AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
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FILE NOS. 002-82511
811-03688
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 23 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
AMENDMENT NO. 20/X/
NORTHBROOK VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
NORTHBROOK LIFE INSURANCE COMPANY
(Name of Depositor)
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
847/402-2400
(Address and Telephone Number of Depositor's Principal Offices)
MICHAEL J. VELOTTA
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
NORTHBROOK LIFE INSURANCE COMPANY
3100 SAUNDERS ROAD
NORTHBROOK, ILLINOIS 60062
847/402-2400
(Name, Complete Address and Telephone Number of Agent for Service)
COPIES TO:
RICHARD T. CHOI, ESQUIRE
FREEDMAN, LEVY, KROLL & SIMONDS CHRISTINE A. EDWARDS, ESQUIRE
1050 CONNECTICUT AVENUE, N.W. DEAN WITTER REYNOLDS INC.
SUITE 825 TWO WORLD TRADE CENTER
WASHINGTON, D.C. 20036-5366 NEW YORK, NEW YORK 10048
<PAGE>
Approximate date of proposed public offering: Continuous
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1999 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on (date) pursuant to paragraph (a)(i) of Rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of Securities Being Registered: Units of Interest in the Northbrook
Variable Annuity Account under deferred variable annuity contracts.
<PAGE>
DEAN WITTER VARIABLE ANNUITY
NORTHBROOK LIFE INSURANCE COMPANY PROSPECTUS DATED MAY 1, 1999
P.O. BOX 94040
PALATINE, IL 60094
TELEPHONE NUMBER: 1-800-654-2397
Northbrook Life Insurance Company ("NORTHBROOK") has issued the Morgan Stanley
Dean Witter Variable Annuity, an individual and group flexible premium deferred
variable annuity contract ("CONTRACT"). This prospectus contains information
about the Contract that you should know before investing. Please keep it for
future reference.
The Contract currently offers 13 investment alternatives ("INVESTMENT
ALTERNATIVES"). The investment alternatives include a fixed account option
("FIXED ACCOUNT") and 12 variable sub-accounts ("VARIABLE SUB-ACCOUNTS") of
the Northbrook Variable Annuity Account ("VARIABLE ACCOUNT"). Each Variable
Sub-Account invests exclusively in shares of the following mutual fund
portfolios ("PORTFOLIOS") of the Morgan Stanley Dean Witter Variable
Investment Series ("FUND"):
MONEY MARKET PORTFOLIO GLOBAL DIVIDEND GROWTH PORTFOLIO
QUALITY INCOME PLUS PORTFOLIO EUROPEAN GROWTH PORTFOLIO
HIGH YIELD PORTFOLIO PACIFIC GROWTH PORTFOLIO
UTILITIES PORTFOLIO CAPITAL GROWTH PORTFOLIO
INCOME BUILDER PORTFOLIO EQUITY PORTFOLIO
DIVIDEND GROWTH PORTFOLIO STRATEGIST PORTFOLIO
WE (Northbrook) have filed a Statement of Additional Information, dated May 1,
1999, with the Securities and Exchange Commission ("SEC"). It contains more
information about the Contract and is incorporated herein by reference, which
means that it is legally a part of this prospectus. Its table of contents
appears on page __ of this prospectus. For a free copy, please write or call
us at the address or telephone number above, or go to the SEC's Web site
(HTTP://WWW.SEC.GOV). You can find other information and documents about us,
including documents that are legally a part of this prospectus, at the SEC's
Web site.
| THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
| DISAPPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR
| HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS
| PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A
| FEDERAL CRIME.
IMPORTANT |
NOTICES |
| THE CONTRACTS ARE NOT FDIC INSURED.
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C> <C>
PAGE
IMPORTANT TERMS.......................................................
THE CONTRACT AT A GLANCE..............................................
OVERVIEW HOW THE CONTRACT WORKS................................................
EXPENSE TABLE.........................................................
FINANCIAL INFORMATION.................................................
THE CONTRACT..........................................................
PURCHASES.............................................................
CONTRACT VALUE........................................................
INVESTMENT ALTERNATIVES...............................................
The Variable Sub-Accounts...........................................
The Fixed Account...................................................
Transfers...........................................................
CONTRACT EXPENSES..............................................................
FEATURES ACCESS TO YOUR MONEY..................................................
INCOME PAYMENTS.......................................................
DEATH BENEFITS........................................................
MORE INFORMATION ABOUT:
Northbrook..........................................................
The Variable Account................................................
The Portfolios......................................................
The Contract........................................................
OTHER Qualified Plans.....................................................
INFORMATION Legal Matters.......................................................
Year 2000...........................................................
TAXES.................................................................
PERFORMANCE INFORMATION...............................................
APPENDIX A--ACCUMULATION UNIT VALUES..................................
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS................
</TABLE>
2
<PAGE>
IMPORTANT TERMS
This prospectus uses a number of important terms that you may not be familiar
with. The index below identifies the page that describes each term. The first
use of each term in this prospectus appears in highlights.
PAGE
ACCUMULATION PHASE..................................................
ACCUMULATION UNIT ..................................................
ACCUMULATION UNIT VALUE ............................................
ANNUITANT...........................................................
AUTOMATIC ADDITIONS PROGRAM.........................................
AUTOMATIC INCOME WITHDRAWALS........................................
BENEFICIARY.........................................................
*CONTRACT ...........................................................
CONTRACT ANNIVERSARY................................................
CONTRACT OWNER ("YOU") .............................................
CONTRACT VALUE .....................................................
CONTRACT YEAR......................................................
DEATH BENEFIT.......................................................
DOLLAR COST AVERAGING PROGRAM.......................................
FIXED ACCOUNT.......................................................
FREE WITHDRAWAL AMOUNT .............................................
FUND................................................................
INCOME PLAN ........................................................
INVESTMENT ALTERNATIVES ............................................
ISSUE DATE .........................................................
NORTHBROOK ("WE")...................................................
PAYOUT PHASE........................................................
PAYOUT START DATE .................................................
PORTFOLIOS..........................................................
QUALIFIED CONTRACTS.................................................
SEC.................................................................
SETTLEMENT VALUE ..................................................
VALUATION DATE......................................................
VARIABLE ACCOUNT ...................................................
VARIABLE SUB-ACCOUNT ...............................................
* In certain states the Contract is available only as a group Contract. In
these states, we will issue you a certificate that represents your ownership
and that summarizes the provisions of the group Contract. References to
"Contract" in this prospectus include certificates, unless the context
requires otherwise.
3
<PAGE>
THE CONTRACT AT A GLANCE
The following is a snapshot of the Contract. Please read the remainder of this
prospectus for more information.
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FLEXIBLE PAYMENTS Although we are no longer offering new Contracts, you
can add to your current Contract as often and as much
as you like, but each payment must be at least $25. We
may limit the total payments you can make in a
"CONTRACT YEAR," which we measure from the date we
issue your Contract and each Contract anniversary.
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EXPENSES You will bear the following expenses:
* Total Variable Account annual fees equal to 1.00%
of average daily net assets
* Annual contract maintenance charge of $30
* Withdrawal charges not to exceed 6% of purchase
payment withdrawn (with certain exceptions)
* State premium tax (if your state imposes one)
In addition, each Portfolio pays expenses that you
will bear indirectly if you invest in a Variable
Sub-Account.
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INVESTMENT The Contract offers 13 investment alternatives
ALTERNATIVES including:
* The Fixed Account (which credits interest at rates
we guarantee), and
* 12 Variable Sub-Accounts investing in Portfolios
offering professional money management by Morgan
Stanley Dean Witter Advisors, Inc.
To find out current rates being paid on the Fixed
Account, or to find out how the Variable Sub-Accounts
have performed, call us at 1-800-654-2397.
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SPECIAL SERVICES For your convenience, we offer these special services:
* AUTOMATIC ADDITIONS PROGRAM
* AUTOMATIC INCOME WITHDRAWALS
* DOLLAR COST AVERAGING PROGRAM
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4
<PAGE>
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INCOME PAYMENTS You can choose fixed income payments, variable income
payments, or a combination of the two. You can receive
your income payments in one of the following ways:
* life income with payments guaranteed for 10 years
* joint and survivor life income
* guaranteed payments for a specified period
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DEATH BENEFITS If you or the ANNUITANT die before the PAYOUT
START DATE, we will pay the death benefit described in
the Contract.
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TRANSFERS Before the Payout Start Date, you may transfer your
Contract value ("CONTRACT VALUE") among the investment
alternatives, with certain restrictions. Transfers
must be at least $100 or the total amount in the
investment alternative, whichever is less.
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WITHDRAWALS You may withdraw some or all of your Contract Value at
anytime prior to the Payout Start Date. You may take
partial withdrawals automatically through monthly
Automatic Income Withdrawals. In general, you must
withdraw at least $500 at a time or the total amount
in the investment alternative, if less. A 10% federal
tax penalty may apply if you withdraw before you are
591/2years old. A withdrawal charge also may apply.
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5
<PAGE>
HOW THE CONTRACT WORKS
The Contract basically works in two ways.
First, the Contract can help you (we assume you are the CONTRACT OWNER)
save for retirement because you can invest in up to 13 investment alternatives
and pay no federal income taxes on any earnings until you withdraw them. You
do this during what we call the "ACCUMULATION PHASE" of the Contract. The
Accumulation Phase begins on the date we issue your Contract (we call that
date the "ISSUE DATE") and continues until the Payout Start Date, which is the
date we apply your money to provide income payments. During the Accumulation
Phase, you may allocate your purchase payments to any combination of the
Variable Sub-Accounts and/or the Fixed Account. If you invest in the Fixed
Account, you will earn a fixed rate of interest that we declare periodically.
If you invest in any of the Variable Sub-Accounts, your investment return will
vary up or down depending on the performance of the corresponding Portfolios.
Second, the Contract can help you plan for retirement because you can
use it to receive retirement income for life and/or for a pre-set number of
years, by selecting one of the income payment options (we call these "INCOME
PLANS") described on page __. You receive income payments during what we call
the "PAYOUT PHASE" of the Contract, which begins on the Payout Start Date and
continues until we make the last payment required by the Income Plan you
select. During the Payout Phase, if you select a fixed income payment option,
we guarantee the amount of your payments, which will remain fixed. If you
select a variable income payment option, based on one or more of the Variable
Sub-Accounts, the amount of your payments will vary up or down depending on
the performance of the corresponding Portfolios. The amount of money you
accumulate under your Contract during the Accumulation Phase and apply to an
Income Plan will determine the amount of your income payments during the
Payout Phase.
The timeline below illustrates how you might use your Contract.
<TABLE>
<S> <C> <C> <C> <C> <C>
ISSUE Payout Start
DATE Accumulation Phase Date PAYOUT PHASE
*-------------------------------------------------------------()-----------------------------------()------------------?---------
You save for retirement
You buy You elect to receive You can receive Or you can
a Contract income payments or income receive income
receive a lump sum payments for a payments
payment set period for life
</TABLE>
As the Contract owner, you exercise all of the rights and privileges
provided by the Contract. If you die, any surviving Contract owner or, if
there is none, the BENEFICIARY will exercise the rights and privileges
provided by the Contract. SEE "The Contract." In addition, if you die before
the Payout Start Date, we will pay a death benefit to any surviving Contract
owner, or if there is none, to your Beneficiary. SEE "Death Benefits."
Please call us at 1-800-654-2397 if you have any question about how the
Contract works.
6
<PAGE>
EXPENSE TABLE
The table below lists the expenses that you will bear directly or indirectly
when you buy a Contract. The table and the examples that follow do not reflect
premium taxes that may be imposed by the state where you reside. For more
information about Variable Account expenses, see "Expenses," below. For more
information about Portfolio expenses, please refer to the accompanying
prospectus for the Fund.
-----------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years
Since We Received the Purchase
Payment Being Withdrawn: 0 1 2 3 4 5 6+
Applicable Charge: 6% 5% 4% 3% 2% 1% 0%
Annual Contract Maintenance Charge......................................$30.00
Transfer Fee..............................................................None
* Each Contract Year, you may make one withdrawal of up to 10% of your
aggregate purchase payments, excluding those made one year before the
withdrawal, without incurring a withdrawal charge. The cumulative
total of all withdrawal charges is guaranteed never to exceed 7% of
your purchase payments (not including earnings attributable to these
payments).
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of daily net asset value deducted from each Variable Sub-
Accounts)
Mortality and Expense Risk Charge........................................1.00%
Total Variable Account Annual Expenses............................1.00%
7
<PAGE>
PORTFOLIO ANNUAL EXPENSES (After Voluntary Reductions and Reimbursements)
(as a percentage of Portfolio average daily net assets)
<TABLE>
<CAPTION>
Total
Portfolio
Management Other Annual
Portfolio Fees Expenses Expenses
<S> <C> <C> <C>
Money Market 0.50% 0.02% 0.52%
Quality Income Plus 0.50% 0.02% 0.52%
High Yield 0.50% 0.03% 0.53%
Utilities 0.65% 0.02% 0.67%
Income Builder 0.75% 0.06% 0.81%
Dividend Growth 0.52% 0.01% 0.53%
Capital Growth 0.65% 0.05% 0.70%
Global Dividend Growth 0.75% 0.09% 0.84%
European Growth 0.99% 0.12% 1.11%
Pacific Growth 0.99% 0.52% 1.51%
Equity(1) 0.50% 0.02% 0.52%
Strategist 0.50% 0.02% 0.62%
<FN>
(1) As of the close of business on March 19, 1999, the Capital Appreciation
Portfolio merged with and into the Equity Portfolio.
</FN>
</TABLE>
8
<PAGE>
EXAMPLE 1
The example below shows the dollar amount of expenses that you would bear
directly or indirectly if you:
* invested $1,000 in a Variable Sub-Account,
* earned a 5% annual return on your investment, and
* surrendered your Contract , or you began receiving income payments
for a specified period of less than 120 months, at the end of each
time period.
THE EXAMPLE DOES NOT INCLUDE ANY TAXES, TAX PENALTIES OR WITHDRAWAL CHARGE YOU
MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT.
VARIABLE SUB-ACCOUNT 1 Year 3 Years 5 Years 10 Years
- -------------------- ------ ------- ------- --------
Money Market $63 $80 $ 97 $188
Quality Income Plus $63 $80 $ 97 $188
High Yield $63 $81 $ 98 $189
Utilities $64 $85 $105 $205
Income Builder $66 $89 $112 $220
Dividend Growth $63 $81 $ 98 $189
Capital Growth $65 $86 $107 $208
Global Dividend Growth $66 $90 $114 $223
European Growth $69 $98 $128 $252
Pacific Growth $73 $110 $148 $293
Equity $63 $80 $ 97 $188
Strategist $63 $80 $ 97 $188
EXAMPLE 2
Same assumptions as Example 1 above, except that you decided not to surrender
your Contract, or you began receiving income payments for a specified period
of at least 120 months at the end of each period.
VARIABLE SUB-ACCOUNT 1 Year 3 Years 5 Years 10 Years
- -------------------- ------ ------- ------- --------
Money Market $16 $50 $ 86 $188
Quality Income Plus $16 $50 $ 86 $188
High Yield $16 $51 $ 87 $189
Utilities $18 $55 $ 94 $205
Income Builder $19 $59 $102 $220
Dividend Growth $16 $51 $ 87 $189
Capital Growth $18 $56 $ 96 $208
Global Dividend Growth $19 $60 $103 $223
European Growth $22 $69 $117 $252
Pacific Growth $26 $81 $138 $293
Equity $16 $50 $ 86 $188
Strategist $16 $50 $ 86 $188
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF
PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE LOWER OR GREATER THAN
THOSE SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LOWER OR GREATER THAN
5%, WHICH IS NOT GUARANTEED. [TO REFLECT THE CONTRACT MAINTENANCE CHARGE IN
THE EXAMPLES, WE ESTIMATED AN EQUIVALENT PERCENTAGE CHARGE, BASED ON AN
ASSUMED AVERAGE CONTRACT SIZE OF $47,771.]
9
<PAGE>
FINANCIAL INFORMATION
To measure the value of your investment in the Variable Sub-Accounts during
the Accumulation Phase, we use a unit of measure we call the "ACCUMULATION
UNIT." Each Variable Sub-Account has a separate value for its Accumulation
Units we call "ACCUMULATION UNIT VALUE." Accumulation Unit Value is analogous
to, but not the same as, the share price of a mutual fund.
Attached as Appendix A to this prospectus are tables showing the Accumulation
Unit Values of each Variable Sub-Account since 1989, or inception, if later.
To obtain a fuller picture of each Variable Sub-Account's finances, please
refer to the Variable Account's financial statements contained in the
Statement of Additional Information. The financial statements of Northbrook
also appear in the Statement of Additional Information.
10
<PAGE>
THE CONTRACT
CONTRACT OWNER
The Variable Annuity I is a contract between you, the Contract owner, and
Northbrook, a life insurance company. As the Contract owner, you may exercise
all of the rights and privileges provided to you by the Contract. That means
it is up to you to select or change (to the extent permitted):
* the investment alternatives during the Accumulation and Payout
Phases,
* the amount and timing of your purchase payments and withdrawals,
* the programs you want to use to invest or withdraw money,
* the income payment plan you want to use to receive retirement
income,
* the Annuitant (either yourself or someone else) on whose life the
income payments will be based,
* the Beneficiary or Beneficiaries who will receive the benefits
that the Contract provides when you die, and
* any other rights that the Contract provides.
If you die, any surviving Contract owner, or , if none, the Beneficiary will
exercise the rights and privileges provided to them by the Contract.
You can use the Contract with or without a QUALIFIED PLAN. A "qualified plan"
is a personal retirement savings plan, such as an IRA or tax-sheltered
annuity, that meets the requirements of the Internal Revenue Code. Qualified
plans may limit or modify your rights and privileges under the Contract. We
use the term "Qualified Contract" to refer to a Contract used with a qualified
plan. See "Qualified Plans" on page __.
ANNUITANT
The Annuitant is the individual whose life span we use to determine income
payments as well as the latest Payout Start Date. You initially designate an
Annuitant in your application.
BENEFICIARY
The Beneficiary is the person who may elect to receive the death benefit or
become the new Contract owner if the sole surviving Contract owner dies before
the Payout Start Date. If the sole surviving Contract owner dies after the
Payout Start Date, the Beneficiary will receive any guaranteed income payments
scheduled to continue.
You may name one or more Beneficiaries when you apply for a Contract. You may
name different Beneficiaries in the event of the Owner's death or the
Annuitant's death. You may change or add Beneficiaries at any time while you
or the Annuitant, as applicable, is living by writing to us, unless you have
designated an irrevocable Beneficiary. We will provide a change of Beneficiary
form to be signed and filed with us. Any change will be effective at the time
you sign the written notice, whether or not you or the Annuitant, as
applicable, is living when we receive the notice. Until we receive your
written notice to change a Beneficiary, we are entitled to rely on the most
recent Beneficiary information in our files. We will not be liable as to any
payment or settlement made prior to receiving the written notice. Accordingly,
if you wish to change your Beneficiary, you should deliver your written notice
to us promptly.
If you did not name a Beneficiary or, unless otherwise provided in the
Beneficiary designation, if a named Beneficiary is no longer living and there
are no other surviving Beneficiaries, the new Beneficiary will be you or your
estate.
If more than one Beneficiary survives you, or the Annuitant, as applicable, we
will divide the death benefit among your Beneficiaries according to your most
recent written instructions. If you have not given us written instructions, we
will pay the death benefit in equal amounts to the surviving Beneficiaries.
11
MODIFICATION OF THE CONTRACT
Only a Northbrook officer may approve a change in or waive any provision of
the Contract. Any change or waiver must be in writing. None of our agents has
the authority to change or waive the provisions of the Contract. We may not
change the terms of the Contract without your consent, except to conform the
Contract to applicable law or changes in the law. If a provision of the
Contract is inconsistent with state law, we will follow state law.
ASSIGNMENT
You may assign the Contract prior to the Payout Start Date and during the
Annuitant's life, subject to the rights of any irrevocable Beneficiary. No
Beneficiary may assign benefits under the Contract until they are payable to
the Beneficiary. We will not be bound by any assignment until you sign it and
file it with us. We are not responsible for the validity of any assignment.
Federal law prohibits or restricts the assignment of benefits under many types
of retirement plans and the terms of such plans may themselves contain
restrictions on assignments. An assignment may also result in taxes or tax
penalties. YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN YOUR
CONTRACT.
12
<PAGE>
PURCHASES
MINIMUM PURCHASE PAYMENTS
You may make additional purchase payments of at least $25 at any time prior to
the Payout Start Date. We reserve the right to limit the amount of purchase
payments we will accept.
AUTOMATIC ADDITIONS PROGRAM
You may make subsequent purchase payments of at least $25 by automatically
transferring amounts from your bank account or your Dean Witter Active
AssetsTM Account. Please consult your Morgan Stanley Dean Witter Financial
Advisor for details.
ALLOCATION OF PURCHASE PAYMENTS
At the time you apply for a Contract, you must decide how to allocate your
purchase payments among the investment alternatives. The allocation you
specify on your application will be effective immediately. All allocations
must be in whole percents that total 100% or in whole dollars. The minimum you
may allocate to any investment alternative is $100. You can change your
allocations by notifying us in writing.
We will allocate your purchase payments to the investment alternatives
according to your most recent instructions on file with us. Unless you notify
us in writing otherwise, we will allocate subsequent purchase payments
according to the allocation for the previous purchase payment. We will effect
any change in allocation instructions at the time we receive written notice of
the change in good order.
We will credit additional purchase payments to the Contract at the close of
the business day on which we receive the purchase payment at our home office.
We are open for business each day Monday through Friday that the New York
Stock Exchange is open for business. We also refer to these days as "VALUATION
DATES." Our business day closes when the New York Stock Exchange closes,
usually 4 p.m. Eastern Time (3 p.m. Central Time). If we receive your purchase
payment after 3 p.m. Central Time on any Valuation Date, we will credit your
purchase payment using the Accumulation Unit Values computed on the next
Valuation Date.
13
<PAGE>
CONTRACT VALUE
Your Contract Value at any time during the Accumulation Phase is equal to the
sum of the value of your Accumulation Units in the Variable Sub-Accounts you
have selected, plus the value of your investment in the Fixed Account.
ACCUMULATION UNITS
To determine the number of Accumulation Units of each Variable Sub-Account to
allocate to your Contract, we divide (i) the amount of the purchase payment
you have allocated to a Variable Sub-Account by (ii) the Accumulation Unit
Value of that Variable Sub-Account next computed after we receive your
payment. For example, if we receive a $10,000 purchase payment allocated to a
Variable Sub-Account when the Accumulation Unit Value for the Sub-Account is
$10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to
your Contract.
ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account
will rise or fall to reflect:
* changes in the share price of the Portfolio in which the Variable
Sub-Account invests, and
* the deduction of amounts reflecting the mortality and expense risk
charge and any provision for taxes that have accrued since we last
calculated the Accumulation Unit Value.
We determine contract maintenance charges, and withdrawal charges, separately
for each Contract. They do not affect Accumulation Unit Value. Instead, we
obtain payment of those charges by redeeming Accumulation Units. For details
on how we calculate Accumulation Unit Value, please refer to the Statement of
Additional Information.
We determine a separate Accumulation Unit Value for each Variable Sub-Account
on each Valuation Date.
YOU SHOULD REFER TO THE PROSPECTUSES FOR THE FUND THAT ACCOMPANY THIS
PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED,
SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE
CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE.
14
<PAGE>
INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS
You may allocate your purchase payments to up to 12 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
prospectus for the Fund. You should carefully review the Fund prospectus
before allocating amounts to the Variable Sub-Accounts.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Investment Adviser:
PORTFOLIO: Each Portfolio Seeks:
-----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Variable Investment Series
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
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 Morgan Stanley
capital Dean Witter
Advisors, Inc.
Dividend Growth Portfolio Reasonable current income and long-term growth of income
and capital
Capital Growth Portfolio Long-term capital growth
Global Dividend Growth Portfolio Reasonable current income and long-term growth of income
and capital
European Growth Portfolio To maximize the capital appreciation on its investments
Pacific Growth Portfolio To maximize the capital appreciation of its investments
Equity Portfolio Growth of capital and, as a secondary objective, income
when consistent with its primary objective
Strategist Portfolio High total investment return
</TABLE>
AMOUNTS YOU ALLOCATE TO VARIABLE SUB-ACCOUNTS MAY GROW IN VALUE, DECLINE IN
VALUE, OR GROW LESS THAN YOU EXPECT, DEPENDING ON THE INVESTMENT PERFORMANCE
OF THE PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE
INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT
OBJECTIVES. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS, OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
15
<PAGE>
INVESTMENT ALTERNATIVES : THE FIXED ACCOUNT
You may allocate all or a portion of your purchase payments to the Fixed
Account. The Fixed Account supports our insurance and annuity obligations. The
Fixed Account consists of our general assets other than those in segregated
asset accounts. We have sole discretion to invest the assets of the Fixed
Account, subject to applicable law. Any money you allocate to the Fixed
Account does not entitle you to share in the investment experience of the
Fixed Account.
We bear the investment risk for all amounts that you allocate to the Fixed
Account. That is because we credit amounts that you allocate to the Fixed
Account at a net effective rate of at least 4.0% per year. We may use a higher
rate that we determine periodically. We credit this rate, regardless of the
actual investment experience of the Fixed Account.
Money that you deposit in the Fixed account earns the interest rate that is in
effect at the time of your allocation or transfer until the first renewal
date. The first renewal date is January 1 following the date of your
allocation or transfer of money into the Fixed Account. Subsequent renewal
dates are on anniversaries of the first renewal date. On or about each renewal
date, we will notify you of the interest rate for the next calendar year. We
may declare more than one interest rate for different monies based on their
date of allocation or transfer to the Fixed Account.
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INVESTMENT ALTERNATIVES: TRANSFERS
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer Contract Value among the
investment alternatives. You may request transfers in writing on a form that
we provide or by telephone according to the procedure described below. The
minimum amount that you may transfer is $100 or the total amount in the
investment alternative, whichever is less.
You may transfer amounts from the Variable Sub-Accounts to the Fixed Account
only once every 30 days. If you invested amounts in the Fixed Account prior to
its revision, you may transfer these amounts only once every six months.
We limit the maximum amount which may be transferred from the revised Fixed
Account to the Variable Account in any calendar year to the greater of $1,000
or 25% of the value in the revised Fixed Account as of December 31 of the
prior calendar year (except with respect to amounts which were allocated to
the Fixed Account prior to the date of availability).
We will process transfer requests that we receive before 3:00 p.m. Central
Time on any Valuation Date using the Accumulation Unit Values for that Date.
We will process requests completed after 3:00 p.m. on any Valuation Date using
the Accumulation Unit Values for the next Valuation Date. We may restrict
transfers to once every 30 days. If we do so, we will give you at least 30
days' notice of that restriction.
We reserve the right to waive any transfer restrictions.
TRANSFERS DURING THE PAYOUT PHASE
During the Payout Phase, you may make transfers among the Variable
Sub-Accounts to change the relative weighting of the Variable Sub-Accounts on
which your variable income payments will be based. In addition, you will have
a limited ability to make transfers from the Variable Sub-Accounts to increase
the proportion of your income payments consisting of fixed income payments.
You may not, however, convert any portion of your right to receive fixed
income payments into variable income payments.
You may not make any transfers for the first 6 months after the Payout Start
Date. Thereafter, you may make transfers among the Variable Sub-Accounts or
make transfers from the Variable Sub-Accounts to increase the proportion of
your income payments consisting of fixed income payments. Your transfers must
be at least 6 months apart.
TELEPHONE TRANSFERS
You may make transfers by telephone by calling 1-800-654-2397 if you first
send us a completed authorization form. The cut off time for telephone
transfer requests is 3:00 p.m. Central time. In the event that the New York
Stock Exchange closes early, i.e., before 3:00 p.m. Central Time, or in the
event that the Exchange 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 Exchange 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 Exchange.
We may suspend, modify or terminate the telephone transfer privilege at any
time without notice.
We use procedures that we believe provide reasonable assurance that the
telephone transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information.
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Accordingly, we disclaim any liability for losses resulting from allegedly
unauthorized telephone transfers. However, if we do not take reasonable steps
to help ensure that a telephone authorization is valid, we may be liable for
such losses.
DOLLAR COST AVERAGING PROGRAM
Under the Dollar Cost Averaging Program, you may automatically transfer a set
amount at regular intervals during the Accumulation Phase from the Money
Market Sub-Account to any other Variable Sub-Account. Transfers made through
Dollar Cost Averaging must be for $100 or more.
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 this Program does not assure you of a greater profit
from your purchases under the Program nor will it prevent or necessarily
reduce losses in a declining market.
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EXPENSES
As a Contract owner, you will bear, directly or indirectly, the charges and
expenses described below.
CONTRACT MAINTENANCE CHARGE
During the Accumulation Phase, on each Contract Anniversary, we will deduct a
$30 contract maintenance charge from your Contract Value invested in each
Variable Sub-Account in proportion to the amount invested. During the Payout
Phase, we will deduct the charge proportionately from each income payment. If
you surrender your Contract, we will deduct the full contract maintenance
charge.
The charge is to compensate us for the cost of administering the Contracts and
the Variable Account. Maintenance costs include expenses we incur in billing
and collecting purchase payments; keeping records; processing death claims,
cash withdrawals, and policy changes; proxy statements; calculating
Accumulation Unit Values and income payments; and issuing reports to Contract
owners and regulatory agencies. We cannot increase the charge.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily at an annual rate of 1.00%
of the average daily net assets you have invested in the Variable
Sub-Accounts. The mortality and expense risk charge is for all the insurance
benefits available with your Contract (including our guarantee of annuity
rates and the death benefits), for certain expenses of the Contract, and for
assuming the risk (expense risk) that the current charges will not be
sufficient in the future to cover the cost of administering the Contract. If
the charges under the Contract are not sufficient, then we will bear the loss.
We guarantee the mortality and expense risk charge and we cannot increase it.
We assess the mortality and expense risk charge during both during the
Accumulation Phase and the Payout Phase.
WITHDRAWAL CHARGE
We may assess a withdrawal charge of 6% of the purchase payment(s) you
withdraw if the amount being withdrawn has been invested in the Contract for
less than 1 year. The charge declines annually to 0% after 6 complete years
from the day we receive the purchase payment being withdrawn. A schedule
showing how the charge declines is shown on page ____, above. During each
Contract Year, you can make one withdrawal up to 10% of the aggregate amount
of your purchase payments, excluding those made less than one year before the
withdrawal, without paying the charge. Unused portions of this 10% "Free
Withdrawal Amount" are not carried forward to future Contract Years. The
maximum portion of the Free Withdrawal Amount you may withdraw from the Fixed
Account is limited to the proportion that your value in the Fixed Account
bears to your Total Contract Value.
We will deduct withdrawal charges, if applicable, from the amount paid. For
purposes of the withdrawal charge, we will treat withdrawals as coming from
the oldest purchase payments first. However, for federal income tax purposes,
please note that withdrawals are considered to have come first from earnings
which means you pay taxes on the earnings portion of your withdrawal.
In certain cases, we may deduct a withdrawal charge when you take
distributions required by federal tax law (see the Statement of Additional
Information for "IRS Required Distribution at Death Rules"). We may deduct
withdrawal charges from the Contract Value you apply to an Income Plan with a
specified period of less than 120 months.
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We use the amounts obtained from the withdrawal charge to pay sales
commissions and other promotional or distribution expenses associated with
marketing the Contracts. To the extent that the withdrawal charge does not
cover all sales commissions and other promotional or distribution expenses, we
may use any of our corporate assets, including potential profit which may
arise from the mortality and expense risk charge or any other charges or fee
described above, to make up any difference.
Withdrawals also may be subject to tax penalties or income tax. You should
consult your own tax counsel or other tax advisers regarding any withdrawals.
PREMIUM TAXES
Some states and other governmental entities (E.G., municipalities) charge
premium taxes or similar taxes. We are responsible for paying these taxes and
will deduct them from your Contract Value. Some of these taxes are due when
the Contract is issued, others are due when income payments begin or upon
surrender. Our current practice is not to charge anyone for these taxes until
income payments begin or when a total withdrawal occurs including payment upon
death. We may some time in the future discontinue this practice and deduct
premium taxes from the purchase payments. Premium taxes generally range from
0% to 4%, depending on the state.
At the Payout Start Date, we deduct the charge for premium taxes from each
investment alternative in the proportion that the Contract owner's value in
the investment alternative bears to the total Contract Value.
DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES
We are not currently maintaining a provision for taxes. In the future,
however, we may establish a provision for taxes if we determine, in our sole
discretion, that we will incur a tax as a result of the operation of the
Variable Account. We will deduct for any taxes we incur as a result of the
operation of the Variable Account, whether or not we previously made a
provision for taxes and whether or not it was sufficient. Our status under the
Internal Revenue Code is briefly described in the Statement of Additional
Information.
OTHER EXPENSES
Each Portfolio deducts advisory fees and other expenses from its assets. You
indirectly bear the charges and expenses of the Portfolios whose shares are
held by the Variable Sub-Accounts. These fees and expenses are described in
the accompanying prospectus for the Fund. For a summary of current estimates
of those charges and expenses, see pages ___ above. We may receive
compensation from the investment adviser or administrator of the Fund for
administrative services we provide to the Fund.
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ACCESS TO YOUR MONEY
You can withdraw some or all of your Contract Value at any time prior to the
Payout Start Date. Withdrawals also are available under limited circumstances
on or after the Payout Start Date. See "Income Plans" on page __.
The amount payable upon withdrawal is the Contract Value next computed after
we receive the request for a withdrawal at our home office, less any
withdrawal charges, contract maintenance charges, income tax withholding,
penalty tax, and any premium taxes.
You can withdraw money from the Variable Account or the Fixed Account. To
complete a partial withdrawal from the Variable Account, we will cancel
Accumulation Units in an amount equal to the withdrawal and any applicable
withdrawal charge and premium taxes. We will pay withdrawals from the Variable
Account within 7 days of receipt of the request, subject to postponement in
certain circumstances.
You must name the investment alternative from which you are taking the
withdrawal. If none is named, then the withdrawal request is incomplete and
cannot be honored.
In general, you must withdraw at least $500 at a time. You also may withdraw a
lesser amount if you are withdrawing your entire interest in a Variable
Sub-Account.
AUTOMATIC INCOME WITHDRAWALS
You may also take partial withdrawal automatically through Automatic Income
Withdrawals. You may request Automatic Income Withdrawals of $100 or more at
any time before the Payout Starting Date. Please consult with your Dean Witter
Financial Advisor for detailed information about Automatic Income Withdrawals.
If you request a total withdrawal, you must return your Contract to us. We
also will deduct a contract maintenance charge of $30.
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under
the Contract if:
1) The New York Stock Exchange is closed for other than usual
weekends or holidays, or trading on the Exchange is otherwise
restricted;
2) An emergency exists as defined by the SEC; or
3) The SEC permits delay for your protection.
In addition, we may delay payments or transfers from the Fixed Account for up
to 6 months or shorter period if required by law. If we delay payment or
transfer for 30 days or more, we will pay interest as required by law. Any
interest would be payable from the date we receive the withdrawal request to
the date we make the payment or transfer.
MINIMUM CONTRACT VALUE
If your request for a partial withdrawal would reduce your Contract Value to
less than $500, we may treat it as a request to withdraw your entire Contract
Value. Your Contract will terminate if you withdraw all of your Contract
Value. We will, however, ask you to confirm your withdrawal request before
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terminating your Contract. If we terminate your Contract, we will distribute
to you its Contract Value, less withdrawal and other applicable charges, and
premium taxes.
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INCOME PAYMENTS
PAYOUT START DATE
You select the Payout Start Date in your application. The Payout Start Date is
the day that money is applied to an Income Plan. The Payout Start Date must be
no later than the first day of the calendar month after the Annuitant reaches
age 85, or the 10th Contract Anniversary, if later.
You may change the Payout Start Date at any time by notifying us in writing of
the change at least 30 days before the scheduled Payout Start Date. Absent a
change, we will use the Payout Start Date in your Contract.
INCOME PLANS
You may choose and change your choice of Income Plan until 30 days before the
Payout Start Date. If you do not select an Income Plan, we will make income
payments in accordance with Income Plan 1 with guaranteed payments for 10
years.
Three Income Plans are available under the Contract. Each is available to
provide:
* fixed income payments;
* variable income payments; or
* a combination of the two.
The three Income Plans are:
INCOME PLAN 1 -- LIFE INCOME WITH PAYMENTS GUARANTEED FOR 10 YEARS.
Under this plan, we make periodic income payments for at least as long
as the Annuitant lives. If the Annuitant dies before we have made all of
the guaranteed income payments, we will continue to pay the remainder of
the guaranteed income payments as required by the Contract.
INCOME PLAN 2 -- JOINT AND SURVIVOR LIFE INCOME. Under this plan, we
make periodic income payments for as long as either the Annuitant or the
joint Annuitant is alive.
INCOME PLAN 3 -- GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD. Under this
plan, we make periodic income payments for the period you have chosen.
These payments do not depend on the Annuitant's life. A withdrawal
charge may apply if the specified period is less than 120 months. We
will deduct the mortality and expense risk charge from variable income
payments even though we may not bear any mortality risk.
The length of any guaranteed payment period under your selected Income Plan
generally will affect the dollar amounts of each income payment. As a general
rule, longer guarantee periods result in lower income payments, all other
things being equal. For example, if you choose an Income Plan with payments
that depend on the life of the Annuitant but with no minimum specified period
for guaranteed payments, the income payments generally will be greater than
the income payments made under the same Income Plan with a minimum specified
period for guaranteed payments.
If you choose Income Plan 1 or 2, or, if available, another Income Plan with
payments that continue for the life of the Annuitant or joint Annuitant, we
will require proof of age and sex of the Annuitant or joint Annuitant before
starting income payments, and proof that the Annuitant or joint Annuitant are
alive before we make each payment. If you choose an Income Plan with no
guaranteed payments, it is possible for the payee to receive only one income
payment if the Annuitant and any joint Annuitant die prior to the second
income payment, or two income payments if they die prior to the third income
payment, and so on.
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Generally, you may not make withdrawals after the Payout Start Date. One
exception to this rule applies if you are receiving variable income payments
that do not depend on the life of the Annuitant (such as under Income Plan 3).
In that case you may terminate the Variable Account portion of the income
payments at any time and receive a lump sum equal to the present value of the
remaining variable payments due. A withdrawal charge may apply. We also assess
applicable premium taxes against all income payments.
We may make other Income Plans available. You may obtain information about
them by writing or calling us.
You must apply at least the Contract Value in the Fixed Account on the Payout
Start Date to fixed income payments. If you wish to apply any portion of your
Fixed Account balance to provide variable income payments, you should plan
ahead and transfer that amount to the Variable Sub-Accounts prior to the
Payout Start Date. If you do not tell us how to allocate your Contract Value
among fixed and variable income payments, we will apply your Contract Value in
the Variable Account to variable income payments and your Contract Value in
the Fixed Account to fixed income payments.
We will apply your Contract Value, less applicable taxes, to your Income Plan
on the Payout Start Date. If the amount available to apply under an Income
Plan is less than $2,000 or not enough to provide an initial payment of at
least $20, and state law permits, we may:
* pay you the Contract Value, less any applicable taxes, in a lump
sum instead of the periodic payments you have chosen, or
* reduce the frequency of your payments so that each payment will be
at least $20.
VARIABLE INCOME PAYMENTS
The amount of your variable income payments depends upon the investment
results of the Variable Sub-Accounts you select, the premium taxes you pay,
the age and sex of the Annuitant, and the Income Plan you choose. We guarantee
that the payments will not be affected by (a) actual mortality experience and
(b) the amount of our administration expenses.
We cannot predict the total amount of your variable income payments. Your
variable income payments may be more or less than your total purchase payments
because (a) variable income payments vary with the investment results of the
underlying Portfolios; and (b) the Annuitant could live longer or shorter than
we expect based on the tables we use.
In calculating the amount of the periodic payments in the annuity tables in
the Contract, we assumed an annual investment rate of 4%. If actual net
investment return of the Variable Sub-Accounts you choose is less than this
assumed investment rate, then the dollar amount of your variable income
payments will decrease. The dollar amount of your variable income payments
will increase, however, if the actual net investment return exceeds the
assumed investment rate. The dollar amount of the variable income payments
stays level if the net investment return equals the assumed investment rate.
You should consult the Statement of Additional Information for more detailed
information as to how we determine variable income payments.
FIXED INCOME PAYMENTS
We guarantee income payment amounts derived from the Fixed Account for the
duration of the Income Plan. We calculate the fixed income payments by:
* deducting any applicable premium tax; and
* applying the resulting amount to the greater of (a) the
appropriate value from the income payment table in your Contract
or (b) such other value as we are offering at that time.
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We may defer making fixed income payments for a period of up to 6 months or
any shorter time state law may require. If we defer payments for 30 days or
more, we will pay interest as required by law from the date we receive the
withdrawal request to the date we make payment.
CERTAIN EMPLOYEE BENEFIT PLANS
The Contracts offered by this prospectus contain income payment tables that
provide for different payments to men and women of the same age, except in
states that require unisex tables. We reserve the right to use income payment
tables that do not distinguish on the basis of sex to the extent permitted by
applicable law. In certain employment-related situations, employers are
required by law to use the same income payment tables for men and women.
Accordingly, if the Contract is to be used in connection with an
employment-related retirement or benefit plan and we do not offer unisex
annuity tables in your state, you should consult with legal counsel as to
whether the purchase of a Contract is appropriate.
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DEATH BENEFITS
We will pay a death benefit prior to the Payout Start Date on:
1) the death of any Contract owner, or
2) the death of the Annuitant, if the Contract owner is not the same
person as the Annuitant.
We will pay the death benefit to the new Contract owner as determined
immediately after the death. The new Contract owner would be a surviving
Contract owner or, if none, the Beneficiary, or, if none, the Contract owner's
estate.
DEATH BENEFIT AMOUNT
Prior to the Payout Start Date, the death benefit is equal to the greater of:
(1) the Contract Value, and (2) sum of all purchase payments, less amounts,
including withdrawal charges, deducted in connection with any partial
withdrawals. We will calculate the value of the death benefit as of the date
we receive a complete request for payment of the death benefit.
A claim for a distribution on death must include DUE PROOF OF DEATH. We will
accept the following documentation as "Due Proof of Death":
* a certified copy of a death certificate;
* a certified copy of a decree of a court of competent jurisdiction
* as to the finding of death, or any other proof acceptable to us.
DEATH BENEFIT OPTIONS
Upon death of the Contract owner, the new Contract owner generally has the
following options:
1) receive the death benefit in a lump sum or apply the death benefit
to an Income Plan; or
2) continue the Contract, subject to certain conditions.
Option 1 is only available if we receive Due Proof of Death within 180 days of
the date of death. We are currently waiving the 180 day limitation but may
enforce it in the future.
If Option 2 is elected, and the new Contract owner is a natural person, the
following conditions apply:
(1) the Contract is continued subject to charges, including all
applicable withdrawal charges; and
(2) if the prior Contract owner was also the Annuitant, the new
Contract owner will become the new Annuitant.
A surviving spouse may continue the Contract in the Accumulation Phase as if
the death had not occurred. Otherwise, the new Contract owner may continue the
Contract and elect either of the following options:
(1) receive income payments under an Income Plan, with income payments
beginning within one year of the date of death. Income payments
must be made over the life of the new Contract owner, or a period
not to exceed the life expectancy of the new Contract owner; or
(2) receive, within 5 years of the date of death, the "CASH SURRENDER
VALUE," which is the Contract Value, less withdrawal charges and
taxes.
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If , however, the new Contract owner is a non-natural person, the new Contract
owner has the following options when continuing the Contract:
(1) elect to receive the Cash Surrender Value within 5 years of the
date of death; or
(2) receive the Cash Settlement Value as a single lump sum payment 5
years after the date of death.
Option 1 is only available if we receive Due Proof of Death within 180 days of
the date of death. We are currently waiving the 180 day limitation but may
enforce it in the future.
Please refer to your Contract for more details on the above options.
If the Annuitant dies, we will pay the named Beneficiary a death benefit as
described above, depending on whether the Beneficiary is a natural or
non-natural person. Please refer to your Contract for more details.
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MORE INFORMATION
NORTHBROOK
Northbrook is the issuer of the Contract. Northbrook is an Illinois stock life
insurance company organized in 1978. Northbrook is currently licensed to
operate in all states (except New York), the District of Columbia, and Puerto
Rico. We intend to offer the Contract in those jurisdictions in which we are
licensed. Our home office is located at 3100 Sanders Road, Northbrook,
Illinois, 60062.
Northbrook is a wholly owned subsidiary of Allstate Life Insurance Company
("ALLSTATE LIFE"), an Illinois stock life insurance company. Allstate Life is
a wholly owned subsidiary of Allstate Insurance Company, an Illinois stock
property-liability insurance company. All of the outstanding capital stock of
Allstate Insurance Company is owned by The Allstate Corporation.
Northbrook and Allstate Life entered into a reinsurance agreement effective
December 31, 1987. Under the reinsurance agreement, Allstate Life reinsures
all of Northbrook's liabilities under the 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.
Several independent rating agencies regularly evaluate life insurers'
claims-paying ability, quality of investments, and overall stability. A.M.
Best Company assigns A+ (Superior) to Allstate Life which automatically
reinsures all net business of Northbrook. A.M. Best Company also assigns
Northbrook the rating of A+(r) because Northbrook automatically reinsures all
net business with Allstate Life. Standard & Poor's Insurance Rating Services
assigns an AA+ (Very Strong) financial strength rating and Moody's assigns an
Aa2 (Excellent) financial strength rating to Northbrook. Northbrook shares the
same ratings of its parent, Allstate Life. These ratings do not reflect the
investment performance of the Variable Account. We may from time to time
advertise these ratings in our sales literature.
THE VARIABLE ACCOUNT
Northbrook established the Northbrook Variable Annuity Account on February 14,
1983. We have registered the Variable Account with the SEC as a unit
investment trust. The SEC does not supervise the management of the Variable
Account or Northbrook.
We own the assets of the Variable Account. The Variable Account is a
segregated asset account under Arizona insurance law. That means we account
for the Variable Account's income, gains, and losses separately from the
results of our other operations. It also means that only the assets of the
Variable Account that are in excess of the reserves and other Contract
liabilities with respect to the Variable Account are subject to liabilities
relating to our other operations. Our obligations arising under the Contracts
are general corporate obligations of Northbrook.
The Variable Account consists of 12 Variable Sub-Accounts, each of which
invests in a corresponding Portfolio. We may add new Variable Sub-Accounts or
eliminate one or more of them, if we believe marketing, tax, or investment
conditions so warrant. We do not guarantee the investment performance of the
Variable Account, its Sub-Accounts or the Portfolios. We may use the Variable
Account to fund our other annuity contracts. We will account separately for
each type of annuity contract funded by the Variable Account.
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THE PORTFOLIOS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all
dividends and capital gains distributions from the Portfolios in shares of the
distributing Portfolio at their net asset value.
VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote
the shares of the Portfolios held by the Variable Sub-Accounts to which you
have allocated your Contract Value. Under current law, however, you are
entitled to give us instructions on how to vote those shares on certain
matters. Based on our present view of the law, we will vote the shares of the
Portfolios that we hold directly or indirectly through the Variable Account in
accordance with instructions that we receive from Contract owners entitled to
give such instructions.
As a general rule, before the Payout Start Date, the Contract owner or anyone
with a voting interest is the person entitled to give voting instructions. The
number of shares that a person has a right to instruct will be determined by
dividing the Contract Value allocated to the applicable Variable Sub-Account
by the net asset value per share of the corresponding Portfolio as of the
record date of the meeting. After the Payout Start Date the person receiving
income payments has the voting interest. The payee's number of votes will be
determined by dividing the reserves for such Contract allocated to the
applicable Variable Sub-Account by the net asset value per share of the
corresponding Portfolio as of the record date of the meeting. The votes
decrease as income payments are made and as the reserves for the Contract
decrease.
We will vote shares attributable to Contracts for which we have not received
instructions, as well as shares attributable to us, in the same proportion as
we vote shares for which we have received instructions, unless we determine
that we may vote such shares in our own discretion. We will apply voting
instructions to abstain on any item to be voted upon on a pro rata basis to
reduce the votes eligible to be cast.
We reserve the right to vote Portfolio shares as we see fit without regard to
voting instructions to the extent permitted by law. If we disregard voting
instructions, we will include a summary of that action and our reasons for
that action in the next semi-annual financial report we send to you.
CHANGES IN PORTFOLIOS. If the shares of any of the Portfolios are no longer
available for investment by the Variable Account or if, in our judgment,
further investment in such shares is no longer desirable in view of the
purposes of the Contract, we may eliminate that Portfolio and substitute
shares of another eligible investment fund. Any substitution of securities
will comply with the requirements of the Investment Company Act of 1940. We
also may add new Variable Sub-Accounts that invest in additional mutual funds.
We will notify you in advance of any change.
CONFLICTS OF INTEREST. Certain of the Portfolios sell their shares to separate
accounts underlying both variable life insurance and variable annuity
contracts. It is conceivable that in the future it may be unfavorable for
variable life insurance separate accounts and variable annuity separate
accounts to invest in the same Portfolio. The board of directors of the Fund
monitors for possible conflicts among separate accounts buying shares of the
Portfolios. Conflicts could develop for a variety of reasons. For example,
differences in treatment under tax and other laws or the failure by a separate
account to comply with such laws could cause a conflict. To eliminate a
conflict, the Fund's board of directors may require a separate account to
withdraw its participation in a Portfolio. A Portfolio's net asset value could
decrease if it had to sell investment securities to pay redemption proceeds to
a separate account withdrawing because of a conflict.
THE CONTRACT
DISTRIBUTION. Dean Witter Reynolds Inc. ("DEAN WITTER"), located at Two World
Trade Center, 74th Floor, New York, NY 10048, serves as distributor of the
Contracts. Dean Witter is a wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. Dean Witter is a registered broker-dealer under the Securities
Exchange Act of 1934, as amended and is a member of the National Association
of Securities Dealers. Dean Witter is also registered with the SEC as an
investment adviser.
We may pay up to a maximum sales commission of 5.75% of purchase payments and
an annual sales administration expense of up to 0.125% of the average net
assets of the Contracts to Dean Witter. In addition, Dean Witter may pay
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annually to its representatives, from its profits an amount equal to 0.10% of
the net assets of the Variable Account attributable to Contracts issued and
sold after 1984 and any subsequent additions thereon.
The General Agency Agreement between Northbrook and Dean Witter provides that
Northbrook will indemnify Dean Witter for certain damages that may be caused
by actions, statements or omissions by Northbrook.
ADMINISTRATION. We have primary responsibility for all administration of the
Contracts and the Variable Account. We provide the following administrative
services, among others:
* issuance of the Contracts;
* maintenance of Contract owner records;
* Contract owner services;
* calculation of unit values;
* maintenance of the Variable Account; and
* preparation of Contract owner reports.
We will send you Contract statements at least annually. You should notify us
promptly in writing of any address change. You should read your statements and
confirmations carefully and verify their accuracy. You should contact us
promptly if you have a question about a periodic statement. We will
investigate all complaints and make any necessary adjustments retroactively,
but you must notify us of a potential error within a reasonable time after the
date of the questioned statement. If you wait too long, we reserve the right
to make the adjustment as of the date that we receive notice of the potential
error.
We will also provide you with additional periodic and other reports,
information and prospectuses as may be required by federal securities laws.
QUALIFIED PLANS
If you use the Contract with a qualified plan, the plan may impose different
or additional conditions or limitations on withdrawals, waivers of withdrawal
charges, death benefits, Payout Start Dates, income payments, and other
Contract features. In addition, adverse tax consequences may result if
qualified plan limits on distributions and other conditions are not met.
Please consult your qualified plan administrator for more information.
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised Northbrook on
certain federal securities law matters. All matters of state insurance law
pertaining to the Contracts, including the validity of the Contracts and
Northbrook's right to issue such Contracts under state insurance law, have
been passed upon by Michael J. Velotta, General Counsel of Northbrook.
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
fail to operate properly in or after the year 1999, if the software is not
reprogrammed or replaced ("YEAR 2000 ISSUE"). Northbrook believes that many of
its counterparties and suppliers also have Year 2000 Issues which could affect
Northbrook. In 1995, Allstate Insurance Company commenced a plan intended to
mitigate and/or prevent the adverse effects of Year 2000 Issues. These
strategies include 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 includes Northbrook actively working with its major
external counterparties and suppliers to assess their compliance efforts and
Northbrook's exposure to them. Northbrook presently believes that it will
resolve the Year 2000 Issue in a timely manner, and the financial impact will
30
<PAGE>
not materially affect its results of operations, liquidity or financial
position. Year 2000 costs are and will be expensed as incurred.
31
<PAGE>
TAXES
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
NORTHBROOK MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on your individual
circumstances. If you are concerned about any tax consequences with regard to
your individual circumstances, you should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value
until a distribution occurs. This rule applies only where:
1) the Contract owner is a natural person,
2) the investments of the Variable Account are "adequately
diversified" according to Treasury Department regulations, and
3) Northbrook is considered the owner of the Variable Account assets
for federal income tax purposes.
NON-NATURAL OWNERS. As a general rule, annuity contracts owned by non-natural
persons such as corporations, trusts, or other entities are not treated as
annuity contracts for federal income tax purposes. The income on such
contracts is taxed as ordinary income received or accrued by the owner during
the taxable year. Please see the Statement of Additional Information for a
discussion of several exceptions to the general rule for Contracts owned by
non-natural persons.
DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for
federal income tax purposes, the investments in the Variable Account must be
"adequately diversified" 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 an annuity contract for
federal income tax purposes. As a result, the income on the Contract will be
taxed as ordinary income received or accrued by the Contract owner during the
taxable year. Although Northbrook 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 Variable 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 separate account investments may
cause an investor to be treated as the owner of the separate 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 the Contract are different than those described by the IRS
in rulings in which it found that contract owners were not owners of separate
account assets. For example, you have the choice to allocate premiums and
Contract Values among more investment alternatives. Also, you may be able to
transfer among investment alternatives 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. Northbrook 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.
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<PAGE>
TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal
under a non-Qualified Contract, amounts received are taxable to the extent the
Contract Value, without regard to surrender charges, 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 you make a partial
withdrawal under a Qualified Contract, the portion of the payment that bears
the same ratio to the total payment that the investment in the Contract (i.e.,
nondeductible IRA contributions, after tax contributions to qualified plans)
bears to the Contract Value, is excluded from your income. If you make a full
withdrawal under a non-Qualified Contract or a Qualified Contract, the amount
received will be taxable only to the extent it exceeds the investment in the
Contract.
"Nonqualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions. "Qualified distributions" from Roth IRAs
are not included in gross income. "Qualified distributions" are any
distributions made more than 5 taxable years after the taxable year of the
first contribution to any Roth IRA and which are:
* made on or after the date the individual attains age 59 1/2,
* made to a beneficiary after the Contract owner's death,
* attributable to the Contract owner being disabled, or
* for a first time home purchase (first time home purchases are
subject to a lifetime limit of $10,000).
If you transfer a non-Qualified Contract without full and adequate
consideration to a person other than your spouse (or to a former spouse
incident to a divorce), you will be taxed on the difference between the
Contract Value and the investment in the Contract at the time of transfer.
Except for certain Qualified Contracts, any amount you receive as a loan under
a Contract, and any assignment or pledge (or agreement to assign or pledge) of
the Contract Value is treated as a withdrawal of such amount or portion.
TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of
annuity payments received from a non-Qualified Contract provides for the
return of your investment in the Contract in equal tax-free amounts over the
payment period. The balance of each payment received is taxable. For fixed
annuity payments, the amount excluded from income is determined by multiplying
the payment by the ratio of the investment in the Contract (adjusted for any
refund feature or period certain) to the total expected value of annuity
payments for the term of the Contract. If you elect variable annuity payments,
the amount excluded from taxable income is determined by dividing the
investment in the Contract by the total number of expected payments. The
annuity payments will be fully taxable after the total amount of the
investment in the Contract is excluded using these ratios. If you die, and
annuity payments cease before the total amount of the investment in the
Contract is recovered, the unrecovered amount will be allowed as a deduction
for your last taxable year.
TAXATION OF ANNUITY DEATH BENEFITS. Death of a Contract owner, or death of the
Annuitant if the Contract is owned by a non-natural person, will cause a
distribution of death benefits from a Contract. Generally, such amounts are
included in income as follows:
1) if distributed in a lump sum, the amounts are taxed in the same
manner as a full withdrawal, or
2) if distributed under an annuity option, the amounts are taxed in
the same manner as an annuity payment. Please see the Statement of
Additional Information for more detail on distribution at death
requirements.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the
taxable amount of any premature distribution from a non-Qualified Contract.
The penalty tax generally applies to any distribution made prior to the date
you attain age 59 1/2. However, no penalty tax is incurred on distributions:
1) made on or after the date the Contract owner attains age 59 1/2;
2) made as a result of the Contract owner's death or disability;
3) made in substantially equal periodic payments over the Contract
owner's life or life expectancy,
4) made under an immediate annuity, or
5) attributable to investment in the Contract before August 14, 1982.
33
<PAGE>
You should consult a competent tax advisor to determine if any other
exceptions to the penalty apply to your situation. Similar exceptions may
apply to distributions from Qualified Contracts.
AGGREGATION OF ANNUITY CONTRACTS. All non-qualified deferred annuity contracts
issued by Northbrook (or its affiliates) to the same Contract owner during any
calendar year will be aggregated and treated as one annuity contract for
purposes of determining the taxable amount of a distribution.
TAX QUALIFIED CONTRACTS
Contracts may be used as investments with certain qualified plans such as:
* Individual Retirement Annuities or Accounts (IRAs) under Section
408 of the Code;
* Roth IRAs under Section 408A of the Code;
* Simplified Employee Pension Plans under Section 408(k) of the
Code;
* Savings Incentive Match Plans for Employees (SIMPLE) Plans under
Section 408(p) of the Code;
* Tax Sheltered Annuities under Section 403(b) of the Code;
* Corporate and Self Employed Pension and Profit Sharing Plans; and
* State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans.
In the case of certain qualified plans, the terms of the plans may govern the
right to benefits, regardless of the terms of the Contract.
RESTRICTIONS UNDER SECTION 403(B) PLANS. Section 403(b) of the Tax Code
provides tax-deferred retirement savings plans for employees of certain
non-profit and educational organizations. Under Section 403(b), any Contract
used for a 403(b) plan must provide that distributions attributable to salary
reduction contributions made after 12/31/88, and all earnings on salary
reduction contributions, may be made only:
1) on or after the date of employee
* attains age 59 1/2,
* separates from service,
* dies,
* becomes disabled, or
2) on account of hardship (earnings on salary reduction contributions
may not be distributed on the account of hardship).
These limitations do not apply to withdrawals where Northbrook is directed to
transfer some or all of the Contract Value to another 403(b) plan.
INCOME TAX WITHHOLDING
Northbrook is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless you elect to make a "direct rollover"
of such amounts to an IRA or eligible retirement plan. Eligible rollover
distributions generally include all distributions from Qualified Contracts,
excluding IRAs, with the exception of:
1) required minimum distributions, or
2) a series of substantially equal periodic payments made over a
period of at least 10 years, or,
3) over the life (joint lives) of the participant (and beneficiary).
Northbrook may be required to withhold federal and state income taxes on any
distributions from non-Qualified Contracts or Qualified Contracts that are not
eligible rollover distributions, unless you notify us of your election to not
have taxes withheld.
34
<PAGE>
PERFORMANCE INFORMATION
We may advertise the performance of the Variable Sub-Accounts, including yield
and total return information. Yield refers to the income generated by an
investment in a Variable Sub-Account over a specified period. Total return
represents the change, over a specified period of time, in the value of an
investment in a Variable Sub-Account after reinvesting all income
distributions.
All performance advertisements will include, as applicable, standardized yield
and total return figures that reflect the deduction of insurance charges, the
contract maintenance charge, and withdrawal charge. Performance advertisements
also may include total return figures that reflect the deduction of insurance
charges, but not the contract maintenance or withdrawal charges. The deduction
of such charges would reduce the performance shown. In addition, performance
advertisements may include aggregate, average, year-by-year, or other types of
total return figures.
Performance information for periods prior to the inception date of the
Variable Sub-Accounts will be based on the historical performance of the
corresponding Portfolios for the periods beginning with the inception dates of
the Portfolios and adjusted to reflect current Contract expenses. You should
not interpret these figures to reflect actual historical performance of the
variable account.
We may include in advertising and sales materials tax deferred compounding
charts and other hypothetical illustrations that compare currently taxable and
tax deferred investment programs based on selected tax brackets. Our
advertisements also may compare the performance of our Variable Sub-Accounts
with: (a) certain unmanaged market indices, including but not limited to the
Dow Jones Industrial Average, the Standard & Poor's 500, and the Shearson
Lehman Bond Index; and/or (b) other management investment companies with
investment objectives similar to the underlying funds being compared. In
addition, our advertisements may include the performance ranking assigned by
various publications, including the Wall Street Journal, Forbes, Fortune,
Money, Barron's, Business Week, USA Today, and statistical services, including
Lipper Analytical Services Mutual Fund Survey, Lipper Annuity and Closed End
Survey, the Variable Annuity Research Data Survey, and SEI.
35
<PAGE>
APPENDIX A
ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS
OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT*
<TABLE>
<CAPTION>
1989 1990 1991 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $13.459 $14.532 $15.530 $16.260
Accumulation Unit Value, End of
Period..................................... $14.532 $15.530 $16.260 $16.651
Number of Units Outstanding, End of
Period..................................... 5,269,945 7,300,227 4,993,305 3,142,381
QUALITY INCOME PLUS SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $10.828 $12.097 $12.798 $15.016
Accumulation Unit Value, End of
Period..................................... $12.097 $12.798 $15.016 $16.096
Number of Units Outstanding, End of
Period..................................... 4,028,103 4,292,424 4,272,603 4,167,157
HIGH YIELD SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $17.324 $14.993 $10.864 $17.064
Accumulation Unit Value, End of
Period..................................... $14.993 $10.864 $17.064 $20.008
Number of Units Outstanding, End of
Period..................................... 6,425,388 2,487,589 1,973,508 1,677,444
UTILITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... -- $10.000 $10.365 $12.372
Accumulation Unit Value, End of
Period..................................... -- $10.365 $12.372 $13.797
Number of Units Outstanding, End of
Period..................................... -- 3,364,215 3,655,014 3,883,303
INCOME BUILDER SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... -- -- -- --
Accumulation Unit Value, End of
Period..................................... -- -- -- --
Number of Units Outstanding, End of
Period..................................... -- -- -- --
DIVIDEND GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... -- $10.000 $9.143 $11.564
Accumulation Unit Value, End of
Period..................................... -- $9.143 $11.564 $12.383
Number of Units Outstanding, End of
Period..................................... -- 5,838,210 5,646,884 6,048,975
CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... -- -- $10.000 $12.735
Accumulation Unit Value, End of
Period..................................... -- -- $12.735 $12.814
Number of Units Outstanding, End of
Period..................................... -- -- 468,488 681,326
GLOBAL DIVIDEND GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... -- -- -- --
Accumulation Unit Value, End of
Period..................................... -- -- -- --
Number of Units Outstanding, End of
Period..................................... -- -- -- --
EUROPEAN GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... -- -- $10.000 $10.050
Accumulation Unit Value, End of
Period..................................... -- -- $10.050 $10.347
Number of Units Outstanding, End of
Period..................................... -- -- 101,037 251,802
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<PAGE>
PACIFIC GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... -- -- -- --
Accumulation Unit Value, End of
Period..................................... -- -- -- --
Number of Units Outstanding, End of
Period..................................... -- -- -- --
EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $15.786 $18.580 $17.728 $27.916
Accumulation Unit Value, End of
Period..................................... $18.580 $17.728 $27.916 $27.681
Number of Units Outstanding, End of
Period..................................... 3,123,809 2,302,425 2,025,964 1,886,301
STRATEGIST SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $11.211 $12.284 $12.351 $15.684
Accumulation Unit Value, End of
Period..................................... $12.284 $12.351 $15.684 $16.651
Number of Units Outstanding, End of
Period..................................... 7,164,494 5,424,907 4,805,519 4,762,207
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $16.651 $16.940 $17.411 $18.215 $18.955 $ 19.748
Accumulation Unit Value, End of
Period..................................... $16.940 $17.411 $18.215 $18.955 $19.748 $ 20.578
Number of Units Outstanding, End of
Period..................................... 2,402,295 2,408,602 1,486,360 1,225,023 937,820 945,513
QUALITY INCOME PLUS SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $16.096 $18.010 $16.648 $20.498 $20.608 $ 22.671
Accumulation Unit Value, End of
Period..................................... $18.010 $16.648 $20.498 $20.608 $22.671 $ 24.315
Number of Units Outstanding, End of
Period..................................... 3,998,449 2,779,045 2,159,205 1,301,162 927,584 754,206
HIGH YIELD SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $20.008 $24.609 $23.759 $27.055 $29.993 $ 33.219
Accumulation Unit Value, End of
Period..................................... $24.609 $23.759 $27.055 $29.993 $33.219 $ 30.869
Number of Units Outstanding, End of
Period..................................... 1,537,549 1,202,135 906,011 712,341 587.053 492,928
UTILITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $13.797 $15.804 $14.235 $18.132 $19.509 $24.559
Accumulation Unit Value, End of
Period..................................... $15.804 $14.235 $18.132 $19.509 $24.559 $30.037
Number of Units Outstanding, End of
Period..................................... 3,932,991 2,814,866 2,298,190 1,419,955 883,371 741,971
INCOME BUILDER SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... -- -- -- -- -- $12.120
Accumulation Unit Value, End of
Period..................................... -- -- -- -- $12.120 $12.389
Number of Units Outstanding, End of
Period..................................... -- -- -- -- 60,458 50,807
DIVIDEND GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $12.383 $14.019 $13,425 $18.128 $22.248 $27.667
Accumulation Unit Value, End of
Period..................................... $14.019 $13.425 $18.128 $22.248 $27.667 $31.130
Number of Units Outstanding, End of
Period..................................... 5,878,916 5,229,279 4,402,940 3,144,203 2,485,592 2,007,199
CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $12.814 $11.799 $11.533 $15.177 $16.760 $20.666
Accumulation Unit Value, End of
Period..................................... $11.799 $11.533 $15.177 $16.760 $20.666 $24.478
Number of Units Outstanding, End of
Period..................................... 457,147 321,342 256,312 192,504 148,763 125,509
37
<PAGE>
GLOBAL DIVIDEND GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... -- $10.000 $9.942 $12.012 $13.984 $15.511
Accumulation Unit Value, End of
Period..................................... -- $9.942 $12.012 $13.984 $15.511 $17.282
Number of Units Outstanding, End of
Period..................................... -- 951,857 852,851 725,977 604,338 424,746
EUROPEAN GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $10.347 $14.433 $15.484 $19.299 $24.837 $28.545
Accumulation Unit Value, End of
Period..................................... $14.433 $15.484 $19.299 $24.837 $28.545 $35.033
Number of Units Outstanding, End of
Period..................................... 767,814 868.638 649,852 545,184 441,921 369,513
PACIFIC GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... -- $10.000 $9.248 $9.682 $9.957 $6.142
Accumulation Unit Value, End of
Period..................................... -- $9.248 $9.682 $9.957 $6.142 $5.448
Number of Units Outstanding, End of
Period..................................... -- 644,451 608,464 523,417 290,930 277,001
EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $27.681 $32.807 $30.885 $43.585 $48.483 $65.969
Accumulation Unit Value, End of
Period..................................... $32.807 $30.885 $43.585 $48.483 $65.969 $85.154
Number of Units Outstanding, End of
Period..................................... 1,800,750 1,652,850 1,314,532 968,987 782,723 641,223
STRATEGIST SUB-ACCOUNT
Accumulation Unit Value, Beginning of
Period..................................... $16.651 $18.199 $18.728 $20.284 $23.098 $26.006
Accumulation Unit Value, End of
Period..................................... $18.199 $18.728 $20.284 $23.098 $26.006 $32.615
Number of Units Outstanding, End of
Period..................................... 4,409,391 3,994,684 2,708,051 1,937,096 1,477,411 1,141,504
<FN>
* The Money Market, High Yield and Equity Sub-Accounts commenced operations on
March 9, 1984. The Quality Income Plus and Strategist Sub-Accounts commenced
operations on March 1, 1987. The Utilities and Dividend Growth Sub-Accounts
commenced operations on March 1, 1990. The Capital Growth and European Growth
Sub-Accounts commenced operations on March 1, 1991. The Global Dividend Growth
and Pacific Growth Sub-Accounts commenced operations on February 23, 1994. The
Income Builder Sub-Account commenced operations on January 21, 1997. The
Accumulation Unit Value for each of these Sub-Accounts was initially set at
$10.000. The Accumulation Unit Values in this table reflect a Mortality and
Expense Risk Charge of 1%. After the close of business on March 19, 1999, the
Capital Appreciation Variable Sub-Account was combined with the Equity
Variable Sub-Account in conjunction with the merger of the underlying
Portfolios.
</FN>
</TABLE>
38
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
Additions, Deletions or Substitutions of Investments
The Contract....................................................................
Purchases..............................................................
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers)
Calculation of Accumulation Unit Values.........................................
Calculation of Variable Income Payments.........................................
General Matters.................................................................
Incontestability.......................................................
Settlements............................................................
Safekeeping of the Variable Account's Assets
Premium Taxes..........................................................
Tax Reserves...........................................................
Federal Tax Matters.............................................................
Qualified Plans.................................................................
Experts.........................................................................
Financial Statements............................................................
</TABLE>
-----------------------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE
ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
[back cover]
39
<PAGE>
MORGAN STANLEY DEAN WITTER VARIABLE ANNUITY
Northbrook Life and Annuity Company Statement of Additional Information
NORTHBROOK VARIABLE ANNUITY ACCOUNT I dated May 1, 1999
POST OFFICE BOX 94040
PALATINE, IL 60094-4040
1 (800) 654 - 2397
This Statement of Additional Information supplements the information in the
prospectus for the Morgan Stanley Dean Witter Variable Annuity Contract that we
offer. This Statement of Additional Information is not a prospectus. You should
read it with the prospectus, dated May 1, 1999, for the Contract. You may obtain
a prospectus by calling or writing us at the address or telephone number listed
above, or by calling or writing your Morgan Stanley Dean Witter financial
adviser.
Except as otherwise noted, this Statement of Additional Information uses the
same defined terms as the prospectus for the Dean Witter Variable Annuity
Contracts that we offer.
TABLE OF CONTENTS
DESCRIPTION PAGE
Additions, Deletions or Substitutions of Investments
The Contract
Purchases
Tax-free Exchanges (1035 Exchanges, Rollovers and
Transfers)
Calculation of Accumulation Unit Values
Calculation of Variable Income Payments
General Matters
Incontestability
Settlements
Safekeeping of the Variable Account's Assets
Premium Taxes
Tax Reserves
Federal Tax Matters
Qualified Plans
Experts
Financial Statements
<PAGE>
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
We may add, delete, or substitute the Portfolio shares held by any Variable
Sub-Account to the extent the law permits. We may substitute shares of any
Portfolio with those of another Portfolio of the same or different mutual
Portfolio if the shares of the Portfolio are no longer available for
investment, or if we believe investment in any Portfolio would become
inappropriate in view of the purposes of the Variable Account.
We will not substitute shares attributable to a Contract owner's interest in a
Variable Sub-Account until we have notified the Contract owner of the change,
and until the Securities and Exchange Commission has approved the change, to
the extent such notification and approval are required by law. Nothing
contained in this Statement of Additional Information shall prevent the
Variable Account from purchasing other securities for other series or classes
of contracts, or from effecting a conversion between series or classes of
contracts on the basis of requests made by Contract owners.
We also may establish additional Variable Sub-Accounts or series of Variable
Sub-Accounts. Each additional Variable Sub-Account would purchase shares in a
new Portfolio of the same or different mutual fund. We may establish new
Variable Sub-Accounts when we believe marketing needs or investment conditions
warrant. We determine the basis on which we will offer any new Variable
Sub-Accounts in conjunction with the Contract to existing Contract owners. We
may eliminate one or more Variable Sub-Accounts if, in our sole discretion,
marketing, tax or investment conditions so warrant.
We may, by appropriate endorsement, change the Contract as we believe
necessary or appropriate to reflect any substitution or change in the
Portfolios. If we believe the best interests of persons having voting rights
under the Contracts would be served, we may operate the Variable Account as a
management company under the Investment Company Act of 1940 or we may withdraw
its registration under such Act if such registration is no longer required.
2
<PAGE>
THE CONTRACT
The Contract is primarily designed to aid individuals in long-term financial
planning. You can use it for retirement planning regardless of whether the
retirement plan qualifies for special federal income tax treatment.
PURCHASE OF CONTRACTS
Dean Witter Reynolds, Inc., is the principal underwriter and distributor of
the Contracts. The offering of the Contracts is continuous. We do not
anticipate discontinuing the offering of the Contracts, but we reserve the
right to do so at any time.
TAX-FREE EXCHANGES (1035 EXCHANGES, ROLLOVERS AND TRANSFERS)
We accept purchase payments that are the proceeds of a Contract in a
transaction qualifying for a tax-free exchange under Section 1035 of the
Internal Revenue Code ("Code"). Except as required by federal law in
calculating the basis of the Contract, we do not differentiate between Section
1035 purchase payments and non-Section 1035 purchase payments.
We also accept "rollovers" and transfers from Contracts qualifying as
tax-sheltered annuities ("TSAs"), individual retirement annuities or accounts
("IRAs"), or any other Qualified Contract that is eligible to "rollover" into
an IRA. We differentiate among non-Qualified Contracts, TSAs, IRAs and other
Qualified Contracts to the extent necessary to comply with federal tax laws.
For example, we restrict the assignment, transfer, or pledge of TSAs and IRAs
so the Contracts will continue to qualify for special tax treatment. A
Contract owner contemplating any such exchange, rollover or transfer of a
Contract should contact a competent tax adviser with respect to the potential
effects of such a transaction.
3
<PAGE>
CALCULATION OF ACCUMULATION UNIT VALUES
The value of Accumulation Units will change each VALUATION PERIOD according to
the investment performance of the Portfolio shares purchased by each Variable
Sub-Account and the deduction of certain expenses and charges. A "Valuation
Period" is the period from the end of one Valuation Date and continues to the
end of the next Valuation Date. A Valuation Date ends at the close of regular
trading on the New York Stock Exchange (currently 3:00 p.m. Central Time).
The Accumulation Unit Value of a Variable Sub-Account for any Valuation Period
equals the Accumulation Unit Value as of the immediately preceding Valuation
Period, multiplied by the NET INVESTMENT FACTOR (described below) for that
Sub-Account for the current Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor for a Valuation Period is a number representing the
change, since the last Valuation Period, in the value of Sub-account assets
per Accumulation Unit due to investment income, realized or unrealized capital
gain or loss, deductions for taxes, if any, and deductions for the mortality
and expense risk charge and administrative expense charge. We determine the
Net Investment Factor for each Variable Sub-Account for any Valuation Period
by dividing (A) by (B) and subtracting (C) from the result, where:
(A) is the sum of:
(1) the net asset value per share of the Portfolio underlying
the Variable Sub-Account determined at the end of the
current Valuation Period; plus,
(2) the per share amount of any dividend or capital gain
distributions made by the Portfolio underlying the Variable
Sub-Account during the current Valuation Period;
(B) is the net asset value per share of the Portfolio underlying the
Variable Sub-Account determined as of the end of the immediately
preceding Valuation Period; and
(C) is the annualized mortality and expense risk and administrative
expense charges divided by 365 and then multiplied by the number
of calendar days in the current Valuation Period.
4
<PAGE>
CALCULATION OF VARIABLE INCOME PAYMENTS
We calculate the amount of the first variable income payment under an Income
Plan by applying the Contract Value allocated to each Variable Sub-Account
less any applicable premium tax charge deducted at the time, to the income
payment tables in the Contract. We divide the amount of the first variable
annuity income payment by the Variable Sub-Account's then current Annuity Unit
value to determine the number of annuity units ("ANNUITY UNITS") upon which
later income payments will be based. To determine income payments after the
first, we simply multiply the number of Annuity Units determined in this
manner for each Variable Sub-Account by the then current Annuity Unit value
("ANNUITY UNIT VALUE") for that Variable Sub-Account.
CALCULATION OF ANNUITY UNIT VALUES
Annuity Units in each Variable Sub-Account are valued separately and Annuity
Unit Values will depend upon the investment experience of the particular
Portfolio in which the Variable Sub-Account invests. We calculate the Annuity
Unit Value for each Variable Sub-Account at the end of any Valuation Period
by:
* multiplying the Annuity Unit Value at the end of the immediately
preceding Valuation Period by the Variable Sub-Account's Net
Investment Factor (described in the preceding section) for the
Period; and then
* dividing the product by the sum of 1.0 plus the assumed investment
rate for the Valuation Period.
The assumed investment rate adjusts for the interest rate assumed in the
income payment tables used to determine the dollar amount of the first
variable income payment, and is at an effective annual rate which is disclosed
in the Contract.
We determine the amount of the first variable income payment paid under an
Income Plan using the income payment tables set out in the Contracts. The
Contracts include tables that differentiate on the basis of sex, except in
states that require the use of unisex tables.
5
<PAGE>
GENERAL MATTERS
INCONTESTABILITY
We will not contest the Contract after we issue it.
SETTLEMENTS
The Contract must be returned to us prior to any settlement. We must receive
due proof of the Contract owner(s) death (or Annuitant's death if there is a
non-natural Contract owner) before we will settle a death claim.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
We hold title to the assets of the Variable Account. We keep the assets
physically segregated and separate and apart from our general corporate
assets. We maintain records of all purchases and redemptions of the Portfolio
shares held by each of the Variable Sub-Accounts.
The Portfolios do not issue stock certificates. Therefore, we hold the
Variable Account's assets in open account in lieu of stock certificates. See
the Portfolios' prospectuses for a more complete description of the custodian
of the Portfolios.
PREMIUM TAXES
Applicable premium tax rates depend on the Contract owner's state of residency
and the insurance laws and our status in those states where premium taxes are
incurred. Premium tax rates may be changed by legislation, administrative
interpretations, or judicial acts.
TAX RESERVES
We do not establish capital gains tax reserves for any Variable Sub-Account
nor do we deduct charges for tax reserves because we believe that capital
gains attributable to the Variable Account will not be taxable. However, we
reserve the right to deduct charges to establish tax reserves for potential
taxes on realized or unrealized capital gains.
6
<PAGE>
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. WE MAKE
NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION
INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on the individual circumstances
of each person. If you are concerned about any tax consequences with regard to
your individual circumstances, you should consult a competent tax adviser.
TAXATION OF NORTHBROOK LIFE INSURANCE COMPANY
Northbrook is taxed as a life insurance company under Part I of Subchapter L
of the Internal Revenue Code. Since the Variable Account is not an entity
separate from Northbrook, and its operations form a part of Northbrook, it
will not be taxed separately as a "Regulated Investment Company" under
Subchapter M of the Code. Investment income and realized capital gains of the
Variable Account are automatically applied to increase reserves under the
contract. Under existing federal income tax law, Northbrook believes that the
Variable Account investment income and capital gains will not be taxed to the
extent that such income and gains are applied to increase the reserves under
the contract. Accordingly, Northbrook does not anticipate that it will incur
any federal income tax liability attributable to the Variable Account, and
therefore Northbrook does not intend to make provisions for any such taxes. If
Northbrook is taxed on investment income or capital gains of the Variable
Account, then Northbrook may impose a charge against the Variable Account in
order to make provision for such taxes.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE
There are several exceptions to the general rule that annuity contracts held
by a non-natural owner are not treated as annuity contracts for federal income
tax purposes. Contracts will generally be treated as held by a natural person
if the nominal owner is a trust or other entity which holds the Contract as
agent for a natural person. However, this special exception will not apply in
the case of an employer who is the nominal owner of an annuity contract under
a non-qualified deferred compensation arrangement for its employees. Other
exceptions to the non-natural owner rule are: (1) contracts acquired by an
estate of a decedent by reason of the death of the decedent; (2) certain
qualified contracts; (3) contracts purchased by employers upon the termination
of certain qualified plans; (4) certain contracts used in connection with
structured settlement agreements, and (5) contracts purchased with a single
premium when the annuity starting date is no later than a year from purchase
of the annuity and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period.
IRS REQUIRED DISTRIBUTION AT DEATH RULES
In order to be considered an annuity contract for federal income tax purposes,
an annuity contract must provide: (1) if any owner dies on or after the
annuity start date but before the entire interest in the contract has been
distributed, the remaining portion of such interest must be distributed at
least as rapidly as under the method of distribution being used as of the date
of the owner's death; (2) if any owner dies prior to the annuity start date,
the entire interest in the contract will be distributed within five years
after the date of the owner's death. These requirements are satisfied if any
portion of the owner's interest which is payable to (or for the benefit of) a
designated beneficiary is distributed over the life of such beneficiary (or
over a period not extending beyond the life expectancy of the beneficiary) and
the distributions begin within one year of the owner's death. If the owner's
designated beneficiary is the surviving spouse of the owner, the contract may
be continued with the surviving spouse as the new owner. If the owner of the
contract is a non-natural person, then the annuitant will be treated as the
owner for purposes of applying the distribution at death rules. In addition, a
change in the annuitant on a contract owned by a non-natural person will be
treated as the death of the owner.
7
<PAGE>
QUALIFIED PLANS
The Contract may be used with several types of qualified plans. The tax rules
applicable to participants in such qualified plans vary according to the type
of plan and the terms and conditions of the plan itself. Adverse tax
consequences may result from excess contributions, premature distributions,
distributions that do not conform to specified commencement and minimum
distribution rules, excess distributions and in other circumstances. Contract
owners and participants under the plan and annuitants and beneficiaries under
the Contract may be subject to the terms and conditions of the plan regardless
of the terms of the Contract.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity (IRA).
Individual Retirement Annuities are subject to limitations on the amount that
can be contributed and on the time when distributions may commence. Certain
distributions from other types of qualified plans may be "rolled over" on a
tax-deferred basis into an Individual Retirement Annuity. An IRA generally may
not provide life insurance, but it may provide a death benefit that equals the
greater of the premiums paid and the Contract's Cash Value. The Contract
provides a death benefit that in certain circumstances may exceed the greater
of the payments and the Contract Value. It is possible that the death benefit
could be viewed as violating the prohibition on investment in life insurance
contracts with the result that the Contract would not be viewed as satisfying
the requirements of an IRA.
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth Individual
Retirement Annuity. Roth Individual Retirement Annuities are subject to
limitations on the amount that can be contributed and on the time when
distributions may commence. "Qualified distributions" from Roth Individual
Retirement Annuities are not includible in gross income. "Qualified
distributions" are any distributions made more than five taxable years after
the taxable year of the first contribution to the Roth Individual Retirement
Annuity, and which are made on or after the date the individual attains age 59
1/2, made to a beneficiary after the owner's death, attributable to the owner
being disabled or for a first time home purchase (first time home purchases
are subject to a lifetime limit of $10,000). "Nonqualified distributions" are
treated as made from contributions first and are includible in gross income to
the extent such distributions exceed the contributions made to the Roth
Individual Retirement Annuity. The taxable portion of a "nonqualified
distribution" may be subject to the 10% penalty tax on premature
distributions. Subject to certain limitations, a traditional Individual
Retirement Account or Annuity may be converted or "rolled over" to a Roth
Individual Retirement Annuity. The taxable portion of a conversion or rollover
distribution is includible in gross income, but is exempted from the 10%
penalty tax on premature distributions.
SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees using the employees' individual retirement
annuities if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to their individual retirement annuities. Employers intending to use
the Contract in connection with such plans should seek competent advice. In
particular, employers should consider that an IRA generally may not provide
life insurance, but it may provide a death benefit that equals the greater of
the premiums paid and the contract's cash value. The Contract provides a death
benefit that in certain circumstances may exceed the greater of the payments
and the Contract Value.
8
<PAGE>
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS)
Sections 408(p) and 401(k) of the Code allow employers with 100 or fewer
employees to establish SIMPLE retirement plans for their employees. SIMPLE
plans may be structured as a SIMPLE retirement account using an employee's IRA
to hold the assets or as a Section 401(k) qualified cash or deferred
arrangement. In general, a SIMPLE plan consists of a salary deferral program
for eligible employees and matching or nonelective contributions made by
employers. Employers intending to use the Contract in conjunction with SIMPLE
plans should seek competent tax and legal advice.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees of
certain types of tax-exempt organizations (specified in Section 501(c)(3) of
the Code) to have their employers purchase annuity contracts for them, and
subject to certain limitations, to exclude the purchase payments from the
employees' gross income. An annuity contract used for a Section 403(b) plan
must provide that distributions attributable to salary reduction contributions
made after 12/31/88, and all earnings on salary reduction contributions, may
be made only on or after the date the employee attains age 59 1/2, separates
from service, dies, becomes disabled or on the account of hardship (earnings
on salary reduction contributions may not be distributed for hardship). These
limitations do not apply to withdrawals where Northbrook is directed to
transfer some or all of the Contract Value to another 403(b) plan.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Sections 401(a) and 403(a) of the Code permit corporate employers to establish
various types of tax favored retirement plans for employees. The Self-Employed
Individuals Retirement Act of 1962, as amended, (commonly referred to as "H.R.
10" or "Keogh") permits self-employed individuals to establish tax favored
retirement plans for themselves and their employees. Such retirement plans may
permit the purchase of annuity contracts in order to provide benefits under
the plans.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION
PLANS
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without
paying current taxes. The employees must be participants in an eligible
deferred compensation plan. To the extent the Contracts are used in connection
with an eligible plan, employees are considered general creditors of the
employer and the employer as owner of the contract has the sole right to the
proceeds of the contract. Generally, under the non-natural owner rules, such
Contracts are not treated as annuity contracts for federal income tax
purposes. Under these plans, contributions made for the benefit of the
employees will not be includible in the employees' gross income until
distributed from the plan. However, under a Section 457 plan all the
compensation deferred under the plan must remain solely the property of the
employer, subject only to the claims of the employer's general creditors,
until such time as made available to the employee or a beneficiary.
9
<PAGE>
EXPERTS
The financial statements and the related financial statement schedule included
in this Statement of Additional Information have been audited by Deloitte &
Touche, LLP, independent auditors, as stated in their reports appearing herein,
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
10
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Variable Account and Northbrook and the
accompanying Independent Auditors' Reports appear on the pages that follow. The
financial statements of Northbrook included herein should be considered only as
bearing upon the ability of Northbrook to meet its obligations under the
Contracts.
11
<PAGE>
Financial Statements
Index
-----
Page
----
Independent Auditors' Report............................................... F-1
Financial Statements:
Statements of Financial Position
December 31, 1998 and 1997........................................... F-2
Statements of Operations and Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996..................................... F-3
Statements of Shareholder's Equity for the Years Ended
December 31, 1998, 1997 and 1996..................................... F-4
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996..................................... F-5
Notes to Financial Statements......................................... F-6
Schedule IV - Reinsurance for the Years Ended
December 31, 1998, 1997 and 1996..................................... F-17
<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, 1998 and 1997, 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, 1998. 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, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 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 19, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
December 31,
------------
($ in thousands) 1998 1997
---- ----
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $81,156 and $72,491) $ 86,336 $ 76,402
Short-term 5,083 3,031
---------- ----------
Total investments 91,419 79,433
Reinsurance recoverable from Allstate Life
Insurance Company 2,148,091 2,293,094
Receivable from affiliates, net -- 1,467
Other assets 8,206 5,033
Separate Accounts 7,031,083 5,719,203
---------- ----------
TOTAL ASSETS $9,278,799 $8,098,230
========== ==========
LIABILITIES
Reserve for life-contingent contract benefits $ 145,055 $ 144,352
Contractholder funds 2,003,122 2,148,555
Current income taxes payable 1,830 162
Deferred income taxes 3,316 2,674
Payable to affiliates, net 6,586 --
Separate Accounts 7,031,083 5,719,203
---------- ----------
TOTAL LIABILITIES 9,190,992 8,014,946
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 10)
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 25,340 21,642
Accumulated other comprehensive income:
Unrealized net capital gains 3,367 2,542
---------- ----------
Total accumulated other comprehensive income 3,367 2,542
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 87,807 83,284
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $9,278,799 $8,098,230
========== ==========
<FN>
See notes to financial statements.
</FN>
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Net investment income $ 5,691 $ 5,146 $ 4,888
Realized capital gains and losses 2 (68) (20)
------- ------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 5,693 5,078 4,868
Income tax expense 1,995 1,756 1,666
------- ------- -------
NET INCOME 3,698 3,322 3,202
------- ------- -------
OTHER COMPREHENSIVE INCOME, AFTER-TAX
Change in unrealized net capital gains and losses 825 1,256 (1,371)
------- ------- -------
COMPREHENSIVE INCOME $ 4,523 $ 4,578 $ 1,831
======= ======= =======
<FN>
See notes to financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
December 31,
------------
($ in thousands) 1998 1997 1996
---- ---- ----
<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 21,642 18,320 15,118
Net income 3,698 3,322 3,202
-------- -------- --------
Balance, end of year 25,340 21,642 18,320
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year 2,542 1,286 2,657
Change in unrealized net capital gains and losses 825 1,256 (1,371)
-------- -------- --------
Balance, end of year 3,367 2,542 1,286
-------- -------- --------
Total shareholder's equity $ 87,807 $ 83,284 $ 78,706
======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,698 $ 3,322 $ 3,202
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, amortization and
other non-cash items 518 516 782
Realized capital gains and losses (2) 68 20
Changes in:
Life-contingent contract benefits and
contractholder funds 273 205 (198)
Income taxes payable 1,866 (480) 346
Other operating assets and liabilities 4,126 (264) 542
-------- -------- --------
Net cash provided by operating activities 10,479 3,367 4,694
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,922 1,606 3,522
Investment collections 10,253 10,036 5,770
Investment purchases (20,690) (18,568) (15,532)
Change in short-term investments, net (1,964) 3,559 1,459
-------- -------- --------
Net cash used in investing activities (10,479) (3,367) (4,781)
-------- -------- --------
NET DECREASE IN CASH -- -- (87)
CASH AT THE BEGINNING OF YEAR -- -- 87
-------- -------- --------
CASH AT END OF YEAR $ -- $ -- $ --
======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
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 1998 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets savings products and life insurance exclusively through Dean
Witter Reynolds Inc. ("Dean Witter") (see Note 4), a wholly owned subsidiary of
Morgan Stanley Dean Witter. Savings products include deferred annuities, such as
variable annuities and fixed rate single and flexible premium annuities, and
immediate annuities. Life insurance includes universal life and variable life
products. In 1998, substantially all of the Company's statutory premiums and
deposits were from annuities. The Company re-domesticated its operations from
Illinois to Arizona in 1998.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrenders 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. There continues to be proposed federal and
state regulation and legislation that, if passed, would allow banks greater
participation in securities and insurance businesses. Such events would 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 are
California, Florida and Texas for the year ended December 31, 1998. 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.
F-6
<PAGE>
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 dividends on short-term
investments. 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
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. The amounts shown in the
Company's statements of operations and comprehensive income relate to the
investment of those assets of the Company that are not transferred under
reinsurance agreements. Reinsurance recoverable and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the statements of financial position. The Company continues to
have primary liability as the direct insurer for risks reinsured.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Revenues on universal life-type contracts are comprised of contract charges and
fees, and are recognized when assessed against the policyholder account balance.
Revenues on investment contracts include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balance. All premium revenues and contract charges are primarily
reinsured with ALIC.
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 from
unrealized capital gains and losses on fixed income securities carried at fair
value and differences in the tax bases of investments.
F-7
<PAGE>
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity and variable life
policies, the assets and liabilities of which are legally segregated and
reflected in the accompanying statements of financial position as assets and
liabilities of the Separate Accounts. The Company's Separate Accounts consist
of: Northbrook Variable Annuity Account, Northbrook Variable Annuity Account II
and Northbrook Life Variable Life Separate Account A. Each of the Separate
Accounts are unit investment trusts registered with the Securities and Exchange
Commission.
The assets of the Separate Accounts are carried at fair value. Investment income
and realized capital gains and losses of the Separate Accounts accrue directly
to the contractholders and, therefore, are not included in the Company's
statements of operations and comprehensive income. Revenues to the Company from
the Separate Accounts consist of contract maintenance fees, administration fees,
mortality and expense risk charges and cost of insurance charges, all of which
are reinsured with ALIC.
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to structured
settlement annuities with life contingencies, is computed on the basis of
assumptions as to future investment yields, mortality, morbidity, terminations
and expenses. These assumptions include provisions for adverse deviation and
generally vary by such characteristics as type of coverage, year of issue and
policy duration. Reserve interest rates ranged from 4.00% to 11.00% during 1998.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most fixed annuities
and universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the contractholder less withdrawals, mortality
charges and administrative expenses. During 1998, credited interest rates on
contractholder funds ranged from 3.46% to 11.00% for those contracts with fixed
interest rates and from 3.25% to 6.50% for those with flexible rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive income is a
measurement of certain changes in shareholder's equity that result from
transactions and other economic events other than transactions with
shareholders. For the Company, these consist of changes in unrealized gains and
losses on the investment portfolio (See Note 9).
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 redefines how segments are
determined and requires additional segment disclosures for both annual and
interim financial reporting. The Company has identified itself as a single
operating segment.
F-8
<PAGE>
PENDING ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP is required to be adopted in 1999. 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. The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying alternatives for estimating the accrual. In addition,
industry groups are working to improve the information available. Adoption of
this standard is not expected to be material to the results of operations or
financial position of the Company.
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. The amounts shown in the Company's
statements of operations and comprehensive income relate to the investment of
those assets of the Company that are not transferred under reinsurance
agreements. 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 reinsurance agreements. The following amounts were ceded to ALIC under
reinsurance agreements.
YEAR ENDED DECEMBER 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
Premiums $ 2,528 $ 1,979 $ 3,775
Contract charges 102,218 83,559 60,744
Credited interest, policy benefits,
and certain expenses 217,428 201,526 218,088
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 cost to the Company is determined by various allocation methods
and is primarily related to the level of services provided. Operating expenses,
including compensation and retirement and other benefit programs, allocated to
the Company were $26,230, $23,978 and $26,583 in 1998, 1997 and 1996,
respectively. Of these costs, the Company retains investment related expenses.
All other costs are ceded to ALIC under reinsurance agreements.
F-9
<PAGE>
4. EXCLUSIVE DISTRIBUTION AGREEMENT
The Company and ALIC have a strategic alliance with Dean Witter to develop,
market and distribute proprietary annuity 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 the assets of the Separate Accounts
are invested.
Under the terms of the strategic 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. The strategic alliance is cancelable by
either party, however, the Company believes the benefits derived by Dean Witter
will preserve the alliance. If Dean Witter would choose to cancel the alliance,
existing contracts and policies would not be affected.
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, 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
======= ======= ======= =======
AT DECEMBER 31, 1997
U.S. government and agencies $ 8,638 $ 823 $ -- $ 9,461
Municipal 1,143 28 -- 1,171
Corporate 25,913 897 (12) 26,798
Mortgage-backed securities 36,797 2,315 (140) 38,972
------- ------- ------- -------
Total fixed income securities $72,491 $ 4,063 $ (152) $76,402
======= ======= ======= =======
</TABLE>
F-10
<PAGE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at December
31, 1998:
AMORTIZED FAIR
COST VALUE
Due in one year or less $ 1,443 $ 1,452
Due after one year through five years 7,546 7,950
Due after five years through ten years 26,008 27,429
Due after ten years 8,199 9,463
------- -------
43,196 46,294
Mortgage-backed securities 37,960 40,042
------- -------
Total $81,156 $86,336
======= =======
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
Fixed income securities $ 5,616 $ 5,364 $ 4,675
Short-term investments 190 84 390
------- ------- -------
Investment income, before expense 5,806 5,448 5,065
Investment expense 115 302 177
------- ------- -------
Net investment income $ 5,691 $ 5,146 $ 4,888
======= ======= =======
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
Fixed income securities $ 2 $ (70) $ (22)
Short-term investments -- 2 2
------- ------- -------
Realized capital gains and losses 2 (68) (20)
Income tax (1) 24 7
------- ------- -------
Realized capital gains and losses, after tax $ 1 $ (44) $ (13)
======= ======= =======
Excluding calls and prepayments, gross losses of $9, $70 and $32 were realized
on sales of fixed income securities during 1998, 1997 and 1996, respectively.
F-11
<PAGE>
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
COST/
AMORTIZED FAIR GROSS UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES NET GAINS
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 81,156 $ 86,336 $ 5,364 $ (184) $ 5,180
======== ======== ======== ========
Deferred income taxes (1,813)
--------
Unrealized net capital gains $ 3,367
========
</TABLE>
CHANGE IN UNREALIZED NET CAPITAL GAINS
YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
Fixed income securities $ 1,269 $ 1,932 $(2,108)
Deferred income taxes (444) (676) 737
------- ------- -------
Increase (decrease) in unrealized net
capital gains $ 825 $ 1,256 $(1,371)
======= ======= =======
SECURITIES ON DEPOSIT
At December 31, 1998, fixed income securities with a carrying value of $9,188
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 universal
life-type 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,
are generally of a short-term nature. Their carrying values are assumed to
approximate fair value.
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Fixed income securities $ 86,336 $ 86,336 $ 76,402 $ 76,402
Short-term investments 5,083 5,083 3,031 3,031
Separate Accounts 7,031,083 7,031,083 5,719,203 5,719,203
F-12
<PAGE>
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
approximates 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:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Contractholder funds on
investment contracts $1,839,114 $1,814,684 $1,977,479 $1,951,214
Separate Accounts 7,031,083 7,031,083 5,719,203 5,719,203
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. 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 Sears, Roebuck and Co.'s ("Sears") distribution ("Sears distribution")
on June 30, 1995 of its 80.3% ownership in the Corporation to Sears
shareholders, the Allstate Group joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Tax Sharing Agreement"). Under the Tax Sharing
Agreement, the Company, through the Corporation, paid to or received from the
Sears Group the amount, if any, by which the Sears Tax Group's federal income
tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return.
F-13
<PAGE>
As a result of the Sears distribution, the Allstate Group was no longer included
in the Sears Tax Group, and the Tax Sharing Agreement was terminated.
Accordingly, the Allstate Group and Sears Group entered into a new tax sharing
agreement, which adopts many of the principles of the Tax Sharing Agreement and
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Sears distribution, 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 adjustment
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:
1998 1997
---- ----
DEFERRED ASSETS
Separate Accounts $ -- $ 149
------- -------
DEFERRED LIABILITIES
Difference in tax bases of investments (1,503) (1,454)
Unrealized net capital gains (1,813) (1,369)
------- -------
Total deferred liabilities (3,316) (2,823)
------- -------
Net deferred liability $(3,316) $(2,674)
======= =======
The components of income tax expense for the year ended December 31, are as
follows:
1998 1997 1996
---- ---- ----
Current $ 1,797 $ 1,843 $ 1,642
Deferred 198 (87) 24
------- ------- -------
Total income tax expense $ 1,995 $ 1,756 $ 1,666
======= ======= =======
The Company paid income taxes of $129, $2,236 and $2,308 in 1998, 1997 and 1996,
respectively. The Company had a current income tax liability of $1,830 and $162
at December 31, 1998 and 1997, respectively.
F-14
<PAGE>
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:
1998 1997 1996
------ ------ ------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Tax-exempt income (0.2) (0.4) (0.6)
Other 0.2 -- (0.2)
------ ------ ------
Effective income tax rate 35.0% 34.6% 34.2%
====== ====== ======
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, 1998, 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.
8. STATUTORY FINANCIAL INFORMATION
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and 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 revised
statutory accounting principles. While the NAIC has approved a January 1, 2001
implementation date for the newly developed guidance, companies must adhere to
the implementation date adopted by their state of domicile. The Company's state
of domicile, Arizona, is continuing its comparison of codification and current
statutory accounting requirements to determine necessary revisions to existing
state laws and regulations. The requirements are not expected to have a material
impact on the statutory surplus of the Company.
F-15
<PAGE>
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 1999 without prior approval of the Arizona Department of Insurance is
$3,518.
9. 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>
1998 1997 1996
-------------------------------- ---------------------------- -----------------------------
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 gains
(losses) arising during
the period $ 1,271 $ (445) $ 826 $ 1,862 $ (652) $ 1,210 $(2,130) $ 745 $(1,385)
Less: reclassification
adjustment for realized
net capital gains
included in net income 2 (1) 1 (70) 24 (46) (22) 8 (14)
------- ------- ------- ------- ------- ------- ------- ------- -------
Unrealized net capital
gains (losses) 1,269 (444) 825 1,932 (676) 1,256 (2,108) 737 (1,371)
------- ------- ------- ------- ------- ------- ------- ------- -------
Other comprehensive
income $ 1,269 $ (444) $ 825 $ 1,932 $ (676) $ 1,256 $(2,108) $ 737 $(1,371)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
10. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing banks
from engaging in the securities and insurance business, tax law changes
affecting the taxation of insurance companies, the tax treatment of insurance
products and its impact on the relative desirability of various personal
investment vehicles, and proposed legislation to prohibit the use of gender in
determining insurance rates and benefits. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
F-16
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
Life insurance in force $ 494,256 $ 494,256 $ --
========= ========= =========
Premiums and contract charges:
Life and annuities $ 104,746 $ 104,746 $ --
========= ========= =========
GROSS NET
YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
Life insurance in force $ 515,890 $ 515,890 $ --
========= ========= =========
Premiums and contract charges:
Life and annuities $ 85,538 $ 85,538 $ --
========= ========= =========
GROSS NET
YEAR ENDED DECEMBER 31, 1996 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
Life insurance in force $ 556,242 $ 556,242 $ --
========= ========= ==========
Premiums and contract charges:
Life and annuities $ 64,519 $ 64,519 $ --
========= ========= ==========
F-17
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
Financial Statements as of December 31, 1998
and the periods ended December 31, 1998 and
December 31, 1997, and
Independent Auditors' Report
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 1
STATEMENTS OF NET ASSETS AS OF DECEMBER 31, 1998 FOR THE FOLLOWING: 2
Investments in the Morgan Stanley Dean Witter Variable
Investment Series Portfolios:
Money Market
High Yield
Equity
Quality Income Plus
Strategist
Dividend Growth
Utilities
European Growth
Capital Growth
Global Dividend Growth
Pacific Growth
Capital Appreciation
Income Builder
STATEMENTS OF OPERATIONS FOR THE FOLLOWING:
FOR THE YEAR ENDED DECEMBER 31, 1998
Investments in the Morgan Stanley Dean Witter Variable
Investment Series Portfolios:
Money Market 3
High Yield
Equity
Quality Income Plus
Strategist
Dividend Growth
Utilities 4
European Growth
Capital Growth
Global Dividend Growth
Pacific Growth
Capital Appreciation
Income Builder
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
STATEMENTS OF CHANGES IN NET ASSETS FOR THE FOLLOWING:
FOR THE YEAR ENDED DECEMBER 31, 1998
Investments in the Morgan Stanley Dean Witter Variable
Investment Series Portfolios:
Money Market 5
High Yield
Equity
Quality Income Plus
Strategist
Dividend Growth
Utilities 6
European Growth
Capital Growth
Global Dividend Growth
Pacific Growth
Capital Appreciation
Income Builder
FOR THE YEAR ENDED DECEMBER 31, 1997
Investments in the Dean Witter Variable
Investment Series Portfolios
Money Market 7
High Yield
Equity
Quality Income Plus
Strategist
Dividend Growth
Utilities 8
European Growth
Capital Growth
Global Dividend Growth
Pacific Growth
FOR THE PERIOD JANUARY 21, 1997 TO DECEMBER 31, 1997
Investments in the Dean Witter Variable Investment
Series Portfolios
Capital Appreciation
Income Builder
NOTES TO FINANCIAL STATEMENTS 9-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Northbrook Life Insurance Company:
We have audited the accompanying statements of net assets of each of the
sub-accounts ("portfolios" for purposes of this report), listed in the table of
contents, that comprise Northbrook Variable Annuity Account (the "Account"), a
Separate Account of Northbrook Life Insurance Company, an affiliate of The
Allstate Corporation, as of December 31, 1998, and the related statements of
operations and changes in net assets for the applicable periods indicated in the
table of contents. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1998. 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 each of the portfolios, listed in the table
of contents, that comprise the Account as of December 31, 1998, and the results
of their operations and the changes in their net assets for each of the periods,
indicated in the table of contents, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 18, 1999
1
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
($ and shares in thousands)
ASSETS
Investments in the Morgan Stanley Dean Witter
Variable Investment Series Portfolios:
Money Market, 19,462 shares (cost $19,462) $ 19,462
High Yield, 3,002 shares (cost $20,281) 15,220
Equity, 1,416 shares (cost $33,032) 54,618
Quality Income Plus, 1,668 shares (cost $16,976) 18,344
Strategist, 2,238 shares (cost $26,759) 37,240
Dividend Growth, 2,824 shares (cost $37,482) 62,501
Utilities, 1,049 shares (cost $13,375) 22,293
European Growth, 476 shares (cost $9,175) 12,949
Capital Growth, 151 shares (cost $2,385) 3,073
Global Dividend Growth, 531 shares (cost $6,143) 7,342
Pacific Growth, 293 shares (cost $2,265) 1,510
Capital Appreciation, 34 shares (cost $363) 357
Income Builder, 55 shares (cost $615) 630
----------
Total assets 255,539
LIABILITIES
Payable to Northbrook Life Insurance Company:
Accrued contract maintenance charges 71
----------
Net assets $ 255,468
==========
See notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
($ in thousands)
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES PORTFOLIOS
---------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------
Quality
Money High Income Strate- Dividend
Market Yield Equity Plus gist Growth
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1,587 $ 2,799 $ 6,563 $ 1,208 $ 4,353 $ 7,170
Charges from Northbrook Life Insurance Company:
Mortality and expense risk (189) (172) (521) (191) (370) (657)
-------- -------- -------- -------- -------- --------
Net investment income 1,398 2,627 6,042 1,017 3,983 6,513
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 9,973 6,011 14,705 6,394 11,793 17,301
Cost of investments sold 9,973 6,983 8,686 5,599 8,426 9,623
-------- -------- -------- -------- -------- --------
Net realized gains (losses) -- (972) 6,019 795 3,367 7,678
Change in unrealized gains (losses) -- (1,702) 2,145 (46) 1,470 (5,466)
-------- -------- -------- -------- -------- --------
Net gains (losses) on investments -- (2,674) 8,164 749 4,837 2,212
-------- -------- -------- -------- -------- --------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 1,398 $ (47) $ 14,206 $ 1,766 $ 8,820 $ 8,725
======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES PORTFOLIOS
--------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------
Global Capital
Utili- European Capital Dividend Pacific Appreci- Income
ties Growth Growth Growth Growth ation Builder
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1,655 $ 1,013 $ 233 $ 1,046 $ 80 $ 4 $ 46
Charges from Northbrook Life Insurance Company:
Mortality and expense risk (210) (137) (30) (83) (14) (4) (8)
-------- -------- -------- -------- -------- -------- --------
Net investment income 1,445 876 203 963 66 -- 38
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 6,180 6,065 1,231 3,264 743 443 488
Cost of investments sold 3,493 4,136 1,000 2,753 1,282 461 450
-------- -------- -------- -------- -------- -------- --------
Net realized gains (losses) 2,687 1,929 231 511 (539) (18) 38
Change in unrealized gains (losses) 664 (133) 78 (621) 263 (19) (40)
-------- -------- -------- -------- -------- -------- --------
Net gains (losses) on investments 3,351 1,796 309 (110) (276) (37) (2)
-------- -------- -------- -------- -------- -------- --------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 4,796 $ 2,672 $ 512 $ 853 $ (210) $ (37) $ 36
======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
($ in thousands)
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES PORTFOLIOS
---------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------
Quality
Money High Income Strate- Dividend
Market Yield Equity Plus gist Growth
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 1,398 $ 2,627 $ 6,042 $ 1,017 $ 3,983 $ 6,513
Net realized gains (losses) -- (972) 6,019 795 3,367 7,678
Change in unrealized gains (losses) -- (1,702) 2,145 (46) 1,470 (5,466)
-------- -------- -------- -------- -------- --------
Change in net assets resulting from operations 1,398 (47) 14,206 1,766 8,820 8,725
FROM CAPITAL TRANSACTIONS
Deposits 95 60 229 20 34 111
Benefit payments (98) (611) (722) (498) (560) (537)
Payments on terminations (4,037) (3,141) (10,799) (4,305) (8,462) (12,887)
Contract maintenance charges (9) (10) (24) (9) (21) (30)
Transfers among the portfolios and with the
Fixed account - net 3,589 (536) 79 336 (1,002) (1,667)
-------- -------- -------- -------- -------- --------
Change in net assets resulting from
capital transactions (460) (4,238) (11,237) (4,456) (10,011) (15,010)
-------- -------- -------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS 938 (4,285) 2,969 (2,690) (1,191) (6,285)
NET ASSETS AT BEGINNING OF PERIOD 18,519 19,501 51,635 21,029 38,421 68,769
-------- -------- -------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 19,457 $ 15,216 $ 54,604 $ 18,339 $ 37,230 $ 62,484
======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES PORTFOLIOS
--------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------
Global Capital
Utili- European Capital Dividend Pacific Appreci- Income
ties Growth Growth Growth Growth ation Builder
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 1,445 $ 876 $ 203 $ 963 $ 66 $ -- $ 38
Net realized gains (losses) 2,687 1,929 231 511 (539) (18) 38
Change in unrealized gains (losses) 664 (133) 78 (621) 263 (19) (40)
-------- -------- -------- -------- -------- -------- --------
Change in net assets resulting from operations 4,796 2,672 512 853 (210) (37) 36
FROM CAPITAL TRANSACTIONS
Deposits 27 66 3 89 25 24 1
Benefit payments (226) (37) (41) (26) (1) -- --
Payments on terminations (4,551) (1,928) (542) (1,657) (232) (56) (271)
Contract maintenance charges (10) (5) (1) (3) (1) -- --
Transfers among the portfolios and with the
Fixed account - net 556 (439) 66 (1,291) 142 (197) 130
-------- -------- -------- -------- -------- -------- --------
Change in net assets resulting from
capital transactions (4,204) (2,343) (515) (2,888) (67) (229) (140)
-------- -------- -------- -------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS 592 329 (3) (2,035) (277) (266) (104)
NET ASSETS AT BEGINNING OF PERIOD 21,694 12,616 3,075 9,375 1,786 623 733
-------- -------- -------- -------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 22,286 $ 12,945 $ 3,072 $ 7,340 $ 1,509 $ 357 $ 629
======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
($ and units in thousands, except value per unit)
DEAN WITTER VARIABLE INVESTMENT SERIES PORTFOLIOS
---------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------
Quality
Money High Income Strate- Dividend
Market Yield Equity Plus gist Growth
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 902 $ 2,206 $ 3,111 $ 1,280 $ 1,756 $ 4,162
Net realized gains (losses) -- (1,610) 4,021 99 2,928 8,915
Change in unrealized gains (losses) -- 1,461 8,002 636 503 2,637
-------- -------- -------- -------- -------- --------
Change in net assets resulting from operations 902 2,057 15,134 2,015 5,187 15,714
FROM CAPITAL TRANSACTIONS
Deposits 171 128 158 41 58 519
Benefit payments (352) (501) (686) (429) (867) (732)
Payments on termination (8,317) (4,075) (10,931) (5,421) (9,961) (19,174)
Contract maintenance charges (11) (14) (28) (11) (24) (38)
Transfers among the portfolios and with the
Fixed Account - net 2,907 541 1,009 (1,982) (715) 2,527
-------- -------- -------- -------- -------- --------
Change in net assets resulting from capital
transactions (5,602) (3,921) (10,478) (7,802) (11,509) (16,898)
-------- -------- -------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS (4,700) (1,864) 4,656 (5,787) (6,322) (1,184)
NET ASSETS AT BEGINNING OF PERIOD 23,219 21,365 46,979 26,816 44,743 69,953
-------- -------- -------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 18,519 $ 19,501 $ 51,635 $ 21,029 $ 38,421 $ 68,769
======== ======== ======== ======== ======== ========
Net asset value per unit at end of year $ 19.75 $ 33.22 $ 65.97 $ 22.67 $ 26.01 $ 27.67
======== ======== ======== ======== ======== ========
Units outstanding at end of year 938 587 783 927 1,477 2,485
======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
($ and units in thousands, except value per unit)
DEAN WITTER VARIABLE INVESTMENT SERIES PORTFOLIOS
--------------------------------------------------------------------------
FOR THE PERIOD
JANUARY 21, 1997 TO
FOR THE YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1997
---------------------------------------------------- -------------------
Global Capital
Utili- European Capital Dividend Pacific Appreci- Income
ties Growth Growth Growth Growth ation Builder
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 814 $ 712 $ 345 $ 508 $ 23 $ (4) $ 16
Net realized gains (losses) 2,965 1,492 475 725 (290) 7 12
Change in unrealized gains (losses) 974 (328) (134) (152) (1,105) 13 55
-------- -------- -------- -------- -------- -------- --------
Change in net assets resulting from operations 4,753 1,876 686 1,081 (1,372) 16 83
FROM CAPITAL TRANSACTIONS
Deposits 27 188 58 192 27 139 3
Benefit payments (425) (61) (8) (83) (28) -- --
Payments on termination (5,685) (3,296) (1,100) (2,690) (925) (11) (50)
Contract maintenance charges (11) (6) (1) (5) (1) -- --
Transfers among the portfolios and with the
Fixed Account - net (4,665) 373 214 728 (1,127) 479 697
-------- -------- -------- -------- -------- -------- --------
Change in net assets resulting from capital
transactions (10,759) (2,802) (837) (1,858) (2,054) 607 650
-------- -------- -------- -------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS (6,006) (926) (151) (777) (3,426) 623 733
NET ASSETS AT BEGINNING OF PERIOD 27,700 13,542 3,226 10,152 5,212 -- --
-------- -------- -------- -------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 21,694 $ 12,616 $ 3,075 $ 9,375 $ 1,786 $ 623 $ 733
======== ======== ======== ======== ======== ======== ========
Net asset value per unit at end of year $ 24.56 $ 28.54 $ 20.67 $ 15.51 $ 6.14 $ 11.21 $ 12.12
======== ======== ======== ======== ======== ======== ========
Units outstanding at end of year 883 442 149 604 291 56 60
======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
8
<PAGE>
NORTHBROOK VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION
Northbrook Variable Annuity Account (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 wholly owned by The Allstate
Corporation.
Northbrook Life issues certain annuity contracts, the deposits of which are
invested at the direction of the contractholder in the sub-accounts
("portfolios" for purposes of this report) that comprise the Account.
Contractholders bear all investment risk for amounts allocated to the
Account. The portfolios invest in the Morgan Stanley Dean Witter Variable
Investment Series (the "Fund"). The Account accepts additional deposits
from existing contractholders, but is closed to new customers.
Northbrook Life provides insurance and administrative services to the
contractholders for a fee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS - Investments consist of shares of the Fund and
are stated at fair value based on quoted market prices at December 31,
1998.
INVESTMENT INCOME - Investment income consists of dividends declared by
the Fund and is recognized on the date of record.
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 payable by the Account in 1998 as the Account
did not generate taxable income.
3. CONTRACT CHARGES
Northbrook Life assumes mortality and expense risks related to the
operations of the Account and deducts charges daily at a rate equal to
1.0% per annum of the daily net assets of the Account. Northbrook Life
guarantees that the rate of this charge will not increase over the life of
the contract.
Northbrook Life deducts an annual contract maintenance charge of $30.
4. FINANCIAL INSTRUMENTS
The investments of the Account are carried at fair value, based upon
quoted market prices. Accrued contract maintenance charges are of a
short-term nature. It is assumed that their carrying value approximates
fair value.
9
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
Unit activity during 1998:
--------------------------
Units Units Accumulation
Outstanding Outstanding Unit Value
December 31, Units Units December 31, December 31,
1997 Issued Redeemed 1998 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Investments in Morgan Stanley Dean Witter
Variable Investment Series Portfolios:
Money Market 937,820 751,655 (743,962) 945,513 $ 20.58
High Yield 587,053 88,786 (182,911) 492,928 30.87
Equity 782,723 69,942 (211,442) 641,223 85.15
Quality Income Plus 927,584 109,686 (283,064) 754,206 24.32
Strategist 1,477,411 60,506 (396,413) 1,141,504 32.61
Dividend Growth 2,485,592 141,313 (619,706) 2,007,199 31.13
Utilities 883,371 103,686 (245,086) 741,971 30.04
European Growth 441,921 150,526 (222,934) 369,513 35.03
Capital Growth 148,763 36,852 (60,106) 125,509 24.48
Global Dividend Growth 604,338 33,885 (213,477) 424,746 17.28
Pacific Growth 290,930 145,653 (159,582) 277,001 5.45
Capital Appreciation 55,544 23,432 (44,013) 34,963 10.22
Income Builder 60,458 29,552 (39,203) 50,807 12.39
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
10
<PAGE>
PART C
OTHER INFORMATION
b. EXHIBITS
(1) Form of Resolution of the Board of Directors of Northbrook Life
Insurance Company authorizing establishment of the Variable Annuity
Account (Previously filed in Post-Effective Amendment No. 21 to this
Registration Statement (File No. 002-82511) dated December 31, 1996.)
(2) Not Applicable
(3)(a) Underwriting Agreement (Incorporated herein by reference
Post-Effective Amendment No. 13 to Registration Statement (File No.
033-35412) dated December 31, 1996.)
(3)(b) Form of General Agency Agreement (Incorporated herein by reference
Post-Effective Amendment No. 13 to Registration Statement (File No.
033-35412) dated December 31, 1996.)
(4) Specimen Contract
(5) Form Application for a Contract
(6)(a) Amended and Restated Articles of Incorporation and Articles of
Redomestication of Northbrook Life Insurance Company (Incorporated
herein by reference to Depositor's Form 10-K annual report dated March
30, 1999.)
(6)(b) Amended and Restated By-laws of Northbrook Life Insurance Company
(Incorporated herein by reference to Depositor's Form 10-K annual
report dated March 30, 1999.)
(7) Not applicable
(8) Participation Agreement (Previously filed in Post-Effective Amendment
No. 20 to this Registration Statement (File No. 002-82511) dated April
30, 1996.)
(9)(a) Opinion and Consent of General Counsel (Previously filed in
Post-Effective Amendment No. 20 to this Registration Statement (9)(b)
Opinion and Consent of General Counsel
(10)(a) Independent Auditors' Consent
(10)(b) Consent of Freedman, Levy, Kroll & Simonds
(11) Not Applicable
(12) Form of Agreement to Purchase Shares (Incorporated herein by reference
Post-Effective Amendment No. 13 to Registration Statement (File No.
033-35412) dated December 31, 1996.)
(13) Performance Data Calculations (Previously filed in Post-Effective
Amendment No. 22 to this Registration Statement (File No. 002-82511)
dated April 15, 1997.)
(14) Not Applicable
(99)(a) Powers of Attorney for Keith A. Hauschildt, Kevin R. Slawin, Peter H.
Heckman and Casey J. Sylla (Previously filed in Post-Effective
Amendment No. 21 to this Registration Statement (File No. 002-82511)
dated December 31, 1996.) (99)(b) Powers of Attorney for Louis G.
Lower, II, Michael J. Velotta, Thomas J. Wilson, II and John R. Hunter
25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICE WITH
BUSINESS ADDRESS DEPOSITOR OF THE ACCOUNT
<S> <C>
Louis G. Lower, II Chairman of the Board, Chief Executive Officer
Thomas J. Wilson, II Director and Vice Chairman
Peter H. Heckman Director, President and Chief Operating Officer
Michael J. Velotta Director, Vice President, Secretary
and General Counsel
Sarah R. Donahue Director and Assistant Vice President
John R. Hunter Director and Assistant Vice President
Kevin R. Slawin Director and Vice President
Casey J. Sylla Director and Chief Investment Officer
Timothy N. Vander Pas Director and Assistant Vice President
Marla G. Friedman Vice President
Karen C. Gardner Vice President
James P. Zils Treasurer
Keith A. Hauschildt Assistant Vice President and Controller
Ronald Johnson Assistant Vice President
Barry S. Paul Assistant Vice President
Robert N. Roeters Assistant Vice President
C. Nelson Strom Assistant Vice President and Corporate Actuary
Charles F. Thalheimer Assistant Vice President
Timothy N. Vander Pas Assistant Vice President
Patricia W. Wilson Assistant Vice President, Assistant Secretary
and Assistant Treasurer
Joanne M. Derrig Assistant Secretary and Chief Compliance Officer
Emma M. Kalaidjian Assistant Secretary
Paul N. Kierig Assistant Secretary
Mary J. McGinn Assistant Secretary
Gregory C. Sernett Assistant Secretary
Brenda D. Sneed Assistant Secretary and Assistant General Counsel
Nancy M. Bufalino Assistant Treasurer
</TABLE>
The principal business address of the foregoing officers and directors is 3100
Sanders Road, Northbrook, Illinois 60062.
26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR REGISTRANT
Incorporated herein by reference to Annual Report on Form 10-K, filed by the
Allstate Corporation on March 26, 1999 (File No. 1-11840).
27. NUMBER OF CONTRACT OWNERS
As of April 13, 1999, there were 3,877 nonqualified contracts and 397
qualified contracts.
<PAGE>
28. INDEMNIFICATION
The General Agency Agreement (Exhibit 3(b)) has a provision in which
Northbrook Life agrees to indemnify Dean Witter Reynolds as Underwriter for
certain damages and expenses that may be caused by actions, statements or
omissions by Northbrook Life. The Agreement to Purchase Shares contains a
similar provision in paragraph 16 of Exhibit 12.
Insofar as indemnification for liability arising out of the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the registrant of expenses
incurred by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of is counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
29. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, Dean Witter Reynolds Inc., is the
principal underwriter for the following affiliated investment companies:
Northbrook Variable Annuity Account II
Northbrook Life Variable Life Separate Account A
Allstate Life of New York Variable Annuity Account II
Allstate Life of New York Variable Annuity Account
(b) The directors and principal officers of the principal underwriter are:
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices
Address* of Each Such Person With Underwriter
<S> <C>
Philip J. Purcell Director, Chairman and Chief Executive Officer
Richard M. Demartini Director, President and Chief Operating Officer
Dean Witter Capital
James F. Higgins Director, President and Chief Operating Officer
Dean Witter Financial
Stephen R. Miller Director and Senior Executive Vice President
Robert J. Dwyer Director, Executive Vice President and
National Sales Director
Christine A. Edwards Director, Executive Vice President,
Secretary and General Counsel
Mitchell M. Merin Director, Executive Vice President and
Chief Administrative Officer
Richard F. Powers, II Director and Executive Vice President
Thomas C. Schneider Director and Executive Vice President
William B. Smith Director and Executive Vice President
Raymond J. Drop Executive Vice President
Fredrick J. Frohne Executive Vice President
E. Davisson Hardman, Jr. Executive Vice President
Jeremiah A. Mullins Executive Vice President
John H. Schaffer Executive Vice President
Robert B. Sculthorpe Executive Vice President
<PAGE>
Anthony Basile Senior Vice President
Ronald T. Carmen Senior Vice President, Associate General Counsel
and Assistant Secretary
Michael T. Cunningham Senior Vice President
Mary E. Curran Senior Vice President
David Diaz Senior Vice President
Paul J. Dubow Senior Vice President and Deputy General Counsel
Michael T. Gregg Senior Vice President and Deputy General Counsel
Lorena J. Kern Senior Vice President
George R. Ross Senior Vice President
Robert P Seass Senior Vice President
Joseph G. Siniscalchi Senior Vice President and Controller
Dean Witter Financial
Michael H. Stone Senior Vice President
Charles F. Vadala, Jr. Senior Vice President and Chief Financial Officer
Kelly McNamara Senior Vice President and
Director of Governmental Affairs
Michael D. Browne Assistant Secretary
Marilyn K. Cranney Assistant Secretary
Sabrina Hurley Assistant Secretary
</TABLE>
* The principal business address of the above-named individuals is Two World
Trade Center, New York, New York 10048.
(c) Compensation of Dean Witter Reynolds Inc.
The following commissions and other compensation were received by each
principal underwriter, directly or indirectly, from the Registrant during the
Registrant's last fiscal year.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
<S> <C> <C> <C> <C>
Net Underwriting
Name of Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
Dean Witter
Reynolds Inc.
</TABLE>
30. LOCATION OF ACCOUNTS AND RECORDS
The Depositor, Northbrook Life Insurance Company, is located at 3100 Sanders
Road, Northbrook, Illinois 60062. The Distributor, Dean Witter Reynolds Inc.,
is located at Two World Trade Center, New York, New York 10048.
Each company maintains those accounts and records required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the rules
promulgated thereunder.
31. MANAGEMENT SERVICES
None
32. UNDERTAKINGS
<PAGE>
The Registrant undertakes to file a post-effective amendment to the
Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more than
16 months old for so long as payments under the variable annuity contracts may
be accepted. Registrant furthermore agrees to include either, as part of any
application to purchase a contract offered by the prospectus, a toll-free
number that an applicant can call to request a Statement of Additional
Information or a post card or similar written communication affixed to or
included in the Prospectus that the applicant can remove to send for a
Statement of Additional Information. Finally, the Registrant agrees to deliver
any Statement of Additional Information and any Financial Statements required
to be made available under this Form N-4 promptly upon written or oral
request.
REPRESENTATIONS PURSUANT TO SECTION 403(B) OF THE INTERNAL REVENUE CODE
The Company represents that it is relying upon a November 28, 1988 Securities
and Exchange Commission no-action letter issued to the American Council of
Life Insurance ("ACLI") and that the provisions of paragraphs 1-4 of the
no-action letter have been complied with.
REPRESENTATION REGARDING CONTRACT EXPENSES
Northbrook Life Insurance Company represents that the fees and charges
deducted under the Individual and Group Variable Annuity Contracts hereby
registered by this Registration Statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by Northbrook Life Insurance Company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Northbrook Variable Annuity Account, certifies that it
meets the requirements of Securities Act Rule 485(b) for effectiveness of this
amended Registration Statement and has caused this amended Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the
Township of Northfield, State of Illinois, on the 27th day of April, 1999.
NORTHBROOK VARIABLE ANNUITY ACCOUNT
(REGISTRANT)
BY: NORTHBROOK LIFE INSURANCE COMPANY
(DEPOSITOR)
(SEAL)
Attest: /s/BRENDA D. SNEED By: /s/MICHAEL J. VELOTTA
------------------ ---------------------
Brenda D. Sneed Michael J. Velotta
Assistant Secretary Vice President, Secretary and
And Assistant General Counsel General Counsel
As required by the Securities Act of 1933, this amended Registration Statement
has been duly signed below by the following Directors and Officers of
Northbrook Life Insurance Company on the 27th day of April, 1999.
*/LOUIS G. LOWER, II Chairman of the Board, Chief
-------------------- Executive Officer and Director
Louis G. Lower, II (Principal Executive Officer)
/s/MICHAEL J. VELOTTA Vice President, Secretary, General
--------------------- Counsel and Director
Michael J. Velotta
*/THOMAS J. WILSON, II Vice Chairman and Director
---------------------- (Principal Operating Officer)
Thomas J. Wilson, II
*/PETER H. HECKMAN President, Chief Operating Officer
------------------ and Director
Peter H. Heckman
*/JOHN R. HUNTER Director
----------------
John R. Hunter
*/KEVIN R. SLAWIN Vice President and Director
----------------- (Principal Financial Officer)
Kevin R. Slawin
*/KEITH A. HAUSCHILDT Assistant Vice President and Controller
--------------------- (Principal Accounting Officer)
Keith A. Hauschildt
*/ By Michael J. Velotta, pursuant to Power of Attorney, previously filed or
filed herewith.
<PAGE>
EXHIBIT INDEX
Exhibit Description
(9)(b) Opinion and Consent General Counsel
(10)(a) Independent Auditors' Consent
(10)(b) Consent of Freedman, Levy, Kroll & Simond
(99)(b) Power of Attorney for Thomas J. Wilson, II
Exhibit (9)(b)
NORTHBROOK LIFE INSURANCE COMPANY
LAW AND REGULATION DEPARTMENT
3100 Sanders Road, J5B
Northbrook, Illinois 60062
Direct Dial Number 847-402-2400
Facsimile 847-402-4371
Michael J. Velotta Please direct reply to:
Vice President, Secretary Post Office Box 3005
and General Counsel Northbrook, Illinois 60065-3005
April 14, 1998
TO: NORTHBROOK LIFE INSURANCE COMPANY
NORTHBROOK, ILLINOIS 60062
FROM: MICHAEL J. VELOTTA
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
RE: FORM N-4 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940
FILE NO. 002-82511, 811-03688
With reference to the Registration Statement on Form N-4 filed by
Northbrook Life Insurance Company (the "Company"), as depositor, and Northbrook
Variable Annuity Account, as registrant, with the Securities and Exchange
Commission covering the Flexible Premium Deferred Variable Annuity Contracts, I
have examined such documents and such law as I have considered necessary and
appropriate, and on the basis of such examination, it is my opinion that as of
December 28, 1998:
1. The Company is duly organized and existing under the laws of the State
of Arizona and has been duly authorized to do business by the Director
of Insurance of the State of Arizona.
2. The securities registered by the above Registration Statement when
issued will be valid, legal and binding obligations of the Company.
I hereby consent to the filing of this opinion as an exhibit to the
above referenced Registration Statement and to the use of my name under the
caption "Legal Matters" in the Prospectus constituting a part of the
Registration Statement.
Sincerely,
/s/Michael J. Velotta
- -------------------------
Michael J. Velotta
Vice President, Secretary and
General Counsel
Exhibit (10) (a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 23 to Registration
Statement No. 002-82511 of Northbrook Variable Annuity Account of Northbrook
Life Insurance Company on Form N-4 of our report dated February 19, 1999
relating to the financial statements and the related financial statement
schedule of Northbrook Life Insurance Company, and our report dated March 18,
1999 relating to the financial statements of Northbrook Variable Annuity Account
contained in the Statement of Additional Information, which are incorporated by
reference in the Prospectus of Northbrook Variable Annuity Account of Northbrook
Life Insurance Company that is part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Statement of Additional
Information.
/s/ DELOITTE & TOUCHE LLP
Chicago Illinois
April 26, 1999
Exhibit (10)(b)
Freedman, Levy, Kroll & Simonds
CONSENT OF
FREEDMAN, LEVY, KROLL & SIMONDS
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the prospectus contained in Post-Effective Amendment No. 23 to the
Form N-4 Registration Statement of Northbrook Variable Annuity Account (File
No. 002-82511).
/s/FREEDMAN, LEVY, KROLL & SIMONDS
Washington, D.C.
April 26, 1999
<PAGE>
Exhibit (99)(b)
POWER OF ATTORNEY
WITH RESPECT TO
NORTHBROOK LIFE INSURANCE COMPANY
Know all men by these presents that Thomas J. Wilson, II, whose
signature appears below, constitutes and appoints Louis G. Lower, II and
Michael J. Velotta, each acting individually, his attorney-in-fact, with power
of substitution and in any and all capacities, to sign any registration
statements and amendments thereto for the Northbrook Life Insurance Company
and related Contracts and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
APRIL 23, 1999
--------------
Date
/s/THOMAS J. WILSON, II
-----------------------
Thomas J. Wilson, II
Vice Chairman and Director
