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NORTHBROOK
VARIABLE LIFE INSURANCE
ISSUED BY NORTHBROOK LIFE INSURANCE COMPANY
PROSPECTUS
DATED OCTOBER 1, 1997
DEAN WITTER
VARIABLE INVESTMENT SERIES
PROSPECTUS
DATED MAY 1, 1997
[LOGO]
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NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM
VARIABLE LIFE INSURANCE CONTRACT
3100 SANDERS ROAD
NORTHBROOK, IL 60062
TELEPHONE (800) 654-2397
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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 20. 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.
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 DATE OF THIS PROSPECTUS IS OCTOBER 1, 1997.
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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.
TABLE OF CONTENTS
Summary..................................................... 3
Special Terms............................................... 5
The Company................................................. 6
The Variable Account........................................ 6
General................................................... 6
Fund...................................................... 7
The Contract................................................ 8
Application for a Contract................................ 8
Premiums.................................................. 8
Allocation of Premiums.................................... 9
Accumulation Unit Values.................................. 9
Deductions and Charges...................................... 10
Monthly Deductions........................................ 10
Cost of Insurance Charge................................ 10
Tax Expense Charge...................................... 10
Administrative Expense Charge........................... 10
Other Deductions.......................................... 11
Mortality and Expense Risk Charge....................... 11
Annual Maintenance Fee.................................. 11
Taxes Charged Against the Variable Account.............. 11
Charges Against the Fund................................ 11
Withdrawal Charge....................................... 11
Due and Unpaid Premium Tax Charge....................... 11
Contract Benefits and Rights................................ 12
Death Benefit............................................. 12
Accelerated Death Benefit................................. 12
Account Value............................................. 13
Transfer of Account Value................................. 13
Dollar Cost Averaging..................................... 13
Contract Loans............................................ 13
Amount Payable on Surrender of the Contract............... 14
Partial Withdrawals....................................... 14
Maturity.................................................. 14
Lapse and Reinstatement................................... 14
Cancellation and Exchange Rights.......................... 15
Confinement Waiver Benefit................................ 15
Suspension of Valuation, Payments and Transfers........... 15
Last Survivor Contracts................................... 15
Other Matters............................................... 16
Voting Rights............................................. 16
Statements to Contract Owners............................. 16
Limit on Right to Contest................................. 17
Misstatement as to Age and Sex............................ 17
Payment Options........................................... 17
Beneficiary................................................. 17
Assignment.................................................. 17
Dividends................................................... 17
Executive Officers and Directors of the Company............. 18
Distribution of the Contracts............................... 19
Safekeeping of the Variable Account's Assets................ 19
Federal Tax Matters......................................... 20
Introduction.............................................. 20
Taxation of the Company and the Variable Account.......... 20
Taxation of Contract Benefits............................. 20
Modified Endowment Contracts.............................. 21
Diversification Requirements.............................. 21
Ownership Treatment....................................... 21
Policy Loan Interest...................................... 22
Additional Information About the Company.................... 22
Legal Proceedings........................................... 22
Legal Matters............................................... 22
Registration Statement...................................... 22
Experts..................................................... 23
Financial Information....................................... 23
Financial Statements........................................ F-1
Appendix A.................................................. A-1
2
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SUMMARY
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NOTE: A GLOSSARY OF SPECIAL TERMS USED IN THIS PROSPECTUS APPEARS AT PAGE 5,
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 15.
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 7.
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:
- 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
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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 10, and "Contract Benefits
and Rights--Lapse and Reinstatement," page 14.
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 11.
Certain fees and charges are associated with investments in the Fund. Applicants
should review the prospectus for the Fund which accompanies this prospectus for
a complete description of the charges and expenses borne by the Fund in
connection with its operations. See "Deductions and Charges--Fund Expenses,"
page 11.
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
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<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 11. See
"Deductions and Charges," page 10 and "Withdrawal Charge," page 11.
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 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.
See "Deductions and Charges--Other Deductions--Due and Unpaid--Premium Tax
Charge," page 11. For a discussion of the tax consequences of a full or a
partial withdrawal, see "Federal Tax Matters," page 20.
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) the
Account Value multiplied by the death benefit ratio as found in the Contract.
See "Contract Benefits and Rights--Death Benefit," page 12.
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 13.
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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 13.
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 13 and "Lapse and
Reinstatement," page 14.
CANCELLATION AND EXCHANGE RIGHTS
A Contract Owner has a limited right to return his or her Contract for
cancellation. This right to return exists during the free-look period. The
free-look period is a number of days (which varies by state) as specified in
your Contract. If the Contract Owner returns the Contract for cancellation, by
mail or hand delivery, to the Account Executive who sold the Contract, within
the free-look period following delivery of the Contract to the Contract Owner,
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 15.
TAX CONSEQUENCES
The current Federal tax law generally excludes all death benefit payments from
the gross income of the 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 20.
SPECIAL TERMS
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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.
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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.
FUND--The Dean Witter Variable Investment Series
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
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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 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
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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
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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.
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 Fed-
eral Reserve Board or any other agency.
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.
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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 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 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
8
<PAGE>
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>
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.
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 13.
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 20.)
9
<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 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
14. 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 12.)
EXAMPLE:
<TABLE>
<S> <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 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.
10
<PAGE>
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.
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:
FUND EXPENSES
(AS A PERCENTAGE OF FUND ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND OTHER ANNUAL
PORTFOLIO MANAGEMENT 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...................... .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................ .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 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.
(4) 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%.
(5) 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%.
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
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 15.
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
11
<PAGE>
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.
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).
<TABLE>
<CAPTION>
EXAMPLES: 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 17.
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 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.
12
<PAGE>
Only one request for an Accelerated Death Benefit per Insured is allowed. The
Accelerated Death Benefit may not be available in all states. Its features may
differ from those discussed above as required by state law. Please refer to the
Contract for further information.
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 9.
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 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 Contract 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.
13
<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 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 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 14.
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 20.
The Contract Owner may elect to apply the surrender proceeds to an Income Plan
(see "Other Matters--Payment Options," page 17).
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 and any due and unpaid premium tax charges. See "Deductions
and Charges--Other Deductions--Withdrawal Charge" and "Due and Unpaid Premium
Tax Charge," page 11. For a discussion of the tax consequences of partial
withdrawals, see "Federal Tax Matters," page 20.
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
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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 12.
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. This
right to return exists during the free-look period. The free-look period is a
number of days (which varies by state) as specified in your Contract. 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 the free-look
period following delivery of the Contract to the Contract Owner, 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 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
Securities and Exchange 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
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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.
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
- -----------------------------------------------------------
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 hereunder 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 13) 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 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.
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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 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.
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EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
- -----------------------------------------------------------
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)*
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; 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
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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-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
- -----------------------------------------------------------
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 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.
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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 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
20
<PAGE>
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 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 1/2; (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.
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,
21
<PAGE>
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.
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.
22
<PAGE>
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.
23
<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 schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Northbrook Life Insurance Company as of
December 31, 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
- -----------------------------------------------------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- ----------
<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 $6,071,603
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1995 1994
------ ------ ------
<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 $1,733
------ ------ ------
------ ------ ------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
- -----------------------------------------------------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
<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 $69,502
------- ------- -------
------- ------- -------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<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.
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.
F-6
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
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
$243,326 in 1996, 1995 and 1994, respectively. Investment income earned on the
assets which support contractholder funds is not included in the Company's
financial statements as those assets are owned and managed by ALIC under the
terms of reinsurance agreements.
F-7
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------
($ IN THOUSANDS)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
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.
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>
GROSS UNREALIZED
AMORTIZED ---------------------- FAIR
AT DECEMBER 31, 1995 COST GAINS (LOSSES) VALUE
- ------------------------------------------------------------------------ ----------- --------- ----------- ---------
<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>
F-8
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------
($ IN THOUSANDS)
5. INVESTMENTS (CONTINUED)
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.
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 $67 were recognized during 1995.
F-9
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------
($ IN THOUSANDS)
5. INVESTMENTS (CONTINUED)
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/
AMORTIZED FAIR UNREALIZED
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>
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 CARRYING
VALUE FAIR VALUE VALUE FAIR 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-10
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------
($ IN THOUSANDS)
6. FINANCIAL INSTRUMENTS (CONTINUED)
FINANCIAL LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------
1996 1995
------------------------ ------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR 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.
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 securities.................... (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>
F-11
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------
($ IN THOUSANDS)
7. INCOME TAXES (CONTINUED)
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>
<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 $7,260.
F-12
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
SCHEDULE IV--REINSURANCE
- -----------------------------------------------------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
<S> <C> <C> <C>
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
Life insurance in force........................................................ $ 556,242 $ 556,242 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life and annuities........................................................... $ 64,519 $ 64,519 $ --
--------- --------- ---------
--------- --------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
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 $ --
--------- --------- ---------
--------- --------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
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-13
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
- -----------------------------------------------------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ---------------
<S> <C> <C>
(UNAUDITED)
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-14
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------ -------------------
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
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
See notes to financial statements.
F-15
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
-----------------------
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 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-16
<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-17
<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," page 10.) 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," page 10.) 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 Against the Fund," page 11.)
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.
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-1
<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>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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-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 6% (5.25% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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 * * *
</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-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 0% (-0.75% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED ----------------------------------- -----------------------------------
END OF AT 5% CASH CASH
CONTRACT 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 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-4
<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>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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-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 6% (5.25% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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-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 0% (-0.75% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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 * * *
</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-7
<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>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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-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 6% (5.25% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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-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 0% (-0.75% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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-10
<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>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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 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-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 6% (5.25% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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 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-12
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE
- -----------------------------------------------------------
SINGLE 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>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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 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-13
<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>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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 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-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 6% (5.25% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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 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-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 0% (-0.75% NET)
<TABLE>
<CAPTION>
PREMIUMS CURRENT CHARGES(1) GUARANTEED CHARGES(2)
ACCUMULATED --------------------------------- ---------------------------------
END OF AT 5% CASH CASH
CONTRACT 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-16
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
3100 SANDERS ROAD--M4A
NORTHBROOK, IL 60062
