<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 1996
REGISTRATION NO. 33-50884
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT NO. 4[X]
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NORTHBROOK LIFE INSURANCE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
ILLINOIS 6311
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
36-3001527
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
---------------
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
---------------
MICHAEL J. VELOTTA, ESQUIRE
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
NORTHBROOK LIFE INSURANCE COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
(847) 402-2400
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
GREGOR B. MCCURDY, ESQ. CHRISTINE A. EDWARDS, ESQ.
ROUTIER AND JOHNSON, P.C. DEAN WITTER REYNOLDS INC.
1700 K STREET N.W. TWO WORLD TRADE CENTER
SUITE 1003 NEW YORK, N.Y. 10048
WASHINGTON, D.C. 20006
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: The Annuity
Contract covered by this registration statement is to be issued promptly and
from time to time after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box [X].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registraton statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT
CLASS OF AMOUNT OFFERING AGGREGATE OF
SECURITIES TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT PRICE FEE
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<S> <C> <C> <C> <C>
Deferred Annuity Contracts and Partic-
ipating Interests therein * * * *
</TABLE>
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*A maximum aggregate offering price of $750,000,000 has previously been
registered. No additional amount of securities is being registered by this
post-effective amendment to the registration statement.
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<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
-------------------------------- ---------------------
<S> <C>
1.Forepart of the Registration Statement and Out-
side Front Cover Page of Prospectus.......... Outside Front Cover Page
2.Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover
3.Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.................... Inside Front Cover; The Accumulation Phase
4.Use of Proceeds................................ Investments by the Company
5.Determination of Offering Price................ Not Applicable
6.Dilution....................................... Not Applicable
7.Selling Security Holders....................... Not Applicable
8.Plan of Distribution........................... The Purchase of the Contract; Distribution
of the Contracts
9.Description of Securities to be Registered..... The Purchase of the Contract; The
Accumulation Phase; The Parties to the
Contract; The Death Benefit Provisions;
The Payout Phase; Amendment of the
Contracts; Federal Tax Matters
10.Interests of Named Experts and Counsel......... Not Applicable
11.Information with Respect to the Registrant..... The Company; Selected Financial Data;
Competition; Employees; Properties; State
Regulation; Executive Officers and
Directors; Executive Compensation; Legal
Proceedings
12.Disclosure of Commission Position on
Indemnification for Securities Act Liabili-
ties......................................... Not Applicable
</TABLE>
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
(800) 654-2397
GROUP AND INDIVIDUAL DEFERRED ANNUITY CONTRACTS
DISTRIBUTED BY
DEAN WITTER REYNOLDS INC.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
---------------
This Prospectus describes the group and individual Flexible Premium Deferred
Annuity Contract ("Contract") offered by Northbrook Life Insurance Company
("Company"), a wholly owned subsidiary of Allstate Life Insurance Company.
Dean Witter Reynolds Inc. ("Dean Witter") is the principal underwriter and
distributor of the Contracts. In certain states the Contract is only available
as a group Contract. In these states a Certificate (hereinafter referred to as
"Contract"), which summarizes the provisions of the Master Group Policy issued
to Dean Witter, is issued to customers of Dean Witter.
The Contract has the flexibility to allow you to shape an annuity to fit
your particular needs. It is designed to aid you in your choice of short-term,
mid-term, or long-term financial planning and can be used for retirement
planning regardless of whether the plan qualifies for special federal income
tax treatment. A minimum initial Purchase Payment of $4,000 must be presented
at the time of application for a Contract ($1,000 for a Qualified Contract).
Presently, the Company will accept an initial Purchase Payment of $1,000, but
reserves the right to increase this amount to no more than $4,000. Additional
Purchase Payments of $1,000 or more may be added to the Contract.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1996.
<PAGE>
THE CONTRACTS MAY NOT BE AVAILABLE IN ALL STATES. PLEASE CHECK WITH YOUR
DEAN WITTER ACCOUNT EXECUTIVE FOR AVAILABILITY IN YOUR STATE.
At least once each Contract year, the Company will send the Owner an annual
statement that contains certain information pertinent to the individual
Owner's Contract. The annual statement details values and specific Contract
data that applies to each particular Contract. The annual statement does not
contain financial statements of the Company. The Company, however, is subject
to the informational requirements of the Securities Exchange Act of 1934 and
in accordance therewith files reports and other information with the
Securities and Exchange Commission. Reports and other information filed by the
Company can be inspected at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material can be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549, at prescribed rates.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY.............................................................. 4
INTRODUCTION.......................................................... 6
THE CONTRACTS......................................................... 7
Purchase of the Contract............................................ 7
THE ACCUMULATION PHASE................................................ 8
The Accumulation Phase Defined...................................... 8
Initial and Subsequent Guarantee Periods............................ 8
Interest Credited................................................... 8
Example of Interest Crediting During the Guarantee Period........... 9
Partial Withdrawals and Surrenders.................................. 10
Withdrawal Charge................................................... 10
Market Value Adjustment............................................. 10
Withdrawals at the End of the Guarantee Period...................... 11
Taxes............................................................... 11
Payment Upon Partial Withdrawal or Surrender........................ 11
Death Benefits...................................................... 11
THE PAYOUT PHASE...................................................... 12
Income Plans........................................................ 12
Payout Terms........................................................ 13
AMENDMENT OF THE CONTRACTS............................................ 13
DISTRIBUTION OF THE CONTRACTS......................................... 13
CUSTOMER INQUIRIES.................................................... 14
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FEDERAL TAX MATTERS................................................. 14
Introduction...................................................... 14
Taxation of the Company........................................... 14
Taxation of Annuities in General.................................. 14
Qualified Plans................................................... 16
Other Considerations.............................................. 17
THE COMPANY......................................................... 17
Business.......................................................... 17
Reinsurance Agreements............................................ 17
Investments by the Company........................................ 18
SELECTED FINANCIAL DATA............................................. 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations For the Three Years Ended December 31,
1995............................................................. 20
Results of Operations............................................. 20
Financial Position................................................ 20
Liquidity and Capital Resources................................... 21
COMPETITION......................................................... 21
EMPLOYEES........................................................... 22
PROPERTIES.......................................................... 22
STATE AND FEDERAL REGULATION........................................ 22
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY..................... 23
EXECUTIVE COMPENSATION.............................................. 24
LEGAL PROCEEDINGS................................................... 25
EXPERTS............................................................. 25
LEGAL MATTERS....................................................... 25
FINANCIAL STATEMENTS................................................ F-1
APPENDIX A.......................................................... A-1
</TABLE>
3
<PAGE>
GLOSSARY
Account Value--The Account Value is the sum of all Sub-Account Values.
Accumulation Phase--The Accumulation Phase is the first of two phases in the
life of the Contract. The Accumulation Phase begins on the Issue Date. The
Accumulation Phase will continue until the Payout Start Date, unless the
Contract is terminated before that date.
Age--Age on last birthday.
Annuitant--The person designated in the Contract whose life determines the
duration of Income Payments involving life contingencies. The Annuitant
includes any Joint Annuitant.
Automatic Additions--Additional Purchase Payments of $1,000 or more which
are made automatically from the Owner's bank account or Dean Witter Active
Assets(TM) Account. Automatic Additions are available monthly, quarterly,
semi-annually and annually.
Automatic Laddering Program--A program which allows the Owner to choose, in
advance, one renewal Guarantee Period for all renewing Sub-Accounts. The Owner
can participate in the Automatic Laddering Program at any time during the
Accumulation Phase, including on the Issue Date. The Automatic Laddering
Program automatically continues and the Owner can discontinue participation
upon written notice to the Company.
Beneficiary--The person(s) designated in the Contract who, during the
Accumulation Phase, after the death of all Owners, may elect to receive the
Death Benefit or continue the Contract as described in the "Death Benefits"
section. If the sole surviving Owner dies after the Payout Start Date, the
Beneficiary will receive any guaranteed Income Payments scheduled to continue.
Company--The issuer of the Contract, Northbrook Life Insurance Company, is a
wholly owned subsidiary of Allstate Life Insurance Company, a wholly owned
subsidiary of Allstate Insurance Company ("Allstate"). Allstate is a wholly
owned subsidiary of The Allstate Corporation.
Contract/Certificate--The Northbrook Life Insurance Company flexible premium
deferred annuity contract, known as "The Custom Annuity," that is described in
this prospectus.
Date of Death--The Date that an Owner and/or Annuitant dies.
Death Benefit--The Death Benefit is the greater of: (1) the Account Value or
(2) the Settlement Value.
Due Proof of Death--one of the following:
(a) A certified copy of a death certificate.
(b) A certified copy of a decree of a court of competent jurisdiction as
to the finding of death.
(c) Any other proof satisfactory to the Company.
Free Withdrawal Amount--A portion of the Account Value which may be annually
withdrawn from each Sub-Account without incurring a Withdrawal Charge or a
Market Value Adjustment.
Guarantee Period--The period for which a particular declared effective
annual interest rate is guaranteed.
4
<PAGE>
Income Payments--A series of periodic payments made by the Company to the
Owner during the Payout Phase of the Contract.
Issue Date--The date the Contract becomes effective.
Joint Annuitant--The person, along with the Annuitant, whose life determines
the duration of Income Payments under a joint and last survivor annuity.
Market Value Adjustment--The Market Value Adjustment is the adjustment made
to the money distributed prior to the end of the Guarantee Period from one or
more Sub-Accounts under the Contract to reflect the impact of changes in
interest rates between the time each Sub-Account was established and the time
of distribution.
Non-Qualified Contracts--Contracts that do not qualify for special federal
tax treatment.
Owner--With respect to individual Contracts, the person designated as the
Owner in the Contract. With respect to group Contracts, the person designated
as the Owner in a group Certificate. The Owner will receive the Death Benefit
upon the death of the Annuitant, who is not also an Owner.
Payout Phase--The Payout Phase is the second of the two phases in the life
of the Contract. It begins on the Payout Start Date.
Payout Start Date--The date Income Payments are to begin under the Contract.
Purchase Payments--The premiums paid by the Owner to the Company.
Qualified Contracts--Contracts issued under plans that qualify for special
federal income tax treatment.
Settlement Value--The Settlement Value is the Account Value adjusted by any
applicable Market Value Adjustment less any applicable Withdrawal Charges and
premium tax.
Sub-Accounts--Sub-Accounts are distinguished by Guarantee Period(s) and the
dates the period(s) begins. Sub-Accounts are established when Purchase
Payments are made; and when previous Sub-Accounts expire and a new Guarantee
Period is selected.
Sub-Account Value--The Sub-Account Value is the accumulation of funds
allocated to that Sub-Account and interest credited.
Surrender--Termination of the Contract.
Systematic Withdrawals--Periodic partial withdrawals of $100 or more may be
deposited in the Owner's bank account or Dean Witter Active Assets(TM)
Account. Systematic Withdrawals are available monthly, quarterly, semi-
annually and annually.
Withdrawal Charge--The charge that will be assessed by the Company on full
or partial withdrawals in excess of the Free Withdrawal Amount.
5
<PAGE>
INTRODUCTION
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1. WHAT IS THE PURPOSE OF THE CONTRACT?
The Contract described in this Prospectus provides a cash withdrawal benefit
and a Death Benefit during the Accumulation Phase and periodic Income Payments
beginning on the Payout Start Date during the Payout Phase. (See, "Partial
Withdrawals and Surrenders," pg. 10, "Death Benefits," pg. 11, and "The Payout
Phase," pg. 12.)
The cash withdrawal benefit may be subject to a Market Value Adjustment. As
such, the Owner bears some investment risk under the Contract. (See, "Market
Value Adjustment," pg. 10.)
2. HOW DO I PURCHASE A CONTRACT?
You may purchase the Contract from Dean Witter, the Company's sales repre-
sentative. The first Purchase Payment must be at least $4,000 ($1,000 for a
Qualified Contract). Presently, the Company will accept an initial Purchase
Payment of $1,000, but reserves the right to increase this amount to no more
than $4,000.
At the time of purchase, you will select the Guarantee Period(s) in which to
allocate your Purchase Payment. Guarantee Periods, which are offered at our
discretion, may range from one to ten years. No less than $1,000 may be allo-
cated to any one Guarantee Period. You may participate in the Automatic
Laddering Program at the time of purchase. The Automatic Laddering Program al-
lows you to choose future renewal Guarantee Periods. (See, "Purchase of the
Contract," pg. 7.)
3. CAN I MAKE SUBSEQUENT PURCHASE PAY-
MENTS TO THIS CONTRACT?
Purchase Payments may be made at any time during the Accumulation Phase of
the Contract. Subsequent Purchase Payments must be at least $1,000. Additional
Purchase Payments may also be made from your bank account or your Dean Witter
Active Assets(TM) Account through Automatic Additions. For each Purchase Pay-
ment you will select a Guarantee Period(s) to which the Purchase Payment will
be allocated. (See, "Purchase of the Contract," pg. 7.)
4. WHAT IS A GUARANTEE PERIOD AND WHAT
HAPPENS AT THE END OF IT?
Interest is credited, at an effective annual rate declared by the Company,
for the Guarantee Period. At the end of the Guarantee Period, you can select a
renewal Guarantee Period(s), or the selection of a renewal Guarantee Period(s)
can be made through the Automatic Laddering Program. If the Company does not
receive a selection by the end of the Guarantee Period, a Guarantee Period of
the same duration as the previous one will automatically be established. If a
different selection is made within 10 calendar days after the end of the Guar-
antee Period, the Sub-Account automatically set will be changed as of the end
of the Guarantee Period just expired to match this selection. (See, "Initial
and Subsequent Guarantee Periods," pg. 8.)
5. IS THERE A FREE-LOOK PROVISION?
The Owner may cancel the Contract anytime within 20 days after the receipt
of the Contract and receive a full refund of Purchase Payments.
6. DOES THE CONTRACT HAVE CHARGES OR
DEDUCTIONS?
There are no front-end charges under the Contract. A Withdrawal Charge will
be applied to a partial withdrawal or full surrender. Withdrawal Charges will
be the lesser of (a) one-half the effective annual interest rate credited for
the Sub-Account multiplied by the amount withdrawn in excess of the Free
Withdrawal Amount; or (b) interest earned at the time of withdrawal on the
amount withdrawn. If money is withdrawn from the
6
<PAGE>
Sub-Account prior to the end of its Guarantee Period, a Market Value Adjust-
ment will be made to the money distributed in excess of the Free Withdrawal
Amount. The Market Value Adjustment may be positive or negative. (See, "With-
drawal Charge," pg. 10, and "Market Value Adjustment," pg. 10.)
Money may be withdrawn from a Sub-Account during the 10 calendar days after
the end of the Guarantee Period without incurring a Withdrawal Charge or being
subject to a Market Value Adjustment. If a surrender request is received by
the Company at its home office within 10 calendar days after the end of the
Guarantee Period, funds will be liquidated as of the end of the Guarantee Pe-
riod.
7. CAN I GET MY MONEY IF I NEED IT?
All or part of the Account Value can be withdrawn before the earliest of the
Payout Start Date, the death of the Owner, or the death of the Annuitant.
Withdrawal Charges, taxes, tax penalties, and a Market Value Adjustment may be
applied to the partial withdrawal or surrender. (See, "Partial Withdrawals and
Surrenders," pg. 10.)
THE COMPANY GUARANTEES THAT IF YOU SURRENDER THE CONTRACT, YOU WILL RECEIVE
AN AMOUNT AT LEAST EQUAL TO ALL PURCHASE PAYMENTS LESS ANY PRIOR PARTIAL WITH-
DRAWALS.
8. DOES THE CONTRACT HAVE A GUARANTEED
DEATH BENEFIT?
Prior to the Payout Start Date, the Contract offers a Death Benefit upon the
death of the Owner or Annuitant, whichever occurs first. The Death Benefit is
the greater of the Account Value or the Settlement Value as of the receipt of
a complete request for payment of the Death Benefit. (See, "Death Benefits,"
pg. 11.)
Death Benefits after the Payout Start Date depend on the income plan chosen.
9. WHAT HAPPENS IN THE PAYOUT PHASE OF
THE CONTRACT?
During this phase, the Account Value less premium tax and any other applica-
ble tax is applied to the income plan you choose and monies are paid to you on
a scheduled basis as provided in that plan. The Payout Phase begins on the
Payout Start Date. It continues until the Company makes the last payment as
provided by the income plan chosen. (See, "The Payout Phase," pg. 12.)
THE CONTRACTS
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PURCHASE OF THE CONTRACT
The Contracts may be purchased through sales representatives of Dean Witter,
the principal underwriter of the Contracts. The Company will apply Purchase
Payments to the Contract within seven days of the receipt of the Purchase
Payment and required issuing information. The Company reserves the right to
limit or increase the amount of Purchase Payments it will accept.
The first Purchase Payment must be at least $4,000 ($1,000 for a Qualified
Contract). Presently, the Company will accept an initial Purchase Payment of
$1,000, but reserves the right to increase this amount to no more than $4,000.
Subsequent Purchase Payments may be made at any time during the Accumulation
Phase of the Contract. Subsequent Purchase Payments must be at least $1,000.
Additional Purchase Payments may also be made from your bank account or your
Dean Witter Active Assets(TM) Account through Automatic Additions. The
Automatic Additions Program is not available for Qualified Contracts issued
pursuant to a Dean Witter Custodial Account.
The Contract described in this prospectus is made up of two phases -- the
Accumulation Phase and the Payout Phase.
7
<PAGE>
THE ACCUMULATION PHASE
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THE ACCUMULATION PHASE DEFINED
The Accumulation Phase begins on the Issue Date and continues until the Pay-
out Start Date. During this phase, cash withdrawal benefits and a Death Bene-
fit are available. Interest will be credited to initial Purchase Payments from
the Issue Date. Interest will be credited to subsequent Purchase Payments from
the date of receipt. No deductions are made from Purchase Payments. Therefore,
the full amount of every Purchase Payment(s) is invested in a Sub-Account(s)
for accumulation of interest. At least once every year, the Company will send
the Owner a statement containing Account Value information.
INITIAL AND SUBSEQUENT GUARANTEE PERIODS
For each initial Purchase Payment and subsequent Purchase Payments, the
Owner will be required to designate Guarantee Period(s) in which to allocate
funds. Guarantee Periods, which are offered at the Company's discretion, may
range from one to ten years. No less than $1,000 may be allocated to any one
Guarantee Period at the time a Purchase Payment is made or a renewal Guarantee
Period is selected.
A notice will be mailed 21 calendar days prior to the expiry of each Sub-
Account directing you to select a renewal Guarantee Period(s) or reminding you
of the choice you made through the Automatic Laddering Program. If the Company
does not receive a selection by the end of the Guarantee Period, a Guarantee
Period of the same duration as the previous one will automatically be
established. If a renewal Guarantee Period selection is made within 10
calendar days after the end of the Guarantee Period, a Sub-Account(s) will be
established as of the renewal date, in accordance with that selection.
INTEREST CREDITED
Interest will be credited daily based on the effective annual interest rate
declared by us at that time for that particular Guarantee Period. "Effective
annual rate" means the yield earned when interest credited at the underlying
daily rate has compounded for a full year. Effective annual interest rates
will be declared periodically for each Guarantee Period then being offered.
The declared rates will be greater than or equal to the minimum guaranteed in-
terest rate under the Contract. The "minimum guaranteed interest rate under
the Contract" is a rate of interest specified in the Contract that is guaran-
teed for the life of the Contract.
The Company has no specific formula for determining the rate of interest
that it will declare initially or in the future. Such interest rates will be
reflective of investment returns available at the time of the determination.
In addition, the management of the Company may also consider various other
factors in determining interest rates, including regulatory and tax require-
ments, sales commissions and administrative expenses borne by the Company,
general economic trends and competitive factors.
THE MANAGEMENT OF THE COMPANY WILL MAKE THE FINAL DETERMINATION AS TO THE
INTEREST RATES TO BE DECLARED. THE COMPANY CAN NEITHER PREDICT NOR GUARANTEE
FUTURE INTEREST RATES TO BE DECLARED.
Set forth below is an illustration of how interest will be credited to the
funds in your Sub-Account during the Guarantee Period.
NOTE: The following illustration assumes no withdrawals of any amount during
the entire five year period. A Market Value Adjustment and Withdrawal Charge
would apply to any such interim withdrawal in excess of the Free Withdrawal
Amount. The hypothetical interest rates are for illustrative purposes only and
are not intended to predict future interest rates to be declared under the
Contract. Actual interest rates declared for any given Guarantee Period may be
more or less than those shown.
8
<PAGE>
EXAMPLE OF INTEREST CREDITING DURING THE GUARANTEE PERIOD
<TABLE>
<S> <C>
Beginning Sub-Account Value:........................................ $10,000.00
Guarantee Period:................................................... 5 years
Effective Annual Rate:.............................................. %
</TABLE>
END OF CONTRACT YEAR:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning Sub-Account
Value $10,000.00
x (1 + Effective Annual
Rate)
----------
$
----------
Sub-Account Value at end
of Contract $
year 1 x (1 + Effective
Annual Rate)
----------
$
----------
Sub-Account Value at end
of Contract $
year 2 x (1 + Effective
Annual Rate)
----------
$
----------
Sub-Account Value at end
of Contract $
year 3 x (1 + Effective
Annual Rate)
----------
$
----------
Sub-Account Value at end
of Contract $
year 4 x (1 + Effective
Annual Rate)
----------
Sub-Account Value at end of
Guarantee Period: $
----------
</TABLE>
Total Interest Credited in Guarantee Period: $ ($ --
$ )
9
<PAGE>
PARTIAL WITHDRAWALS AND SURRENDERS
You have the right to make a partial withdrawal or full surrender at any
time during the Accumulation Phase. You must specify the Sub-Account(s) from
which you wish to make a withdrawal. A withdrawal amount free of Withdrawal
Charges and Market Value Adjustments will be available in each year for each
Sub-Account. The Free Withdrawal Amount is 10% of the amount of the Sub-Ac-
count's Purchase Payment or funds initially allocated to the Sub-Account. Any
Free Withdrawal Amount not withdrawn in a Sub-Account year may not be carried
over to increase the Free Withdrawal Amount in a subsequent Sub-Account year.
Similarly, the Free Withdrawal Amount not withdrawn in one Sub-Account may not
be transferred to increase the Free Withdrawal Amount in another Sub-Account.
Amounts withdrawn from the Sub-Account will be adjusted by any applicable
Withdrawal Charge, Market Value Adjustment, and taxes. The applicable With-
drawal Charge and Market Value Adjustment will be applied to any withdrawal in
excess of the Free Withdrawal Amount.
The minimum partial withdrawal is $100. If a partial withdrawal would leave
a Sub-Account Value of less than $1,000, then the Company will treat the re-
quest as one for a withdrawal of the Sub-Account's entire value. If a partial
withdrawal reduces the Account Value of the Contract to less than $1,000, the
Company will treat the request as a withdrawal of the entire Account Value and
the Contract will terminate.
Partial withdrawals may also be taken automatically through Systematic With-
drawals. Please consult with your Dean Witter Account Executive for detailed
information about Systematic Withdrawals.
Withdrawals and surrenders may be subject to income tax and a 10% tax penal-
ty. The tax and penalty are explained in "Federal Tax Matters" on page 14.
WITHDRAWAL CHARGE
A Withdrawal Charge will be applied to a partial withdrawal or full
surrender made prior to the end of a Guarantee Period and will be deducted
from the amount distributed. (See, "Appendix A".)
Withdrawal Charges will be the lesser of:
a.one-half the effective annual interest crediting rate for the Sub-Account
multiplied by the amount withdrawn in excess of the Free Withdrawal Amount;
or
b.interest earned on the amount withdrawn.
MARKET VALUE ADJUSTMENT
The amount payable on a partial withdrawal or full surrender made from a
Sub-Account prior to the end of any Guarantee Period may be adjusted up or
down, or not at all, by the application of the Market Value Adjustment. The
Market Value Adjustment factor is applied to the amount withdrawn in excess of
the Free Withdrawal Amount. The Market Value Adjustment will reflect the rela-
tionship between the current effective annual interest rate for the duration
remaining in the Guarantee Period at the time of the request for withdrawal or
surrender, and the effective annual interest rate guaranteed for that Sub-Ac-
count.
Generally, if the effective annual interest rate for the Sub-Account is
lower than the applicable current effective annual interest rate (interest
rate for a duration equal to the time remaining in the Sub-Account), then the
Market Value Adjustment will result in a lower payment upon surrender. Simi-
larly, if the effective annual interest rate for the Sub-Account is higher
than the applicable current effective annual interest rate, then the Market
Value Adjustment will result in a higher payment upon surrender.
10
<PAGE>
For example, the Owner purchases a Contract and selects an initial Guarantee
Period of five years and the Company's effective annual rate for that duration
is 5.40%. Assume that at the end of 3 years, the Owner makes a partial with-
drawal. If the current interest rate for a 2 year Guarantee Period is 5.10%,
then the Market Value Adjustment will be positive, which will result in an in-
crease in the amount payable to the Owner upon the partial withdrawal.
Since current interest rates are based, in part, upon investment yields
available at the time, the effect of the Market Value Adjustment will be
closely related to the levels of such yields. It is theoretically possible,
therefore, that, should such yields increase significantly from the time the
Purchase Payment was made, coupled with the application of the Withdrawal
Charge, the amount received by the Owner upon full surrender of the Contract
would be less than the Purchase Payment plus interest at the minimum guaran-
teed interest rate under the Contract. HOWEVER, THE COMPANY GUARANTEES THAT
THE AMOUNT RECEIVED UPON SURRENDER WILL BE AT LEAST EQUAL TO THE PURCHASE PAY-
MENTS LESS ANY PRIOR PARTIAL WITHDRAWALS. The renewal of any individual Sub-
Account(s) within the entire Contract does not in any way change the return of
Purchase Payment guarantee provided by this Contract. Upon Sub-Account renewal
the return of Purchase Payment guarantee will not be adjusted to include any
accrued interest, but will continue to apply to the initial and any subsequent
Purchase Payments.
The formula for calculating the Market Value Adjustment is set forth in Ap-
pendix A (see pg. A-1) to this prospectus, which also contains additional il-
lustrations of the application of the Market Value Adjustment.
WITHDRAWALS AT THE END OF THE GUARANTEE PERIOD
During the first 10 days of a renewal Guarantee Period, any amount withdrawn
will not incur a Withdrawal Charge or Market Value Adjustment, nor will it re-
flect any interest earned during this 10-day period.
TAXES
A premium tax deduction will be made, if provided under applicable law, on
full surrender, or upon annuitization of the Contract. Current premium tax
rates range from 0 to 3.5%, but are subject to change by state regulation. Any
other applicable taxes will be deducted as well.
PAYMENT UPON PARTIAL WITHDRAWAL OR SURRENDER
The Company may defer payment of any partial withdrawal or surrender for a
period not exceeding six months from the date of the receipt of the request.
DEATH BENEFITS
If any Owner or Annuitant dies prior to the Payout Start Date, a Death Bene-
fit may be paid.
If an Owner dies prior to the Payout Start Date, the new Owner (any surviv-
ing Owner(s), and if none, the Beneficiary) may elect, within 60 days of the
Date of Death, to receive the Death Benefit in a lump sum or apply the Death
Benefit to an income plan. Payments from the income plan must begin within one
year of the Date of Death and must be over the life of the new Owner, or a pe-
riod not to exceed the life expectancy of the new Owner. Otherwise, the new
Owner may elect to receive the Settlement Value payable in a lump sum within 5
years of the Date of Death. Any remaining funds will be distributed at the end
of the 5-year period. An Annuitant is necessary to continue the Contract be-
tween the date of the Owner's death and the final distributions. If there is
no Annuitant at that time, the new Annuitant will be the youngest new Owner.
If the new Owner is the surviving spouse of the deceased Owner, then the
spouse may continue the Contract in the Accumulation Phase as if the death had
not occurred. If there is no Annuitant at that time, the new Annuitant will be
the surviving spouse. The surviving spouse may also select one of the options
listed above.
If the new Owner is a non-natural person, then the Owner must receive the
Death Benefit in a lump sum, and the options listed above are not available.
11
<PAGE>
If the Annuitant, not also an Owner, dies prior to the Payout Start Date,
then the Owner may elect, within 60 days of the Date of Death, to receive the
Death Benefit in a lump sum or apply the Death Benefit to an income plan. The
options listed above are not available.
THE PAYOUT PHASE
- -------------------------------------------------------------------------------
The Payout Phase is the second of the two phases in the Contract. The Payout
Phase begins on the Payout Start Date and continues until the Company makes
the last payment as provided by the income plan.
Unless the Owner notifies the Company in writing, the Payout Start Date will
be:
(a) for Non-Qualified Contracts, the later of the Annuitant's 90th birthday or
the 10th anniversary date of the Contract;
(b) for Qualified Contracts:
(i) if the Annuitant's age on the Issue Date is less than 70 1/2, April 1st
of the calendar year following the year in which the Annuitant reaches
age 70 1/2;
(ii) if the Annuitant's age at any time during the calendar year in which
the Contract is issued is equal to 70 1/2, April 1st of the year fol-
lowing issue; or
(iii) if the Annuitant's age at all times during the calendar year in which
the Contract is issued is greater than 70 1/2, December 31st of the
year following issue.
The Owner may change the Payout Start Date at any time by notifying the Com-
pany in writing of the change at least 30 days before the current Payout Start
Date. The Payout Start Date must be no later than the Annuitant's 90th birth-
day or the 10th anniversary date of the Contract, if later. The Owner of a
Qualified Contract may be limited by the plan under which the Contract is is-
sued with regard to a Payout Start Date after age 70 1/2.
INCOME PLANS
The Owner may elect an income plan which distributes Income Payments on a
scheduled basis. Up to 30 days before the Payout Start Date, the Owner may
change the income plan or request any other form of income plan agreeable to
both the Company and the Owner. If the Company does not receive a written
choice from the Owner, the income plan will be life income with 120 monthly
payments guaranteed. If an income plan is chosen which depends on the Annui-
tant or Joint Annuitant's life, proof of age will be required before Income
Payments begin. If the sole surviving Owner dies after the Payout Start Date,
the Beneficiary will receive any guaranteed Income Payments scheduled to con-
tinue.
The Account Value on the Payout Start Date, less any applicable tax, will be
applied to the income plan selected by the Owner. The income plans include:
INCOME PLAN 1--Life Income with Guaranteed Payments
Payments will be made to the Owner for as long as the Annuitant lives. If
the Annuitant dies before all the guaranteed payments have been made, the
remainder of the guaranteed payments will be paid to the Owner.
INCOME PLAN 2--Joint and Survivor Life Income with Guaranteed Payments
Payments beginning on the Payout Start Date will be made to the Owner for
as long as either the Annuitant or Joint Annuitant is living. If both the
Annuitant and Joint Annuitant die before the guaranteed payments have been
made, the remainder of the guaranteed payments will be made to the Owner.
12
<PAGE>
INCOME PLAN 3--Guaranteed Payments for a Specified Period
Payments beginning on the Payout Start Date will be made to the Owner for a
specified period. Payments under this option do not depend on the
continuation of the Annuitant's life. The number of guaranteed months may
be 60 to 360 months.
At the Company's discretion, other income plans may be available.
PAYOUT TERMS
The Contracts described in this prospectus (except in states which require
unisex annuity tables) contain life annuity tables that provide for different
benefit payments to men and women of the same age. Nevertheless, in accordance
with the U.S. Supreme Court's decision in Arizona Governing Committee v.
Norris, in certain employment-related situations, annuity tables that do not
vary on the basis of sex may be used. Accordingly, if the Contract is to be
used in connection with an employment-related retirement or benefit plan, con-
sideration should be given, in consultation with legal counsel, to the impact
of Norris on any such plan before making any contributions under these Con-
tracts.
The duration of the income plan will generally affect the dollar amounts of
each Income Payment. For example, if an income plan guaranteed for life is
chosen, the Income Payments may be greater or less than Income Payments under
an income plan for a specified period depending on the life expectancy of the
Annuitant.
After the Account Value has been applied to an income plan on the Payout
Start Date, the income plan cannot be changed and no withdrawals can be made.
The Company may require proof that the Annuitant or Joint Annuitant is still
alive before the Company makes each payment that depends on their continued
life.
If any Owner dies during the Payout Phase, Income Payments will continue as
scheduled, in accordance with the income plan in effect.
If the Account Value to be applied to an income plan is less than $2,000, or
if the monthly Income Payments determined under the income plan are less than
$20, the Company may pay the Account Value in a lump sum or change the payment
frequency to an interval which results in Income Payments of at least $20.
AMENDMENT OF THE CONTRACTS
The Company reserves the right to amend the Contracts to meet the requirements
of applicable federal or state laws or regulations. The Company will notify the
Owner of any such amendment.
DISTRIBUTION OF THE CONTRACTS
The Contracts will be distributed exclusively by Dean Witter which serves as
the principal underwriter of the Contracts under a General Agents' Agreement
with the Company.
Dean Witter is located at Two World Trade Center, New York, New York. Dean
Witter is a member of the New York Stock Exchange and the National Association
of Securities Dealers, Inc.
13
<PAGE>
The Company may pay up to a maximum sales commission of 8% both upon sale of
the Contract and upon renewal of a Guarantee Period.
The General Agents' Agreement between the Company and Dean Witter provides
that the Company will indemnify Dean Witter for certain damages that may be
caused by actions, statements or omissions by the Company.
CUSTOMER INQUIRIES
- -------------------------------------------------------------------------------
The Owner or any persons interested in the Contract may make inquiries
regarding the Contract by calling or writing their Dean Witter Account
Executive.
FEDERAL TAX MATTERS
- -------------------------------------------------------------------------------
INTRODUCTION
The Contract was designed for use by individuals in retirement plans which may
or may not be plans qualified for special tax treatment under Section 401, 403,
408, or 457 of the Internal Revenue Code ("Code"). The ultimate effect of
federal income taxes on the Account Value, on Income Payments and on the
economic benefit to the Owner, the Annuitant or the Beneficiary depends on the
type of retirement plan for which the Contract is purchased, on the tax and
employment status of the individual concerned and on the Company's tax status.
THE TAX DISCUSSION BELOW IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. Any
person concerned about these tax implications should consult a competent tax
adviser. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
continuation of these present federal income tax laws or of the current
interpretations by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Code. The following discussion assumes that the Company will continue
to be taxed as a life insurance company under Part I of Subchapter L.
TAXATION OF ANNUITIES IN GENERAL
The following discussion assumes that the Contract will qualify as an annu-
ity contract for federal income tax purposes. Such qualifications are dis-
cussed below.
Generally, an annuity contract owner who is a natural person is not taxed on
increases in the Account Value until a distribution occurs. For federal income
tax purposes, distributions include the receipt of proceeds from loans and an
assignment or pledge of any portion of the value of the Contract, as well as
withdrawals, Income Payments, or Death Benefits. The exception to this rule is
that Owners who are not natural persons generally must include in income any
increase during the taxable year in the Account Value (once the Account Value
exceeds the investment in the Contract). However, there are exceptions to this
non-natural owner rule and you should discuss these with your tax adviser. The
following discussion only applies to Contracts owned by natural persons.
Generally, in the case of a surrender, withdrawal, loan, assignment or
pledge under a Non-Qualified Contract before the Payout Start Date, amounts
14
<PAGE>
received are first treated as taxable income to the extent that the Account
Value of the Contract immediately before the surrender exceeds the "investment
in the contract" (as defined in the Code) at that time. Any additional amount
is not taxable. The Account Value is the sum of all Sub-Account Values. No
matter which Sub-Account a withdrawal is made from, all Sub-Account Values are
combined and the Account Value is used to determine the amount of taxable in-
come.
The recipient of periodic Income Payments under the Contract is, in general,
taxed on a portion of each payment. Generally, for Income Payments (prior to
recovery of the investment in the Contract), there is no tax on the amount of
each payment which represents the same ratio that the "investment in the con-
tract" bears to the total expected value of the Income Payments for the term
of the payments; however, the remainder of each Income Payment is taxable. Af-
ter the Owner's investment in the Contract has been recovered, the full amount
of any additional payments will be taxed.
The taxable portion of a distribution (in the form of an Income Payment or a
lump sum payment) is taxed as ordinary income.
Premature distributions from Non-Qualified Contracts may be subject to a
penalty equal to ten percent (10%) of the amount treated as taxable income.
The penalty applies to the taxable portion of any distribution except those
(1) made on or after the Owner attains age 59 1/2; (2) made as a result of the
Owner's death or disability; (3) received in substantially equal installments
as a life annuity or over a period not exceeding the life expectancy of the
owner; or (4) allocable to investments in the Contract prior to August 14,
1982. Other tax penalties may apply to certain distributions under Qualified
Contracts.
All Non-Qualified deferred annuity contracts that are issued by the Company
(or its affiliates) to the same Owner during any calendar year will be aggre-
gated and treated as one annuity contract for purposes of determining the
amount includable in gross income under section 72(e) of the Code. According-
ly, an Owner should consult a competent tax adviser when purchasing more than
one Non-Qualified Deferred Annuity Contract in one calendar year.
Transfer of ownership of a Contract, the designation of an Annuitant or a
Beneficiary who is not also the Owner, or the exchange of a Contract may re-
sult in certain tax consequences to the Owner that are not discussed herein.
An Owner contemplating any such transfer, assignment, or exchange of a Con-
tract should contact a competent tax adviser with respect to the potential tax
effects of such a transaction.
In order to be treated as an annuity contract for federal income tax purpos-
es, Section 72(s) of the Code requires any Non-Qualified Contract issued after
January 18, 1985 to provide that (a) if any Owner dies on or after the Payout
Start Date but prior to the time the entire interest in the Contract has been
distributed, the remaining portion of such interest will be distributed at
least as rapidly under the method of distribution being used as of the date of
that Owner's death; and (b) if any Owner dies prior to the Payout Start Date,
the entire interest in the Contract will be distributed within five years af-
ter the date of the Owner's death. These requirements shall be considered sat-
isfied with respect to any portion of the Owner's interest which is payable
to, or for the benefit of, a "designated beneficiary," if such portion is dis-
tributed over the life of such "designated beneficiary" or over a period not
extending beyond the life expectancy of that Beneficiary and such distribu-
tions begin within one year of that Owner's death. The Owner's "designated
beneficiary" is the surviving Owner(s) or the person(s) designated by such
Owner as a Beneficiary. The "designated beneficiary" is the person to whom
ownership of the Contract passes by reason of death. If the Owner's "desig-
nated beneficiary" is the surviving spouse of
15
<PAGE>
the Owner, the Contract may be continued with the surviving spouse as the new
Owner.
Non-Qualified Contracts contain provisions which are intended to comply with
the requirements of section 72(s) of the Code, although regulations interpret-
ing these requirements have not yet been issued. The Company intends to review
such provisions and modify them if necessary to assure that they comply with
the requirements of Code Section 72(s) when clarified by regulation or other-
wise.
Other rules may apply to Qualified Contracts.
QUALIFIED PLANS
The Contract is designed for use 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 in itself. Adverse
tax consequences may result from contributions in excess of specified limits,
distributions prior to age 59 1/2, distributions that do not conform to speci-
fied commencement and minimum distribution rules, aggregate distributions in
excess of a specified annual amount and in other circumstances. Therefore, the
Company makes no attempt to provide more than general information about the
use of the Contracts with the various types of qualified plans. Owners and
participants under qualified plans as well as Annuitants and Beneficiaries are
cautioned that the rights of any person to any benefits under qualified plans
may be subject to the terms and conditions of the plans themselves regardless
of the terms and conditions of the Contract issued in connection therewith.
Purchasers of the Contracts for use with any qualified plan should seek compe-
tent advice regarding the suitability of the Contract.
(a) Section 403(b) Plans. Under Section 403(b) of the Code, payments made by
public school systems and certain not-for-profit organizations to purchase
annuity contracts for their employees are excludable from the gross income
of the employee, subject to certain limitations. In accordance with the
requirements of Section 403(b), any contract used for a Section 403(b)
Plan will prohibit distributions of (i) elective contributions made in
years beginning after December 31, 1988, (ii) earnings on those contribu-
tions, and (iii) earnings on amounts attributable to elective contribu-
tions held as of the end of the last year beginning before January 1,
1989. However, distributions of such amounts will be allowed upon death of
an employee, attainment of age 59 1/2, separation from service, disabili-
ty, or financial hardship, except that income attributable to elective
contributions may not be distributed in the case of hardship.
(b) H.R. 10 Plans. The Self-Employed Individuals Tax Retirement Act of 1962,
as amended, commonly referred to as "H.R. 10" or "Keogh," permits self-em-
ployed individuals to establish qualified plans for themselves and their
employees. These plans are limited by law to maximum permissible contribu-
tions, distribution dates, and nonforfeitability of interests. In order to
establish such a plan, a plan document, usually in a form approved in ad-
vance by the Internal Revenue Service, is adopted and implemented by the
employer.
(c) Individual Retirement Annuities. Sections 219 and 408 of the Code permit
individuals or their employers to contribute to an individual retirement
program known as an "Individual Retirement Annuity." Individual Retirement
Annuities are subject to limitations on the amount which may be contrib-
uted and on the time when distribution may commence. In addition, distri-
butions from certain other types of qualified plans may be placed into an
Individual Retirement Annuity on a tax-deferred basis.
(d) Corporate Pension and Profit-Sharing Plans. Section 401(a) and 403(a) of
the Code permit corporate employers to establish various types of retire-
ment plans for employees. Such retire-
16
<PAGE>
ment plans may permit the purchase of the Contracts to provide benefits un-
der the plans.
(e) State and Local Governments Deferred Compensation Plans. Section 457 of
the Code, while not actually providing for a qualified plan as that term
is normally used, provides for certain Deferred Compensation Plans with
respect to service to state governments, local governments, political sub-
divisions, agencies, instrumentalities and certain affiliates of such en-
tities and certain tax exempt organizations which enjoy special treatment.
Under such plans a participant may specify the form of investment in which
his or her participation will be made. All such investments, however, are
owned by and subject to the claims of general creditors of the sponsoring
employer.
OTHER CONSIDERATIONS
The Company is required to withhold federal income tax at a rate of 20% on
all distributions which constitute "eligible rollover distributions," unless
the recipient elects to rollover such amounts to another qualified plan or IRA
in a direct rollover. Eligible rollover distributions generally include all
distributions from qualified plans, excluding IRA's, with the exception of (1)
minimum distributions pursuant to Section 401(a)(9), and (2) a series of sub-
stantially equal periodic payments made over a period of at least 10 years, or
the life (joint lives) of the participant (and beneficiaries). In addition,
some states require that state income tax be withheld.
For any distributions which do not constitute "eligible rollover distribu-
tions," the Company is required to withhold federal and, where required, state
income taxes on all distributions, unless the recipient elects not to have
taxes withheld and properly notifies the Company of that election.
The foregoing comments about the federal tax consequences under these Con-
tracts are not exhaustive, and special rules are provided with respect to
other tax situations not discussed in this prospectus. Before making an in-
vestment, a qualified tax adviser should be consulted. Further, the federal
income tax consequences discussed herein reflect current law.
Federal estate, state and local estate, inheritance, and other tax conse-
quences of ownership or receipt of distributions under a Contract depend on
the individual circumstances of each Owner or recipient of the distribution. A
competent tax adviser should be consulted for further information.
THE COMPANY
- -------------------------------------------------------------------------------
BUSINESS
Incorporated in 1978 as a stock life insurance company under the laws of the
State of Illinois, the Company has done business continuously since that time
as "Northbrook Life Insurance Company." The Company's products, group and in-
dividual annuities and life insurance, have been approved by the various
states where offered.
The Company is a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), a stock life insurance company incorporated under the laws
of Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance
Company ("Allstate"), a stock property-liability insurance company incorpo-
rated under the laws of Illinois. With the exception of directors' qualifying
shares, all of the outstanding capital stock of Allstate is owned by The
Allstate Corporation ("Corporation"). In June 1995, Sears, Roebuck and Co.
distributed in a tax-free dividend to its stockholders its remaining 80.3%
ownership in the Corporation.
REINSURANCE AGREEMENTS
The Company and Allstate Life entered into a reinsurance agreement, effec-
tive December 31, 1987, under which the Company automatically
17
<PAGE>
reinsures substantially all of its fixed annuity business, with the exception
of certain Qualified Contracts (as discussed in the following paragraph), with
Allstate Life. Under the reinsurance agreement, Purchase Payments under gen-
eral account contracts are automatically transferred to Allstate Life and be-
come invested with the assets of Allstate Life, and Allstate Life accepts 100%
of the liability under such contracts. (See "Management's Discussion and Anal-
ysis of Financial Condition and Results of Operations", pg. 20). However, the
obligations of Allstate Life under the reinsurance agreement are to the Compa-
ny; the Company remains the sole obligor under the Contracts to the Owners.
Because the reinsurance obligations of Allstate Life to the Company would be
subordinated by operation of current state insurance rehabilitation and liqui-
dation laws to the obligations of Allstate Life to its direct policyholders,
Allstate Life has established a trust arrangement involving the pledge of as-
sets for the benefit of the Company, in an amount at least equal to the net
statutory reserves under the Contracts, under the terms of which legal title
to such assets would transfer to the Company in the event that Allstate Life
should become impaired or insolvent. Such arrangement should have the effect
of avoiding the risk of subordination by operation of state insurance rehabil-
itation and liquidation laws.
Purchase Payments of Qualified Contracts issued in conjunction with a Sec-
tion 401(a), 401(k) or 403(b) plan, will be invested in the general account of
the Company. The Company and Allstate Life have entered into a modified coin-
surance agreement under which Allstate Life will continue to reinsure all of
the Company's general account obligations under such Qualified Contracts; the
reserves for such Qualified Contracts will be held in the Company's general
account and, therefore, will not be subject to the trust agreement described
above.
INVESTMENTS BY THE COMPANY
The Company's general account assets must be invested in accordance with ap-
plicable state laws. These laws govern the nature and quality of investments
that may be made by life insurance companies and the percentage of their as-
sets that may be committed to any particular type of investment. In general,
these laws permit investments, within specified limits and subject to certain
qualifications, in federal, state, and municipal obligations, corporate bonds,
preferred stocks, real estate mortgages, real estate and certain other invest-
ments. All of the Company's general account assets are available to meet the
Company's obligations.
The Company will primarily invest its general account assets in investment-
grade fixed income securities including the following:
Securities issued by the United States Government or its agencies or instru-
mentalities, which may or may not be guaranteed by the United States Govern-
ment;
Debt instruments, including, but not limited to, issues of or guaranteed by
banks or bank holding companies, and of corporations, which are deemed by the
Company's management to have qualities appropriate for inclusion in this port-
folio;
Commercial mortgages, mortgage-backed securities collateralized by real es-
tate mortgage loans, or securities collateralized by other assets, that are
insured or guaranteed by the Federal Home Loan Mortgage Association, the Fed-
eral National Mortgage Association or the Government National Mortgage Associ-
ation, or that have an investment grade at time of purchase within the four
highest grades assigned by Moody's Investors Services, Inc. (Aaa, Aa, A or
Baa), Standard & Poor's Corporation (AAA, AA, A or BBB) or any other nation-
ally recognized rating service;
18
<PAGE>
Commercial paper, cash, or cash equivalents, and other short-term invest-
ments having a maturity of less than one year that are considered by the
Company's management to have investment quality comparable to securities hav-
ing the ratings stated above.
In addition, interest rate swaps, futures, options, rate caps, and other
hedging instruments may be used solely for non-speculative hedging purposes.
Anticipated use of these financial instruments shall be limited to protecting
the value of portfolio sales or purchases, or to enhance yield through the
creation of a synthetic security.
In addition, the Company maintains certain unitized separate accounts which
invest in shares of an open-end investment company registered under the In-
vestment Company Act of 1940. These separate account assets which relate to
the Company's variable annuity contracts, do not support the Company's obliga-
tions under the Contracts.
SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------
The following selected financial data for the Company should be read in
conjunction with the financial statements and notes thereto included in this
Prospectus beginning on page F-1.
NORTHBROOK LIFE INSURANCE COMPANY
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For The Years Ended
December 31:
Income Before Taxes.... $ 4,849 $ 2,688 $ 3,257 $ 3,153 $ 3,743
Net Income............. 3,163 1,733 2,507 2,965 2,729
As of December 31:
Total Assets/1/........ 6,071,603 5,764,233 5,886,038 5,623,675 5,050,071
</TABLE>
/1/The Company adopted SFAS No. 115, "Accounting for Certain Instruments in
Debt and Equity Securities" on December 31, 1993. See Note 3 to the Financial
Statements.
19
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following highlights significant factors influencing results of opera-
tions and financial position.
Northbrook Life Insurance Company ("the Company"), which is wholly owned by
Allstate Life Insurance Company ("Allstate Life"), issues single and flexible
premium fixed annuity contracts and universal life insurance policies. In addi-
tion, the Company issues flexible premium deferred variable annuity contracts,
the assets and liabilities of which are legally segregated and reflected in the
accompanying statements of financial position as the assets and liabilities of
the Separate Accounts. Dean Witter Reynolds is the sole distributor of the
Company's products and also manages the funds in which the assets of the Sepa-
rate Accounts are invested.
The Company reinsures substantially all of its annuity deposits and life in-
surance in force with Allstate Life. Accordingly, the financial results re-
flected in the Company's statements of operations relate only to the investment
of those assets of the Company that are not transferred to Allstate Life under
the reinsurance treaties.
Variable annuity assets and liabilities are carried at fair value in the
statements of financial position. Investment income and realized gains and
losses of the Separate Account investments accrue directly to the
contractholders (net of fees) and, therefore, are not included in the Company's
statements of operations.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Net investment income................................. $ 4,782 $ 2,881 $ 2,934
======= ======= =======
Realized capital gain (losses), after tax............. $ 44 $ (125) $ 210
======= ======= =======
Net income............................................ $ 3,163 $ 1,733 $ 2,507
======= ======= =======
Fixed income securities, at amortized cost............ $59,142 $61,581 $34,529
======= ======= =======
</TABLE>
In 1995, net investment income increased $1.9 million. This increase related
to an increased level of investments which resulted from a $25 million capital
contribution from Allstate Life during December 1994. Net investment income de-
creased in 1994 over 1993, primarily due to slightly lower portfolio yields,
partially offset by the increase in investments during the year.
Realized capital gains after tax were $44 thousand in 1995 compared to capi-
tal losses of $125 thousand in 1994. Overall, the market values of fixed income
securities were higher in 1995 than in 1994, which resulted in gains in 1995
and losses in 1994 when certain fixed income securities were sold in response
to changes in market conditions.
Net income increased $1.4 million in 1995 reflecting the increase in net in-
vestment income and realized capital gains. The $0.8 million decrease in 1994
from 1993 is primarily attributable to increased realized capital losses and a
higher effective income tax rate in 1994.
FINANCIAL POSITION
<TABLE>
<CAPTION>
1995 1994
---------- ----------
($ IN THOUSANDS)
<S> <C> <C>
Fixed income securities, at fair value.................. $ 63,229 $ 59,191
========== ==========
Unrealized net capital gains (losses)(/1/).............. $ 4,087 $ (2,390)
========== ==========
Separate Account assets, at fair value.................. $3,354,910 $2,604,623
========== ==========
Contractholder funds.................................... $2,497,278 $2,950,532
========== ==========
Reinsurance recoverable from Allstate Life.............. $2,636,981 $3,085,781
========== ==========
</TABLE>
- --------
(1) Unrealized net capital gains (losses) exclude the effect of deferred income
taxes.
20
<PAGE>
Fixed income securities are classified as available for sale and carried in
the statements of financial position at fair value. Although the Company gen-
erally intends to hold its fixed income securities for the long-term, such
classification affords the Company flexibility in managing the portfolio in
response to changes in market conditions.
At December 31, 1995 unrealized capital gains were $4.1 million compared to
an unrealized capital loss of $2.4 million at December 31, 1994. The signifi-
cant change in the unrealized capital gain/loss position is primarily attrib-
utable to declining interest rates.
Contractholder funds decreased by $453 million and reinsurance recoverable
from Allstate Life under reinsurance treaties decreased by $449 million, re-
flecting policyholder transfers from fixed annuities to variable annuities and
fixed annuity surrenders. Reinsurance recoverable from Allstate Life relates
to policy benefit obligations ceded to Allstate Life.
Separate Accounts increased by $750 million attributable to sales of vari-
able annuities, the favorable investment performance of the Separate Account
funds, and the policyholder transfers previously described.
LIQUIDITY AND CAPITAL RESOURCES
In December 1994, Allstate Life made a $25 million capital contribution to
the Company.
Under the terms of intercompany reinsurance agreements, assets of the Com-
pany that relate to insurance in force, excluding Separate Account assets, are
transferred to Allstate Life who maintains the investment portfolios which
support the Company's products.
COMPETITION
- -------------------------------------------------------------------------------
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other enti-
ties competing in the sale of insurance and annuities. There are approximately
2,000 stock, mutual and other types of insurers in business in the United
States. Several independent rating agencies regularly evaluate life insurer's
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 the Company. A.M. Best Company also assigns the Company
the rating of A+(r) because the Company automatically reinsures all business
with Allstate Life. Standard & Poor's Insurance Rating Services assigns AA+
(Excellent) to the Company's claims-paying ability and Moody's assigns Aa3
(excellent) financial strength to the Company. The Company shares the same fi-
nancial ratings of its parent, Allstate Life Insurance Company.
21
<PAGE>
EMPLOYEES
- -------------------------------------------------------------------------------
As of December 31, 1995, Northbrook Life has approximately 178 employees at
its Home Office in Northbrook, Illinois.
PROPERTIES
- -------------------------------------------------------------------------------
The Company occupies office space provided by its parent, Allstate Life, in
Northbrook, Illinois.
Expenses associated with these offices are allocated on a direct and indirect
basis to the Company.
STATE AND FEDERAL REGULATION
- --------------------------------------------------------------------------------
The insurance business of the Company is subject to comprehensive and de-
tailed regulation and supervision throughout the United States.
The laws of the various jurisdictions establish supervisory agencies with
broad administrative powers with respect to licensing to transact business,
overseeing trade practices, licensing agents, approving policy forms, estab-
lishing reserve requirements, fixing maximum interest rates on life insurance
policy loans and minimum rates for accumulation of surrender values, prescrib-
ing the form and content of required financial statements and regulating the
type and amounts of investments permitted. Each insurance company is required
to file detailed annual reports with supervisory agencies in each of the ju-
risdictions in which it does business and its operations and accounts are sub-
ject to examination by such agencies at regular intervals.
Under insurance guaranty fund law, in most states, insurers doing business
therein can be assessed up to prescribed limits for contract owner losses in-
curred as a result of company insolvencies. The amount of any future assess-
ments on the Company under these laws cannot be reasonably estimated. Most of
these laws do provide, however, that an assessment may be excused or deferred
if it would threaten an insurer's own financial strength.
In addition, several states, including Illinois, regulate affiliated groups
of insurers, such as the Company and its affiliates, under insurance holding
company legislation. Under such laws, intercompany transfers of assets and
dividend payments from insurance subsidiaries may be subject to prior notice
or approval, depending on the size of such transfers and payments in relation
to the financial positions of the companies.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the busi-
ness in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regula-
tion, controls on medical care costs, removal of barriers preventing banks
from engaging in the insurance business, tax law changes affecting the taxa-
tion 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 insur-
ance and pension rates and benefits.
22
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
- -------------------------------------------------------------------------------
The directors and executive officers are listed below, together with infor-
mation as to their ages, dates of election and principal business occupations
during the last five years (if other than their present business occupations).
Except as otherwise indicated, the directors and executive officers of the
Company have been associated with the Company for more than five years in the
position shown or in other positions.
LOUIS G. LOWER, II, 50, Chairman of the Board of Directors and Chief Executive
Officer (1995)*
He is also the President of Allstate Life Insurance Company; President and
Chairman of the Board of Allstate Life Insurance Company of New York; Chairman
of the Board of Directors and Chief Executive Officer of Lincoln Benefit Life
Company, Surety Life Insurance Company, Glenbrook Life Insurance Company, and
Glenbrook Life and Annuity Company; Chairman of the Board of Allstate Settle-
ment Corporation; and a Director of Allstate Insurance Company and Allstate
Life Financial Services, Inc.
MICHAEL J. VELOTTA, 50, Vice President, Secretary, General Counsel, and
Director (1993)*
He is also Vice President, Secretary, General Counsel and Director of
Allstate Life Insurance Company, Allstate Life Insurance Company of New York,
Glenbrook Life Insurance Company, Glenbrook Life and Annuity Company and
Surety Life Insurance Company; and a Director of Lincoln Benefit Life Company
and Allstate Life Financial Services, Inc. From 1989 through 1992, he was Vice
President, Assistant General Counsel of Allstate Insurance Company.
MARLA G. FRIEDMAN, 42, President, Chief Operating Officer and Director (1995)*
She is also Vice President and Director of Allstate Life Insurance Company;
President and Chief Operating Officer Glenbrook Life Insurance Company, and
Glenbrook Life and Annuity Company; and a Director of Allstate Life Financial
Services, Inc.
PETER H. HECKMAN, 50, Vice President and Director (1989)*
He is also Vice President and Director of Allstate Life Insurance Company;
Vice President of Allstate Life Insurance Company of New York, Glenbrook Life
and Annuity Company, Glenbrook Life Insurance Company; and Director of Surety
Life Insurance Company and Lincoln Benefit Life Company.
LAWRENCE P. MOEWS, 44, Director (1995)*
He is also Director of Glenbrook Life Insurance Company. Prior to 1995 he
was Director and Vice President of Allstate Life Insurance Company.
JOHN R. HUNTER, 40, First Vice President, Assistant Vice President and
Director (1995)*
He is also Assistant Vice President of Allstate Life Insurance Company.
Prior to 1995 he was Assistant Vice President and Director of Northbrook Life
Insurance Company and Assistant Vice President of Allstate Life Insurance Com-
pany.
BARRY S. PAUL, 40, Assistant Vice President and Controller (1991)*
He is also Assistant Vice President of Allstate Life Insurance Company; As-
sistant Vice President and Controller of Allstate Life Insurance Company of
New York; and Assistant Vice President and Controller of Glenbrook Life Insur-
ance Company and Glenbrook Life and Annuity Company.
23
<PAGE>
CASEY J. SYLLA, 52, Chief Investment Officer and Director (1995)*
He is also Director of Allstate Insurance Company, Allstate Indemnity Compa-
ny, Allstate Property and Casualty Insurance Company, Deerbrook Insurance Com-
pany, First Assurance Company, Northbrook Indemnity Company, Northbrook Na-
tional Insurance Company, Northbrook Property and Casualty Insurance Company
and Allstate Life Insurance Company. He is also Chief Investment Officer of
Glenbrook Life and Annuity Company, Allstate Settlement Corporation, The
Northbrook Corporation, Allstate Insurance Company, Allstate Indemnity Compa-
ny, Allstate Property and Casualty, Deerbrook Insurance Company, First Assur-
ance Company, Northbrook Indemnity Company, Northbrook National Insurance Com-
pany, Northbrook Property and Casualty Insurance Company and Allstate Life In-
surance Company. Prior to 1995, he was Senior Vice President and Executive Of-
ficer Investments for Northwestern Mutual Life Insurance Company.
JAMES P. ZILS, 44, Treasurer (1995)*
He is also Treasurer of Allstate Life Financial Services, Inc., Allstate
Settlement Corporation, Allstate Life Insurance Company, Allstate Life Insur-
ance Company of New York, Glenbrook Life and Annuity Company, Glenbrook Life
Insurance Company, The Northbrook Corporation. He is Treasurer and Vice Presi-
dent of AEI Group, Inc., Allstate International Inc., Allstate Motor Club,
Inc., Direct Marketing Center, Inc., Enterprises Services Corporation, The
Allstate Foundation, Forestview Mortgage Insurance Company, Allstate Indemnity
Company, Allstate Property and Casualty, Deerbrook Insurance Company, First
Assurance Company, Northbrook Indemnity Company, Northbrook National Insurance
Company, Northbrook Property and Casualty Insurance Company. Prior to 1995 he
was Vice President of Allstate Life Insurance Company. Prior to 1993 he held
various management positions.
*Date elected to current office
EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------------
Executive officers of the Company also serve as officers of Allstate Life
and receive no compensation directly from the Company. Some of the officers
also serve as officers of other companies affiliated with the Company. Alloca-
tions have been made as to each individual's time devoted to his or her duties
as an executive officer of the Company. The allocated cash compensation of all
officers of the Company as a group for services rendered in all capacities to
the Company during 1995 totalled $392,156.41. Directors of the Company receive
no compensation in addition to their compensation as employees of the Company.
24
<PAGE>
SUMMARY COMPENSATION TABLE
(ALLSTATE LIFE INSURANCE COMPANY)
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ --------------------- --------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) AWARD(S) SARS(#) ($) ($)
------------------ ---- -------- -------- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis G. Lower, II...... 1995 $416,000 $266,175 $17,044 $199,890 N/A $411,122 $5,250(1)
Chief Executive Officer 1994 $389,050 $ 43,973 $26,990 $170,660 N/A 0 $1,890(1)
and Chairman of the 1993 $374,200 $294,683 $52,443 $318,625 N/A $ 13,451 $6,296(1)
Board of Directors
John R. Hunter.......... 1995 $144,600 $ 35,037 N/A 0
First Vice President,
Assistant Vice Presi-
dent and Director(2)
</TABLE>
- --------
(1) Amount received by Mr. Lower which represents the value allocated to his
account from employer contributions under the Profit Sharing Fund and to
its predecessor, The Savings and Profit Sharing Fund of Sears employees.
(2) This amount represents the portion of Mr. Hunter's total compensation
allocated to Northbrook Life. Prior to 1995, no Northbrook Life Officer's
compensation exceeded $100,000.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary damages are asserted.
Management, after consultation with legal counsel, does not anticipate the
ultimate liability arising from such pending or threatened litigation to have a
material effect on the financial condition of the Company.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements, the financial statement schedule and the financial
statements from which the Selected Financial Data included in this prospectus
have been derived, have been audited by Deloitte & Touche LLP, Two Prudential
Plaza, 180 North Stetson Avenue, Chicago, IL 60601-6779, independent auditors,
as stated in their report appearing herein, and have been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
LEGAL MATTERS
- -----------------------------------------------------------------------------
Certain legal matters relating to the federal securities laws applicable to
the issue and sale of the Contracts have been passed upon by Routier and
Johnson, P.C., of Washington, D.C. All matters of Illinois law pertaining to the
Contracts, including the validity of the Contracts and the Company's right to
issue such Contracts under Illinois insurance law, have been passed upon by
Michael J. Velotta, General Counsel of the Company.
25
<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 as of December 31, 1995 and 1994, and the
related Statements of Operations, Shareholder's Equity and Cash Flows for each
of the three years in the period ended December 31, 1995. Our audits also
included Schedule IV--Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Northbrook Life Insurance Company as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. Also, in our
opinion, Schedule IV--Reinsurance, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in Note 3 to the financial statements, in 1993 the Company
changed its method of accounting for investment in fixed income securities.
Deloitte & Touche LLP
Chicago, Illinois
March 1, 1996
F-1
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ----------
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments
Fixed income securities
Available for sale, at fair value (amortized cost
$59,142 and $61,581)............................. $ 63,229 $ 59,191
Short-term.......................................... 8,049 3,374
---------- ----------
Total investments............................... 71,278 62,565
Reinsurance recoverable from Allstate Life Insurance
Company.............................................. 2,636,981 3,085,781
Cash.................................................. 87 59
Deferred income taxes................................. 77
Net receivable from Allstate Life Insurance Company... 6,183 8,895
Other assets.......................................... 2,164 2,233
Separate Accounts..................................... 3,354,910 2,604,623
---------- ----------
Total assets.................................... $6,071,603 $5,764,233
========== ==========
LIABILITIES
Reserve for life insurance policy benefits............ $ 139,509 $ 134,942
Contractholder funds.................................. 2,497,278 2,950,532
Income taxes payable.................................. 233 4,634
Deferred income taxes................................. 2,798
Separate Accounts..................................... 3,354,910 2,604,623
---------- ----------
Total liabilities............................... 5,994,728 5,694,731
---------- ----------
SHAREHOLDER'S EQUITY
Common stock ($100 par value, 25,000 shares
authorized, issued and outstanding).................. 2,500 2,500
Additional capital paid-in............................ 56,600 56,600
Unrealized net capital gains (losses)................. 2,657 (1,553)
Retained income....................................... 15,118 11,955
---------- ----------
Total shareholder's equity...................... 76,875 69,502
---------- ----------
Total liabilities and shareholder's equity...... $6,071,603 $5,764,233
========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1994 1993
------ ------ ------
($ IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Net investment income.................................. $4,782 $2,881 $2,934
Realized capital gains and losses...................... 67 (193) 323
------ ------ ------
Income before income taxes............................... 4,849 2,688 3,257
Income tax expense....................................... 1,686 955 750
------ ------ ------
Net income............................................... $3,163 $1,733 $2,507
====== ====== ======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
UNREALIZED
NET
ADDITIONAL CAPITAL
COMMON CAPITAL GAINS RETAINED
STOCK PAID-IN (LOSSES) INCOME TOTAL
------ ---------- ---------- -------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992...... $2,500 $31,600 $ 7,715 $41,815
Net income.................... 2,507 2,507
Change in unrealized net
capital gains and losses..... $ 747 747
------ ------- ------- ------- -------
Balance, December 31, 1993...... 2,500 31,600 747 10,222 45,069
Net income.................... 1,733 1,733
Change in unrealized net
capital gains and losses..... (2,300) (2,300)
Capital contribution.......... 25,000 25,000
------ ------- ------- ------- -------
Balance, December 31, 1994...... 2,500 56,600 (1,553) 11,955 69,502
Net income.................... 3,163 3,163
Change in unrealized net
capital gains and losses..... 4,210 4,210
------ ------- ------- ------- -------
Balance, December 31, 1995...... $2,500 $56,600 $ 2,657 $15,118 $76,875
====== ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
------- ------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income....................................... $ 3,163 $ 1,733 $ 2,507
Adjustments to reconcile net income to net cash
from operating activities
Realized capital (gains) losses................ (67) 193 (323)
Amortization and other non-cash items.......... 903 640 415
Net change in reserve for policy benefits and
contractholder funds.......................... 113 (58) 18,338
Change in deferred income taxes................ 608 (114) 1,227
Changes in other operating assets and liabili-
ties.......................................... (2,705) (3,835) (19,325)
------- ------- --------
Net cash from operating activities........... 2,015 (1,441) 2,839
------- ------- --------
Cash flows from investing activities
Fixed income securities
Proceeds from sales............................ 5,423 1,256 14,279
Investment collections......................... 7,108 7,626 10,375
Investment purchases........................... (9,843) (36,071) (29,778)
Change in short-term investments, net............ (4,675) 3,475 2,369
------- ------- --------
Net cash from investing activities........... (1,987) (23,714) (2,755)
------- ------- --------
Cash flows from financing activities
Capital contribution............................. 25,000
------- ------- --------
Net cash from financing activities........... 25,000
------- ------- --------
Net increase (decrease) in cash.................... 28 (155) 84
Cash at beginning of year.......................... 59 214 130
------- ------- --------
Cash at end of year................................ $ 87 $ 59 $ 214
======= ======= ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. ORGANIZATION AND NATURE OF OPERATIONS
Northbrook Life Insurance Company (the "Company") is wholly owned by
Allstate Life Insurance Company ("Allstate Life"), which is wholly owned by
Allstate Insurance Company ("Allstate"), a wholly-owned subsidiary of The
Allstate Corporation (the "Corporation"). On June 30, 1995, Sears, Roebuck and
Co. ("Sears") distributed its 80.3% ownership in the Corporation to Sears
common shareholders through a tax-free dividend (the "Distribution").
The Company develops and markets single and flexible premium annuities and
flexible premium deferred and variable annuity contracts to individuals in the
United States through Dean Witter Reynolds ("Dean Witter")(Note 4). Other
products include universal life and single premium life insurance.
Annuity contracts issued by the Company are subject to discretionary
withdrawal or surrender by the contractholder, subject to applicable surrender
charges. These contracts are reinsured with Allstate Life (Note 4) which
selects assets to meet the anticipated cash flow requirements of the assumed
liabilities. Allstate Life utilizes various modeling techniques in managing
the relationship between assets and liabilities and employs strategies to
maintain investments which are sufficiently liquid to meet obligations to
contractholders in various interest rate scenarios.
The Company monitors economic and regulatory developments which have the
potential to impact its business. Currently there is proposed federal
legislation which would permit banks greater participation in securities
businesses, which could eventually present an increased level of competition
for sales of the Company's annuity contracts. Furthermore, the federal
government may enact changes which could possibly eliminate the tax-advantaged
nature of annuities or eliminate consumers' need for tax deferral, thereby
reducing the incentive for customers to purchase the Company's products. While
it is not possible to predict the outcome of such issues with certainty,
management evaluates the likelihood of various outcomes and develops
strategies, as appropriate, to respond to such challenges.
Certain reclassifications have been made to the prior year financial
statements to conform to the presentation for the current year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LIFE INSURANCE ACCOUNTING
The Company writes long-duration insurance contracts with terms that are not
fixed and guaranteed and single premium life insurance contracts, which are
considered universal life-type contracts. The Company also sells long-duration
contracts that do not involve significant risk of policyholder mortality or
F-6
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
morbidity (principally single and flexible premium annuities, structured
settlement annuities and supplemental contracts when sold without life
contingencies) which are considered investment contracts. Limited payment
contracts (policies with premiums paid over a period shorter than the contract
period), primarily consist of structured settlement annuities and supplemental
contracts when sold with life contingencies.
TRADITIONAL LIFE
The reserve for life insurance policy benefits, which relates to
structured settlement annuities and supplementary contracts when sold with
life contingencies, is computed on the basis of assumptions as to future
investment yields, mortality, morbidity, terminations and expenses. These
assumptions, which for traditional life are applied using the net level
premium method, include provisions for adverse deviation and generally vary
by such characteristics as plan, year of issue and policy duration. Reserve
interest rates ranged from 7.3% to 9.5% during 1995.
UNIVERSAL LIFE-TYPE CONTRACTS
Reserves for universal life-type contracts are established using the
retrospective deposit method. Under this method, liabilities are equal to
the account balance that accrues to the benefit of the policyholder.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual contracts that
include an investment component, including universal life-type contracts.
Payments received are recorded as interest-bearing liabilities.
Contractholder funds are equal to deposits received and interest accrued to
the benefit of the contractholder less withdrawals, mortality charges and
administrative expenses. During 1995, credited interest rates on
contractholder funds ranged from 3.0% to 8.0% for those contracts with
fixed interest rates and from 3.0% to 8.7% for those with flexible rates.
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity contracts, the
assets and liabilities of which are legally segregated and reflected in the
accompanying statements of financial position as assets and liabilities of the
Separate Accounts. Assets and liabilities of the Separate Accounts represent
funds of Northbrook Variable Annuity Account and Northbrook Variable Annuity
Account II ("Separate Accounts"), unit investment trusts registered with the
Securities and Exchange Commission. The assets of the Separate Accounts are
carried at fair value. Investment income and realized gains and losses of the
Separate Accounts accrue directly to the contractholders and, therefore, are
not included in the accompanying statements of operations. Revenues to the
Company from the Separate Accounts consist of contract maintenance fees,
administrative fees and mortality and expense risk charges, which are entirely
ceded to Allstate Life.
F-7
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
REINSURANCE
Premiums, contract charges, credited interest, and policy benefits are ceded
and reflected net of such cessions in the statements of operations.
Reinsurance recoverable and the related reserves for policy benefits and
contractholder funds are reported separately in the statements of financial
position.
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. Fixed
income securities are carried at fair value. The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are made to write down the value of fixed
income securities for declines in value that are other than temporary. Such
writedowns are included in realized capital gains and losses.
Short-term investments are carried at cost which approximates fair value.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on the estimated principal repayments.
Realized capital gains and losses are determined on a specific identification
basis.
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities and the enacted
tax rates. Deferred income taxes also arise from unrealized capital gains or
losses on fixed income securities carried at fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. ACCOUNTING CHANGE
Effective December 31, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." SFAS No. 115 requires that investments classified
as available for sale be carried at fair value. Previously, fixed income
securities classified as available for sale were carried at the lower of
amortized cost or fair value, determined in the aggregate. Unrealized holding
gains and losses are reflected as a separate component of shareholder's
equity, net of deferred income taxes. The net effect of adoption of this
statement increased shareholder's equity at December 31, 1993 by $747, with no
impact on net income.
F-8
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
4. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company reinsures substantially all business with Allstate Life. Premiums
and contract charges ceded to Allstate Life were $2,284 and $52,348 in 1995,
$1,886 and $38,306 in 1994, and $2,688 and $22,446 in 1993. Credited interest,
policy benefits and other expenses ceded to Allstate Life amounted to $229,525,
$243,326, and $525,467 in 1995, 1994, and 1993, respectively. Investment income
earned on the assets which support contractholder funds was excluded from the
Company's financial statements as those assets were transferred to Allstate
Life under the terms of reinsurance treaties. Reinsurance ceded arrangements do
not discharge the Company as the primary insurer.
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by Allstate in conducting its business activities. The Company
reimburses Allstate for the operating expenses incurred by Allstate. The cost
to the Company is determined by various allocation methods and is primarily
related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the
Company were $5,341, $5,483 and $5,301 in 1995, 1994 and 1993, respectively.
Investment-related expenses are retained by the Company. All other costs are
assumed by Allstate Life under reinsurance agreements.
DEAN WITTER
The Company and Allstate Life have formed a strategic alliance with Dean
Witter to develop, market and distribute proprietary annuity and life insurance
products through Dean Witter account executives. Dean Witter provides a portion
of the funding for these products through loans to an affiliate of the Company.
Under the terms of the strategic alliance, which is cancelable by either
party, the Company has agreed to use Dean Witter as an exclusive distribution
channel for the Company's products. Dean Witter is also the investment manager
for the Dean Witter Variable Investment Series, the fund in which the assets of
the Separate Accounts are invested.
5. INCOME TAXES
Allstate Life and its life insurance subsidiaries, including the Company,
will file a consolidated federal income tax return. Tax liabilities and
benefits realized by the consolidated group are allocated as generated by the
respective subsidiaries, whether or not such benefits generated by the
subsidiaries would be available on a separate return basis. The Corporation and
its domestic subsidiaries, including the Company (the "Allstate Group"), will
be eligible to file a consolidated tax return beginning in the year 2000.
Prior to the Distribution, the Allstate Group joined with Sears and its
domestic business units (the "Sears Group") in the filing of a consolidated
federal income tax return (the "Sears Tax Group") and were parties to a federal
income tax allocation agreement (the "Tax Sharing Agreement"). As a member of
the
F-9
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Sears Tax Group, the Corporation was jointly and severally liable for the
consolidated income tax liability of the Sears Tax Group. Under the Tax
Sharing Agreement, the Company, through the Corporation, paid to or received
from the Sears Group the amount, if any, by which the Sears Tax Group's
federal income tax liability was affected by virtue of inclusion of the
Allstate Group in the consolidated federal income tax return. Effectively,
this resulted in the Company's annual income tax provision being computed as
if the Company filed a separate return, except that items such as net
operating losses, capital losses, foreign tax credits or similar items which
might not be immediately recognizable in a separate return, were allocated
according to the Tax Sharing Agreement and reflected in the Company's
provision to the extent that such items reduced the Sears Tax Group's federal
tax liability.
The Allstate Group and Sears Group have entered into an agreement which
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Distribution ("Consolidated Tax Years").
The agreement provides that all Consolidated Tax Years will continue to be
governed by the Tax Sharing Agreement with respect to the Company's federal
income tax liability and taxes payable to or recoverable from the Sears Group.
The components of the deferred income tax assets and liabilities at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------- -----
<S> <C> <C>
Deferred assets
Unrealized net capital losses on fixed income securities...... $ $837
------- -----
Total deferred assets....................................... 837
------- -----
Deferred liabilities
Difference in tax bases of investments........................ (1,368) (760)
Unrealized net capital gains on fixed income securities....... (1,430)
------- -----
Total deferred liabilities.................................. (2,798) (760)
------- -----
Net deferred (liability) asset.................................. $(2,798) $ 77
======= =====
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1994 1993
------ ------ ----
<S> <C> <C> <C>
Current..................................................... $1,078 $1,069 $641
Deferred.................................................... 608 (114) 109
------ ------ ----
Income tax expense.......................................... $1,686 $ 955 $750
====== ====== ====
</TABLE>
F-10
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
The Company paid income taxes of $4,206, $4,219 and $1,175 in 1995, 1994 and
1993, respectively under the Tax Sharing Agreement. Included in these amounts
are $2,651, $2,826 and $1,111 reimbursed to the Company by Allstate Life under
the terms of reinsurance agreements for 1995, 1994 and 1993, respectively.
The Company had income taxes payable to Allstate Life of $233 and $4,634 at
December 31, 1995 and 1994, respectively.
A reconciliation of the statutory federal income tax rate to the effective
federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Statutory federal income tax rate............................ 35.0% 35.0% 35.0%
Dividends received deduction................................. (10.6)
Tax-exempt income............................................ (1.7)
Other........................................................ (0.3) 0.5 0.3
---- ---- -----
Effective federal income tax rate.......................... 34.7% 35.5% 23.0%
==== ==== =====
</TABLE>
6. INVESTMENTS
FAIR VALUES
The amortized cost, fair value and gross unrealized gains and losses for
fixed income securities are as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED
AMORTIZED ------------- FAIR
AT DECEMBER 31, 1995 COST GAINS LOSSES VALUE
- -------------------- --------- ------ ------ -------
<S> <C> <C> <C> <C>
U.S. government and agencies................... $ 8,619 $ 880 $ $ 9,499
Municipal...................................... 1,583 83 1,666
Corporate...................................... 4,967 349 5,316
Mortgage-backed securities..................... 43,973 3,003 228 46,748
------- ------ ------ -------
Totals..................................... $59,142 $4,315 $ 228 $63,229
======= ====== ====== =======
<CAPTION>
GROSS
UNREALIZED
AMORTIZED ------------- FAIR
AT DECEMBER 31, 1994 COST GAINS LOSSES VALUE
- -------------------- --------- ------ ------ -------
<S> <C> <C> <C> <C>
U.S. government and agencies................... $ 9,619 $ 49 $ 825 $ 8,843
Municipal...................................... 1,642 77 3 1,716
Corporate...................................... 3,172 63 3,109
Mortgage-backed securities..................... 47,148 75 1,700 45,523
------- ------ ------ -------
Totals..................................... $61,581 $ 201 $2,591 $59,191
======= ====== ====== =======
</TABLE>
F-11
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Due in one year or less......................... $ 270 $ 272
Due after one year through five years........... 3,021 3,182
Due after five years through ten years.......... 4,647 5,124
Due after ten years............................. 7,231 7,903
------- -------
15,169 16,481
Mortgage-backed securities...................... 43,973 46,748
------- -------
Total....................................... $59,142 $63,229
======= =======
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers.
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital gains and losses on fixed income securities included
in shareholder's equity at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
UNREALIZED NET
AMORTIZED COST FAIR VALUE GAINS/(LOSSES)
-------------- ---------- --------------
<S> <C> <C> <C>
Fixed income securities......... $59,142 $63,229 $ 4,087
======= =======
Deferred income taxes........... (1,430)
-------
Total....................... $ 2,657
=======
</TABLE>
The change in unrealized net capital gains and losses for fixed income
securities is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994
------- --------
<S> <C> <C>
Fixed income securities................................ $ 6,477 $ (3,539)
Deferred income taxes.................................. (2,267) 1,239
------- --------
Change in unrealized net capital gains and
losses............................................ $ 4,210 $ (2,300)
======= ========
</TABLE>
F-12
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
COMPONENTS OF INVESTMENT INCOME
Investment income by type of investment is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Investment income:
Fixed income securities........................... $4,633 $2,735 $2,793
Short-term........................................ 215 192 172
------ ------ ------
Investment income, before expense................... 4,848 2,927 2,965
Investment expense.................................. 66 46 31
------ ------ ------
Net investment income........................... $4,782 $2,881 $2,934
====== ====== ======
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES
Realized capital gains and losses on investments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1994 1993
---- ----- -----
<S> <C> <C> <C>
Fixed income securities................................ $ 67 $(193) $ 323
Income tax (expense) benefit........................... (23) 68 (113)
---- ----- -----
Net realized gains (losses)............................ $ 44 $(125) $ 210
==== ===== =====
</TABLE>
PROCEEDS FROM SALES OF FIXED INCOME SECURITIES
The proceeds from sales of investments in fixed income securities, excluding
calls, and related gross realized gains and losses are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Proceeds.......................................... $5,423 $1,256 $14,279
====== ====== =======
Gross realized gains.............................. $ 67 $ 318
Gross realized losses............................. $ (179) (34)
------ ------ -------
Net realized gains (losses)....................... $ 67 $ (179) $ 284
====== ====== =======
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1995, fixed income securities with a carrying value of $8,041
were on deposit with regulatory authorities as required by law.
F-13
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
7. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The assets and liabilities of
the Separate Accounts are carried at the fair value of the funds in which the
assets are invested. The fair value of all financial assets other than fixed
income securities and all liabilities other than contractholder funds
approximates their carrying value as they are short-term in nature.
Fair values for fixed income securities are based on quoted market prices.
The December 31, 1995 and 1994 fair values and carrying values of fixed income
securities are discussed in Note 6.
The fair value of contractholder funds related to investment contracts is
based on the terms of the underlying contracts. Reserves on investment
contracts with no stated maturities (single premium and flexible premium
deferred annuities) are valued at the fund balance less surrender charge. The
fair value of immediate annuities and annuities without life contingencies
with fixed terms are estimated using discounted cash flow calculations based
on interest rates currently offered for contracts with similar terms and
duration. Contractholder funds on investment contracts had a carrying value of
$2,294,536 at December 31, 1995 and a fair value of $2,274,053. The carrying
value and fair value at December 31, 1994 were $2,738,823 and $2,685,448,
respectively.
8. STATUTORY FINANCIAL INFORMATION
The following tables reconcile net income and shareholder's equity as
reported herein in conformity with generally accepted accounting principles
with statutory net income and capital and surplus, determined in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities:
<TABLE>
<CAPTION>
NET INCOME
YEAR ENDED DECEMBER
31,
----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Balance per generally accepted accounting
principles..................................... $3,163 $1,733 $2,507
Income taxes.................................. (88) (114) 825
Non-admitted assets and statutory reserves.... (775) (27) (91)
------ ------ ------
Balance per statutory accounting principles..... $2,300 $1,592 $3,241
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER'S
EQUITY DECEMBER
31,
----------------
1995 1994
------- -------
<S> <C> <C>
Balance per generally accepted accounting principles... $76,875 $69,502
Income taxes......................................... (1,614) (77)
Unrealized net capital gains (losses)................ (4,087) 2,390
Non-admitted assets and statutory reserves........... 1,891 (1,086)
------- -------
Balance per statutory accounting principles............ $73,065 $70,729
======= =======
</TABLE>
F-14
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the insurance
department of the State of Illinois. Prescribed statutory accounting practices
include a variety of publications of the National Association of Insurance
Commissioners, as well as state laws, regulations and general administrative
rules. Permitted statutory accounting practices encompass all accounting
practices not so prescribed. The Company does not follow any permitted
statutory accounting practices that have a material effect on statutory
surplus or risk-based capital.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant
factors. The payment of shareholder dividends by insurance companies without
the prior approval of the state insurance regulator is limited to formula
amounts based on net income and capital and surplus, determined in accordance
with statutory accounting practices, as well as the timing and amount of
dividends paid in the preceding twelve months. The maximum amount of dividends
that the Company can distribute during 1996 without prior approval of both the
Illinois and California Departments of Insurance is $7,057.
F-15
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- --------
<S> <C> <C> <C>
Life insurance in force............................. $610,478 $610,478 $
======== ======== ========
Premiums and contract charges:
Life and annuities................................ $ 54,632 $ 54,632 $
======== ======== ========
YEAR ENDED DECEMBER 31, 1994
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- --------
<S> <C> <C> <C>
Life insurance in force............................. $661,356 $661,356 $
======== ======== ========
Premiums and contract charges:
Life and annuities................................ $ 40,192 $ 40,192 $
======== ======== ========
YEAR ENDED DECEMBER 31, 1993
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- --------
<S> <C> <C> <C>
Life insurance in force............................. $702,975 $702,975 $
======== ======== ========
Premiums and contract charges:
Life and annuities................................ $ 25,134 $ 25,134 $
======== ======== ========
</TABLE>
F-16
<PAGE>
APPENDIX A
MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I= the effective annual Interest Crediting Rate for that Sub-Account
N= the number of complete days from the withdrawal to the end of the Sub-
Account's Guarantee Period; and
J= the current interest rate credited for contracts, on the date the
withdrawal request is received, for a Guarantee Period of duration N.
If a Guarantee Period of duration N is not currently being offered, J
will be determined by a linear interpolation (weighted average). If N
is less than or equal to 365 days, J will be the rate for a Guarantee
Period of duration 365.
The Market Value Adjustment factor is determined from the following formula:
[.9 X (I-J) X (N/365)].
The amount withdrawn less any applicable Free Withdrawal Amount will be
multiplied by the Market Value Adjustment factor to determine the Market Value
Adjustment.
ILLUSTRATION
EXAMPLE OF MARKET VALUE ADJUSTMENT
<TABLE>
<S> <C>
Purchase Payment:................................................. $10,000
Guarantee Period:................................................. 5 years
Interest Rate:.................................................... 5.40%
Full Surrender:.................................... End of Contract Year 3
</TABLE>
NOTE: This illustration assumes that premium taxes were not applicable.
EXAMPLE 1: (Assumes declining interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.054)/3/ = $11,709.06
Step 2: Calculate The Amount Withdrawn in Excess of the Free Withdrawal
Amount:
.41Amount Withdrawn: 11,709.06
Free Withdrawal Amount: .10 X 10,000.00 = 1,000.00
Amount Withdrawn in Excess of the Free Withdrawal Amount:
= 11,709.06 - 1,000.00 = $10,709.06
Step 3: Calculate the Withdrawal Charge:
= .027 X 10,709.06 = $289.14
A-1
<PAGE>
Step 4: Calculate the Market Value Adjustment:
I= 5.40%
J= 5.10%
N = 730 days
Market Value Adjustment Factor: .9 X (I-J) X (N/365)
= .9 X (.0540 - .0510) X (730/365) = .0054
Market Value Adjustment = Factor X Amount in Excess of Free Withdrawal Amount:
= .0054 X 10,709.06 = $57.83
Step 5: Calculate The Net Surrender Value at End of Contract Year 3:
= 11,709.06 - 289.14 + 57.83 = $11,477.75
EXAMPLE 2: (Assumes rising interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.054)/3/ = $11,709.06
Step 2: Calculate The Amount Withdrawn in Excess of the Free Withdrawal Amount:
Amount Withdrawn: 11,709.06
Free Withdrawal Amount: .10 X 10,000.00 = 1,000.00
Amount Withdrawn in Excess of the Free Withdrawal Amount:
= 11,709.06 - 1,000.00 = $10,709.06
Step 3: Calculate the Withdrawal Charge:
= .027 X 10,709.06 = $289.14
Step 4: Calculate the Market Value Adjustment:
I= 5.40%
J= 5.70%
N = 730 days
Market Value Adjustment Factor: .9 X (I-J) X (N/365)
= .9 X (.054 - .057) X (730/365) = -.0054
Market Value Adjustment = Factor X Amount in Excess of Free Withdrawal Amount:
= -.0054 X 10,709.06 = -$57.83
Step 5: Calculate The Net Surrender Value at End of Contract Year 3:
= 11,709.06 - 289.14 - 57.83 = $11,362.09
A-2
<PAGE>
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
Pursuant to Item 511 of Regulation S-K, the Registrant hereby
represents that the following expenses totaling approximately $281,121
will be incurred or are anticipated to be incurred in connection with
the issuance and distribution of the securities to be registered:
registration fees--$258,621; cost of printing and engraving--$17,000;
legal fees--$5,000; and accounting fees--$500. All amounts are
estimated.
ITEM 14. Indemnification of Directors and Officers.
The By-Laws of Northbrook Life Insurance Company ("Registrant") which
are incorporated herein by reference as Exhibit (3), provide that
Registrant will indemnify its officers and directors for certain
damages and expenses that may be incurred in the performance of their
duty to Registrant. No indemnification is provided, however, when such
person is adjudged to be liable for negligence or misconduct in the
performance of his or her duty, unless indemnification is deemed
appropriate by the court upon application.
ITEM 15. Recent Sales of Unregistered Securities.
Not applicable.
ITEM 16. Exhibits and Financial Statement Schedules.
Exhibit No. Description
----------- -----------
(1) Underwriting Agreement*
(2) Not Applicable
(3) (i)Articles of Incorporation*
(ii)By-Laws*
(4) Form of Northbrook Life Insurance Company Flexible Premium
Deferred Annuity Contract and Application***
(5) Opinion of General Counsel re: Legality***
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10) (i)Reinsurance Agreement between Northbrook Life Insurance Company
and Allstate Life Insurance Company**
(ii)Modified Coinsurance Agreement between Northbrook Life
Insurance Company and Allstate Life Insurance Company*****
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(22) Not Applicable
(23)(a) Consent of Independent Public Accountants
(23)(b) Consent of Attorneys***
(24) Powers of Attorney****, ******
(99) Resolution of Board of Directors**
* Previously filed in Form N-4 Registration Statement No. 33-35412 dated
June 14, 1990 and incorporated by reference.
** Previously filed in Form S-1 Registration Statement No. 33-39268 dated
March 6, 1991.
<PAGE>
*** Previously filed in Form S-1 Registration Statement No. 33-50884 dated
August 14, 1992.
**** Previously filed in Form S-1 Registration Statement No. 33-50884 dated
March 30, 1993.
***** Previously filed in Form S-1 Registration Statement No. 33-50884 dated
March 7, 1995.
****** Filed herewith powers of attorney for Louis G. Lower, II, Marla G.
Friedman, Lawrence P. Moews, Casey J. Sylla, and James P. Zils.
ITEM 17. Undertakings.
-------------
The undersigned registrant, Northbrook Life Insurance Company, hereby
undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant, Northbrook Life Insurance Company, pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Northfield State of
Illinois on April 4, 1996.
NORTHBROOK LIFE INSURANCE COMPANY
(Registrant)
By: /s/ MICHAEL J. VELOTTA
----------------------------------
Michael J. Velotta
Vice President, Secretary,
General Counsel and Director
(SEAL)
Attest: /s/ BRENDA D. SNEED
----------------------------------
Brenda D. Sneed
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*/ LOUIS G. LOWER, II Chairman of the Board April 4, 1996
- ----------------------- and Chief Executive Officer
Louis G. Lower, II
/s/ MICHAEL J. VELOTTA Vice President, Secretary, April 4, 1996
- ----------------------- General Counsel and Director
Michael J. Velotta
*/ MARLA G. FRIEDMAN President, Chief Operating April 4, 1996
- ----------------------- Officer and Director
Marla G. Friedman
**/ PETER H. HECKMAN Vice President and Director April 4, 1996
- -----------------------
Peter H. Heckman
*/ LAWRENCE P. MOEWS Director April 4, 1996
- -----------------------
Lawrence P. Moews
**/ JOHN R. HUNTER First Vice President, April 4, 1996
- ----------------------- Assistant Vice President
John R. Hunter and Director
*/ CASEY J. SYLLA Director and Chief April 4, 1996
- ----------------------- Investment Officer
Casey J. Sylla
*/ JAMES P. ZILS Treasurer April 4, 1996
- -----------------------
James P. Zils
**/ BARRY S. PAUL Assistant Vice President April 4, 1996
- ----------------------- and Controller
Barry S. Paul
</TABLE>
*/ By Michael J. Velotta, pursuant to Power of Attorney, filed herewith.
**/ By Michael J. Velotta, pursuant to Power of Attorney, previously filed.
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed herewith:
Exhibit No. Description
----------- -----------
(1) Underwriting Agreement*
(2) Not Applicable
(3) (i)Articles of Incorporation*
(ii)By-Laws*
(4) Form of Northbrook Life Insurance Company Flexible Premium
Deferred Annuity Contract and Application***
(5) Opinion of General Counsel re: Legality***
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10) (i)Reinsurance Agreement between Northbrook Life Insurance Company
and Allstate Life Insurance Company**
(ii)Modified Coinsurance Agreement between Northbrook Life
Insurance Company and Allstate Life Insurance Company*****
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(22) Not Applicable
(23)(a) Consent of Independent Public Accountants
(23)(b) Consent of Attorneys***
(24) Powers of Attorney****, ******
(99) Resolution of Board of Directors**
* Previously filed in Form N-4 Registration Statement No. 33-35412 dated
June 14, 1990 and incorporated by reference.
** Previously filed in Form S-1 Registration Statement No. 33-39268 dated
March 6, 1991.
*** Previously filed in Form S-1 Registration Statement No. 33-50884 dated
August 14, 1992.
**** Previously filed in Form S-1 Registration Statement No. 33-50884 dated
March 30, 1993.
***** Previously filed in Form S-1 Registration Statement No. 33-50884 dated
March 7, 1995.
****** Filed herewith powers of attorney for Louis G. Lower, II, Marla G.
Friedman, Lawrence P. Moews, Casey J. Sylla, and James P. Zils.
<PAGE>
Exhibit (23)(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 4 to Registration
Statement No. 33-50884 of Northbrook Life Insurance Company of our report
dated March 1, 1996, appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
April 8, 1996
<PAGE>
EXHIBIT NO. (24)
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
CUSTOM ANNUITY CONTRACT
Know all men by these presents that Louis G. Lower, II, whose signature
appears below, constitutes and appoints Michael J. Velotta, his attorney-in-
fact, with power of substitution, and his in any and all capacities, to sign any
registration statements and amendments thereto for the Northbrook Life Insurance
Company Custom Annuity Contract and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his substitute or substitutes, may do or cause to be done by virtue
hereof.
2/9/96
------
Date
/s/LOUIS G. LOWER, II
---------------------
Louis G. Lower, II
Chairman of the Board of Directors
& Chief Executive Officer
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
CUSTOM ANNUITY CONTRACT
Know all men by these presents that Marla G. Friedman whose signature
appears below, constitutes and appoints Michael J. Velotta and Louis G. Lower,
II, her attorneys-in-fact, with power of substitution, and her in any and all
capacities, to sign any registration statements and amendments thereto for the
Northbrook Life Insurance Company Custom Annuity Contract and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
2/9/96
------
Date
/s/MARLA G. FRIEDMAN
--------------------
Marla G. Friedman
President, Chief Operating Officer
and Director
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
CUSTOM ANNUITY CONTRACT
Know all men by these presents that Lawrence P. Moews, whose signature
appears below, constitutes and appoints Michael J. Velotta and Louis G. Lower,
II, his attorneys-in-fact, with power of substitution, and his in any and all
capacities, to sign any registration statements and amendments thereto for the
Northbrook Life Insurance Company Custom Annuity Contract and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
2/9/96
------
Date
/s/LAWRENCE P. MOEWS
--------------------
Lawrence P. Moews
Director
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
CUSTOM ANNUITY CONTRACT
Know all men by these presents that Casey J. Sylla, whose signature appears
below, constitutes and appoints Michael J. Velotta and Louis G. Lower, II, his
attorneys-in-fact, with power of substitution, and his in any and all
capacities, to sign any registration statements and amendments thereto for the
Northbrook Life Insurance Company Custom Annuity Contract and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
2/9/96
------
Date
/s/CASEY J. SYLLA
-----------------
Casey J. Sylla
Chief Investment Officer
and Director
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
CUSTOM ANNUITY CONTRACT
Know all men by these presents that James P. Zils, whose signature appears
below, constitutes and appoints Michael J. Velotta and Louis G. Lower, II, his
attorneys-in-fact, with power of substitution, and his in any and all
capacities, to sign any registration statements and amendments thereto for the
Northbrook Life Insurance Company Custom Annuity Contract and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
2/9/96
------
Date
/s/JAMES P. ZILS
----------------
James P. Zils
Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF FINANCIAL POSITION, INCOME, SHAREHOLDER EQUITY, CASH FLOWS AND NOTES TO
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 63,229
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
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<REAL-ESTATE> 0
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<CASH> 87
<RECOVER-REINSURE> 2,636,981
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<TOTAL-ASSETS> 6,071,603
<POLICY-LOSSES> 139,509
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 2,497,278
<NOTES-PAYABLE> 0
<COMMON> 2,500
0
0
<OTHER-SE> 74,375
<TOTAL-LIABILITY-AND-EQUITY> 6,071,603
0
<INVESTMENT-INCOME> 4,782
<INVESTMENT-GAINS> 67
<OTHER-INCOME> 0
<BENEFITS> 0
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<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 4,849
<INCOME-TAX> 1,686
<INCOME-CONTINUING> 3,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,163
<EPS-PRIMARY> 126.52
<EPS-DILUTED> 126.52
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
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</TABLE>
