000
Over age 80 Not Available
</TABLE>
5. Issuance of the Contract and Determination of Contract
Date. Once the underwriting has been approved by the Company,
and all requirements received, the Contract will be issued on
the date the Company receives the premium. The Insured will be
covered as of the Contract Date. In addition to determining
when coverage begins, the Contract Date determines Monthly
Activity Dates, Contract months, and Contract Years.
B. Determination of Owner of the Contract. The Contract Owner
possesses the rights to benefits under the Contract during the
lifetime of the Insured; the Contract Owner may or may not
be the Insured. In some states, the Contracts may be issued in
the form of a group Contract. In those states, certificates
will be issued evidencing a purchaser's rights under the group
Contract. The terms "Contract" and "Contract Owner," as used
in this memorandum, refer to and include such a certificate
and certificate owner, respectively.
<PAGE>
C. Payment and Acceptance of Additional Premiums
1. Generally. Additional premium payments may be made
at any time, subject to the following conditions:
<TABLE>
<S> <C>
a. only one additional premium payment may be made in any Contract Year;
b. each additional premium payment must be at least $500;
c. the attained age of the Insured must be less than age 91; and
d. absent submission of new evidence of insurability of the insured, the maximum
additional payment permitted in a Contract
Year is the "Guaranteed Additional Payment."
The Guaranteed Additional Payment is the
lesser of $5,000 or a percentage of the
initial payment (5% for attained ages 40-70,
and 0% for attained ages 20-39 and 71-85).
</TABLE>
Additional premium payments may require an increase
in Specified Amount for the Contract to remain within the
definition of a life insurance contract under the Internal
Revenue Code. The Company reserves the right to obtain
satisfactory evidence of insurability upon any additional
premium payments requiring an increase in Specified Amount.
However, the Company reserves the right to reject any
additional premium payment for any reason.
Unless the Owner requests otherwise in writing, any
additional premium payment received while a Contract loan
exists will be applied: first, as a repayment of Indebtedness,
and second, as an additional premium payment, subject to the
conditions described above.
Additional premiums may be paid at any time and in
any amount necessary to avoid termination of the Contract
without evidence of insurability.
2. Procedures for Accepting Additional Premium Payments.
Premium payments may be made by any method that the Company
deems acceptable. The Company may specify the form in which a
premium payment must be made in order for the premium to be in
"good order." Ordinarily, a check will be deemed to be in good
order upon receipt, although the Company may require that the
check first be converted into federal funds. In addition, for
a premium to be received in "good order," it must be
accompanied by all required supporting documentation, in
whatever form required. 3. Grace Period, Lapse, and
Reinstatement. The Contract will remain in force until the
Cash Surrender Value is insufficient to cover a Monthly
Deduction Amount due on a Monthly Activity Date. The Company
will give written notice to the Contract Owner that if a
premium in an amount shown in the notice (which will be
sufficient to cover the Monthly Deduction Amount(s) due) is
not paid within 61 days ("Grace Period"), there is a danger of
lapse.
The Contract will continue through the Grace Period,
but if no payment is forthcoming, it will terminate at the end
of the Grace Period. If the Insured dies during the Grace
Period, the Proceeds payable under the Contract will be
reduced by the Monthly Deduction Amount(s) due and unpaid.
If the Contract lapses, the Contract Owner may apply
for reinstatement of the Contract by payment of the
reinstatement premium (and any applicable charges) required
under the Contract. A request for reinstatement must be made
within five years of the date the Contract entered a Grace
Period. If a loan was outstanding at the time of lapse, the
Company will require repayment of the loan before permitting
reinstatement. In addition, the Company reserves the right to
require evidence of insurability satisfactory to the Company.
The reinstatement premium is equal to an amount sufficient to
(1) cover all Monthly Deduction Amounts and Annual Maintenance
Fee due and unpaid during the Grace Period, and (2) keep the
Contract in force for three months after the date of
reinstatement. The Specified Amount upon reinstatement cannot
exceed the Specified Amount of the Contract at its lapse. The
Account Value on the reinstatement date will reflect the
Account Value at the time of termination of the Contract plus
the premiums paid at the time of reinstatement. Withdrawal
charges and due and unpaid premium tax charges, Cost of
Insurance, and Tax Expense Charges will continue to be based
on the original Contract Date.
<PAGE>
D. Allocation and Crediting of Initial and Additional Premiums
1. The Variable Account. The variable benefits under
the Contracts are supported by the Northbrook Life Variable
Life Separate Account A (the "Variable Account").
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.
2. Allocations Among the Sub-Accounts. The Variable
Account consists of sub-accounts (the "Sub-Accounts"), each of
which invests in a portfolio of a Fund. Premiums and Contract
Value are allocated to the Sub-Accounts in accordance with the
following procedures.
a. Allocation of Initial Premium. Upon
completion of underwriting, the Company will either
issue a Contract, or deny coverage. If a Contract
is issued, the initial premium payment, will be
allocated on the date the Contract is issued
according to the initial premium allocation
instructions specified on the application.
b. Allocation of Additional Premiums. The number of
Accumulation Units to be credited to a Contract with
each premium, other than the initial premium and
additional premiums requiring underwriting, will be
determined on the date the request or payment is
received in good order by the Company if such date is
a Valuation Day; otherwise such determination will be
made on the next succeeding date which is a Valuation
Day.
c. Calculation of Accumulation Unit Value. The
Accumulation Unit Value for each Variable Sub-Account
will vary to reflect the investment experience of the
corresponding Fund portfolio and will be determined
on each Valuation Day by multiplying the Accumulation
Unit Value of the particular Variable Sub-Account on
the preceding Valuation Day by a "Net Investment
Factor" for that Sub-Account for the Valuation Period
then ended. The Net Investment Factor for each
Variable Sub-Account is determined by first dividing
(A) the net asset value per share for the
corresponding Fund portfolio at the end of the
current Valuation Period (plus the per share
dividends or capital gains by that Fund portfolio if
the ex-dividend date occurs in the Valuation Period
then ending), by (B) the net asset value per share of
the corresponding Fund portfolio at the end of the
immediately preceding Valuation Period; and then
subtracting from the result an amount equal to the
daily deductions for mortality and expense risk
charges imposed during the Valuation Period.
II. Transfers Among Accounts
A. Transfer Privilege
1. General. While the Contract remains in force and
subject to the Company's transfer rules then in effect, the
Contract Owner may request that part or all of the Account
Value of a particular Variable Sub-Account be transferred to
other Variable Sub-Accounts.
<PAGE>
2. Restrictions on Transfer Privilege. The Company reserves
the right to impose a $10 charge on each transfer in excess of
12 per Contract Year. As of the date of this memorandum,
however, there are no charges on transfers. Although currently
there is no minimum amount that may be transferred, the
Company reserves the right to impose such a minimum amount,
which will be shown on the Contract Data page. Currently,
transfers may be made by written request or by calling a toll
free telephone number. The Company may in the future eliminate
or add methods of transferring Account Value.
Transfers by telephone may be made by the Contract Owner's
agent of record or attorney-in-fact pursuant to a power of
attorney. Telephone transfers may not be permitted in some
states. The policy of the Company and its agents and
affiliates is that they will not be responsible for losses
resulting from acting upon telephone requests reasonably
believed to be genuine. The Company will employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine; otherwise, the Company may be liable
for any losses due to unauthorized or fraudulent instructions.
The procedures the Company follows for transactions initiated
by telephone include requirements that callers on behalf of a
Contract Owner identify themselves and the Contract Owner by
name and social security number or other identifying
information. All transfer instructions by telephone are tape
recorded.
On the Valuation Date the Company receives a transfer request,
the number of Accumulation Units credited to the Variable
Sub-Account from which the transfer is made will be reduced by
the number obtained by dividing the amount transferred by the
Accumulation Unit Value of the Sub-Account from which the
transfer is made. The number of Accumulation Units credited to
the Sub-Account to which the transfer is made will be
increased by the number obtained by dividing the amount
transferred by the Accumulation Unit Value of that
Sub-Account.
B. Dollar Cost Averaging Plan
While the Contract is in force, transfers may be made
automatically through Dollar Cost Averaging. Under Dollar Cost
Averaging, the Owner may transfer a specified amount every month (or
some other frequency as may be determined by the Company) from the
Money Market Sub-Account to any other Variable Sub-Account.
III. "Redemption" Procedures: Cancellation and Exchange Rights, Death
Benefits, Contract Loans, Surrenders, Partial Withdrawals, Redemptions
for Certain Charges, Confinement Waiver Benefit, Payment Options,
Suspension of Valuation, Payments, and Transfers, and Maturity Benefit
A. Cancellation and Exchange Rights
A Contract Owner has a limited right to return his or her
Contract for cancellation. If the Contract Owner returns the Contract
for cancellation, by mail or hand delivery, to the agent who sold the
Contract, within 10 days after delivery of the Contract to the Contract
Owner (or such longer period as may be required by state law), the
Company will return to the Contract Owner within 7 days thereafter the
premiums paid for the Contract adjusted to reflect any investment gain
or loss resulting from allocation to the Variable Account prior to the
date of cancellation, unless state law requires a different amount to
be returned.
In addition, once the Contract is in effect it may be
exchanged during the first 24 months after its issuance for a permanent
life insurance contract on the life of the Insured without submitting
proof of insurability.
B. Death Benefit
The Contracts provide for the payment of Death Benefit
Proceeds to the named beneficiary when the Insured under the Contract
dies. The Proceeds payable to the beneficiary equal the Death Benefit
less any Indebtedness and less any due and unpaid Monthly Deduction
Amounts occurring during a Grace Period (if applicable). The Death
Benefit equals the greater of (1) the Specified Amount or (2) the
Account Value multiplied by the Death Benefit Ratio. The ratios vary
according to the attained age of the Insured and are specified in the
Contract. Therefore, an increase in Account Value due to favorable
investment experience may increase the Death Benefit above the
Specified Amount; and a decrease in Account Value due to unfavorable
investment experience may decrease the Death Benefit (but not below the
Specified Amount).
All or part of the Proceeds may be paid in cash or applied
under an Income Plan.
<PAGE>
C. Accelerated Death Benefit
If the Insured becomes terminally ill, the Contract Owner may
request an accelerated Death Benefit in an amount up to the lesser of
(1) 50% of the Specified Amount on the day the Company receives the
request, and (2) $250,000 for all policies issued by the Company which
cover the Insured. "Terminally ill" means an illness or physical
condition of the Insured that, notwithstanding appropriate medical
care, will result in a life expectancy of 12 months or less. If the
Insured is terminally ill as the result of an illness, the accelerated
Death Benefit is not available unless the illness occurred at least 30
days after the Issue Date. If the Insured is terminally ill as the
result of an accident, the accelerated Death Benefit is available if
the accident occurred after the Issue Date.
We will pay benefits due under the accelerated Death Benefit
provision upon receipt of a written request from the Contract Owner and
due proof that the Insured has been diagnosed as terminally ill. The
Company also reserves the right to require supporting documentation of
the diagnosis and to require (at the Company's expense) an examination
of the Insured by a physician of the Company's choice to confirm the
diagnosis. The amount of the payment will be the amount requested by
the Contract Owner, reduced by the sum of (1) a 12 month interest
discount to reflect the early payment; (2) an administrative fee (not
to exceed $250); and (3) a pro rata amount of any outstanding Contract
loan and accrued loan interest. After the payment has been made, the
Specified Amount, the Account Value and any outstanding Contract loan
will be reduced on a pro rata basis.
Only one request for an accelerated Death Benefit per Insured
is allowed. The accelerated Death Benefit may not be available in all
states.
D. Contract Loans
While the Contract is in force, a Contract Owner may obtain,
without the consent of the beneficiary (provided the designation of
beneficiary is not irrevocable), one or both of two types of cash loans
from the Company. These types are Preferred Loans (described below) and
non-Preferred Loans. Both types of loans are secured by the Contract.
The maximum amount available for a loan is 90% of the Contract's Cash
Value, less the amount of all Contract loans existing on the date of
the loan (including loan interest to the next Contract Anniversary),
less any due and unpaid Monthly Deduction Amounts, and less any Annual
Maintenance Fee due on or before the next Contract Anniversary.
<PAGE>
The loan amount will be transferred pro rata from each
Variable Sub-Account attributable to the Contract (unless the Contract
Owner specifies otherwise) to the Loan Account. The amounts allocated
to the Loan Account will be credited with interest at the loan
crediting rate set forth in the Contract. Loans will bear interest at
rates determined by the Company from time to time, but these rates will
not exceed the maximum rate indicated in the Contract (currently, 8%
per year). The amount of the Loan Account that equals the difference
between the Account Value and the total of all premiums paid under the
Contract net of any premiums returned due to partial withdrawals, as
determined on each Contract Anniversary, is considered a "Preferred
Loan." Preferred Loans bear interest at a rate not to exceed the
Preferred Loan rate set forth in the Contract. The difference between
the value of the Loan Account and the Indebtedness will be transferred
on a pro-rata basis from the Variable Sub-Accounts to the Loan Account
on each Contract Anniversary. If the aggregate outstanding loan(s) and
loan interest secured by the Contract exceeds the Cash Value of the
Contract, the Company will give written notice to the Contract Owner
that unless the Company receives an additional payment within 61 days
to reduce the aggregate outstanding loan(s) secured by the Contract,
the Contract may lapse.
All or any part of any loan secured by a Contract may be
repaid while the Contract is still in effect. When loan repayments or
interest payments are made, the repayment will be allocated among the
Variable Sub-Accounts in the same percentage as subsequent payments are
allocated (unless the Contract Owner requests a different allocation),
and an amount equal to the payment will be deducted from the Loan
Account. Any outstanding loan at the end of a Grace Period must be
repaid before the Contract will be reinstated.
E. Surrendering the Contract for Cash Surrender Value
While the Contract is in force, a Contract Owner may elect,
without the consent of the beneficiary (provided the designation of
beneficiary is not irrevocable), to fully surrender the Contract. Upon
surrender, the Contract Owner will receive the Cash Surrender Value
determined as of the day the Company receives the Contract Owner's
written request or the date requested by the Contract Owner, whichever
is later. The Cash Surrender Value equals the Cash Value less the
Annual Maintenance Fee and any Indebtedness. The Company will pay the
Cash Surrender Value of the Contract within seven days of receipt by
the Company of the written request or on the effective surrender date
requested by the Contract Owner, whichever is later. The Contract will
terminate on the date of receipt of the written request, or the date
the Contract Owner requests the surrender to be effective, whichever is
later.
The Contract Owner may elect to apply the surrender proceeds
to an Income Plan.
F. Partial Withdrawals
While the Contract is in force, a Contract Owner may elect, by
written request, to make partial withdrawals of at least $50 from the
Cash Surrender Value. The Cash Surrender Value, after the partial
withdrawal, must at least equal $2,000; otherwise, the request will be
treated as a request for full surrender. The partial withdrawal will be
deducted pro rata from each Variable Sub-Account, unless the Contract
Owner instructs otherwise. The Specified Amount after the partial
withdrawal will be the greater of (1) the Specified Amount prior to the
partial withdrawal reduced proportionately to the reduction in Account
Value; or (2) the minimum Specified Amount necessary in order to meet
the definition of a life insurance contract under the Internal Revenue
Code. Partial withdrawals in excess of the Free Withdrawal Amount may
be subject to a Withdrawal Charge and any Due and Unpaid Premium Tax
Charges.
G. Withdrawal Charge
Upon surrender of the Contract and partial withdrawals in
excess of the Free Withdrawal Amount, a Withdrawal Charge may be
assessed. The Free Withdrawal Amount in any Contract Year is 15% of
total premiums paid. Any Free Withdrawal Amount not taken in a Contract
Year may not be carried forward to increase the Free Withdrawal Amount
in any subsequent year. Withdrawals in excess of the Free Withdrawal
Amount will be subject to a withdrawal charge as set forth in the table
below:
<TABLE>
<CAPTION>
Percentage of Initial
Contract Year Premium Withdrawn
<S> <C>
1 7.75%
2 7.75%
3 7.75%
4 7.25%
5 6.25%
6 5.25%
7 4.25%
8 3.25%
9 2.25%
10 0.00%
</TABLE>
<PAGE>
After the ninth Contract Year, no Withdrawal Charges will be
imposed. In addition, no Withdrawal Charge will be imposed on any
withdrawal to the extent that aggregate Withdrawal Charges and the
federal tax portion of the tax expense charge imposed would otherwise
exceed 9% of premiums paid prior to the withdrawal. The Withdrawal
Charge may be waived under certain circumstances if the Insured is
confined to a qualified long-term care facility or hospital.
The Withdrawal Charge is imposed to cover a portion of the
sales expense incurred by the Company in distributing the Contracts.
This expense includes agents' commissions, advertising and the printing
of prospectuses.
During the first nine Contract Years, a charge for due and
unpaid premium tax will be imposed on full or partial withdrawals in
excess of the Free Withdrawal Amount. The amount of this charge is set
forth in Appendix A.
H. Redemptions for Monthly Deduction Amount and Annual
Maintenance Fee
1. Monthly Deduction Amount. On each Monthly Activity Date
including the Contract Date, the Company will deduct from the
Account Value attributable to the Variable Account an amount
("Monthly Deduction Amount") to cover charges and expenses
incurred in connection with a Contract. Each Monthly Deduction
Amount will be deducted pro rata from each Variable
Sub-Account attributable to the Contract such that the
proportion of Account Value of the Contract attributable to
each Sub-Account remains the same before and after the
deduction. The Monthly Deduction Amount will vary from month
to month. If the Cash Surrender Value is not sufficient to
cover a Monthly Deduction Amount due on any Monthly Activity
Date, the Contract may lapse. A summary of the monthly
deductions and charges which constitute the Monthly Deduction
Amount is set forth in Appendix A.
2. Annual Maintenance Fee. In addition, if the
aggregate premiums paid on a Contract are less than $50,000,
the Company will deduct from Account Value an Annual
Maintenance Fee of $35 on each Contract Anniversary.
A description of the Annual Maintenance Fee is set forth in
Appendix A.
I. Confinement Waiver Benefit
Under the terms of an amendatory endorsement to the Contract, the
Company will waive any Withdrawal Charges on Partial Withdrawals and
surrenders of the Contract requested while the Insured is confined to a
qualified long-term care facility or hospital for a period of more than
90 consecutive days beginning 30 days or more after the Issue Date, or
within 90 days after the Insured is discharged from such confinement.
The confinement must have been prescribed by a licensed medical doctor
or a licensed doctor of osteopathy, operating within the scope of his
or her license, and must be medically necessary. The prescribing doctor
may not be the Insured, the Contract Owner, or any spouse, child,
parent, grandchild, grandparent, sibling or in-law of the Contract
Owner. "Medically necessary" means appropriate and consistent with the
diagnosis and which could not have been omitted without adversely
affecting the Insured's condition.
<PAGE>
The confinement waiver benefit may not be available in all states.
J. Payment Options
The surrender proceeds or Death Benefit Proceeds under the
Contracts may be paid in a lump sum or may be applied to one of the
Company's Income Plans. If the amount to be applied to an Income Plan
is less than $3,000 or if it would result in an initial income payment
of less than $20, the Company may require that the frequency of income
payments be decreased such that the income payments are greater than
$20 each, or it may elect to pay the amount in a lump sum. No surrender
or partial withdrawals are permitted after payments under an Income
Plan commence.
We will pay interest on the Proceeds from the date of the
Insured's death to the date payment is made or a payment option is
elected. At such times, the Proceeds are not subject to the investment
experience of the Variable Account.
The Income Plans are fixed annuities payable from the
Company's general account. They do not reflect the investment
experience of the Variable Account. Fixed annuity payments are
determined by multiplying the amount applied to the annuity by a rate
to be determined by the Company that is no less than the rate specified
in the fixed payment annuity tables in the Contract. The annuity
payment will remain level for the duration of the annuity. The Company
may require proof of age and gender of the payee (and joint payee, if
applicable) before payments begin. The Company may also require proof
that such person(s) are living before it makes each payment.
The following options are available under the Contracts. The
Company may also offer other payment options.
Income Plan 1 - Life Income With Guaranteed Payments. The
Company will make payments for as long as the payee lives. If the payee
dies before the selected number of guaranteed payments have been made,
the Company will continue to pay the remainder of the guaranteed
payments.
Income Plan 2 - Joint and Survivor Life Income With Guaranteed
Payments. The Company will make payments for as long as either the
payee or Joint payee, named at the time of Income Plan selection, is
living. If both the payee and the Joint payee die before the selected
number of guaranteed payments have been made, the Company will continue
to pay the remainder of the guaranteed payments.
The Company may also agree to make other arrangements for
income payments.
<PAGE>
K. Suspension of Valuation, Payments, and Transfers
The Company will suspend all procedures requiring valuation of
the Variable Account (including transfers, surrenders and loans) on any
day the New York Stock Exchange is closed or trading is restricted due
to an existing emergency as defined by the Securities and Exchange
Commission, or on any day the Commission has ordered that the right of
surrender of the Contracts be suspended for the protection of Contract
Owners, until such condition has ended.
L. Maturity Benefit
The Contracts have no maturity date.
IV. Last Survivor Contracts
The Contracts are offered on a single life and "last survivor"
basis. Contracts sold on a last survivor basis operate in a manner
almost identical to the single life version, the issue, transfer, and
redemption procedures with respect to those described in Sections I,
II, and III of this memorandum. The most important difference is that
the last survivor version involves two Insureds and the Proceeds are
paid only on the death of the last surviving Insured. The other
significant differences between the last survivor and single life
versions are listed below, and shall be deemed to modify inconsistent
provisions in Sections I, II, and III of this memorandum pertaining to
issuance, transfer, and redemption procedures applicable to single life
Contracts.
1. The cost of insurance charges under the last survivor Contracts are
determined in a manner that reflects the anticipated mortality of the
two Insureds and the fact that the Death Benefit is not payable until
the death of the second Insured.
2. To qualify for simplified underwriting under a last survivor
Contract, both Insureds must meet the simplified underwriting
standards.
3. For a last survivor Contract to be reinstated, both Insureds
must be alive on the date of reinstatement.
4. The Accelerated Death Benefit provision is only available
upon terminal illness of the last survivor.
5. The Confinement Waiver Benefit is available upon confinement
of either insured.
6. Issue ages of 18-85.
<PAGE>
APPENDIX A
Monthly Deduction Amount
On each Monthly Activity Date including the Contract Date, the Company
will deduct from the Account Value attributable to the Variable Account an
amount ("Monthly Deduction Amount") to cover certain charges and expenses
incurred in connection with a Contract. Each Monthly Deduction Amount will be
deducted pro rata from each Variable Sub-Account attributable to the Contract
such that the proportion of Account Value of the Contract attributable to each
Sub-Account remains the same before and after the deduction. The Monthly
Deduction Amount will vary from month to month. If the Cash Surrender Value is
not sufficient to cover a Monthly Deduction Amount due on any Monthly Activity
Date, the Contract may lapse. The following is a summary of the monthly
deductions and charges which constitute the Monthly Deduction Amount.
Cost of Insurance Charge: The cost of insurance charge covers the Company's
anticipated mortality costs for standard and substandard risks. Current cost of
insurance rates are lower after the 10th Contract Year. The current cost of
insurance charge will not exceed the guaranteed cost of insurance charge. This
charge is the maximum annual cost of insurance per $1,000 as indicated in the
Contract; multiplied by the difference between the Death Benefit and the Account
Value (both as determined on the Monthly Activity Date); divided by $1,000; and
divided by 12. For standard risks, the guaranteed cost of insurance rate is
based on the 1980 Commissioners Standard Ordinary Mortality Table, age last
birthday. (Unisex rates may be required in some states). A table of guaranteed
cost of insurance charges per $1,000 will be included in each Contract; however,
the Company reserves the right to use rates less than those shown in the table.
Substandard risks will be charged at a higher cost of insurance rate that will
not exceed rates based on a multiple of the 1980 Commissioners Standard Ordinary
Mortality Table, age last birthday. The multiple will be based on the Insured's
substandard rating.
The cost of insurance charge rates is applied to the difference between
the Death Benefit determined on the Monthly Activity Date and the Account Value
on that same date prior to assessing the Monthly Deduction Amount, because the
difference is the amount for which the Company is at risk should the Death
Benefit be then payable. The Death Benefit as computed on a given date is the
greater of (1) the Specified Amount on that date, and (2) the Account Value on
that date multiplied by the applicable Death Benefit ratio.
Because the Account Value and, as a result, the amount for which the
Company is at risk under a Contract may vary from month to month, the cost of
insurance charge may also vary on each Monthly Activity Date. However, once a
risk rating class has been assigned to an Insured when the Contract is issued,
that rating class will not change if additional premium payments or partial
withdrawals increase or decrease the Specified Amount.
<PAGE>
Tax Expense Charge. The Company will deduct monthly from the Account Value a tax
expense charge equal to an annual rate of 0.40% for the first ten Contract
Years. This charge compensates the Company for premium taxes imposed by various
states and local jurisdictions and for federal taxes related to the receipt of
premiums under the Contract and that results from the application of Section 848
of the Internal Revenue Code. The charge includes a premium tax deduction of
0.25% and a federal tax deduction of 0.15%. The 0.25% premium tax deduction over
ten Contract Years approximates the Company's average expenses for state and
local premium taxes (2.5%). Premium taxes vary, ranging from zero to 3.5%. The
premium tax deduction is made whether or not any premium tax applies. The
deduction may be higher or lower than the premium tax imposed. However, the
Company does not expect to make a profit from this deduction. The 0.15% federal
tax deduction helps reimburse the Company for approximate expenses incurred for
federal taxes resulting from the application of Section 848 of the Internal
Revenue Code.
Administrative Expense Charge. The Company will deduct monthly from the Account
Value an administrative expense charge equal to an annual rate of 0.25%. This
charge compensates the Company for administrative expenses incurred in the
administration of the Variable Account and the Contracts.
Annual Maintenance Fee
An Annual Maintenance Fee of $30 will be deducted on each Contract Anniversary
from all Variable Sub-Accounts to which Account Value is allocated, in
proportion to the amounts so allocated. This fee will help reimburse the Company
for administrative and maintenance costs of the Contracts. Currently, this
charge is waived for Contracts which have an aggregate premium which equals or
exceeds the dollar amount indicated on your Contract data page.
Due and Unpaid Premium Tax Charge
During the first nine Contract Years, a charge for due and unpaid
premium tax will be imposed on full or partial withdrawals in excess of the Free
Withdrawal Amount. This charge is shown below, as a percentage of the Account
Value withdrawn:
Percentage of Initial
Year Premium Withdrawn
1 2.25%
2 2.00%
3 1.75%
4 1.50%
5 1.25%
6 1.00%
7 0.75%
8 0.50%
9 0.25%
10 0.00%
After the ninth Contract Year, no due and unpaid premium tax charge
will be imposed.
