<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE LIFE
Northbrook Life Insurance Company
P.O. Box 94040
Palatine, Illinois 60094
Telephone Number: (800) 654-2397 Prospectus Dated May 1, 2000
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This prospectus describes the "MORGAN STANLEY DEAN WITTER VARIABLE LIFE," a
modified single premium variable life insurance contract ("CONTRACT") offered by
Northbrook Life Insurance Company ("we" or the "Company") for prospective
insured persons age 0-85. The Contract lets you, as 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 23. You will
be taxed on any loan, distribution or other amount you receive from a Modified
Endowment Contract during the life of the Insured to the extent of any
accumulated income in the Contract. Any amounts that are taxable distributions
will be subject to a 10% penalty, with certain exceptions.
The minimum initial premium the Company will accept is $10,000. We allocate
premiums to Northbrook Life Variable Life Separate Account A ("VARIABLE
ACCOUNT"). The Variable Account invests exclusively in shares of the following
mutual funds ("FUNDS"):
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Variable Investment Series
The Universal Institutional Funds, Inc.*
Van Kampen Life Investment Trust
</TABLE>
* Effective May 1, 2000, (formerly known as Morgan Stanley Dean Witter
Universal Funds, Inc.)
The Funds have, in the aggregate, twenty-one different investment portfolios
("Portfolios") among which you can choose to allocate your premiums. Not all of
the Funds and/or Portfolios, however, may be available with your Contract. You
should check with your Morgan Stanley Dean Witter Financial Advisor for further
information on the availability of Funds and/or Portfolios.
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 you have allocated premiums. You will bear the investment
risk for all amounts so allocated. The Contract continues in effect so long as
Cash Surrender Value is sufficient to pay its monthly charges ("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. However, so long as the Contract
continues in effect and if no withdrawals or loans are made, the Death Benefit
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 you have
allocated premiums. At the death of the Insured, we will pay a Death Benefit to
the beneficiary.
It may not be to your advantage to purchase variable life insurance either as a
replacement for your current life insurance or if you already own a variable
life insurance contract.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR
HAS IT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
IMPORTANT PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A
NOTICES FEDERAL CRIME.
INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
</TABLE>
1 - PROSPECTUS
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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PAGE
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SPECIAL TERMS 3
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SUMMARY 5
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CONTRACT CHARGES AND DEDUCTIONS 7
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THE COMPANY 9
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THE VARIABLE ACCOUNT 10
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General 10
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Funds 10
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THE CONTRACT 12
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Application for a Contract 12
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Premiums 12
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Allocation of Premiums 13
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Accumulation Unit Values 13
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DEDUCTIONS AND CHARGES 14
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Monthly Deductions 14
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Cost of Insurance Charge 14
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Tax Expense Charge 14
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Administrative Expense Charge 14
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Other Deductions 14
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Mortality and Expense Risk Charge 14
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Annual Maintenance Fee 15
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Taxes Charged Against the Variable Account 15
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Charges Against the Funds 15
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Withdrawal Charge 15
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Due and Unpaid Premium Tax Charge 15
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CONTRACT BENEFITS AND RIGHTS 15
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Death Benefit 15
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Accelerated Death Benefit 16
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Confinement Waiver Benefit 16
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Account Value 16
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Transfer of Account Value 17
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Dollar Cost Averaging 17
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Automatic Portfolio Rebalancing Program 17
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ACCESS TO YOUR MONEY 19
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Contract Loans 19
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</TABLE>
<TABLE>
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Amount Payable on Surrender of the Contract 19
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PAGE
<S> <C>
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Partial Withdrawals 19
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Payment Options 20
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Maturity 20
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Lapse and Reinstatement 20
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Cancellation and Exchange Rights 20
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Suspension of Valuation, Payments and Transfers 21
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Last Survivor Contracts 21
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OTHER MATTERS 22
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Voting Rights 22
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Statements to Contract Owners 22
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Limit on Right to Contest 22
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Misstatement as to Age and Sex 22
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Beneficiary 22
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Assignment 22
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Dividends 22
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Distribution of the Contracts 22
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Safekeeping of the Variable Account's Assets 23
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FEDERAL TAX MATTERS 23
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Introduction 23
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Taxation of the Company and the Variable Account 23
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Taxation of Contract Benefits 23
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Modified Endowment Contracts 24
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Diversification Requirements 24
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Ownership Treatment 24
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ADDITIONAL INFORMATION ABOUT THE COMPANY 25
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Executive Officers and Directors of the Company 25
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Year 2000 26
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Legal Proceedings 27
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Legal Matters 27
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Registration Statement 27
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Experts 27
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Financial Information 28
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FINANCIAL STATEMENTS 29
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</TABLE>
2 - PROSPECTUS
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SPECIAL TERMS
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As used in this prospectus, the following terms have the indicated meanings:
<TABLE>
<S> <C>
ACCOUNT VALUE The aggregate value under a Contract of the Variable
Sub-Accounts and the Loan Account.
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ACCUMULATED INCOME The Account Value less premiums paid (assuming no loans have
been made.)
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ACCUMULATION UNIT An accounting unit of measure used to calculate the value of
a Variable Sub-Account.
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AGE The Insured's age at the Insured's last birthday.
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CASH SURRENDER VALUE The Cash Value less all Indebtedness and the annual
maintenance fee, if applicable.
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CASH VALUE The Account Value less any (1) applicable withdrawal
charges, and (2) due and unpaid premium tax charges.
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CODE The Internal Revenue Code of 1986, as amended.
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CONTRACT ANNIVERSARY The same day and month as the Contract Date for each
subsequent year the Contract remains in force.
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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.
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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.
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CONTRACT YEARS Annual periods computed from the Contract Date.
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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.
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FUNDS (1) The Morgan Stanley Dean Witter Variable Investment
Series, (2) The Universal Institutional Funds, Inc., or
(3) Van Kampen Life Investment Trust.
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INDEBTEDNESS All Contract loans, if any, and accrued loan interest.
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INITIAL DEATH BENEFIT The Initial Death Benefit under a Contract is shown on the
Contract data page.
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</TABLE>
3 - PROSPECTUS
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<TABLE>
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INSURED The person whose life is insured under a Contract.
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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.
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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.
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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.
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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.
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VALUATION DAY Every day the New York Stock Exchange is open for trading.
The value of the Funds is determined at the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m.
Eastern Time) on such days.
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VALUATION PERIOD The period between the close of regular trading on the New
York Stock Exchange on successive Valuation Days.
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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.
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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 Funds.
</TABLE>
4 - PROSPECTUS
<PAGE>
SUMMARY
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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 Portfolios of the
Funds to which you have allocated premiums. Similarly, the Death Benefit may
increase or decrease under some circumstances. However, so long as the Contract
remains in effect, the Death Benefit will not decrease below the Initial Death
Benefit if you make no withdrawals or loans. We credit each Contract with units
("Accumulation Units") to calculate cash values. You may transfer the Account
Value among the Variable Sub-Accounts.
We can issue the Contracts on either a single life or a "last survivor" basis.
For a discussion of how last survivor Contracts operate differently from single
life Contracts, see "Access to Your Money--Last Survivor Contracts," page 21.
In some states, the Contracts may be issued in the form of a group Contract. In
those states, we will issue a certificate evidencing your 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 FUNDS
The Variable Account funds the variable life insurance Contracts offered by this
prospectus. The Variable Account is a unit investment trust registered as such
with the Securities and Exchange Commission ("SEC"), under the Investment
Company Act of 1940 ("1940 Act"). It consists of multiple sub-accounts
("Variable Sub-Accounts"), each investing in a corresponding Portfolio of one of
the Funds. The assets of each Portfolio are accounted for separately from the
other Portfolios.
Applicants should read the prospectuses for the Funds in connection with the
purchase of a Contract. We have briefly summarized the investment objectives of
the Portfolios below under "The Variable Account--Funds," page 10.
PREMIUMS
The Contract requires the Contract Owner to pay an initial premium of at least
$10,000. You may make additional premium payments of at least $500 once in each
Contract year, subject to certain additional conditions (see "The
Contract--Premiums" at page 12):
- - only one payment is allowed in any Contract Year;
- - 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 (1) $5,000 or
(2) a percentage of the initial premium (5% for attained ages 40-70, and 0%
for attained ages 20-39 and 71-90).
We reserve 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.
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, which is the
then current value of the guaranteed death benefit under the Contract, or (2)
the Account Value multiplied by the death benefit ratio set forth in the
Contract. See "Contract Benefits and Rights--Death Benefit," page 15.
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-Accounts to which you have allocated Account Value; (2) interest credited to
the Loan Account; and (3) deductions for the mortality and expense risk charge,
the Monthly Deduction Amount, and the annual maintenance fee. There is no
minimum guaranteed Account Value. You bear the risk of investment in the
Variable Sub-Accounts. See "Contract Benefits and Rights--Account Value,"
page 16.
CONTRACT LOANS
You may obtain one or both of two types of cash loans from the Company. Both
types of loans are secured by your Contract. The maximum amount available for
such loans is 90% of the Contract's Cash Value, less the sum of,
- - the amount of all loans existing on the date of the loan request (including
loan interest to the next Contract Anniversary),
- - any annual maintenance fee due on or before the next Contract Anniversary, and
5 - PROSPECTUS
<PAGE>
- - any due and unpaid Monthly Deduction Amounts.
See "Access to Your Money--Contract Loans," page 19.
LAPSE
Your Contract may terminate if its Cash Surrender Value on any Monthly Activity
Date is less than the required Monthly Deduction Amount. We will give you
written notice of the circumstance and 61 day grace period during which
additional amounts may be paid to continue the Contract. See "Access to Your
Money--Contract Loans," page 19 and "Lapse and Reinstatement," page 20.
CANCELLATION AND EXCHANGE RIGHTS
You have a limited period of time in which you may return your Contract for
cancellation after you purchase it. We call this period of time the
"cancellation period." The cancellation period (which varies by state) is
specified in your Contract. If you choose to exercise this right, we may require
that you return your Contract to us within the cancellation period following
delivery of the Contract to you. We will then return to you, within 7 days
thereafter, the premiums paid for the Contract adjusted, if applicable law
permits, to reflect any investment gain or loss resulting from allocation to the
Variable Account prior to the date of cancellation. In those states where the
Company is required to return the premiums paid without such adjustment we
reserve the right, if state law so permits, to allocate all premium payments
made prior to the expiration of the cancellation period to the Money Market
Variable Sub-Account of the Variable Account.
In addition, once the Contract is in effect, you may be able to exchange it
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.
The Company reserves the right to make available such a contract that is offered
by the Company's parent or by any affiliate of the Company. See "Access to Your
Money--Cancellation and Exchange Rights," page 20.
TAX CONSEQUENCES
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 23.
PERSONALIZED ILLUSTRATIONS
We will furnish, upon request and at no charge, a personalized illustration of
hypothetical performance under the Contract based upon the proposed Insured's
age, sex, and underwriting classification. Where applicable, we will also
furnish upon request an illustration for a Contract that is not affected by the
sex of the Insured. Those illustrations will be based, as appropriate, on the
methodology and format of the hypothetical illustrations that we have included
in the registration statement we filed with the SEC for the Contracts. See
"Additional Information About the Company--Registration Statement," page 27, for
further information.
FEES AND EXPENSES
We provide the following tables to help you understand the various fees and
expenses that you will bear, directly or indirectly, as a Contract owner. The
first table describes the Contract charges and deductions you will directly bear
under the Contracts. The second table describes the fees and expenses of the
Fund Portfolios you will indirectly bear when you invest in the Contracts. For
further information, see "Deductions and Charges" on page 14.
6 - PROSPECTUS
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CONTRACT CHARGES AND DEDUCTIONS
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Account Value Charges (deducted monthly and shown as an annualized percentage of
Account Value):(1)
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CURRENT(2) MAXIMUM
SINGLE LIFE SINGLE LIFE
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<S> <C> <C>
Cost of Insurance Charge.... Standard: 0.65% (Contract Years Standard-Ranges from $0.06 per
1-10); 1,000 of net amount at risk
0.55% (Contract Years 11+) (younger ages) up to $82.50 (age
99)
Special: 1.00% (Contract Years Special-Ranges from $0.12 per
1-10); $1,000 of net amount at risk
0.90% (Contract Years 11+) (younger ages) up to $82.92 (age
99).
</TABLE>
<TABLE>
<CAPTION>
JOINT LIFE JOINT LIFE
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<S> <C> <C>
Standard: 0.30% (Contract Years Standard-Ranges from $0.00015 per
1-10); $1,000 of net amount at risk
0.20% Contract Years 11+) (younger ages) up to $61.995 per
$1,000 of net amount at risk (age
99)
Special: 0.65% (Contract Years Special-Ranges from $0.00061 per
1-10); $1,000 of net amount at risk
0.55% (Contract Years 11+); (younger ages) up to $78.71083
(age 99).
</TABLE>
<TABLE>
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Administrative Expense Charge.................. 0.25%
Tax Expense Charge............................. 0.40%(3)
</TABLE>
Annual Separate Account Charges (deducted daily and shown as a percentage of
average net assets):
<TABLE>
<S> <C>
Mortality and Expense Risk Charge:............. 0.90%
Federal Income Tax Charge:..................... Currently none(4)
Annual Maintenance Fee:........................ $30(5)
Transfer Charges:.............................. $25(6)
Maximum Withdrawal Charge:..................... 7.75% of initial premium withdrawn(7)
Due and Unpaid Premium Tax Charge:............. 2.25% of initial premium withdrawn(8)
</TABLE>
(1) Except for the maximum or "guaranteed" cost of insurance charge, which
is expressed as a range of monthly costs per thousand dollars of net amount at
risk. The net amount at risk is the difference between the Death Benefit and the
Account Value. See "Deductions and Charges--Monthly Deductions--Cost of
Insurance Charge," page 14.
(2) The actual amount of insurance purchased will depend on the insured's
age, sex (where permitted) and rate class. See "Deductions and Charges--Monthly
Deductions--Cost of Insurance Charge," page 14. The current cost of insurance
charge under the Contracts will never exceed the guaranteed cost of insurance
charge shown in your Contract.
(3) This charge includes a premium tax deduction of 0.25%, and a federal tax
deduction of 0.15%, of Account Value. We assess this charge only during the
first 10 Contract Years. See "Deductions and Charges--Monthly Deductions--Tax
Expense Charge," page 14.
(4) We do not currently assess a charge for federal income taxes that may be
attributable to the operations of the Variable Account, although we may do so in
the future. See "Deductions and Charges--Other Deductions--Taxes Charged Against
the Variable Account," page 15.
(5) We waive this fee if total premiums paid are $40,000 or more.
(6) We currently do not impose these charges on the first 12 transfers in
any Contract Year. The Company reserves the right to assess a $25 charge for
each transfer in excess of 12 in any Contract Year, excluding transfers due to
dollar cost averaging.
(7) This charge applies only upon withdrawals of the initial premium paid at
the time of Contract purchase, and it applies only to withdrawals in excess of
the Free Withdrawal Amount. It does not apply to withdrawals of any additional
payments paid under a Contract. The withdrawal charge declines to 0% over nine
years. We impose it to cover a portion of the sales expense we incur in
distributing the Contracts. See "Deductions and Charges--Other
Deductions--Withdrawal Charge," page 15. We do not impose a withdrawal charge 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.
(8) This charge applies only upon withdrawals of the initial premium paid at
the time of Contract purchase, and it applies only to withdrawals in excess of
the Free Withdrawal Amount. It does not apply to withdrawals of any additional
payments paid under a Contract. The charge for due and unpaid premium tax
declines to 0% over nine years, and it applies to full or partial withdrawals in
excess of the Free Withdrawal Amount.
7 - PROSPECTUS
<PAGE>
PORTFOLIO ANNUAL EXPENSES (AFTER VOLUNTARY REDUCTIONS AND REIMBURSEMENTS)
(AS A PERCENTAGE OF PORTFOLIO AVERAGE DAILY NET ASSETS)(1)
<TABLE>
<CAPTION>
Total
Portfolio
Management Other Annual
Portfolio Fees Expenses Expenses
<S> <C> <C> <C>
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MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES(1)
Money Market 0.50% 0.02% 0.52%
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Quality Income Plus 0.50% 0.02% 0.52%
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Short-Term Bond 0.45% 0.17% 0.62%
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High Yield 0.50% 0.03% 0.53%
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Utilities 0.64% 0.03% 0.67%
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Income Builder 0.75% 0.06% 0.81%
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Dividend Growth 0.51% 0.01% 0.52%
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Aggressive Equity 0.42% 0.10% 0.52%
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Capital Growth 0.65% 0.07% 0.72%
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Global Dividend Growth 0.75% 0.08% 0.83%
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European Growth 0.95% 0.09% 1.04%
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Pacific Growth 0.95% 0.47% 1.42%
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Equity 0.49% 0.02% 0.51%
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S&P 500 Index(2) 0.39% 0.09% 0.48%
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Competitive Edge Best Ideas(2) 0.44% 0.12% 0.56%
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Strategist 0.50% 0.02% 0.52%
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THE UNIVERSAL INSTITUTIONAL FUNDS, INC.(3)
Equity Growth 0.29% 0.56% 0.85%
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U.S. Real Estate 0.00% 1.10% 1.10%
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International Magnum 0.29% 0.87% 1.16%
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Emerging Markets Equity 0.42% 1.37% 1.79%
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VAN KAMPEN LIFE INVESTMENT TRUST(4)
Emerging Growth 0.67% 0.18% 0.85%
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</TABLE>
(1) Figures shown are for the year ended December 31, 1999.
(2) Morgan Stanley Dean Witter Advisers, Inc. has undertaken to assume all
expenses of the S&P 500 Index and Competitive Edge "Best Ideas" Portfolios
(except for brokerage fees) and to waive the compensation provided in its
management agreement with the Fund to the extent that such expenses and
compensation on an annualized basis exceed .50% of the daily net assets of
the S&P 500 Index Portfolio.
(3) Morgan Stanley Asset Management voluntarily agreed to a reduction in its
management fees and to reimburse the Portfolios for which it acts as
investment adviser for certain expenses of the Portfolios. The Adviser may
terminate this voluntary waiver at any time. Absent such reductions, the
management fees, other expenses, and total annual expenses would have been
as follows:
<TABLE>
<S> <C> <C> <C>
Equity Growth 0.55% 0.56% 1.11%
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U.S. Real Estate 0.80% 1.10% 1.90%
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International Magnum 0.80% 0.87% 1.67%
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Emerging Markets Equity 1.25% 1.37% 2.62%
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</TABLE>
(4) Van Kampen Asset Management, Inc. has voluntarily agreed to a reduction in
its management fees and to reimburse the Emerging Growth Portfolio for which
it acts as investment adviser if such fees would cause "Total Portfolio
Annual Expenses" to exceed the amount set forth in the table above. Absent
such reductions, the management fees, other expenses, and total annual
Portfolio expenses would have been 0.70%, 0.18%, and 0.88%, respectively.
8 - PROSPECTUS
<PAGE>
THE COMPANY
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The Company is the issuer of the Contract. It is a stock life insurance company
organized in 1998, under the laws of the State of Arizona. Previously, from 1978
to 1998, it was organized 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. Our 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 the State of Illinois. All of the outstanding
capital stock of Allstate is owned by The Allstate Corporation ("Corporation").
Northbrook and Allstate Life entered into a reinsurance agreement effective
December 31, 1987. Under the reinsurance agreement, Allstate Life reinsures
substantially all of Northbrook's liabilities under its insurance and annuity
contracts. The reinsurance agreement provides us with financial backing from
Allstate Life. However, it does not create a direct contractual relationship
between Allstate Life and you. In other words, the obligations of Allstate Life
under the reinsurance agreement are to Northbrook; Northbrook remains the sole
obligor under the Contract to you.
9 - PROSPECTUS
<PAGE>
THE VARIABLE ACCOUNT
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GENERAL
We established the Variable Account as a separate investment account on January
15, 1996, pursuant to the insurance laws of Illinois. The Variable Account
became subject to the insurance laws of Arizona when we redomesticated on
December 28, 1998. The Variable Account is organized as a unit investment trust
and registered as such with the SEC under the 1940 Act. The Variable Account
meets the definition of "separate account" under federal securities law. Under
Arizona law, we hold the assets of the Variable Account exclusively for the
benefit of Contract Owners and persons entitled to payments under the Contracts.
The assets of the Variable Account are not chargeable with liabilities arising
out of any other business which the Company may conduct.
FUNDS
You may allocate your purchase payments to up to 21 Variable Sub-Accounts. Each
Variable Sub-Account invests in the shares of a corresponding Portfolio. Each
Portfolio has its own investment objective(s) and policies. We briefly describe
the Portfolios below.
For more complete information about each Portfolio, including expenses and risks
associated with the Portfolio, please refer to the accompanying prospectuses for
the Funds. You should carefully review the Fund prospectuses before allocating
amounts to the Variable Sub-Accounts.
<TABLE>
PORTFOLIO: EACH PORTFOLIO SEEKS: INVESTMENT ADVISER:
<S> <C> <C>
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
Money Market Portfolio High current income, preservation of capital, and
liquidity
Quality Income Plus Portfolio High current income and, as a secondary objective,
capital appreciation when consistent with its primary
objective
Short-Term Bond Portfolio High current income consistent with preservation of
capital
High Yield Portfolio High current income and, as a secondary objective,
capital appreciation when consistent with its primary
objective
Utilities Portfolio Current income and long-term growth of income and
capital
Income Builder Portfolio Reasonable income and, as a secondary objective, growth
of capital
Dividend Growth Portfolio Reasonable current income and long-term growth of
income and capital
Capital Growth Portfolio Long-term capital growth Morgan Stanley
Dean Witter
Advisors
Global Dividend Growth Portfolio Reasonable current income and long-term growth of
income and capital
European Growth Portfolio Maximize the capital appreciation of its investments
Pacific Growth Portfolio Maximize the capital appreciation of its investments
Aggressive Equity Portfolio Capital growth
Equity Portfolio Growth of capital and, as a secondary objective, income
when consistent with its primary objective.
S&P 500 Index Portfolio Investment results that, before expenses, correspond to
the total return of the Standard and Poor's 500
Composite Stock Price Index
Competitive Edge "Best Ideas" Long-term capital growth
Portfolio
Strategist Portfolio High total investment return
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
Equity Growth Portfolio Long-term capital appreciation
U.S. Real Estate Portfolio Above-average current income and long-term capital
appreciation
International Magnum Portfolio Long-term capital appreciation Morgan Stanley
Asset Management
Emerging Markets Equity Portfolio Long-term capital appreciation
VAN KAMPEN LIFE INVESTMENT TRUST
Emerging Growth Portfolio Capital appreciation Van Kampen
Asset Management,
Inc.
</TABLE>
10 - PROSPECTUS
<PAGE>
You should read the Funds' Prospectuses carefully before you decide to allocate
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. Neither the Company nor the Funds currently foresee any
such disadvantages either to variable life insurance or variable annuity
contract owners. Nevertheless, the Funds' Boards of Directors or Trustees intend
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 a Fund's Board of Directors or Trustees
were to conclude that separate funds should be established for variable life and
variable annuity separate accounts, we will bear the attendant expenses.
We reinvest all investment income of and other distributions to each Variable
Sub-Account arising from the corresponding Portfolio in additional 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 Funds
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.
We reserve 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 a Fund should no longer be
available for investment, or if, in the judgment of the Company's management,
further investment in shares of a Fund should become inappropriate in view of
the purposes of the Contracts, we may substitute shares of another Fund for
shares already purchased, or to be purchased in the future, under the Contracts.
We will not make any such substitution without notice to Contract Owners. We
will also obtain prior approval of the Securities and Exchange Commission to the
extent required by the 1940 Act. We reserve the right to establish additional
Variable Sub-Accounts of the Variable Account, each of which would invest in
shares of another Fund or Portfolio. Subject to Contract Owner approval, We also
reserve 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 Funds are 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 prospectuses for the Funds for further information.
11 - PROSPECTUS
<PAGE>
THE CONTRACT
- -------------------------------------------------------------------
APPLICATION FOR A CONTRACT
Individuals wishing to purchase a Contract must submit an application to the
Company. We will issue a Contract only on the lives of Insureds age 0-85 who
supply evidence of insurability satisfactory to us. Acceptance is subject to our
underwriting rules, and we reserve the right to reject an application for any
lawful reason. We will not change the terms or conditions of a Contract without
the consent of the Contract Owner.
You must submit your application and obtain our approval before you pay your
initial premium. The Insured will be covered under the Contract as of the
Contract Date. The Contract Date also 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 our current underwriting rules, which are subject to change, proposed
Insureds are eligible for simplified underwriting without a medical examination
if their application responses and anticipated initial premium payment meet
simplified underwriting standards. Customary underwriting standards will apply
to all other proposed Insureds. The maximum initial premium currently permitted
on a simplified underwriting basis varies with the issue age of the Insured
according to the following table:
<TABLE>
<CAPTION>
Simplified
Underwriting
Maximum Initial
Issue Age 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 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 (1) $5,000, or
(2) a percentage of initial payment (5% for attained ages 40-70, and 0% for
attained ages 20-39 and 71-90).
We reserve 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, we will apply any additional premium
payment received while a Contract loan is outstanding: first, as a repayment of
Indebtedness, and second, as an additional premium payment, subject to the
conditions described above.
You may pay additional premiums at any time and in any amount necessary to avoid
termination of the Contract without evidence of insurability.
12 - PROSPECTUS
<PAGE>
ALLOCATION OF PREMIUMS
Upon completion of underwriting, the Company will either issue a Contract, or
deny coverage. If we issue a Contract, we will allocate the initial premium
payment on the date the Contract is issued according to the initial premium
allocation instructions you specified in your application. We reserve the right
to allocate the initial premium to the Money Market Variable Sub-Account during
the cancellation period in those states where state law requires premiums to be
returned upon exercise of the cancellation 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. We determine the
Accumulation Unit value on each Valuation Day by multiplying the Accumulation
Unit value for the particular Variable Sub-Account on the preceding Valuation
Day by a "Net Investment Factor". We determine the Net Investment Factor for
each Variable Sub-Account during a Valuation Period 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
Portfolio if the ex-dividend date occurs in the Valuation Period then ended), by
(B) the net asset value per share of that Portfolio at the end of the
immediately preceding Valuation Period. We then subtract from the result an
amount equal to the daily deductions for mortality and expense risk charges
imposed during the Valuation Period. You should refer to the prospectuses for
the Funds for a description of how the shares of the Portfolios are valued. See
"Contract Benefits and Rights Account Value," page 16.
All valuations in connection with a Contract, (e.g., with respect to determining
Account Value or with respect to determining the number of Accumulation Units to
be credited to a Contract with each premium), other than determinations with
respect to the initial premium and additional premiums requiring underwriting,
will be made on the date we receive, at our Home Office, the corresponding
request or payment in good order. However, if such date is not a Valuation Day,
we will make such determination on the next succeeding Valuation Day.
Specialized Uses of the Contract: Because the Contract provides for an
accumulation of Cash Value as well as a Death Benefit, you can use the Contract
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 Variable Sub-Accounts to which you have allocated
Account Value is poorer than expected or if sufficient premiums are not paid,
the Contract may lapse. Even if it does not lapse, it 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 Variable 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 you should consider whether the long-term nature of the
Contract is consistent with the purpose for which you are considering it. Using
a Contract for a specialized purpose may have tax consequences. (See "Federal
Tax Matters," page 23.)
13 - PROSPECTUS
<PAGE>
DEDUCTIONS AND CHARGES
- -------------------------------------------------------------------
MONTHLY DEDUCTIONS
On each Monthly Activity Date including the Contract Date, we will deduct from
your Account Value attributable to the Variable Account an amount ("Monthly
Deduction Amount") to cover charges and expenses incurred in connection with
your Contract. We deduct this amount from each Variable Sub-Account in
proportion to your Account Value attributable to each Variable Sub-Account. 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 "Access to Your Money--Lapse and
Reinstatement," page 20. 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 special risks. Current cost of
insurance rates are lower after the 10th Contract Year. The current cost of
insurance charge is taken by deducting a specified percentage of your Account
Value. However, this current charge will not exceed the guaranteed cost of
insurance charge. The monthly guaranteed charge is equal to the maximum annual
cost of insurance per $1,000 as indicated in the Contract (1) multiplied by the
difference between the Death Benefit and the Account Value (both as determined
on the Monthly Activity Date); (2) divided by $1,000; and (3) 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 is included in each Contract. However, the Company reserves
the right to use rates less than those shown in the table. Special 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 special rating class.
The guaranteed 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, or (2) the Account Value
on that date multiplied by the applicable Death Benefit ratio. (For an
explanation of the Death Benefit, together with Examples, see "Contract Benefits
and Rights--Death Benefit" on page 15.)
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 we have
assigned a risk rating class to an Insured when the Contract is issued, we will
not change that rating class if additional premium payments or partial
withdrawals increase or decrease the Specified Amount.
The level of Specified Amount that an initial premium will purchase will vary
based on age and sex. For example, a $10,000 initial premium paid by a male at
age 45 would result in a Specified Amount of $39,998. If a female age 65 paid a
$10,000 premium, the Specified Amount would be equal to $22,749.
TAX EXPENSE CHARGE: We 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 our receipt of premiums
under the Contract. 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%. We will
impose the premium tax deduction regardless of a Contract owner's state of
residence. Therefore, we take this deduction whether or not any premium tax
applies to your Contract. The deduction may be higher or lower than any premium
tax imposed. The 0.15% federal tax deduction helps reimburse the Company for
approximate expenses we incur for federal taxes under Section 848 of the Code.
ADMINISTRATIVE EXPENSE CHARGE: We will deduct monthly from your Account Value an
administrative expense charge equivalent to an annual rate of 0.25%. This charge
compensates us for administrative expenses we incur in administering the
Variable Account and the Contracts.
We take all monthly deductions by canceling Accumulation Units of the Variable
Account under your Contract.
OTHER DEDUCTIONS
Mortality and Expense Risk Charge: We deduct from the assets of the Variable
Account a daily charge equivalent to an annual rate of 0.90% for the mortality
risks and expense risks we assume 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. We also assume a risk that the
Death Benefit will exceed the amount on which the cost of insurance charges were
based, because we made that computation on the Monthly Activity Date preceding
the death of the Insured. The expense risk we assume is that expenses we incur
in issuing and administering the Contracts will exceed the administrative
charges set by the Contract.
14 - PROSPECTUS
<PAGE>
ANNUAL MAINTENANCE FEE: We will deduct from your Account Value an annual
maintenance fee of $30 on each Contract Anniversary. This fee will help
reimburse us for administrative and maintenance costs of the Contracts.
Currently, we waive this charge for Contracts which have an aggregate premium
which equals or exceeds the dollar amount indicated on your Contract data page
(currently $40,000).
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 our
receipt of premiums under the Contract). We may, however, impose such a charge
in the future. We may also assess charges for other taxes, if any, attributable
to the Variable Account or this class of Contracts.
CHARGES AGAINST THE FUNDS: The Variable Account purchases shares of the Funds at
net asset value. The net asset value of the Fund shares reflect Fund investment
management fees already deducted from the assets of the Funds. The Fund
investment management fees are a percentage of the average daily value of the
net assets of the Portfolios. See the "Portfolio Annual Expenses" table on
page 8.
WITHDRAWAL CHARGE: We may assess a withdrawal amount upon (1) surrender of the
Contract, and (2) partial withdrawals in excess of the Free Withdrawal Amount.
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>
Contract Year 1 - 3 4 5 6 7 8 9 10
- ------------------------------------ ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of Initial Premium
Withdrawn.......................... 7.75% 7.25% 6.25% 5.25% 4.25% 3.25% 2.25% 0.00%
</TABLE>
We will not impose a withdrawal charge after the ninth Contract Year. In
addition, we will not impose a withdrawal charge 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. We may waive the withdrawal charge 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 16.
We impose the withdrawal charge to cover a portion of the expense we incur in
distributing the Contracts. This expense includes agents' commissions,
underwriting and the costs associated with establishing policies.
DUE AND UNPAID PREMIUM TAX CHARGE: During the first nine Contract Years, we
impose a charge for due and unpaid premium tax on full or partial withdrawals in
excess of the Free Withdrawal Amount. This charge is shown below, as a percent
of the Initial Premium withdrawn:
<TABLE>
<CAPTION>
Year 1 2 3 4 5 6 7 8 9 10
- ------------------------------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of Initial Premium
Withdrawn.................... 2.25% 2.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 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
15 - PROSPECTUS
<PAGE>
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
(1) $100,000 (the Specified Amount); and (2) $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 "Payment Options," page 20.
ACCELERATED DEATH BENEFIT
If the Insured becomes terminally ill, you 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; or (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, results
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. The minimum amount of
death benefit we will accelerate is $10,000.
We will pay benefits due under the Accelerated Death Benefit provision upon our
receipt of a written request from the Contract Owner and due proof that the
Insured has been diagnosed as terminally ill. We also reserve the right to
require supporting documentation of the diagnosis and to require (at our
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 you
requested, reduced by the sum of (1) a 12 month interest discount to reflect the
early payment; (2) an administrative fee (not to exceed $250); and (3) a pro
rata amount of any outstanding Contract loan and accrued loan interest. After
the payment has been made, the Specified Amount, the Account Value and any
outstanding Contract loan will be reduced on a pro rata basis.
We allow only one request for an Accelerated Death Benefit per Insured. 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.
CONFINEMENT WAIVER BENEFIT
Under the terms of an endorsement to the Contract, we 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. The period of confinement must begin 30
days or more after the issue date. The request must be made either during such
confinement 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. In addition, its
features may differ from those discussed above as required by state law. Please
refer to the Endorsement for further information. The Company reserves the right
to discontinue the offering of the confinement waiver benefit endorsement upon
the purchase of a new contract.
ACCOUNT VALUE
We will compute the Account Value of a Contract 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 Portfolio, 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 Accumulation Unit
Value of the Variable Sub-Accounts to which you have allocated premiums on the
Contract. We calculate the Account Value on any Valuation Day by
(1) 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 (2) adding the results for all the
Sub-Accounts credited to the Contract to the value of the Loan Account. See "The
Contract--Accumulation Unit Values," page 13.
16 - PROSPECTUS
<PAGE>
TRANSFER OF ACCOUNT VALUE
While the Contract remains in force and subject to the Company's transfer rules
then in effect, you may request that part or all of the Account Value of a
particular Variable Sub-Account be transferred to other Variable Sub-Accounts.
We reserve 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 dollar amount that you may transfer is shown on the Contract
data page (currently $100) or the total amount in the Variable Sub-Account,
whichever is less.
On days when the New York Stock Exchange ("NYSE") is open for trading, we will
accept transfer requests if we receive them at 1(800) 654-2397 by 4:00 p.m.,
Eastern Time. We effect telephone transfer requests we receive before
4:00 p.m., Eastern Time at the next computed value. In the event that the NYSE
closes early, i.e., before 4:00 p.m. Eastern Time, or in the event that the NYSE
closes early for a period of time but then reopens for trading on the same day,
we will process telephone transfer requests as of the close of the NYSE on that
particular day. We will not accept telephone requests received at any telephone
number other than the number that appears in this paragraph or received after
the close of trading on the NYSE.
Transfers by telephone may be made by the Contract Owner's Morgan Stanley Dean
Witter Financial Advisor 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 they reasonably believe 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, you must submit transfer requests in writing, on a form we provide.
As a result of a transfer, we will reduce the number of Accumulation Units
credited to the Variable Sub-Account from which the transfer is made. The
reduction is equal to the amount transferred divided by the Accumulation Unit
value of that Variable Sub-Account on the Valuation Date we receive the transfer
request. Similarly, we will increase the number of Accumulation Units credited
to the Variable Sub-Account to which the transfer is made. The increase is equal
to the amount transferred divided by the Accumulation Unit value of that
Sub-Account on the Valuation Day we receive the transfer request.
For Contracts issued after May 1, 1999, we reserve the right to limit transfers
among the Variable Sub-Accounts if we determine, in our sole discretion, that
transfers by one or more Contract Owners would be to the disadvantage of other
Contract Owners. We may limit transfers by taking such steps as:
- - imposing a minimum time period between each transfer, or
- - refusing to accept transfer requests of an agent acting under a power of
attorney on behalf of more than one Contract owner.
We may apply the restrictions in any manner reasonably designed to prevent
transfers that we consider disadvantageous to other Contract Owners.
We reserve the right to waive any transfer restrictions.
DOLLAR COST AVERAGING
You may make transfers automatically through Dollar Cost Averaging while the
Contract is in force. Dollar Cost Averaging permits you to transfer a specified
amount every month (or some other frequency as may be determined by the Company)
from any one Variable Sub-Account to any other Variable Sub-Accounts. 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. We impose no additional charges upon
participants in the Dollar Cost Averaging program. We do not count transfers
under Dollar Cost Averaging toward the 12 free transfers per Contract Year
currently permitted.
AUTOMATIC PORTFOLIO REBALANCING PROGRAM
Once you have allocated your money among the Variable Sub-Accounts, the
performance of each Sub-Account may cause a shift in the percentage you
allocated to each Sub-Account. If you select our Automatic Portfolio Rebalancing
Program, we will automatically rebalance the Account Value in each Variable
Sub-Account and return it to the desired percentage allocations.
We will rebalance your account each quarter (or other intervals we may offer)
according to your instructions. We will transfer amounts among the Variable
Sub-Accounts to achieve the percentage allocations you specify. You can change
your allocations at any time by contacting us in
17 - PROSPECTUS
<PAGE>
writing. The new allocation will be effective with the first rebalancing that
occurs after we receive your written request. We are not responsible for
rebalancing that occurs prior to receipt of your request.
Example:
Assume that you want your initial purchase payment split among 2
Variable Sub-Accounts. You want 40% to be in the Quality Income Plus
Variable Sub-Account and 60% to be in the Capital Growth Variable
Sub-Account. Over the next 2 months the bond market does very well while
the stock market performs poorly. At the end of the first quarter, the
Quality Income Plus Variable Sub-Account now represents 50% of your
holdings because of its increase in value. If you choose to have your
holdings rebalanced quarterly, on the first day of the next quarter, we
would sell some of your units in the Quality Income Plus Variable
Sub-Account and use the money to buy more units in the Capital Growth
Variable Sub-Account so that the percentage allocations would again be
40% and 60% respectively.
Transfers made under the Automatic Portfolio Rebalancing Program do not count
towards the 12 transfers you can make without paying a transfer fee, and are not
subject to a transfer fee.
Portfolio rebalancing is consistent with maintaining your allocation of
investments among market segments, although it is accomplished by reducing your
Contract Value allocated to the better performing segments.
18 - PROSPECTUS
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ACCESS TO YOUR MONEY
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CONTRACT LOANS
While the Contract is in force, you 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 include preferred
loans (described below) and non-preferred loans. Both types of loans are secured
by your Contract. The maximum amount available for a loan is 90% of the
Contract's Cash Value, less the sum of:
- - the amount of all Contract loans existing on the date of the loan (including
loan interest to the next Contract Anniversary),
- - any due and unpaid Monthly Deduction Amounts, and
- - any annual maintenance fee due on or before the next Contract Anniversary.
We will transfer the loan amount pro rata from each Variable Sub-Account
attributable to your Contract (unless you specify otherwise) to the Loan
Account. We will credit the amounts allocated to the Loan Account with interest
at the loan credited rate set forth in the Contract. Loans will bear interest at
rates we determine from time to time, but which will not exceed the maximum rate
indicated in the Contract. The amount of the Loan Account that equals the excess
of the Account Value over the total of all premiums paid under the Contract net
of (1) any premiums returned due to partial withdrawals, and (2) 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, we will give you written notice that unless we
receive an additional payment within 61 days to reduce the aggregate outstanding
loan(s) secured by the Contract, the Contract may lapse.
You may repay all or any part of any loan secured by a Contract while the
Contract is still in effect. When you make loan repayments or interest payments,
we will allocate the payment among the Variable Sub-Accounts in the same
percentages as for subsequent premium payments (unless you request a different
allocation), and we will deduct an amount equal to the payment from the Loan
Account. You must repay any outstanding loan at the end of a grace period before
we will reinstate the Contract. See "Lapse and Reinstatement," page 20.
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, you may elect, without the consent of the
beneficiary (provided the designation of beneficiary is not irrevocable), to
fully surrender the Contract. Upon surrender, we will pay you the Cash Surrender
Value determined as of the day we receive your written request or the date you
request, whichever is later. The Cash Surrender Value equals the Cash Value less
the annual maintenance fee and any Indebtedness. We will pay the Cash Surrender
Value of the Contract within seven days of our receipt of the written request or
on the effective surrender date you request, whichever is later.
The Contract will terminate on the date of our receipt of your written request,
or the date you request the surrender to be effective, whichever is later. For a
discussion of the tax consequences of surrendering the Contract, see "Federal
Tax Matters," page 23.
You may elect to apply the surrender proceeds to an Income Plan (see "Access to
Your Money--Payment Options," page 20).
PARTIAL WITHDRAWALS
While the Contract is in force, you may elect by written request to make partial
withdrawals from the Cash Surrender Value of at least $500, 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, we will treat
your request 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.
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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 16. For a discussion of the tax consequences of partial
withdrawals, see "Federal Tax Matters," page 23.
PAYMENT OPTIONS
The surrender proceeds or Death Benefit proceeds under the Contracts may be paid
in a lump sum. You may also apply the proceeds 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, we may require
that the frequency of income payments be decreased such that the income payments
are greater than $20 each, or we may elect to pay the amount in a lump sum. No
surrender or partial withdrawals are permitted after payments under an Income
Plan commences.
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.
MATURITY
The Contract has no maturity date.
LAPSE AND REINSTATEMENT
The Contract will remain in force until the Cash Surrender Value is insufficient
to cover a Monthly Deduction Amount due on a Monthly Activity Date. We will give
you written notice 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. If sufficient payment is
not forthcoming, however, the Contract will terminate at the end of the grace
period. If the Insured dies during the grace period, the proceeds payable under
the Contract are reduced by the Monthly Deduction Amount(s) due and unpaid. See
"Contract Benefits and Rights--Death Benefit," page 15.
If the Contract lapses, you may apply for its reinstatement by payment of the
reinstatement premium (and any applicable charges) required under the Contract.
You must make a request for reinstatement within five years of the date the
Contract entered a grace period. If a loan was outstanding at the time of lapse,
we will require repayment of the loan before permitting reinstatement. In
addition, we reserve the right to require evidence of insurability satisfactory
to us. The reinstatement premium is equal to an amount sufficient to (1) cover
all Monthly Deduction Amounts and annual maintenance fees 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
You have a limited right to return a Contract for cancellation. This right to
return exists during the cancellation period. The cancellation period is a
number of days which varies by state as specified in your Contract. If you
choose to exercise this right, we may require that you return the Contract for
cancellation by mail or personal delivery to the Company within the cancellation
period following delivery of the Contract to you. We will then return to you
within 7 days thereafter the sum of (1) the Account Value on the Valuation Date
we (or our agent) receive the returned Contract; and (2) any deductions taken
under the Contract or by the Funds for taxes, charges or fees. Some states may
20 - PROSPECTUS
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require the Company to return the premiums paid for the returned Contract.
Once the Contract is in effect, you may exchange it 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 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.
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 SEC, or on any day the SEC 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
We offer the Contracts on either a single life or a "last survivor" basis.
Contracts sold on a last survivor basis operate in a manner almost identical to
the single life version. The most important difference is that the last survivor
version involves two Insureds and the proceeds are paid only on the death of the
last surviving Insured. The other significant differences between the last
survivor and single life versions are listed below:
- - Last survivor Contracts are offered for prospective insured persons age 18-85.
- - The cost of insurance charges under the last survivor Contracts reflect the
anticipated mortality of the two Insureds and the fact that the Death Benefit
is not payable until the death of the second Insured.
- - To qualify for simplified underwriting under a last survivor Contract, both
Insureds must meet the simplified underwriting standards.
- - For a last survivor Contract to be reinstated, both Insureds must be alive on
the date of reinstatement.
- - The Contract provisions regarding misstatement of age or sex, suicide and
incontestability apply to either Insured.
- - Additional tax disclosures applicable to last survivor Contracts are provided
in "Federal Tax Matters," page .
- - The Accelerated Death Benefit provision is only available upon terminal
illness of the last survivor.
- - The Confinement Waiver Benefit is available upon confinement of either
Insured.
21 - PROSPECTUS
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OTHER MATTERS
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VOTING RIGHTS
In accordance with our view of presently applicable law, we will vote the shares
of the Funds at regular and special meetings of its shareholders in accordance
with instructions from Contract Owners (or their assignees, as the case may be)
having a voting interest in the Variable Account. The number of shares of a
Portfolio held in a Variable Sub-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 Portfolio. We
will vote shares for which we have not received instructions and shares that are
not attributable to Contract Owners (i.e., shares we own) in the same proportion
as we vote shares for which we have received instructions. If the 1940 Act or
any rule promulgated to hereunder should be amended, however, or if our present
interpretation should change and, as a result, we determine we are permitted to
vote the shares of the Funds in our own right, we may elect to do so.
We determine the voting interests of the Contract Owner (or the assignee) in the
Funds as follows: Contract Owners are entitled to give voting instructions to
the Company with respect to Portfolio shares attributable to them as described
above, determined on the record date for the shareholder meeting for the
Portfolio. 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 "Access to Your Money--Contract Loans," page 20)
will not be considered in determining the voting interests of the Contract
Owner. Contract Owners should review the current prospectuses for the Funds to
determine matters on which Fund shareholders may vote.
We 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 a Fund or
to approve or disapprove an investment advisory contract for a Fund.
In addition, we may disregard voting instructions in favor of changes initiated
by Contract Owners in the investment objectives or the investment adviser of a
Fund if we reasonably disapprove of such changes. We will disapprove a change
only if the proposed change is contrary to state law or prohibited by state
regulatory authorities. If we do disregard voting instructions, we will include
a summary of that action and the reasons therefor in the next periodic report to
Contract Owners.
STATEMENTS TO CONTRACT OWNERS
We will maintain all records relating to the Variable Account and the Variable
Sub-Accounts. At least once each Contract Year, we will send to each Contract
Owner a statement showing the coverage amount and the Account Value of his or
her 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 premiums paid, Monthly Deduction Amounts
under the Contract since the last statement, and any other information required
by any applicable law or regulation.
LIMIT ON RIGHT TO CONTEST
The Company may not contest the validity of the Contract after it has been in
effect during the Insured's lifetime for two years from the Contract Date. If
the Contract is reinstated, the two-year period is measured from the date of
reinstatement. Any increase in the Specified Amount for which evidence of
insurability was obtained is contestable for two 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.
BENEFICIARY
You name the beneficiary in the application for the Contract. You 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.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be distributed exclusively by Dean Witter Reynolds Inc.
("Dean Witter"), which serves as the principal underwriter of the Contracts
under a general agency agreement with the Company.
22 - PROSPECTUS
<PAGE>
Dean Witter is a wholly owned subsidiary of Morgan Stanley Dean Witter & 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.
We may pay up to a maximum sales commission of 6.75%. Dean Witter will pay
annually to its Financial Advisors 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
We hold the assets of the Variable Account. We keep those assets physically
segregated and held separate and apart from the general account of the Company.
We maintain records of all purchases and redemptions of shares of the Fund.
FEDERAL TAX MATTERS
- -------------------------------------------------------------------
INTRODUCTION
The following discussion is general and is not intended as tax advice. The
Company makes no guarantee regarding the tax treatment of any Contract or
Transaction involving a Contract. Federal, state, local and other tax
consequences of ownership or purchase of a life insurance depend upon your
circumstances. 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. The Variable Account is not an entity separate from
the Company and its operations form a part of the Company. As a consequence, the
Separate Account 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
current federal 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. Generally, reserves are amounts that the Company is legally required
to accumulate and maintain in order to meet future obligations under the
Contracts. The Company does not anticipate that it will incur any federal income
tax liability attributable to the Variable Account. Therefore, we do not intend
to make provisions for any such taxes. If we are taxed on investment income or
capital gains of the [Variable] Account, then we may impose a charge against the
Variable Account in order to make provisions for any 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 qualifies as life insurance. The
Contract is structured to meet the Section 7702 definition of a life insurance
policy. This means that the Death Benefit is excluded from the beneficiary's
gross income under Section 101(a) of the Code and you are not taxed on increases
in the Contract Value until a distribution occurs.
If a Contract fails to qualify as life insurance under Section 7702, the
Contract will not provide most of the tax advantages normally provided by life
insurance. The Company has 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 surrender the Contract, you are subject to income tax on the portion of
the distribution that exceeds the investment in the contract. The investment in
the contract is the gross premium paid for the Contract minus any amounts
previously received from the Contract if such amounts were properly excluded
from your gross income.
If the Contract is not treated as a modified endowment contract, then Contract
loans are not generally treated as taxable distributions, and you are generally
taxed on partial withdrawals to the extent the amount distributed exceeds the
investment in the contract. In certain situations, partial withdrawals, or
reduction in benefits during the first fifteen years of the Contract may result
in a taxable distribution before the investment in the contract is recovered.
Interest paid on a Contract loan is generally not deductible. Withdrawals and
loans from modified endowment contracts are subject to less favorable tax
treatment.
If you are Owner and Insured under the Policy, the Death Benefit will be
included in your gross estate for federal estate tax purposes if the proceeds
are payable to you estate. If the
23 - PROSPECTUS
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beneficiary is not your estate, but you retain incidents of ownership in the
Contract, the Death Benefit will also be included in your gross estate. Examples
of incidents of ownership include:
- - the right to change beneficiaries,
- - to assign the Contract,
- - to revoke an assignment,
- - to pledge the Contract, or
- - to obtain a Contract loan.
If you are Owner and Insured under the Contract, and you transfer all incidents
of ownership in the Contract, the Death Benefit will be included in your gross
estate if you die within three years from the date of the ownership transfer.
State and local estate and inheritance taxes may also apply. In addition,
certain transfers of the Contract or Death Benefit, either during life or at
death, to individuals two or more generations below the transferor may be
subject to the federal generation skipping transfer tax. This rule also applies
if the transfer is to a trust for the benefit of individuals two or more
generations below the transferor.
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. If you are contemplating the use
of a Contract in any of these arrangements, you should consult a qualified tax
advisor regarding the tax attributes of the particular arrangement.
MODIFIED ENDOWMENT CONTRACTS
A life insurance policy is treated as a "modified endowment contract" under
Section 7702A of the Tax 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. 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 specific computational rules for the
seven pay test provided in Section 7702A. Therefore, the Contract will generally
be treated as a modified endowment contract. An exchange under Section 1035 of
the Tax Code of a life insurance policy that is not a modified endowment
contract will not cause the new policy to be a modified endowment contract if no
additional premiums are paid. An exchange under Section 1035 of the Code of a
life insurance policy that is a modified endowment contract for a new life
insurance policy will always cause the new policy 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. The death
benefit is excluded from income and increases in value are not subject to
current taxation. If you receive any amount as a Contract loan from a modified
endowment contract, or assign or pledge any part of the value of the Contract,
such amount is treated as a distribution. Unlike other life insurance policies,
withdrawals and distributions made before the insured's death are treated as
taxable income first, then as recovery of investment in the contract. The
Taxable portion of any distribution from a modified endowment contract is
subject to a 10% penalty tax, except as follows:
- - distributions made on or after the date on which the taxpayer attains age
59 1/2;
- - distributions attributable to the taxpayer's becoming disabled (within the
meaning of Section 72(m)(7) of the Code); or
- - 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 owner by one company or its affiliates shall be treated as one modified
endowment contract in determining the taxable portion of any distributions.
DIVERSIFICATION REQUIREMENTS
For a Contract to be treated as a variable life insurance policy for federal tax
purposes, the investments in the Variable Account must be "adequately
diversified" consistent with standards under Treasury Department regulations. If
the investments in the Variable Account are not adequately diversified, the
Contract will not be treated as a variable life insurance policy for federal
income tax purposes. As a result, you 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 Portfolios or their investments, we expect the
Portfolios to meet the diversification requirements.
OWNERSHIP TREATMENT
The IRS has stated that you will be considered the owner of Separate Account
assets if you possess incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. At the time the
diversification regulations were issued, the Treasury Department announced that
the regulations do not provide guidance concerning circumstances in which
investor control of the Variable
24 - PROSPECTUS
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Account investments may cause an investor to be treated as the owner of the
Variable Account. The Treasury Department also stated that future guidance would
be issued regarding the extent that owners could direct sub-account investments
without being treated as owners of the underlying assets of the Separate
Account.
Your rights under this Contract are different than those described by the IRS in
rulings in which it found that contract owners were not owners of Variable
Account assets. For example, you have the choice to allocate premiums and
Contract values among investment options more frequently than in such rulings.
These differences could result in you being treated as the owner of the Variable
Account. If this occurs, income and gain from the Variable Account assets would
be includible in your gross income. The Company does not know what standards
will be set forth in any regulations or rulings which the Treasury Department
may issue. It is possible that future standards announced by the Treasury
Department could adversely affect the tax treatment of your contract. We reserve
the right to modify the Contract as necessary to attempt to prevent you from
being considered the federal tax owner of the assets of the Variable Account.
However, we make no guarantee that such modification to the Contract will be
successful.
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.
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).
THOMAS J. WILSON, II, 43, President and Chief Executive Officer (1999)*
Also Director (1995-Present) and Senior Vice President (1999) of Allstate
Insurance Company; Director (1999) ALFS, Inc.; Director (1995-Present) and
President (1999) Allstate Life Insurance Company; Director (1999) and President
(1998-Present) of Allstate Life Insurance Company of New York; Director (1999)
and Vice Chairman (1999) of Glenbrook Life and Annuity Company; Director (1999)
Lincoln Benefit Life Company; Director (1999) of Surety Life Insurance Company.
MICHAEL J. VELOTTA, 54, Vice President, Secretary, General Counsel, and Director
(1992)*
Also Director and Secretary (1993-Present) of ALFS, 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
(1993-1997) Glenbrook Life Insurance Company; Director (1992-Present) Vice
President, Secretary and General Counsel (1993-Present) Glenbrook Life and
Annuity Company; 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, 45, Assistant Vice President (1990)* and Director (1994)*
Also Assistant Vice President (1990-Present) Allstate Life Insurance Company;
Assistant Vice President (1996-Present) Allstate Life Insurance Company of New
York; President and Chief Operating Officer (1998-Present) ALFS, Inc.**;
Director (1996-1997) Glenbrook Life Insurance Company; and Director
(1996-Present) and Senior Vice President--Product Management (1995-Present)
Glenbrook Life and Annuity Company.
MARLA G. FRIEDMAN, 47, Vice President (1996)*
Also Director (1991-Present) and Vice President (1988-Present) Allstate Life
Insurance Company; Director (1993-1996) ALFS, Inc.**; Director (1997-Present)
and 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 (1996-1997) 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.
25 - PROSPECTUS
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KAREN C. GARDNER, 46, Vice President, Northbrook Life Insurance Company
(1996-Present)*
Also Vice President--Tax (March 2000-Present) Allstate Financial Services, LLC;
Vice President (1996-Present) Allstate Insurance Company; Vice President
(1997-1998) ALFS, Inc.**; Vice President (1996-Present) Allstate Life Insurance
Company; Vice President (1996-Present) Allstate Life Insurance Company of New
York; Assistant Vice President (1996-Present) Lincoln Benefit Life Company; Vice
President (1999-Present) Glenbrook Life and Annuity Company; Assistant Vice
President (1996-Present) Surety Life Insurance Company.
KEVIN R. SLAWIN, 43, Director and Vice President (1996)*
Also Assistant Vice President and Assistant Treasurer (1995-1996) Allstate
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Allstate Financial Services, Inc.; Director and Vice President (1996-Present)
and Assistant Treasurer (1995-1996) Allstate Life Insurance Company; Director
and Vice President (1996-Present) and Assistant Treasurer (1995-1996) Allstate
Life Insurance Company of New York; Director and Vice President (1996-1997) 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.
CASEY J. SYLLA, 57, 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 (1995-1997) Glenbrook Life Insurance Company; Chief
Investment Officer (1995-Present) Glenbrook Life and Annuity Company.
JAMES P. ZILS, 49, Treasurer (1995)*
Also Vice President and Treasurer (1995-Present) Allstate Insurance Company;
Treasurer (1995-Present) ALFS, Inc.**; Treasurer (1995-Present) Allstate Life
Insurance Company; Treasurer (1995-Present) Allstate Life Insurance Company of
New York; Treasurer (1995-1997) Glenbrook Life Insurance Company; Treasurer
(1995-Present) Glenbrook Life and Annuity Company; and Treasurer (1995-Present)
Laughlin Group Holdings, Inc.
SAMUEL H. PILCH, 53, Controller (1999)*
Also Group Vice President and Controller (1999-present; Vice President and
Controller (1996-1999) Allstate Insurance Company; Vice President and Controller
(March 2000-Present), Controller (1999-2000) Allstate Life Insurance Company;
Controller (1999-Present) Allstate Life Insurance Company of New York;
Controller (1999-Present) Glenbrook Life and Annuity Company.
TIMOTHY N. VANDER PAS, 39, Director and Assistant Vice President (1998)*
Also Assistant Vice President (1998-Present) Allstate Life Insurance Company;
Assistant Vice President (1998-Present) Allstate Life Insurance Company of New
York; Director (1998-Present) Assistant Vice President (1998-Present), Senior
Vice President (1998-Present) Glenbrook Life and Annuity Company; Director
(1999-Present) Charter National Life Insurance Company; Director (1999-Present)
Intramerica Life Insurance Company.
SARAH R. DONAHUE, 51, Director (1998)* and Assistant Vice President (1993)*
Also Assistant Vice President (1993-Present) Allstate Life Insurance Company;
Director (1998-Present), First Vice President--Product Management (1997-1998),
Assistant Vice President (1993-President), Senior Vice President--Finance
(1995-1997), Senior Vice President--Product Management (1998-1999) Glenbrook
Life and Annuity Company.
* Date elected to current office
YEAR 2000
Northbrook is heavily dependent upon complex computer systems for all phases of
its operations, including customer service, and policy and contract
administration. Since many of Northbrook's older computer software programs
recognize only the last two digits of the year in any date, some software may
have failed to operate properly after the year 1999 if the software was not
reprogrammed or replaced ("Year 200 Issue"). Northbrook believes that many of
its countrerparties and suppliers also had potential Year 2000 Issues which
could have affected Northbrook. In 1995, Allstate Insurance Company commenced a
four phase plan intended to mitigate and/or prevent the adverse effects of Year
2000 Issues. These strategies included normal development and enhancement of new
and existing systems, upgrades to operating systems already covered by
maintenance agreements and modifications to existing systems to make them Year
2000 compliant. The plan also included Northbrook actively working with its
major external counterparties and suppliers to assess their compliance efforts
and Northbrook's exposure to them. Because of the accuracy of this plan and its
timely completion, Northbrook has experienced no material impacts on its results
of operations,
26 - PROSPECTUS
<PAGE>
liquidity or financial position due to the Year 2000 issue. Year 2000 costs are
expensed as incurred.
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
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised the Company on
certain federal securities law matters. All matters of state law pertaining to
the Contracts, including the validity of the Contracts and the Company's right
to issue such Contracts under state 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 SEC 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
Funds, the Company, and the Contracts. The exhibits filed with this registration
statement include hypothetical illustrations of the Contract that 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 (i.e.,
investment income and capital gains and losses, realized or unrealized) for the
Variable Account equal to annual rates of 0%, 6%, and 12%, an initial premium of
$10,000, Insureds in the standard rating class, and based on current and
guaranteed Contract charges.
EXPERTS
The financial statements of Northbrook as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 and related
financial statement schedule, included in this prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of the Variable Account as of December 31, 1999, and
for each of the periods in the three years then ended included in this
prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
Actuarial matters included in the Company's registration statement including the
hypothetical Policy illustrations, have been examined by Matt Monson, Actuary of
the Company and are included in reliance upon his opinion as to their
reasonableness.
27 - PROSPECTUS
<PAGE>
FINANCIAL INFORMATION
- -------------------------------------------------------------------
The financial statements of the Variable Account as of December 31, 1999 and
each of for the periods in the three years then ended, the financial statements
and related financial statement schedule of Northbrook as of December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999
and the accompanying Independent Auditors' Reports appear in the pages that
follow. The financial statements and schedule of Northbrook included herein
should be considered only as bearing upon the ability of Northbrook to meet its
obligations under the Contracts.
28 - PROSPECTUS
<PAGE>
FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NORTHBROOK LIFE INSURANCE COMPANY
Independent Auditors' Report.............................................. F-1
Financial Statements:
Statements of Financial Position
December 31, 1999 and 1998............................................. F-2
Statements of Operations and Comprehensive Income for the Years Ended
December 31, 1999, 1998 and 1997....................................... F-3
Statements of Shareholder's Equity for the Years Ended
December 31, 1999, 1998 and 1997....................................... F-4
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997....................................... F-5
Notes to Financial Statements........................................... F-6
Schedule IV--Reinsurance for the Years Ended
December 31, 1999, 1998 and 1997....................................... F-13
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
Independent Auditors' Report.............................................. F-15
Financial Statements:
Statement of Net Assets
December 31, 1999...................................................... F-16
Statements of Operations for the Periods Ended
December 31, 1999, 1998, and 1997...................................... F-17
Statements of Changes in Net Asets for the Periods Ended
December 31, 1999, 1998 and 1997....................................... F-26
Notes to Financial Statements........................................... F-35
</TABLE>
29 - PROSPECTUS
<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", an affiliate of The Allstate Corporation)
as of December 31, 1999 and 1998, and the related Statements of Operations and
Comprehensive Income, Shareholder's Equity and Cash Flows for each of the three
years in the period ended December 31, 1999. 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 the Company as of December 31, 1999 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 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 25, 2000
F-1
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------- ------------
($ IN THOUSANDS, EXCEPT PAR
VALUE DATA)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value (amortized cost
$89,205 and $81,156)..................................... $ 86,998 $ 86,336
Short-term................................................ 3,170 5,083
----------- ----------
Total investments....................................... 90,168 91,419
Cash........................................................ 21 --
Reinsurance recoverable from Allstate Life Insurance
Company................................................... 2,022,502 2,148,091
Other assets................................................ 5,997 6,705
Separate Accounts........................................... 8,211,996 7,031,083
----------- ----------
TOTAL ASSETS............................................ $10,330,684 $9,277,298
=========== ==========
LIABILITIES
Reserve for life-contingent contract benefits............... $ 150,587 $ 145,055
Contractholder funds........................................ 1,871,933 2,003,122
Current income taxes payable................................ 2,171 1,830
Deferred income taxes....................................... 746 3,316
Payable to affiliates, net.................................. 5,990 5,085
Separate Accounts........................................... 8,211,996 7,031,083
----------- ----------
TOTAL LIABILITIES....................................... 10,243,423 9,189,491
=========== ==========
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 12)
SHAREHOLDER'S EQUITY
Common stock, $100 par value, 25,000 shares authorized,
issued and outstanding.................................... 2,500 2,500
Additional capital paid-in.................................. 56,600 56,600
Retained income............................................. 29,596 25,340
Accumulated other comprehensive (loss) income:
Unrealized net capital (losses) gains..................... (1,435) 3,367
----------- ----------
Total accumulated other comprehensive (loss) income..... (1,435) 3,367
----------- ----------
TOTAL SHAREHOLDER'S EQUITY.............................. 87,261 87,807
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.............. $10,330,684 $9,277,298
=========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Net investment income....................................... $ 6,010 $5,691 $5,146
Realized capital gains and losses........................... 510 2 (68)
------- ------ ------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE............ 6,520 5,693 5,078
Income tax expense.......................................... 2,264 1,995 1,756
------- ------ ------
NET INCOME.................................................. 4,256 3,698 3,322
------- ------ ------
OTHER COMPREHENSIVE (LOSS) INCOME, AFTER-TAX
Change in unrealized net capital gains and losses........... (4,802) 825 1,256
------- ------ ------
COMPREHENSIVE (LOSS) INCOME................................. $ (546) $4,523 $4,578
======= ====== ======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
COMMON STOCK................................................ $ 2,500 $ 2,500 $ 2,500
------- ------- -------
ADDITIONAL CAPITAL PAID-IN.................................. 56,600 56,600 56,600
------- ------- -------
RETAINED INCOME
Balance, beginning of year.................................. 25,340 21,642 18,320
Net income.................................................. 4,256 3,698 3,322
------- ------- -------
Balance, end of year........................................ 29,596 25,340 21,642
------- ------- -------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance, beginning of year.................................. 3,367 2,542 1,286
Change in unrealized net capital gains and losses........... (4,802) 825 1,256
------- ------- -------
Balance, end of year........................................ (1,435) 3,367 2,542
------- ------- -------
Total shareholder's equity............................ $87,261 $87,807 $83,284
======= ======= =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 4,256 $ 3,698 $ 3,322
Adjustments to reconcile net income to net cash provided by
operating activities
Amortization and other non-cash items..................... 559 518 516
Realized capital gains and losses......................... (510) (2) 68
Changes in:
Life-contingent contract benefits and contractholder
funds.................................................. (68) 273 205
Income taxes payable.................................... 355 1,866 (480)
Other operating assets and liabilities.................. 924 4,126 (264)
-------- -------- --------
Net cash provided by operating activities............. 5,516 10,479 3,367
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales....................................... 17,992 1,922 1,606
Investment collections.................................... 6,555 10,253 10,036
Investment purchases...................................... (32,050) (20,690) (18,568)
Change in short-term investments, net....................... 2,008 (1,964) 3,559
-------- -------- --------
Net cash used in investing activities................. (5,495) (10,479) (3,367)
-------- -------- --------
NET INCREASE IN CASH........................................ 21 -- --
CASH AT THE BEGINNING OF YEAR............................... -- -- --
-------- -------- --------
CASH AT END OF YEAR......................................... $ 21 $ -- $ --
======== ======== ========
</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"). These financial statements have been prepared in conformity with
generally accepted accounting principles.
To conform with the 1999 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets savings and life insurance products exclusively through Dean
Witter Reynolds, Inc. ("Dean Witter") (see Note 4), a wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. Savings products include deferred annuities and
immediate annuities without life contingencies. Deferred annuities include fixed
rate, market value adjusted, and variable annuities. Life insurance consists of
interest-sensitive life, immediate annuities with life contingencies, and
variable life insurance. In 1999, substantially all of the Company's statutory
premiums and deposits were from annuities.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrender or withdrawal by customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have the
potential to impact its business. Recently enacted federal legislation will
allow for banks and other financial organizations to have greater participation
in the securities and insurance businesses. This legislation may present an
increased level of competition for sales of the Company's products. Furthermore,
the market for deferred annuities and interest-sensitive life insurance is
enhanced by the tax incentives available under current law. Any legislative
changes which lessen these incentives are likely to negatively impact the demand
for these products.
Additionally, traditional demutualizations of mutual insurance companies and
enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; and (2) increasing competition in the
capital markets.
The Company is authorized to sell life and savings products in all states except
New York, as well as in the District of Columbia and Puerto Rico. The top
geographic locations for statutory premiums and deposits for the Company were
California, Florida, and Texas for the year ended December 31, 1999. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits.
Substantially all premiums and deposits 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 or amortized cost, which approximates fair value.
Investment income consists primarily of interest and short-term investment
dividends. Interest is recognized on an accrual basis and dividends are recorded
at the ex-dividend date. Interest income on mortgage-backed securities is
determined on the effective yield method, based on the estimated principal
repayments. Accrual of income is suspended for fixed income securities that are
in default or when the receipt of interest payments is in doubt. Realized
capital gains and losses are determined on a specific identification basis.
REINSURANCE RECOVERABLE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC. Such amounts are reflected net of such reinsurance in the
statements of operations and comprehensive income. Investment income earned on
the assets which support contractholder funds and the reserve for
life-contingent contract benefits is not included in the Company's financial
statements as those assets are owned and managed under terms of reinsurance
agreements. Reinsurance recoverable and the related reserve for life-contingent
contract benefits and
F-6
<PAGE>
contractholder funds are reported separately in the statements of financial
position. The Company continues to have primary liability as the direct insurer
for risks reinsured.
RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS AND INTEREST CREDITED
Interest-sensitive life contracts are insurance contracts whose terms are not
fixed and guaranteed. The terms that may be changed include premiums paid by the
contractholder, interest credited to the contractholder account balance and one
or more amounts assessed against the contractholder. Premiums from these
contracts are reported as deposits to contractholder funds. Contract charge
revenue consists of fees assessed against the contractholder account balance for
cost of insurance (mortality risk), contract administration and surrender
charges. Contract benefits include interest credited to contracts and claims
incurred in excess of the related contractholder account balance.
Contracts that do not subject the Company to significant risk arising from
mortality or morbidity are referred to as investment contracts. Fixed rate
annuities, market value adjusted annuities and immediate annuities without life
contingencies are considered investment contracts. Deposits received for such
contracts are reported as deposits to contractholder funds. Contract charge
revenue for investment contracts consists of charges assessed against the
contractholder account balance for contract administration and surrender
charges. Contract benefits include interest credited and claims incurred in
excess of the related contractholder account balance.
Crediting rates for fixed rate annuities and interest-sensitive life contracts
are adjusted periodically by the Company to reflect current market conditions.
Investment contracts also include variable annuity and variable life contracts
which are sold as Separate Accounts products. The assets supporting these
products are legally segregated and available only to settle Separate Accounts
contract obligations. Deposits received are reported as Separate Accounts
liabilities. The Company's contract charge revenue for these contracts consists
of charges assessed against the Separate Accounts fund balances for contract
maintenance, administration, mortality, expense and surrenders.
All premiums, contract charges, contract benefits and interest credited are
reinsured.
INCOME TAXES
The income tax provision is calculated under the liability method and presented
net of reinsurance. Deferred tax assets and liabilities are recorded based on
the difference between the financial statement and tax bases of assets and
liabilities at the enacted tax rates. Deferred income taxes arise primarily from
unrealized capital gains and losses on fixed income securities carried at fair
value and differences in the tax bases of investments.
SEPARATE ACCOUNTS
The Company issues deferred variable annuity and variable life contracts, the
assets and liabilities of which are legally segregated and recorded as assets
and liabilities of the Separate Accounts. Absent any contract provisions wherein
the Company contractually guarantees either a minimum return or account value to
the beneficiaries of the contractholders in the form of a death benefit, the
contractholders bear the investment risk that the Separate Accounts' funds may
not meet their stated investment objectives.
The assets of the Separate Accounts are carried at fair value. Separate Accounts
liabilities represent the contractholders' claims to the related assets and are
carried at the fair value of the assets. In the event that the asset value of
certain contractholder accounts are projected to be below the value guaranteed
by the Company, a liability is established through a charge to earnings.
Investment income and realized capital gains and losses of the Separate Accounts
accrue directly to the contractholders and therefore, are not included in the
Company's statements of operations and comprehensive income. Revenues to the
Company from Separate Accounts consist of contract maintenance and
administration fees, and mortality, surrender and expense charges.
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to immediate
annuities with life contingencies and certain variable annuity contract
guarantees, is computed on the basis of assumptions as to mortality, future
investment yields, terminations and expenses at the time the policy is issued.
These assumptions include provisions for adverse deviation and generally vary by
such characteristics as type of coverage, year of issue and policy duration.
Detailed reserve assumptions and reserve interest rates are outlined in Note 7.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of interest-sensitive life and
certain investment contracts. Deposits received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received, net of
commissions, and interest credited to the benefit of the contractholder less
withdrawals, mortality charges and administrative expenses. Detailed information
on crediting rates and surrender and withdrawal protection on contractholder
funds are outlined in Note 7.
F-7
<PAGE>
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.
NEW ACCOUNTING STANDARDS
In 1999, the Company adopted Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." The SOP
provides guidance concerning when to recognize a liability for insurance-related
assessments and how those liabilities should be measured. Specifically,
insurance-related assessments should be recognized as liabilities when all of
the following criteria have been met: 1) an assessment has been imposed or it is
probable that an assessment will be imposed, 2) the event obligating an entity
to pay an assessment has occurred and 3) the amount of the assessment can be
reasonably estimated. Adoption of this statement was not material to the
Company's results of operations or financial position.
3. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such reinsurance in the statements of
operations and comprehensive income. Reinsurance recoverable and the related
reserve for life-contingent contract benefits and contracholder funds are
reported separately in the statements of financial position. The Company
continues to have primary liability as the direct insurer for risks reinsured.
Investment income earned on the assets which support contractholder funds and
the reserve for life-contingent contract benefits is not included in the
Company's financial statements as those assets are owned and managed under the
terms of the reinsurance agreements. The following amounts were ceded to ALIC
under reinsurance agreements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Premiums......................... $ 2,966 $ 2,528 $ 1,979
Contract charges................. 118,290 102,218 83,559
Credited interest, policy
benefits, and certain
expenses....................... 222,513 217,428 201,526
</TABLE>
BUSINESS OPERATIONS
The Company utilizes services provided by AIC and ALIC and business facilities
owned or leased, and operated by AIC in conducting its business activities. The
Company reimburses AIC and ALIC for the operating expenses incurred on behalf of
the Company. The Company is charged for the cost of these operating expenses
based on the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $33,892, $26,230 and $23,978 in 1999, 1998 and 1997, respectively. Of these
costs, the Company retains investment related expenses. All other costs are
ceded to ALIC under reinsurance agreements.
4. EXCLUSIVE DISTRIBUTION AGREEMENT
The Company has a strategic alliance with Dean Witter to develop, market and
distribute proprietary savings and life insurance products through Morgan
Stanley Dean Witter Financial Advisors. Affiliates of Dean Witter are the
investment managers for the Morgan Stanley Dean Witter Variable Investment
Series, Morgan Stanley Universal Funds, Inc. and the Van Kampen American Capital
Life Investment Trust, the funds in which certain assets of the Separate
Accounts products are invested. Under the terms of the alliance, the Company has
agreed to use Dean Witter as an exclusive distribution channel for the Company's
products. In addition to the Company's products, Dean Witter markets other
products which compete with those of the Company.
Pursuant to the alliance agreement, Dean Witter provides approximately half of
the statutory capital necessary to maintain these products on the Company's
books through loans to a subsidiary of AIC. AIC unconditionally guarantees the
repayment of these loans. The Company shares approximately half the net profits
with Dean Witter on contracts written under the alliance.
The strategic alliance is cancelable for new business by either party by giving
30 days written notice, however, the Company believes the benefits derived by
Dean Witter will preserve the alliance.
F-8
<PAGE>
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
COST GAINS LOSSES VALUE
--------- -------- -------- --------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999
U.S. government and
agencies................... $ 8,660 $ 131 $ (57) $ 8,734
Municipal.................... 1,155 6 (108) 1,053
Corporate.................... 61,049 26 (2,541) 58,534
Mortgage-backed securities... 18,341 822 (486) 18,677
------- ------ -------- -------
Total fixed income
securities............ $89,205 $ 985 $ (3,192) $86,998
======= ====== ======== =======
AT DECEMBER 31, 1998
U.S. government and
agencies................... $ 8,648 $1,469 $ -- $10,117
Municipal.................... 590 11 -- 601
Corporate.................... 33,958 1,634 (16) 35,576
Mortgage-backed securities... 37,960 2,250 (168) 40,042
------- ------ -------- -------
Total fixed income
securities............ $81,156 $5,364 $ (184) $86,336
======= ====== ======== =======
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at
December 31, 1999:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- --------
<S> <C> <C>
Due in one year or less................... $ 50 $ 50
Due after one year through five years..... 16,690 16,538
Due after five years through ten years.... 46,933 44,542
Due after ten years....................... 7,191 7,191
------- -------
70,864 68,321
Mortgage-backed securities................ 18,341 18,677
------- -------
Total............................... $89,205 $86,998
======= =======
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed income securities............... $5,881 $5,616 $5,364
Short-term investments................ 261 190 84
------ ------ ------
Investment income, before
expense.......................... 6,142 5,806 5,448
Investment expense................ 132 115 302
------ ------ ------
Net investment income........... $6,010 $5,691 $5,146
====== ====== ======
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed income securities............... $ 510 $ 2 $ (70)
Short-term investments................ -- -- 2
------ ------ ------
Realized capital gains and
losses........................... 510 2 (68)
Income taxes...................... (178) (1) 24
------ ------ ------
Realized capital gains and losses,
after tax........................ $ 332 $ 1 $ (44)
====== ====== ======
</TABLE>
Excluding calls and prepayments, gross gains of $629 were realized on sales of
fixed income securities during 1999 and gross losses of $119, $9 and $70 were
realized on sales of fixed income securities during 1999, 1998 and 1997,
respectively. There were no gross gains realized on sales of fixed income
securities during 1998 and 1997.
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS
COST/ UNREALIZED UNREALIZED
AMORTIZED FAIR -------------------- NET
COST VALUE GAINS LOSSES LOSSES
--------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Fixed income
securities.......... $89,205 $86,998 $985 $(3,192) $(2,207)
======= ======= ==== ======= =======
Deferred income
taxes............... 772
-------
Unrealized net capital
losses.............. $(1,435)
=======
</TABLE>
CHANGE IN UNREALIZED
NET CAPITAL GAINS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Fixed income securities.................... $(7,387) $1,269 $1,932
Deferred income taxes...................... 2,585 (444) (676)
------- ------ ------
(Decrease) increase in unrealized net
capital gains............................ $(4,802) $ 825 $1,256
======= ====== ======
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1999, fixed income securities with a carrying value of $7,856
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 presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable) and liabilities (including
interest-sensitive life insurance reserves and deferred income taxes) are not
considered financial instruments and are not carried at fair value. Other assets
and liabilities considered financial instruments, such as accrued investment
income and cash are generally of a short-term nature. Their carrying values are
assumed to approximate fair value.
F-9
<PAGE>
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed income
securities............. $ 86,998 $ 86,998 $ 86,336 $ 86,336
Short-term investments... 3,170 3,170 5,083 5,083
Separate Accounts........ 8,211,996 8,211,996 7,031,083 7,031,083
</TABLE>
Fair values for fixed income securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. Short-term investments are highly
liquid investments with maturities of less than one year whose carrying value
are deemed to approximate fair value. Separate Accounts assets are carried in
the statements of financial position at fair value based on quoted market
prices.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts... $1,735,843 $1,675,910 $1,839,114 $1,814,684
Separate Accounts........ 8,211,996 8,211,996 7,031,083 7,031,083
</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
Accounts liabilities are carried at the fair value of the underlying assets.
7. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS
At December 31, the reserve for life-contingent contract benefits consists of
the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Immediate annuities:
Structured settlement annuities....... $109,907 $108,215
Other immediate annuities............. 40,680 36,840
-------- --------
Total life-contingent contract
benefits............................. $150,587 $145,055
======== ========
</TABLE>
The assumptions for mortality generally utilized in calculating reserves
include, the U.S. population with projected calendar year improvements and age
setbacks for impaired lives for structured settlement annuities; and the 1983
group annuity mortality table for other immediate annuities. Interest rate
assumptions vary from 3.5% to 10.0% for immediate annuities. Other estimation
methods used include the present value of contractually fixed future benefits
for structured settlement annuities and other immediate annuities.
Premium deficiency reserves are established, if necessary, for the structured
settlement annuity business, to the extent the unrealized gains on fixed income
securities would result in a premium deficiency had those gains actually been
realized. The Company did not have a premium deficiency reserve at December 31,
1999 and 1998.
At December 31, contractholder funds consists of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Interest-sensitive life................. $ 173,867 $ 178,589
Fixed annuities:
Immediate annuities................. 78,197 77,291
Deferred annuities.................. 1,619,869 1,747,242
---------- ----------
Total contractholder funds.......... $1,871,933 $2,003,122
========== ==========
</TABLE>
Contractholder funds are equal to deposits received net of commissions and
interest credited to the benefit of the contractholder less withdrawals,
mortality charges and administrative expenses. Interest rates credited range
from 4.0% to 7.2% for interest-sensitive life contracts; 3.5% to 10.2% for
immediate annuities and 3.4% to 8.0% for deferred annuities. Withdrawal and
surrender charge protection includes: i) for interest-sensitive life, either a
percentage of account balance or dollar amount grading off generally over 20
years; and, ii) for deferred annuities not subject to a market value adjustment,
either a declining or a level percentage charge generally over nine years or
less. Approximately 25% of deferred annuities are subject to a market value
adjustment.
8. CORPORATION RESTRUCTURING
On November 10, 1999, the Corporation announced a series of strategic
initiatives to aggressively expand its selling and service capabilities. The
Corporation also announced that it is implementing a program to reduce expenses
by approximately $600 million. The reduction will result in the elimination of
approximately 4,000 current non-agent positions, across all employment grades
and categories by the end of 2000, or approximately 10% of the Corporation's
non-agent work force. The impact of the reduction in employee positions is not
expected to materially impact the results of operations of the Company.
These cost reductions are part of a larger initiative to redeploy the cost
savings to finance new initiatives including investments in direct access and
internet channels for new sales and service capabilities, new competitive
pricing and underwriting techniques, new agent and claim technology and enhanced
marketing and advertising. As a result of the
F-10
<PAGE>
cost reduction program, the Corporation recorded restructuring and related
charges of $81 million pretax during the fourth quarter of 1999. The Corporation
anticipates that additional pretax restructuring related charges of
approximately $100 million will be expensed as incurred throughout 2000. The
Company's allocable share of these expenses were immaterial in 1999 and are
expected to be immaterial in 2000.
9. INCOME TAXES
The Company joins the Corporation and its other eligible domestic subsidiaries
(the "Allstate Group") in the filing of a consolidated federal income tax return
and is party to a federal income tax allocation agreement (the "Allstate Tax
Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the Company pays
to or receives from the Corporation the amount, if any, by which the Allstate
Group's federal income tax liability is affected by virtue of inclusion of the
Company in the consolidated federal income tax return. Effectively, this results
in the Company's annual income tax provision being computed, with adjustments,
as if the Company filed a separate return.
Prior to June 30, 1995, the Corporation was a subsidiary of Sears Roebuck & Co.
("Sears") and, with its eligible domestic subsidiaries, was included in the
Sears consolidated federal income tax return and federal income tax allocation
agreement. Effective June 30, 1995, the Corporation and Sears entered into a new
tax sharing agreement, which governs their respective rights and obligations
with respect to federal income taxes for all periods during which the
Corporation was a subsidiary of Sears, including the treatment of audits of tax
returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's federal income tax returns through the 1993 tax year. Any adjustments
that may result from IRS examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or results of operations of
the Company.
The components of the deferred income tax assets and liabilities at
December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
DEFERRED ASSETS
Unrealized net capital losses.............. $ 772 $ --
------- -------
Total deferred assets.................. 772 --
DEFERRED LIABILITIES
Difference in tax bases of investments..... (1,518) (1,503)
Unrealized net capital gains............... -- (1,813)
------- -------
Total deferred liabilities............. (1,518) (3,316)
------- -------
Net deferred liability................. $ (746) $(3,316)
======= =======
</TABLE>
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current............................... $2,249 $1,797 $1,843
Deferred.............................. 15 198 (87)
------ ------ ------
Total income tax expense........ $2,264 $1,995 $1,756
====== ====== ======
</TABLE>
The Company paid income taxes of $1,908, $129 and $2,236 in 1999, 1998 and 1997,
respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate........ 35.0% 35.0% 35.0%
Tax-exempt income........................ (0.1) (0.2) (0.4)
Other.................................... (0.2) 0.2 --
----- ----- -----
Effective income tax rate................ 34.7% 35.0% 34.6%
===== ===== =====
</TABLE>
Prior to January 1, 1984, the Company was entitled to exclude certain amounts
from taxable income and accumulate such amounts in a "policyholder surplus"
account. The balance in this account at December 31, 1999, approximately $16,
will result in federal income taxes payable of $6 if distributed by the Company.
No provision for taxes has been made as the Company has no plan to distribute
amounts from this account. No further additions to the account have been
permitted since the Tax Reform Act of 1984.
10. STATUTORY FINANCIAL INFORMATION
The Company's statutory capital and surplus was $83,746 and $68,883 at December
31, 1999 and 1998, respectively. The Company's statutory net income was $4,840,
$3,518 and $2,908 for the years ended December 31, 1999, 1998 and 1997,
respectively.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting practices prescribed or permitted by the Arizona Department of
Insurance. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed. The Company does not follow any permitted statutory accounting
practices that have a significant impact on statutory surplus or statutory net
income.
The NAIC's codification initiative has produced a comprehensive guide of
statutory accounting principles, which the Company will implement in January
2001. The Company's state of domicile, Arizona, has passed legislation revising
F-11
<PAGE>
various statutory accounting requirements to conform to codification. These
requirements are not expected to have a material impact on the statutory surplus
of the Company.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by the Company without the prior approval of the state
insurance regulator is limited to formula amounts based on net income and
capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 2000 without prior approval of the Arizona Department of Insurance is
$4,840.
RISKED-BASED CAPITAL
The NAIC has a standard for assessing the solvency of insurance companies, which
is referred to as risk-based capital ("RBC"). The requirement consists of a
formula for determining each insurer's RBC and a model law specifying regulatory
actions if an insurer's RBC falls below specified levels. The RBC formula for
life insurance companies establishes capital requirements relating to insurance,
business, asset and interest rate risks. At December 31, 1999, RBC for the
Company was significantly above levels that would require regulatory action.
11. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
AFTER- AFTER- AFTER-
PRETAX TAX TAX PRETAX TAX TAX PRETAX TAX TAX
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNREALIZED CAPITAL GAINS AND
LOSSES:
Unrealized holding (losses)
gains arising during the
period....................... $(6,877) $2,407 $(4,470) $1,271 $(445) $826 $1,862 $(652) $1,210
Less: reclassification
adjustments.................. 510 (178) 332 2 (1) 1 (70) 24 (46)
------- ------ ------- ------ ----- ---- ------ ----- ------
Unrealized net capital (losses)
gains........................ (7,387) 2,585 (4,802) 1,269 (444) 825 1,932 (676) 1,256
------- ------ ------- ------ ----- ---- ------ ----- ------
Other comprehensive (loss)
income....................... $(7,387) $2,585 $(4,802) $1,269 $(444) $825 $1,932 $(676) $1,256
======= ====== ======= ====== ===== ==== ====== ===== ======
</TABLE>
12. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing banks
from engaging in the securities and insurance business, tax law changes
affecting the taxation of insurance companies, the tax treatment of insurance
products and its impact on the relative desirability of various personal
investment vehicles, and proposed legislation to prohibit the use of gender in
determining insurance rates and benefits. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
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. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
GUARANTY FUNDS
Under state insurance guaranty fund laws, insurers doing business in a state can
be assessed, up to prescribed limits, for certain obligations of insolvent
insurance companies to policyholders and claimants. The Company's expenses
related to these funds have been immaterial. These expenses are ceded to ALIC
under reinsurance agreements.
MARKETING AND COMPLIANCE ISSUES
Companies operating in the insurance and financial services markets have come
under the scrutiny of regulators with respect to market conduct and compliance
issues. Under certain circumstances, companies have been held responsible for
providing incomplete or misleading sales materials and for replacing existing
policies with policies that were less advantageous to the policyholder. The
Company monitors its sales materials and enforces compliance procedures to
mitigate any exposure to potential litigation. The Company is a member of the
Insurance Marketplace Standards Association, an organization which advocates
ethical market conduct.
F-12
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
SCHEDULE IV--REINSURANCE
<TABLE>
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Life insurance in force.................................... $474,824 $474,824 $ --
======== ======== ====
Premiums and contract charges:
Life and annuities....................................... $121,351 $121,351 $ --
======== ======== ====
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Life insurance in force.................................... $494,256 $494,256 $ --
======== ======== ====
Premiums and contract charges:
Life and annuities....................................... $104,746 $104,746 $ --
======== ======== ====
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Life insurance in force.................................... $515,890 $515,890 $ --
======== ======== ====
Premiums and contract charges:
Life and annuities....................................... $ 85,538 $ 85,538 $ --
======== ======== ====
</TABLE>
F-13
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
- -------------------------------------------------------------------
Financial Statements as of December 31, 1999 and
for the periods ended December 31,1999, December 31, 1998
and December 31, 1997, and Independent Auditors' Report
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Northbrook Life Insurance Company:
- --------------------------------------------------------------------------------
We have audited the accompanying statement of net assets of Northbrook Life
Variable Life Separate Account A as of December 31, 1999 (including the assets
of each of the individual sub-accounts which comprise the Account as disclosed
in Note 1), and the related statements of operations and the statements of
changes in net assets for each of the periods in the three year period then
ended for each of the individual sub-accounts which comprise the Account. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1999 by correspondence with the
account custodians. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Northbrook Life Variable Life Separate
Account A as of December 31, 1999 (including the assets of each of the
individual sub-accounts which comprise the Account), and the results of
operations for each of the individual sub-accounts and the changes in their net
assets for each of the periods in the three year period then ended in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 27, 2000
F-15
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Allocation to Sub-Accounts investing in the Morgan Stanley
Dean Witter Variable Investment Series:
Money Market, 1,935,125 shares (cost $1,935,125).......... $ 1,935,125
Quality Income Plus, 96,264 shares (cost $1,040,704)...... 949,166
Short-Term Bond, 3,562 shares ($35,297)................... 35,190
High Yield, 140,336 shares (cost $775,413)................ 607,720
Utilities, 35,021 shares (cost $725,989).................. 801,992
Income Builder, 31,943 shares (cost $376,102)............. 365,427
Dividend Growth, 271,185 shares (cost $5,696,466)......... 4,968,115
Capital Growth, 28,535 shares (cost $593,228)............. 677,141
Global Dividend Growth, 74,061 shares (cost $1,034,751)... 1,069,436
European Growth, 33,369 shares (cost $882,065)............ 1,050,109
Pacific Growth, 28,493 shares (cost $197,769)............. 241,622
Aggressive Equity, 13,278 shares (cost $145,816).......... 193,454
Equity, 94,381 shares (cost $3,850,001)................... 5,085,223
S&P 500 Index, 44,260 shares (cost $545,086).............. 594,410
Competitive Edge "Best Ideas", 2,208 shares (cost
$25,071)................................................. 27,311
Strategist, 59,623 shares (cost $997,423)................. 1,138,806
Allocation to Sub-Accounts investing in the Morgan Stanley
Dean Witter Universal Funds, Inc.:
Equity Growth, 8,173 shares (cost $146,001)............... 165,988
U.S. Real Estate, 546 shares (cost $5,258)................ 4,978
International Magnum, 3,238 shares (cost $40,804)......... 44,974
Emerging Markets Equity, 734 shares (cost $7,881)......... 10,165
Allocation to Sub-Account investing in the Van Kampen Life
Investment Trust:
Emerging Growth, 4,998 shares (cost $170,639)............. 231,047
-----------
Total Assets............................................ 20,197,399
LIABILITIES
Payable to Northbrook Life Insurance Company:
Accrued contract maintenance charges...................... 4,113
-----------
Net Assets.............................................. $20,193,286
===========
</TABLE>
See notes to financial statements.
F-16
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
-----------------------------------------------------------------------
Money Market Quality Income Plus
----------------------------------- ---------------------------------
For the Period Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997(a) 1999 1998 1997(a)
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $ 63,472 $ 75,284 $ 455 $ 67,649 $ 38,133 $ 711
Charges from Northbrook Life Insurance Company:
Mortality and expense risk.................... (12,771) (6,262) (78) (9,392) (4,159) (68)
---------- -------- ------- -------- -------- ------
Net investment income (loss).............. 50,701 69,022 377 58,257 33,974 643
---------- -------- ------- -------- -------- ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales......................... 1,474,053 812,217 59,910 312,569 10,611 189
Cost of investments sold.................... 1,474,053 812,217 59,910 311,069 41,674 188
---------- -------- ------- -------- -------- ------
Net realized gains (losses)............... -- -- -- 1,500 (31,063) 1
---------- -------- ------- -------- -------- ------
Change in unrealized gains (losses)........... -- -- -- (99,578) 7,597 443
---------- -------- ------- -------- -------- ------
Net gains (losses) on investments......... -- -- -- (98,078) (23,466) 444
---------- -------- ------- -------- -------- ------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS.................................... $ 50,701 $ 69,022 $ 377 $(39,821) $ 10,508 $1,087
========== ======== ======= ======== ======== ======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
See notes to financial statements.
F-17
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter
Variable Investment Series Sub-Accounts
--------------------------------------------
Short-Term
Bond High Yield
---------- -------------------------------
For the Period Ended December 31,
--------------------------------------------
1999(b) 1999 1998 1997(a)
---------- -------- --------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................... $ 335 $ 87,684 $ 51,206 $337
Charges from Northbrook Life Insurance Company:
Mortality and expense risk................................ (77) (5,499) (4,830) (17)
------- -------- --------- ----
Net investment income (loss).......................... 258 82,185 46,376 320
------- -------- --------- ----
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales..................................... 30,304 153,285 159,264 16
Cost of investments sold................................ 30,153 178,719 186,549 16
------- -------- --------- ----
Net realized gains (losses)........................... 151 (25,434) (27,285) --
------- -------- --------- ----
Change in unrealized gains (losses)....................... (107) (60,019) (107,673) (1)
------- -------- --------- ----
Net gains (losses) on investments..................... 44 (85,453) (134,958) (1)
------- -------- --------- ----
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.............. $ 302 $ (3,268) $ (88,582) $319
======= ======== ========= ====
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
(b) For the Period Beginning May 3, 1999 and Ended December 31, 1999
See notes to financial statements.
F-18
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
---------------------------------------------------------------------
Utilities Income Builder
--------------------------------- ---------------------------------
For the Period Ended December 31,
---------------------------------------------------------------------
1999 1998 1997(a) 1999 1998 1997(a)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................................ $27,137 $15,610 $ 67 $24,472 $ 9,718 $ --
Charges from Northbrook Life Insurance Company:
Mortality and expense risk......................... (5,144) (1,265) (3) (2,988) (1,910) --
------- ------- ---- ------- -------- ------
Net investment income (loss)................... 21,993 14,345 64 21,484 7,808 --
------- ------- ---- ------- -------- ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales.............................. 58,147 12,499 3 73,162 36,892 --
Cost of investments sold......................... 47,679 17,658 3 70,955 70,635 --
------- ------- ---- ------- -------- ------
Net realized gains (losses).................... 10,468 (5,159) -- 2,207 (33,743) --
------- ------- ---- ------- -------- ------
Change in unrealized gains (losses)................ 42,122 33,698 184 (830) (9,844) --
------- ------- ---- ------- -------- ------
Net gains (losses) on investments.............. 52,590 28,539 184 1,377 (43,587) --
------- ------- ---- ------- -------- ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS....... $74,583 $42,884 $248 $22,861 $(35,779) $ --
======= ======= ==== ======= ======== ======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
See notes to financial statements.
F-19
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
----------------------------------------------------------------------
Dividend Growth Capital Growth
---------------------------------- ---------------------------------
For the Period Ended December 31,
----------------------------------------------------------------------
1999 1998 1997(a) 1999 1998 1997(a)
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends......................................... $ 610,181 $173,939 $1,300 $ 56,681 $ 2,673 $ --
Charges from Northbrook Life Insurance Company:
Mortality and expense risk...................... (35,095) (15,782) (160) (3,588) (666) (4)
--------- -------- ------ -------- ------- ----
Net investment income (loss)................ 575,086 158,157 1,140 53,093 2,007 (4)
--------- -------- ------ -------- ------- ----
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales........................... 263,638 131,654 175 323,563 1,573 4
Cost of investments sold...................... 282,970 186,529 174 300,926 1,580 4
--------- -------- ------ -------- ------- ----
Net realized gains (losses)................. (19,332) (54,875) 1 22,637 (7) --
--------- -------- ------ -------- ------- ----
Change in unrealized gains (losses)............. (763,516) 32,997 2,167 54,785 28,508 620
--------- -------- ------ -------- ------- ----
Net gains (losses) on investments........... (782,848) (21,878) 2,168 77,422 28,501 620
--------- -------- ------ -------- ------- ----
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.... $(207,762) $136,279 $3,308 $130,515 $30,508 $616
========= ======== ====== ======== ======= ====
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
See notes to financial statements.
F-20
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
---------------------------------------------------------------------
Global Dividend Growth European Growth
--------------------------------- ---------------------------------
For the Period Ended December 31,
---------------------------------------------------------------------
1999 1998 1997(a) 1999 1998 1997(a)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................... $ 81,982 $51,502 $104 $ 62,252 $17,237 $ --
Charges from Northbrook Life Insurance Company:
Mortality and expense risk........................ (7,890) (3,900) (21) (5,830) (2,436) (23)
-------- ------- ---- -------- ------- ----
Net investment income (loss).................. 74,092 47,602 83 56,422 14,801 (23)
-------- ------- ---- -------- ------- ----
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales............................. 113,682 54,620 30 35,703 47,367 25
Cost of investments sold........................ 103,795 51,388 30 25,749 43,899 26
-------- ------- ---- -------- ------- ----
Net realized gains (losses)................... 9,887 3,232 -- 9,954 3,468 (1)
-------- ------- ---- -------- ------- ----
Change in unrealized gains (losses)............... 38,007 (3,294) (28) 154,979 13,019 47
-------- ------- ---- -------- ------- ----
Net gains (losses) on investments............. 47,894 (62) (28) 164,933 16,487 46
-------- ------- ---- -------- ------- ----
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS...... $121,986 $47,540 $ 55 $221,355 $31,288 $ 23
======== ======= ==== ======== ======= ====
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
See notes to financial statements.
F-21
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter
Variable Investment Series Sub-Accounts
-------------------------------------------
Aggressive
Pacific Growth Equity
------------------------------ ----------
For the Period Ended December 31,
-------------------------------------------
1999 1998 1997(a) 1999(b)
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................... $ 316 $ 400 $ -- $ 81
Charges from Northbrook Life Insurance Company:
Mortality and expense risk................................ (611) (155) -- (499)
------- ------- ---- -------
Net investment income (loss).......................... (295) 245 -- (418)
------- ------- ---- -------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales..................................... 12,211 551 -- 784
Cost of investments sold................................ 10,004 281 -- 715
------- ------- ---- -------
Net realized gains (losses)........................... 2,207 270 -- 69
------- ------- ---- -------
Change in unrealized gains (losses)....................... 45,281 (1,428) -- 47,639
------- ------- ---- -------
Net gains (losses) on investments..................... 47,488 (1,158) -- 47,708
------- ------- ---- -------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.............. $47,193 $ (913) $ -- $47,290
======= ======= ==== =======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
(b) For the Period Beginning May 3, 1999 and Ended December 31, 1999
See notes to financial statements.
F-22
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter
Variable Investment Series Sub-Accounts
------------------------------------------------------------
Competitive
S&P 500 Edge
Equity Index "Best Ideas"
-------------------------------- -------- --------------
For the Period Ended December 31,
------------------------------------------------------------
1999 1998 1997(a) 1999(b) 1999(b)
---------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................................... $ 294,023 $ 97,876 $ 268 $ 561 $ --
Charges from Northbrook Life Insurance Company:
Mortality and expense risk............................ (22,494) (7,287) (100) (1,399) (30)
---------- -------- ------ ------- ------
Net investment income (loss)...................... 271,529 90,589 168 (838) (30)
---------- -------- ------ ------- ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales................................. 542,048 143,153 142 8,807 68
Cost of investments sold............................ 442,607 128,870 143 6,300 66
---------- -------- ------ ------- ------
Net realized gains (losses)....................... 99,441 14,283 (1) 2,507 2
---------- -------- ------ ------- ------
Change in unrealized gains (losses)................... 1,117,295 114,532 3,395 49,324 2,240
---------- -------- ------ ------- ------
Net gains (losses) on investments................. 1,216,736 128,815 3,394 51,831 2,242
---------- -------- ------ ------- ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.......... $1,488,265 $219,404 $3,562 $50,993 $2,212
========== ======== ====== ======= ======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
(b) For the Period Beginning May 3, 1999 and Ended December 31, 1999
See notes to financial statements.
F-23
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
---------------------------------------------------------------------
Strategist Capital Appreciation
--------------------------------- ---------------------------------
For the Period Ended December 31,
---------------------------------------------------------------------
1999 1998 1997(a) 1999 1998 1997(a)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................................ $ 19,265 $ 31,144 $110 $ 618 $ 204 $ --
Charges from Northbrook Life Insurance Company:
Mortality and expense risk......................... (7,183) (2,485) (5) (90) (334) (11)
-------- -------- ---- ------- ------- -----
Net investment income (loss)................... 12,082 28,659 105 528 (130) (11)
-------- -------- ---- ------- ------- -----
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales.............................. 125,639 17,799 5 48,965 964 16
Cost of investments sold......................... 112,671 57,283 5 50,809 931 17
-------- -------- ---- ------- ------- -----
Net realized gains (losses).................... 12,968 (39,484) -- (1,844) 33 (1)
-------- -------- ---- ------- ------- -----
Change in unrealized gains (losses)................ 102,295 38,959 128 4,506 (3,776) (730)
-------- -------- ---- ------- ------- -----
Net gains (losses) on investments.............. 115,263 (525) 128 2,662 (3,743) (731)
-------- -------- ---- ------- ------- -----
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS....... $127,345 $ 28,134 $233 $ 3,190 $(3,873) $(742)
======== ======== ==== ======= ======= =====
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
See notes to financial statements.
F-24
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Van Kampen
Life
Investment
Morgan Stanley Dean Witter Trust
Universal Funds, Inc. Sub-Accounts Sub-Account
----------------------------------------------- -----------
Emerging
Equity U.S. Real International Markets Emerging
Growth Estate Magnum Equity Growth
-------- --------- ------------- -------- -----------
For the Period Ended December 31,
-------------------------------------------------------------
1999(b) 1999(b) 1999(b) 1999(b) 1999(b)
-------- --------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................................. $ 5,405 $ 195 $ 288 $ -- $ --
Charges from Northbrook Life Insurance Company:
Mortality and expense risk........................... (504) (14) (89) (20) (328)
------- ----- ------ ------ -------
Net investment income (loss)..................... 4,901 181 199 (20) (328)
------- ----- ------ ------ -------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales................................ 1,148 34 623 43 30,364
Cost of investments sold........................... 1,122 37 596 42 26,538
------- ----- ------ ------ -------
Net realized gains (losses)...................... 26 (3) 27 1 3,826
------- ----- ------ ------ -------
Change in unrealized gains (losses).................. 19,986 (280) 4,170 2,285 60,407
------- ----- ------ ------ -------
Net gains (losses) on investments................ 20,012 (283) 4,197 2,286 64,233
------- ----- ------ ------ -------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS......... $24,913 $(102) $4,396 $2,266 $63,905
======= ===== ====== ====== =======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
(b) For the Period Beginning May 3, 1999 and Ended December 31, 1999
See notes to financial statements.
F-25
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
-------------------------------------------------------------------------
Money Market Quality Income Plus
------------------------------------ ----------------------------------
For the Period Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997(a) 1999 1998 1997(a)
----------- ----------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 50,701 $ 69,022 $ 377 $ 58,257 $ 33,974 $ 643
Net realized gains (losses)............. -- -- -- 1,500 (31,063) 1
Change in unrealized gains (losses)..... -- -- -- (99,578) 7,597 443
----------- ----------- -------- ---------- ---------- -------
Change in net assets resulting from
operations........................ 50,701 69,022 377 (39,821) 10,508 1,087
----------- ----------- -------- ---------- ---------- -------
FROM CAPITAL TRANSACTIONS
Deposits................................ 8,929,743 8,943,005 -- 50 13,132 --
Benefit payments........................ -- -- -- -- -- --
Payments on termination................. -- (57,013) -- (33,690) -- --
Contract maintenance charges............ (22,736) (11,773) (209) (14,720) (7,231) (131)
Transfers among the sub-accounts and
with the Fixed Account--net............ (8,061,644) (8,042,636) 137,894 (133,710) 1,081,871 71,628
----------- ----------- -------- ---------- ---------- -------
Change in net assets resulting from
capital transactions.............. 845,363 831,583 137,685 (182,070) 1,087,772 71,497
----------- ----------- -------- ---------- ---------- -------
INCREASE (DECREASE) IN NET ASSETS....... 896,064 900,605 138,062 (221,891) 1,098,280 72,584
NET ASSETS AT BEGINNING OF PERIOD....... 1,038,667 138,062 -- 1,170,864 72,584 --
----------- ----------- -------- ---------- ---------- -------
NET ASSETS AT END OF PERIOD............. $ 1,934,731 $ 1,038,667 $138,062 $ 948,973 $1,170,864 $72,584
=========== =========== ======== ========== ========== =======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
See notes to financial statements.
F-26
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter
Variable Investment Series Sub-Accounts
--------------------------------------------
Short-Term
Bond High Yield
---------- -------------------------------
For the Period Ended December 31,
--------------------------------------------
1999(b) 1999 1998 1997(a)
---------- -------- --------- --------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................................ $ 258 $ 82,185 $ 46,376 $ 320
Net realized gains (losses)................................. 151 (25,434) (27,285) --
Change in unrealized gains (losses)......................... (107) (60,019) (107,673) (1)
------- -------- --------- -------
Change in net assets resulting from operations.......... 302 (3,268) (88,582) 319
------- -------- --------- -------
FROM CAPITAL TRANSACTIONS
Deposits.................................................... 4,087 -- 687 --
Benefit payments............................................ -- -- -- --
Payments on termination..................................... -- -- -- --
Contract maintenance charges................................ (121) (9,790) (9,932) (40)
Transfers among the sub-accounts and with the Fixed
Account--net............................................... 30,915 16,076 671,848 30,278
------- -------- --------- -------
Change in net assets resulting from capital
transactions.......................................... 34,881 6,286 662,603 30,238
------- -------- --------- -------
INCREASE (DECREASE) IN NET ASSETS........................... 35,183 3,018 574,021 30,557
NET ASSETS AT BEGINNING OF PERIOD........................... -- 604,578 30,557 --
------- -------- --------- -------
NET ASSETS AT END OF PERIOD................................. $35,183 $607,596 $ 604,578 $30,557
======= ======== ========= =======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
(b) For the Period Beginning May 3, 1999 and Ended December 31, 1999
See notes to financial statements.
F-27
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
---------------------------------------------------------------------
Utilities Income Builder
--------------------------------- ---------------------------------
For the Period Ended December 31,
---------------------------------------------------------------------
1999 1998 1997(a) 1999 1998 1997(a)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)...................... $ 21,993 $ 14,345 $ 64 $ 21,484 $ 7,808 $ --
Net realized gains (losses)....................... 10,468 (5,159) -- 2,207 (33,743) --
Change in unrealized gains (losses)............... 42,122 33,698 184 (830) (9,844) --
-------- -------- ------ -------- -------- ------
Change in net assets resulting from
operations.................................. 74,583 42,884 248 22,861 (35,779) --
-------- -------- ------ -------- -------- ------
FROM CAPITAL TRANSACTIONS
Deposits.......................................... -- -- -- 1,746 -- --
Benefit payments.................................. -- -- -- -- -- --
Payments on termination........................... -- -- -- (38,577) -- --
Contract maintenance charges...................... (8,559) (2,389) (9) (5,449) (4,127) --
Transfers among the sub-accounts and with the
Fixed Account--net............................... 329,461 357,037 8,573 95,087 329,590 --
-------- -------- ------ -------- -------- ------
Change in net assets resulting from capital
transactions................................ 320,902 354,648 8,564 52,807 325,463 --
-------- -------- ------ -------- -------- ------
INCREASE (DECREASE) IN NET ASSETS................. 395,485 397,532 8,812 75,668 289,684 --
NET ASSETS AT BEGINNING OF PERIOD................. 406,344 8,812 -- 289,684 -- --
-------- -------- ------ -------- -------- ------
NET ASSETS AT END OF PERIOD....................... $801,829 $406,344 $8,812 $365,352 $289,684 $ --
======== ======== ====== ======== ======== ======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
See notes to financial statements.
F-28
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
-------------------------------------------------------------------
Dividend Growth Capital Growth
---------------------------------- ------------------------------
For the Period Ended December 31,
-------------------------------------------------------------------
1999 1998 1997(a) 1999 1998 1997(a)
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................ $ 575,086 $ 158,157 $ 1,140 $ 53,093 $ 2,007 $ (4)
Net realized gains (losses)................. (19,332) (54,875) 1 22,637 (7) --
Change in unrealized gains (losses)......... (763,516) 32,997 2,167 54,785 28,508 620
---------- ---------- -------- -------- -------- -------
Change in net assets resulting from
operations............................ (207,762) 136,279 3,308 130,515 30,508 616
---------- ---------- -------- -------- -------- -------
FROM CAPITAL TRANSACTIONS
Deposits.................................... (29,127) -- -- -- -- --
Benefit payments............................ -- -- -- -- -- --
Payments on termination..................... (6,408) -- -- -- -- --
Contract maintenance charges................ (56,844) (29,870) (410) (6,118) (1,188) (20)
Transfers among the sub-accounts and with
the Fixed Account--net..................... 2,342,211 2,558,640 257,086 347,192 161,739 13,760
---------- ---------- -------- -------- -------- -------
Change in net assets resulting from
capital transactions.................. 2,249,832 2,528,770 256,676 341,074 160,551 13,740
---------- ---------- -------- -------- -------- -------
INCREASE (DECREASE) IN NET ASSETS........... 2,042,070 2,665,049 259,984 471,589 191,059 14,356
NET ASSETS AT BEGINNING OF PERIOD........... 2,925,033 259,984 -- 205,415 14,356 --
---------- ---------- -------- -------- -------- -------
NET ASSETS AT END OF PERIOD................. $4,967,103 $2,925,033 $259,984 $677,004 $205,415 $14,356
========== ========== ======== ======== ======== =======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
See notes to financial statements.
F-29
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
-------------------------------------------------------------------
Global Dividend Growth European Growth
-------------------------------- --------------------------------
For the Period Ended December 31,
-------------------------------------------------------------------
1999 1998 1997(a) 1999 1998 1997(a)
---------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................. $ 74,092 $ 47,602 $ 83 $ 56,422 $ 14,801 $ (23)
Net realized gains (losses).................. 9,887 3,232 -- 9,954 3,468 (1)
Change in unrealized gains (losses).......... 38,007 (3,294) (28) 154,979 13,019 47
---------- -------- ------- ---------- -------- -------
Change in net assets resulting from
operations............................. 121,986 47,540 55 221,355 31,288 23
---------- -------- ------- ---------- -------- -------
FROM CAPITAL TRANSACTIONS
Deposits..................................... -- -- -- (696) 687 --
Benefit payments............................. -- -- -- -- -- --
Payments on termination...................... -- -- -- -- -- --
Contract maintenance charges................. (12,830) (7,595) (81) (9,547) (4,711) (48)
Transfers among the sub-accounts and with the
Fixed Account--net.......................... 191,662 673,671 54,810 439,120 336,917 35,507
---------- -------- ------- ---------- -------- -------
Change in net assets resulting from
capital transactions................... 178,832 666,076 54,729 428,877 332,893 35,459
---------- -------- ------- ---------- -------- -------
INCREASE (DECREASE) IN NET ASSETS............ 300,818 713,616 54,784 650,232 364,181 35,482
NET ASSETS AT BEGINNING OF PERIOD............ 768,400 54,784 -- 399,663 35,482 --
---------- -------- ------- ---------- -------- -------
NET ASSETS AT END OF PERIOD.................. $1,069,218 $768,400 $54,784 $1,049,895 $399,663 $35,482
========== ======== ======= ========== ======== =======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
See notes to financial statements.
F-30
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable
Investment Series Sub-Accounts
-------------------------------------------
Aggressive
Pacific Growth Equity
------------------------------ ----------
For the Period Ended December 31,
-------------------------------------------
1999 1998 1997(a) 1999(b)
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................................ $ (295) $ 245 $ -- $ (418)
Net realized gains (losses)................................. 2,207 270 -- 69
Change in unrealized gains (losses)......................... 45,281 (1,428) -- 47,639
-------- ------- ---- --------
Change in net assets resulting from operations.......... 47,193 (913) -- 47,290
-------- ------- ---- --------
FROM CAPITAL TRANSACTIONS
Deposits.................................................... 21 -- -- 272
Benefit payments............................................ -- -- -- --
Payments on termination..................................... -- -- -- --
Contract maintenance charges................................ (1,039) (159) -- (484)
Transfers among the sub-accounts and with the Fixed
Account--net............................................... 178,912 17,558 -- 146,337
-------- ------- ---- --------
Change in net assets resulting from capital
transactions.......................................... 177,894 17,399 -- 146,125
-------- ------- ---- --------
INCREASE (DECREASE) IN NET ASSETS........................... 225,087 16,486 -- 193,415
NET ASSETS AT BEGINNING OF PERIOD........................... 16,486 -- -- --
-------- ------- ---- --------
NET ASSETS AT END OF PERIOD................................. $241,573 $16,486 $ -- $193,415
======== ======= ==== ========
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
(b) For the Period Beginning May 3, 1999 and Ended December 31, 1999
See notes to financial statements.
F-31
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
-----------------------------------------------------------------------
Competitive
Edge
S&P 500 "Best
Equity Index Ideas"
------------------------------------------- ----------- -----------
For the Period Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997(a) 1999(b) 1999(b)
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........................ $ 271,529 $ 90,589 $ 168 $ (838) $ (30)
Net realized gains (losses)......................... 99,441 14,283 (1) 2,507 2
Change in unrealized gains (losses)................. 1,117,295 114,532 3,395 49,324 2,240
---------- ---------- -------- -------- -------
Change in net assets resulting from
operations.................................... 1,488,265 219,404 3,562 50,993 2,212
---------- ---------- -------- -------- -------
FROM CAPITAL TRANSACTIONS
Deposits............................................ (26,014) -- -- 1,790 --
Benefit payments.................................... -- -- -- -- --
Payments on termination............................. (6,408) -- -- -- --
Contract maintenance charges........................ (37,882) (13,312) (252) (2,600) (44)
Transfers among the sub-accounts and with the Fixed
Account--net....................................... 2,239,256 1,062,866 154,703 544,106 25,138
---------- ---------- -------- -------- -------
Change in net assets resulting from capital
transactions.................................. 2,168,952 1,049,554 154,451 543,296 25,094
---------- ---------- -------- -------- -------
INCREASE (DECREASE) IN NET ASSETS................... 3,657,217 1,268,958 158,013 594,289 27,306
NET ASSETS AT BEGINNING OF PERIOD................... 1,426,971 158,013 -- -- --
---------- ---------- -------- -------- -------
NET ASSETS AT END OF PERIOD......................... $5,084,188 $1,426,971 $158,013 $594,289 $27,306
========== ========== ======== ======== =======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
(b) For the Period Beginning May 3, 1999 and Ended December 31, 1999
See notes to financial statements.
F-32
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Investment Series Sub-Accounts
-----------------------------------------------------------------------
Strategist Capital Appreciation(c)
----------------------------------- ---------------------------------
For the Period Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997(a) 1999 1998 1997(a)
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).................... $ 12,082 $ 28,659 $ 105 $ 528 $ (130) $ (11)
Net realized gains (losses)..................... 12,968 (39,484) -- (1,844) 33 (1)
Change in unrealized gains (losses)............. 102,295 38,959 128 4,506 (3,776) (730)
---------- -------- ------- -------- ------- -------
Change in net assets resulting from
operations................................ 127,345 28,134 233 3,190 (3,873) (742)
---------- -------- ------- -------- ------- -------
FROM CAPITAL TRANSACTIONS
Deposits........................................ (696) -- -- -- -- --
Benefit payments................................ -- -- -- -- -- --
Payments on termination......................... -- -- -- -- -- --
Contract maintenance charges.................... (13,031) (5,135) (19) (153) (618) (28)
Transfers among the sub-accounts and with the
Fixed Account--net............................. 500,898 483,699 17,146 (46,923) 29,147 20,000
---------- -------- ------- -------- ------- -------
Change in net assets resulting from capital
transactions.............................. 487,171 478,564 17,127 (47,076) 28,529 19,972
---------- -------- ------- -------- ------- -------
INCREASE (DECREASE) IN NET ASSETS............... 614,516 506,698 17,360 (43,886) 24,656 19,230
NET ASSETS AT BEGINNING OF PERIOD............... 524,058 17,360 -- 43,886 19,230 --
---------- -------- ------- -------- ------- -------
NET ASSETS AT END OF PERIOD..................... $1,138,574 $524,058 $17,360 $ -- $43,886 $19,230
========== ======== ======= ======== ======= =======
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
(c) On the close of business on March 19, 1999, Capital Appreciation Sub-Account
merged with and into Equity Sub-Account
See notes to financial statements.
F-33
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Van Kampen
Life
Investment
Morgan Stanley Dean Witter Trust
Universal Funds, Inc. Sub-Accounts Sub-Account
----------------------------------------------- -----------
Emerging
Equity U.S. Real International Markets Emerging
Growth Estate Magnum Equity Growth
-------- --------- ------------- -------- -----------
For the Period Ended December 31,
-------------------------------------------------------------
1999(b) 1999(b) 1999(b) 1999(b) 1999(b)
-------- --------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).......................... $ 4,901 $ 181 $ 199 $ (20) $ (328)
Net realized gains (losses)........................... 26 (3) 27 1 3,826
Change in unrealized gains (losses)................... 19,986 (280) 4,170 2,285 60,407
-------- ------ ------- ------- --------
Change in net assets resulting from operations.... 24,913 (102) 4,396 2,266 63,905
-------- ------ ------- ------- --------
FROM CAPITAL TRANSACTIONS
Deposits.............................................. 27 1,757 44 12 1,787
Benefit payments...................................... -- -- -- -- --
Payments on termination............................... -- -- -- -- --
Contract maintenance charges.......................... (725) (22) (135) (26) (507)
Transfers among the sub-accounts and with the Fixed
Account--net......................................... 141,739 3,344 40,660 7,911 165,815
-------- ------ ------- ------- --------
Change in net assets resulting from capital
transactions.................................... 141,041 5,079 40,569 7,897 167,095
-------- ------ ------- ------- --------
INCREASE (DECREASE) IN NET ASSETS..................... 165,954 4,977 44,965 10,163 231,000
NET ASSETS AT BEGINNING OF PERIOD..................... -- -- -- -- --
-------- ------ ------- ------- --------
NET ASSETS AT END OF PERIOD........................... $165,954 $4,977 $44,965 $10,163 $231,000
======== ====== ======= ======= ========
</TABLE>
- ------------------------
(a) For the Period Beginning November 13, 1997 and Ended December 31, 1997
See notes to financial statements.
F-34
<PAGE>
NORTHBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------
1. ORGANIZATION
Northbrook Life Variable Life Separate Account A (the "Account"), a unit
investment trust registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, is a Separate Account of Northbrook Life
Insurance Company ("Northbrook Life"). The assets of the Account are legally
segregated from those of Northbrook Life. Northbrook Life is wholly owned by
Allstate Life Insurance Company, a wholly owned subsidiary of Allstate Insurance
Company, which is a wholly owned subsidiary of The Allstate Corporation.
Northbrook Life issues the Morgan Stanley Dean Witter Variable Life contract,
the deposits of which are invested at the direction of the contractholders in
the sub-accounts that comprise the Account. Absent any contract provisions
wherein Northbrook Life contractually guarantees either a minimum return or
account value to the beneficiaries of the contractholders in the form of a death
benefit, the contractholders bear the investment risk that the sub-accounts may
not meet their stated objectives. The sub-accounts invest in the following
underlying mutual fund portfolios (collectively the "Funds"):
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES
<TABLE>
<S> <C>
Money Market Global Dividend Growth
Quality Income Plus European Growth
Short-term Bond Pacific Growth
High Yield Aggressive Equity
Utilities Equity
Income Builder S&P 500 Index
Dividend Growth Competitive Edge "Best
Capital Growth Ideas"
Strategist
</TABLE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
<TABLE>
<S> <C>
Equity Growth International Magnum
U.S. Real Estate Emerging Markets Equity
</TABLE>
VAN KAMPEN LIFE INVESTMENT TRUST
<TABLE>
<S> <C>
Emerging Growth
</TABLE>
Northbrook Life provides insurance and administrative services to the
policyholders for a fee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS--Investments consist of shares of the Funds and are
stated at fair value based on quoted market prices at December 31, 1999.
INVESTMENT INCOME--Investment income consists of dividends declared by the Funds
and is recognized on the ex-dividend date.
REALIZED GAINS AND LOSSES--Realized gains and losses represent the difference
between the proceeds from sales of portfolio shares by the Account and the cost
of such shares, which is determined on a weighted average basis.
FEDERAL INCOME TAXES--The Account intends to qualify as a segregated asset
account as defined in the Internal Revenue Code ("Code"). As such, the
operations of the Account are included in the tax return of Northbrook Life.
Northbrook Life is taxed as a life insurance company under the Code. No federal
income taxes are allocable to the Account as the Account did not generate
taxable income
USE OF ESTIMATES--The preparation of financial statements in conformity with
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. EXPENSES
MONTHLY DEDUCTIONS--Northbrook Life deducts monthly for cost of insurance, tax
expense and administrative expense from the Account Value. The cost of insurance
is determined based upon several variables, including the contractholder's death
benefit amount and Account Value. Tax expense is charged at an annual rate equal
to .40% of the Account Value for the first ten contract years. Northbrook Life
deducts a monthly administrative fee of .25% of the Account Value.
MORTALITY AND EXPENSE RISK CHARGE--Northbrook Life assumes mortality and expense
risks related to the operations of the Account and deducts charges daily at a
rate equal to .90% per annum of the daily net assets of the Account. The
mortality and expense risk charge covers insurance benefits available with the
contract and certain expenses of the contract. It also covers the risk that the
current charges will not be sufficient in the future to cover the cost of
administering the contract.
ANNUAL MAINTENANCE FEE--Northbrook Life deducts an annual maintenance fee of $30
on each contract anniversary. This charge is waived on contracts that meet
certain requirements.
F-35
<PAGE>
4. UNITS ISSUED AND REDEEMED
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Variable Life
-------------------------------------------------------------------
Unit activity during 1999:
-----------------------------------
Units Units Accumulated
Outstanding Outstanding Unit Value
December 31, Units Units December 31, December 31,
1998 Issued Redeemed 1999 1999
------------- -------- -------- ------------- -------------
(Units in whole amounts)
<S> <C> <C> <C> <C> <C>
Investments in the Morgan Stanley Dean Witter
Variable Investment Series Sub-Accounts:
Money Market.................................. 107,977 198,756 (129,077) 177,656 $10.89
Quality Income Plus........................... 106,687 21,445 (36,945) 91,187 10.41
Short-term Bond............................... -- 6,514 (3,029) 3,485 10.10
High Yield.................................... 63,988 14,539 (12,762) 65,765 9.24
Utilities..................................... 29,711 32,592 (9,817) 52,486 15.28
Income Builder................................ 27,346 13,973 (8,815) 32,504 11.24
Dividend Growth............................... 252,280 221,943 (31,351) 442,872 11.22
Capital Growth................................ 18,371 44,634 (17,171) 45,834 14.77
Global Dividend Growth........................ 67,763 23,294 (8,072) 82,985 12.88
European Growth............................... 31,701 39,260 (5,880) 65,081 16.13
Pacific Growth................................ 1,980 21,194 (5,545) 17,629 13.70
Aggressive Equity............................. -- 13,363 (43) 13,320 14.52
Equity........................................ 105,396 160,991 (27,469) 238,918 21.28
S&P 500 Index................................. -- 63,362 (8,497) 54,865 10.83
Competitive Edge "Best Ideas"................. -- 2,315 (4) 2,311 11.82
Strategist.................................... 40,897 44,293 (8,790) 76,400 14.90
Captial Appreciation.......................... 4,997 194 (5,191) --
Investments in the Morgan Stanley Dean Witter
Universal Funds Inc. Sub-Accounts:
Equity Growth................................. -- 13,281 (72) 13,209 12.56
U.S. Real Estate.............................. -- 546 (2) 544 9.16
International Magnum.......................... -- 3,821 (63) 3,758 11.97
Emerging Markets Equity....................... -- 662 (2) 660 15.41
Investments in the Van Kampen Life Investment
Trust
Sub-Account:
Emerging Growth............................... -- 13,883 (799) 13,084 17.65
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
F-36
