<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1997
REGISTRATION NO. 33-50884
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT NO. 5[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
---------------
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
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. Presently, the Company will accept Purchase Payments of $1,000
or more which may be added to the Contract. Partial withdrawals and surrenders
under the Contract may be subject to a Market Value Adjustment. Therefore, the
Owner bears some investment risk under 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, 1997.
<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, although the Company's financial
statements are on page F-1 of this prospectus. Our Company files annual and
quarterly reports and other information with the SEC. You may read and copy
any reports, statements or other information We file at the SEC's public
reference room in Washington, D.C. You can request copies of these documents
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings are also available to the public on the SEC
Internet site http://www.sec.gov.).
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.................................................. 15
Other Considerations.............................................
THE COMPANY........................................................ 17
Business......................................................... 17
Reinsurance Agreements........................................... 17
Investments by the Company....................................... 17
SELECTED FINANCIAL DATA............................................ 19
Northbrook Life Insurance Company Management's Discussion and
Analysis of Financial Condition and Results of Operations....... 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 Periods and the
dates the periods begin. Sub-Accounts are established when Purchase Payments
are made; and when previous Sub-Accounts expire and new Guarantee Periods are
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?
The Company has discontinued the offering of new contracts. Additional
Purchase Payments to existing Contracts are accepted by the Company.
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, "Subse-
quent 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 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 Company has discontinued the offering of new Contracts. Additional
Purchase Payments to existing Contracts are accepted by the Company.
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 each Purchase Payment is invested in a Sub-Account for ac-
cumulation of interest. At least once every year, the Company will send the
Owner a statement containing Account Value information.
SUBSEQUENT GUARANTEE PERIODS
For each subsequent Purchase Payment, the Owner will be required to desig-
nate 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>
Purchase Payment:.................................................... $10,000.00
Guarantee Period:.................................................... 5 years
Effective Annual Rate:............................................... 4.50%
</TABLE>
END OF CONTRACT YEAR:
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<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning Account Value $10,000.00
X (1 + Effective Annual
Rate) 1.045
----------
$10,450.00
----------
Account Value at end of
Contract $10,450.00
year 1 X (1 + Effective
Annual Rate) 1.045
----------
$10,920.25
----------
Account Value at end of
Contract $10,920.25
year 2 X (1 + Effective
Annual Rate) 1.045
----------
$11,411.66
----------
Account Value at end of
Contract $11,411.60
year 3 X (1 + Effective
Annual Rate) 1.045
----------
$11,925.19
----------
Account Value at end of
Contract $11,925.19
year 4 X (1 + Effective
Annual Rate) 1.045
----------
$12,461.82
----------
</TABLE>
Total Interest Credited in Guarantee Period: $2,461.82 ($12,461.82 -
$10,000.00)
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
higher 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 higher payment upon surrender. Simi-
larly, if the effective annual interest rate for the Sub-Account is lower than
the applicable current effective annual interest rate, then the Market Value
Adjustment will result in a lower 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 4.50%. 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 4.20%,
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. Simi-
larly, if the current interest rate for the 2 year Guarantee Period is 4.80%,
then the Market Value Adjustment will be negative, which will result in a de-
crease in the amount payable to the Owner upon 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.
11
<PAGE>
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 (other than a grantor trust), then
the Owner must receive the Death Benefit in a lump sum, and the options listed
above are not available.
If the Annuitant, not also an Owner, dies prior to the Payout Start Date,
then, in most cases, the Owner has the following three options:
n continue the Contract as if the death had not occurred. The new Annuitant
will be the youngest Owner unless the Owner names a different Annuitant; or
n receive the Death Benefit in a lump sum. The Death Benefit is equal to the
greater of the Account Value or the Cash Surrender Value, or
n apply the Death Benefit to an Income Plan.
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 the later of the Annuitant's 90th birthday or the 10th anniversary date of
the Contract.
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 lesser than Income Payments un-
der 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 federal or state laws or regula-
amend the Contracts to meet the re- tions. The Company will notify the
quirements of applicable Owner of any such amendments.
DISTRIBUTION OF THE CONTRACTS
- -------------------------------------------------------------------------------
The Contracts will be distributed exclusively by Dean Witter which serves as
the principal underwriter of the Contracts under a General Agency Agreement
with the Company.
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.
Dean Witter is located at Two World Trade Center, New York, New York, 10048.
Dean Witter is a member of the New York Stock Exchange and the National Asso-
ciation of Securities Dealers, Inc.
The General Agency 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.
13
<PAGE>
CUSTOMER INQUIRIES
- -------------------------------------------------------------------------------
The Owner or any persons inter- by calling or writing their Dean
ested in the Contract may make in- Witter Account Executive.
quiries regarding the Contract
FEDERAL TAX MATTERS
- -------------------------------------------------------------------------------
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax conse-
quences of ownership or receipt of distributions under an annuity contract de-
pend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
TAXATION OF THE COMPANY
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code. The following discussion assumes that the Com-
pany is taxed as a life insurance company under Part I of Subchapter L.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL
In general, an annuity contract owned by a natural person is not taxed on
increases in the contract value until a distribution occurs. Annuity contracts
owned by non-natural persons are generally not treated as annuity contracts
for federal income tax purposes and the income on such contracts is taxed as
ordinary income received or accrued by the owner during the taxable year.
There are exceptions to the non-natural owner rule and you should discuss
these with your tax advisor.
DELAYED MATURITY DATE
If the contract's scheduled maturity date is at a time when the annuitant
has reached an advanced age, e.g., past age 85, it is possible that the con-
tract would not be treated as an annuity. In that event, the income and gains
under the contract would be currently includible in the owner's income.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal under a non-qualified contract, amounts
received are taxable to the extent the contract value, without regard to any
surrender charges, exceeds the investment in the contract. The contract value
is the sum of all sub-account values. No matter which sub-account a withdrawal
is made from, all subaccount values are combined and the total contract value
is used to determine the amount of taxable income. In the case of a partial
withdrawal under a qualified contract, the portion of the payment that bears
the same ratio to the total payment that the investment in the contract bears
to the contract value, can be excluded from income. In the case of a full
withdrawal under a non-qualified contract or a qualified contract, the amount
received will be taxable only to the extent it exceeds the investment in the
contract. If an individual transfers an annuity contract without full and ade-
quate consideration to a person other than the individual's spouse (or to a
former spouse incident to a divorce), the owner will be taxed on the differ-
ence between the contract value and the investment in the contract at the time
of transfer. Other than in the case of certain qualified contracts, any amount
received as a loan under a contract, and any assignment or pledge (or agree-
ment to assign or pledge) of the contract value is treated as a withdrawal of
such amount or portion.
14
<PAGE>
TAXATION OF ANNUITY PAYMENTS
Generally, the rule for income taxation of payments received from an annuity
contract provides for the return of the owner's investment in the contract in
equal tax-free amounts over the payment period. The balance of each payment
received is taxable. In the case of fixed annuity payments, the amount ex-
cluded from income is determined by multiplying the payment by the ratio of
the investment in the contract (adjusted for any refund feature or period cer-
tain) to the total expected value of annuity payments for the term of the con-
tract.
TAXATION OF ANNUITY DEATH BENEFITS
Amounts may be distributed from an annuity contract because of the death of
an owner or annuitant. Generally, such amounts are includible in income as
follows: (1) if distributed in a lump sum, the amounts are taxed in the same
manner as a full withdrawal or (2) if distributed under an annuity option, the
amounts are taxed in the same manner as an annuity payment.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any premature distribu-
tion from a non-qualified annuity contract. The penalty tax generally applies
to any distribution made prior to the owner attaining age 59 1/2. However,
there should be no penalty tax on distributions to owners: (1) made on or af-
ter the owner attains age 59 1/2; (2) made as a result of the owner's death or
disability; (3) made in substantially equal periodic payments over life or
life expectancy; or (4) made under an immediate annuity. Similar rules apply
for distributions from qualified contracts.
AGGREGATION OF ANNUITY CONTRACTS
All non-qualified annuity contracts issued by the Company (or its affili-
ates) to the same owner during any calendar year will be aggregated and
treated as one annuity contract for purposes of determining the taxable amount
of a distribution.
IRS REQUIRED DISTRIBUTION AT DEATH RULES
In order to be considered an annuity contract for federal income tax purpos-
es, an annuity contract must provide: (1) if any owner dies on or after the
annuity start date but before the entire interest in the contract has been
distributed, the remaining portion of such interest must be distributed at
least as rapidly as under the method of distribution being
used as of the date of the owner's death; (2) if any owner dies prior to the
annuity start date, the entire interest in the contract will be distributed
within five years after the date of the owner's death. These requirements are
satisfied if any portion of the owner's interest which is payable to, or for
the benefit of, a designated beneficiary is distributed over the life of such
beneficiary (or over a period not extending beyond the life expectancy of the
beneficiary) and the distributions begin within one year of the owner's death.
If the owner's designated beneficiary is the surviving spouse of the owner,
the contract may be continued with the surviving spouse as the new owner. If
the owner of the contract is a nonnatural person, then the annuitant will be
treated as the owner for purposes of applying the distribution at death rules.
Also, a change of annuitant on a contract owned by a nonnatural person will be
treated as the death of the owner.
QUALIFIED PLANS
This annuity contract may be used with several types of qualified plans. The
tax rules applicable to participants in such qualified plans vary according to
the type of plan and the terms and conditions of the plan itself. Adverse tax
consequences may result from excess contributions, premature distributions,
distributions that do not conform to specified commencement and minimum dis-
tribution rules, excess distributions and in other circumstances. Owners and
participants under the plan and annuitants and beneficiaries under the con-
tract may be subject to the terms and conditions of the plan regardless of the
terms of the contract.
15
<PAGE>
TYPES OF QUALIFIED PLANS
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an in-
dividual retirement program known as an Individual Retirement Annuity. Indi-
vidual Retirement Annuities are subject to limitations on the amount that can
be contributed and on the time when distributions may commence. Certain dis-
tributions from other types of qualified plans may be "rolled over" on a tax-
deferred basis into an Individual Retirement Annuity.
SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees using the employees' individual retirement
annuities if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the em-
ployees to their individual retirement annuities.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS)
Sections 408(p) and 401(k) of the Code allow employers with 100 or fewer em-
ployees to establish SIMPLE retirement plans for their employees. SIMPLE plans
may be structured as a SIMPLE retirement account using an employee's IRA to
hold the assets or as a Section 401(k) qualified cash or deferred arrangement.
In general, a SIMPLE plan consists of a salary deferral program for eligible
employees and matching contributions made by employers. Employers intending to
use the contract in conjunction with SIMPLE plans should seek competent tax
and legal advice.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees of
certain types of tax-exempt organizations (specified in Section 501(c)(3) of
the Code) to have their employers purchase annuity contracts for them, and
subject to certain limitations, to exclude the purchase payments from the em-
ployees' gross income. An annuity contract used for a Section 403(b) plan must
provide that distributions attributable to salary reduction contributions made
after 12/31/88, and all earnings on salary reduction contributions, may be
made only after the employee attains age 59 1/2, separates from service, dies,
becomes disabled or
on the account of hardship (earnings on salary reduction contributions may not
be distributed for hardship).
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Sections 401(a) and 403(a) of the Code permit corporate employers to estab-
lish various types of tax favored retirement plans for employees. The Self-Em-
ployed Individuals Retirement Act of 1962, as amended (commonly referred to as
"H.R. 10" or "Keogh"), permits self-employed individuals to establish tax fa-
vored retirement plans for themselves and their employees. Such retirement
plans may permit the purchase of annuity contracts in order to provide bene-
fits under the plans.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION
PLANS
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without pay-
ing current taxes. The employees must be participants in an eligible deferred
compensation plan. Generally, under the non-natural owner rules, such con-
tracts are not treated as annuity contracts for federal income tax purposes.
However, under these plans, contributions made for the benefit of the employ-
ees will not be includible in the employees' gross income until distributed
from the plan.
INCOME TAX WITHHOLDING
The Company is required to withhold federal income tax at a rate of 20% on
all "eligible rollover
16
<PAGE>
distributions" unless an individual elects to make a "direct rollover" of such
amounts to another qualified plan or Individual Retirement Account or Annuity
(IRA). Eligible rollover distributions generally include all distributions
from qualified contracts, excluding IRAs, with the exception of (1) required
minimum distributions, or (2) a series of substantially equal periodic pay-
ments made over a period of at least 10 years, or the life (joint lives) of
the participant (and beneficiary). For any distributions from non-qualified
annuity contracts, or distributions from qualified contracts which are not
considered eligible rollover distributions, the Company may be required to
withhold federal and state income taxes unless the recipient elects not to
have taxes withheld and properly notifies the Company of such election.
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 issues group and individ-
ual annuities and life insurance.
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"). 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.
REINSURANCE AGREEMENTS
The Company and Allstate Life entered into a reinsurance agreement, effec-
tive December 31, 1987, under which the Company automatically reinsures all of
its business with Allstate Life. Under the reinsurance agreement, Purchase
Payments under general account contracts are automatically transferred to and
become invested with the assets of Allstate Life which accepts 100% of the li-
ability under such contracts. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," pg. 20). However, the obli-
gations of Allstate Life under the reinsurance agreement are to the Company;
the Company remains the sole obligor under the Contracts to the Owners. Be-
cause 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.
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.
17
<PAGE>
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;
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.
18
<PAGE>
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>
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For The Years Ended
December 31:
Income Before Income
Tax Expense........... $ 4,868 $ 4,849 $ 2,688 $ 3,257 $ 3,153
Net Income............. 3,202 3,163 1,733 2,507 2,965
As of December 31:
Total Assets............ 6,916,030 6,071,603 5,764,233 5,886,038 5,623,675
</TABLE>
Effective December 31, 1993, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Under SFAS No. 115, fixed income securities
classified as available for sale are carried at fair value. The net effect of
adoption of this SFAS increased shareholder's equity at December 31, 1993 by
$747 thousand and did not have a material impact on net income.
19
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights significant factors influencing results
of operations and financial position of Northbrook Life Insurance Company (the
"Company"). It should be read in conjunction with the financial statements and
related notes.
The Company, which is wholly owned by Allstate Life Insurance Company
("ALIC"), markets life insurance contracts and annuity products through Dean
Witter Reynolds Inc., a wholly owned subsidiary of Dean Witter, Discover & Co.
The Company and ALIC have reinsurance agreements under which all contract
related transactions are transferred to ALIC. The Company's results of opera-
tions relate to the investment of those assets of the Company that are not
transferred to ALIC under the reinsurance agreements.
Separate Account assets and liabilities are carried at fair value in the
statements of financial position. Investment income and realized gains and
losses of the Separate Accounts accrue directly to the contractholders and,
therefore, are not included in the Company's statements of operations.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Net investment income................................ $ 4,888 $ 4,782 $ 2,881
======= ======= =======
Realized capital gains and losses, after tax......... $ (13) $ 44 $ (125)
======= ======= =======
Net income........................................... $ 3,202 $ 3,163 $ 1,733
======= ======= =======
Fixed income securities, at amortized cost........... $65,500 $59,142 $61,581
======= ======= =======
</TABLE>
Net income increased $39 thousand in 1996 due to the increase in net invest-
ment income, and a slight decrease in the Company's effective income tax rate,
partially offset by realized capital losses. Net income increased $1.4 million
in 1995 reflecting the increase in net investment income and realized capital
gains.
As a result of the reinsurance agreements, the Company's results of opera-
tions include only investment income earned on its investment portfolio. Net
investment income increased by $106 thousand or 2.2% in 1996 compared to 1995.
The additional investment income was earned on a higher base of investments
arising from positive cash flows from operating activities, partially offset
by increased investment expense. In 1995, net investment income increased $1.9
million. This increase related to an increased level of investments which re-
sulted from a $25.0 million capital contribution from ALIC during December
1994.
Realized capital losses of $13 thousand after tax in 1996 are primarily re-
lated to the disposition of mortgage-backed securities, the proceeds of which
were used to acquire higher yielding investments. Realized capital gains after
tax were $44 thousand in 1995 compared to capital losses of $125 thousand in
1994. Overall, the market values of the Company's fixed income securities were
higher in 1995 than in 1994 due to declines in interest rates, which resulted
in gains in 1995 and losses in 1994 when certain fixed income securities were
sold in response to changes in market conditions.
FINANCIAL POSITION
<TABLE>
<CAPTION>
1996 1995
---------- ----------
($ IN THOUSANDS)
<S> <C> <C>
Fixed income securities, at fair value................... $ 67,479 $ 63,229
========== ==========
Short-term investments................................... $ 6,590 $ 8,049
========== ==========
Separate Account assets.................................. $4,354,783 $3,354,910
========== ==========
Contractholder funds..................................... $2,336,296 $2,497,278
========== ==========
Reinsurance recoverable from ALIC........................ $2,480,034 $2,636,981
========== ==========
</TABLE>
20
<PAGE>
The Company's fixed income securities portfolio consists of tax-exempt
municipal bonds, publicly traded corporate bonds, mortgage-backed securities
and U.S. government bonds. The Company generally holds its fixed income
securities for the long term, but has classified all of these securities as
available for sale to allow maximum flexibility in portfolio management. At
December 31, 1996, net unrealized capital gains on the fixed income securities
portfolio totaled $2.0 million compared to $4.1 million as of December 31,
1995. The decrease in the unrealized gain position is primarily attributable
to rising interest rates.
All of the Company's fixed income securities portfolio is rated investment
grade, with a National Association of Insurance Commissioners ("NAIC") rating
of 1 or a Moody's rating of Aaa, Aa or A.
At December 31, 1996 and 1995, $40.7 million and $46.7 million, respectively
of the fixed income portfolio were invested in mortgage-backed securities
("MBS"). At December 31, 1996, all of the MBS were investment grade and had
underlying collateral that is guaranteed by U.S. government entities.
MBS, however, are subject to interest rate risk as the duration and ultimate
realized yield are affected by the rate of repayment of the underlying mort-
gages. The Company attempts to limit interest rate risk by purchasing MBS
whose cost does not significantly exceed par value, and with repayment protec-
tion to provide a more certain cash flow to the Company. At December 31, 1996,
the amortized cost of the MBS portfolio was below par value by $1.6 million.
The Company closely monitors its fixed income portfolio for declines in
value that are other than temporary. Securities are placed on non-accrual sta-
tus when they are in default or when the receipt of interest payments is in
doubt.
The Company's short-term investment portfolio was $6.6 million and $8.0 mil-
lion at December 31, 1996 and 1995, respectively. Beginning in 1996, the Com-
pany invests all available cash balances in taxable and tax-exempt short-term
securities having a final maturity date or redemption date of one year or
less.
Contractholder funds decreased by $161.0 million and reinsurance recoverable
from ALIC under reinsurance agreements decreased by $156.9 million, reflecting
fixed annuity contract surrenders, withdrawals and benefits, as well as poli-
cyholder transfers from fixed annuity contracts to variable annuity contracts,
partially offset by interest credited to contractholders. Reinsurance recover-
able from ALIC relates to contract benefit obligations ceded to ALIC.
Separate Accounts increased by $1.00 billion attributable to sales of vari-
able annuity contracts, the favorable investment performance of the Separate
Account investment portfolios and transfers from fixed annuity contracts, par-
tially offset by variable annuity contract surrenders and withdrawals.
LIQUIDITY AND CAPITAL RESOURCES
Under the terms of intercompany reinsurance agreements, premiums and depos-
its, excluding those relating to Separate Accounts, are transferred to ALIC,
which maintains the investment portfolios supporting the Company's products.
The NAIC has a standard for assessing the solvency of insurance companies,
which is referred to as risk-based capital ("RBC"). The requirement consists
of a formula for determining each insurer's RBC and a model law specifying
regulatory actions if an insurer's RBC falls below specified levels. The RBC
formula for life insurance companies establishes capital requirements relating
to insurance risk, business risk, asset risk, and interest rate risk. At De-
cember 31, 1996, RBC for the Company was significantly above a level that
would require regulatory action.
PENDING ACCOUNTING STANDARDS
In June, 1996, the Financial Accounting Standards Board issued Statement of
Financial Ac-
21
<PAGE>
counting Standards No. 125, "Accounting for Transfers of Financial Assets and
Extinguishments of Liabilities." This standard distinguishes between transfers
of financial assets as sales versus financing transactions based upon relin-
quishment of control and addresses the accounting for securitizations,
securities lending, repurchase agreements and insubstance defeasance
transactions. The requirements of this statement that were effective on
January 1, 1997 were adopted and are not expected to have a material impact on
the results of operations or financial position of the Company.
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
1,700 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 rating to the Company. The Company shares the
same ratings of its parent, Allstate Life Insurance Company.
EMPLOYEES
- -------------------------------------------------------------------------------
As of December 31, 1996, Northbrook Life had approximately 118 employees at
its Home Office in Northbrook, Illinois.
PROPERTIES
- -------------------------------------------------------------------------------
The Company occupies office space provided by Allstate Insurance Company 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
22
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
- -------------------------------------------------------------------------------
losses incurred as a result of company insolvencies. The amount of any future
assessments 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.
The directors and executive officers are listed below, together with
information as to their ages, dates of election and principal business
occupations during the last five years (if other than their present business
occupations). 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, 51, Chief Executive Officer and Chairman of the Board
(1995)*
Also Director (1986-Present) and Senior Vice President (1995-Present) of
Allstate Insurance Company; Director (1991-Present) of Allstate Life Financial
Services, Inc.; Director (1986-Present) and President (1990-Present) Allstate
Life Insurance Company; Director (1983-Present) and Chairman of the Board
(1990-Present) of Allstate Life Insurance Company of New York; Chairman of the
Board of Directors and Chief Executive Officer (1995-Present), Chairman of the
Board of Directors and President (1990-1995) of Glenbrook Life Insurance
Company; Director (1992-Present), Chairman of the Board of Directors and Chief
Executive Officer (1995-Present) of Glenbrook Life and Annuity Company;
Director and Chairman of the Board (1995-Present) of Laughlin Group Holdings,
Inc.; Director and Chairman of the Board of Directors and Chief Executive
Officer (1989-Present) Lincoln Benefit Life Company; Chairman of the Board of
Directors and Chief Executive Officer (1995-Present) Surety Life Insurance
Company; and Trustee (1991-Present) and Vice President (1995-Present) The
Allstate Foundation.
PETER H. HECKMAN, 51, President, Chief Operating Officer and Director (1996)*
Also Director and Vice President (1988-Present) of Allstate Life Insurance
Company; Director (1990-1996), Vice President (1989-Present), Allstate Life
Insurance Company of New York; Director (1991-1993) of Allstate Life Financial
Services, Inc.; Director (1990-Present), President and Chief Operating Officer
(1996-Present), and Vice President (1990-1996), Glenbrook Life Insurance
Company; Director (1992-Present) President and Chief Operating Officer (1996-
Present), and was
23
<PAGE>
Vice President (1995-1996), Glenbrook Life and Annuity Company; Director
(1995-Present) and Vice Chairman of the Board (1996-Present) Laughlin Group
Holdings, Inc.; Director (1990-Present) and Vice Chairman of the Board (1996-
Present) Lincoln Benefit Life Company; and Director (1995-Present) and Vice
Chairman of the Board (1996-Present) Surety Life Insurance Company.
MICHAEL J. VELOTTA, 50, Vice President, Secretary, General Counsel, and
Director (1992)*
Also Director and Secretary (1993-Present) of Allstate Life Financial
Services, Inc.; Director (1992-Present) Vice President, Secretary and General
Counsel (1993-Present) Allstate Life Insurance Company; Director (1992-
Present) Vice President, Secretary and General Counsel (1993-Present) Allstate
Life Insurance Company of New York; Director (1992-Present) Vice President,
Secretary and General Counsel (1993-Present) Glenbrook Life Insurance Company;
Director (1992-Present) Vice President, Secretary and General Counsel (1993-
Present) Glenbrook Life and Annuity Company; Director and Secretary (1995-
Present) Laughlin Group Holdings, Inc.; Director (1992-Present) and Assistant
Secretary (1995-Present) Lincoln Benefit Life Company; and Director and
Assistant Secretary (1995-Present) Surety Life Insurance Company.
JOHN R. HUNTER, 41, Director (1996)*
Also Assistant Vice President (1990-Present) Allstate Life Insurance Company;
Assistant Vice President (1996-Present) Allstate Life Insurance Company of New
York; Director (1996-Present) Glenbrook Life Insurance Company; and Director
(1996-Present) and Senior Vice President-Product Management (1995-Present)
Glenbrook Life and Annuity Company.
MARLA G. FRIEDMAN, 43, Vice President (1996)*
Also Director (1991-Present) and Vice President (1988-Present) Allstate Life
Insurance Company; Director (1993-1996) Allstate Life Financial Services,
Inc.; Assistant Vice President (1996-Present) Allstate Life Insurance Company
of New York; Director (1995-1996) Allstate Settlement Corporation; Director
(1991-1996), President and Chief Operating Officer (1995-1996) and Vice
President (1990-1995) and (1996-Present) Glenbrook Life Insurance Company;
Director (1992-1996), President and Chief Operating Officer (1995-1996) and
Vice President (1992-1995) and (1996-Present) Glenbrook Life and Annuity
Company; and Director and Vice Chairman of the Board (1995-1996) Laughlin
Group Holdings, Inc.
KAREN C. GARDNER, 43, Vice President (1996)*
Vice President (1996-Present) Allstate Insurance Company; Vice President
(1996-Present) Allstate Life Insurance Company; Vice President (1996- Present)
Allstate Life Insurance Company of New York; Vice President (1996-Present)
Glenbrook Life Insurance Company; Vice President (1996- Present) Laughlin
Group Holdings, Inc.; Assistant Vice President (1996-Present) Lincoln Benefit
Life Company; Vice President (1996-Present) Northbrook Life Insurance Company;
Assistant Vice President (1996-Present) Surety Life Insurance Company. Prior
to 1996 she was a Partner (1975-1996) Ernst & Young LLP.
KEVIN R. SLAWIN, 39, Director and Vice President (1996)*
Also Assistant Vice President and Assistant Treasurer (1995-1996) Allstate
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Allstate Life Financial Services, Inc.; Director and Vice President (1996-
Present) and Assistant Treasurer (1995-1996) Allstate Life Insurance Company;
Director and Vice President (1996-Present) and Assistant Treasurer (1995-1996)
Allstate Life Insurance Company of New York; Director and Vice President
(1996-Present) and Assistant Treasurer (1995-1996) Glenbrook Life Insurance
Company; Vice President (1996-Present) and Assistant Treasurer (1995-
24
<PAGE>
1996) Glenbrook Life and Annuity Company; Director (1996-Present) and
Assistant Treasurer (1995-1996) Laughlin Group Holdings, Inc.; Director (1996-
Present) Lincoln Benefit Life Company; Director (1996-Present) Surety Life
Insurance Company; Assistant Treasurer and Director (1994-1995) Sears Roebuck
and Co.; and Treasurer and First Vice President (1986-1994) Sears Mortgage
Corporation.
CASEY J. SYLLA, 53, Chief Investment Officer and Director (1995)*
Also Director (1995-Present) Senior Vice President and Chief Investment
Officer (1995-Present) Allstate Insurance Company; Director (1995-Present)
Chief Investment Officer (1995-Present) Allstate Life Insurance Company; Chief
Investment Officer (1995-Present) Allstate Life Insurance Company of New York;
Chief Investment Officer (1995-Present) Glenbrook Life Insurance Company;
Chief Investment Officer (1995-Present) Glenbrook Life and Annuity Company;
Prior to 1995 he was Senior Vice President and Executive Officer-Investments
(1992-1995) of Northwestern Mutual Life Insurance Company.
JAMES P. ZILS, 46, Treasurer (1995)*
Also Vice President and Treasurer (1995-Present) Allstate Insurance Company;
Treasurer (1995-Present) Allstate Life Financial Services, Inc.; Treasurer
(1995-Present) Allstate Life Insurance Company; Treasurer (1995-Present)
Allstate Life Insurance Company of New York; Treasurer (1995-Present)
Glenbrook Life Insurance Company; Treasurer (1995-Present) Glenbrook Life and
Annuity Company; and Treasurer (1995-Present) Laughlin Group Holdings, Inc.
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 1996 totalled $341,607.66. Directors of the Company receive
no compensation in addition to their compensation as employees of the Company.
SUMMARY COMPENSATION TABLE
(ALLSTATE LIFE INSURANCE COMPANY)
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ --------------------- --------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) AWARD(S) SARS(#) ($) ($)
------------------ ---- -------- -------- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis G. Lower, II...... 1996 $436,800 $246,781 $10,246 $ 0.0 $18,258 $ 0.00 $5,250(1)
Chief Executive Officer 1995 $416,000 $266,175 $17,044 $199,890 N/A $411,122 $5,250(1)
and Chairman of the 1994 $389,050 $ 43,973 $26,990 $170,660 N/A 0 $1,890(1)
Board of Directors
</TABLE>
- -------
(1) Amount received by Mr. Lower which represents the value allocated to his
account from employer contributions under The Savings and Profit Sharing
Fund of Allstate Employees and prior to 1996, The Profit Sharing Fund and
to its predecessor, The Savings and Profit Sharing Fund of Sears
employees.
25
<PAGE>
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 and financial statement schedule of the Company
included in this prospectus have been audited by Deloitte & Touche LLP, Two
Prudential Plaza, 180 North Stetson Avenue, Chicago, IL 60601-6779, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
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.
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
NORTHBROOK LIFE INSURANCE COMPANY:
We have audited the accompanying Statements of Financial Position of
Northbrook Life Insurance Company (the "Company") as of December 31, 1996 and
1995, and the related Statements of Operations, Shareholder's Equity and Cash
Flows for each of the three years in the period ended December 31, 1996. Our
audits also included Schedule IV--Reinsurance. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Northbrook Life Insurance Company as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our
opinion, Schedule IV--Reinsurance, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 21, 1997
F-1
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value (amortized
cost $65,500 and $59,142)........................... $ 67,479 $ 63,229
Short-term........................................... 6,590 8,049
---------- ----------
Total investments.................................. 74,069 71,278
Reinsurance recoverable from Allstate Life Insurance
Company............................................... 2,480,034 2,636,981
Cash................................................... -- 87
Net receivable from Allstate Life Insurance Company.... 4,505 6,183
Other assets........................................... 2,639 2,164
Separate Accounts...................................... 4,354,783 3,354,910
---------- ----------
Total assets....................................... $6,916,030 $6,071,603
========== ==========
LIABILITIES
Reserve for life-contingent contract benefits.......... $ 143,346 $ 139,509
Contractholder funds................................... 2,336,296 2,497,278
Income taxes payable................................... 814 233
Deferred income taxes.................................. 2,085 2,798
Separate Accounts...................................... 4,354,783 3,354,910
---------- ----------
Total liabilities.................................. 6,837,324 5,994,728
---------- ----------
SHAREHOLDER'S EQUITY
Common stock, $100 par value, 25,000 shares authorized,
issued and outstanding................................ 2,500 2,500
Additional capital paid-in............................. 56,600 56,600
Unrealized net capital gains........................... 1,286 2,657
Retained income........................................ 18,320 15,118
---------- ----------
Total shareholder's equity......................... 78,706 76,875
---------- ----------
Total liabilities and shareholder's equity......... $6,916,030 $6,071,603
========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1996 1995 1994
------ ------ ------
($ IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Net investment income.................................. $4,888 $4,782 $2,881
Realized capital gains and losses...................... (20) 67 (193)
------ ------ ------
Income before income tax expense......................... 4,868 4,849 2,688
Income tax expense....................................... 1,666 1,686 955
------ ------ ------
Net income............................................... $3,202 $3,163 $1,733
====== ====== ======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Common stock......................................... $ 2,500 $ 2,500 $ 2,500
------- ------- -------
Additional capital paid-in
Balance, beginning of year......................... 56,600 56,600 31,600
Capital contribution............................... -- -- 25,000
------- ------- -------
Balance, end of year............................... 56,600 56,600 56,600
------- ------- -------
Unrealized net capital gains
Balance, beginning of year......................... 2,657 (1,553) 747
Net (decrease) increase............................ (1,371) 4,210 (2,300)
------- ------- -------
Balance, end of year............................... 1,286 2,657 (1,553)
------- ------- -------
Retained income
Balance, beginning of year......................... 15,118 11,955 10,222
Net income......................................... 3,202 3,163 1,733
------- ------- -------
Balance, end of year............................... 18,320 15,118 11,955
------- ------- -------
Total shareholder's equity....................... $78,706 $76,875 $69,502
======= ======= =======
</TABLE>
See notes to financial statements.
F-4
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
------------------------
1996 1995 1994
------- ------ -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income......................................... $ 3,202 $3,163 $ 1,733
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Amortization and other non-cash items............ 782 903 640
Realized capital losses (gains).................. 20 (67) 193
(Decrease) increase in life-contingent contract
benefits and contractholder funds............... (198) 113 (58)
Change in deferred income taxes.................. 24 608 (114)
Changes in other operating assets and
liabilities..................................... 864 (2,705) (3,835)
------- ------ -------
Net cash provided by (used in) operating
activities.................................... 4,694 2,015 (1,441)
------- ------ -------
Cash flows from investing activities
Fixed income securities
Proceeds from sales.............................. 3,522 5,423 1,256
Investment collections........................... 5,770 7,108 7,626
Investment purchases............................. (15,532) (9,843) (36,071)
Change in short-term investments, net.............. 1,459 (4,675) 3,475
------- ------ -------
Net cash used in investing activities.......... (4,781) (1,987) (23,714)
------- ------ -------
Cash flows from financing activities
Capital contribution............................... -- -- 25,000
------- ------ -------
Net cash provided by financing activities...... -- -- 25,000
------- ------ -------
Net (decrease) increase in cash...................... (87) 28 (155)
Cash at beginning of year............................ 87 59 214
------- ------ -------
Cash at end of year.................................. $ -- $ 87 $ 59
======= ====== =======
</TABLE>
See notes to financial statements.
F-5
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Northbrook Life
Insurance Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). On June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed
its 80.3% ownership in the Corporation to Sears common shareholders through a
tax-free dividend (the "Distribution"). These financial statements have been
prepared in conformity with generally accepted accounting principles.
To conform with the 1996 presentation, certain items in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets life insurance contracts and various annuity products in
the United States through Dean Witter Reynolds Inc. ("Dean Witter") (see Note
4), a wholly owned subsidiary of Dean Witter, Discover & Co. ("Dean Witter
Discover"). Life insurance contracts sold by the Company include universal life
and other interest-sensitive life products. Annuities include deferred
annuities, such as variable annuities and fixed rate single and flexible
premium annuities, and immediate annuities.
Annuity and life insurance contracts issued by the Company are subject to
discretionary withdrawal or surrender by the contractholder, subject to
applicable surrender charges. These contracts are reinsured with ALIC (see Note
3), which invests premiums and deposits to create cash flows that will fund
future benefits and expenses. In order to support competitive credited rates,
ALIC adheres to a basic philosophy of matching assets with related liabilities
to limit interest rate risk, while maintaining adequate liquidity and a prudent
and diversified level of credit risk.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal
legislation and regulation which would allow banks greater participation in
securities and insurance businesses, which could present an increased level of
competition for sales of the Company's annuity contracts. Furthermore, the
market for deferred annuities and interest-sensitive life insurance is enhanced
by the tax incentives available under current law. Any legislative changes
which lessen these incentives are likely to negatively impact the market for
these products.
The Company is authorized to sell life and annuity products in all states
except New York, as well as the District of Columbia and Puerto Rico. The top
geographic locations for statutory premiums earned are California, Florida,
Texas and Pennsylvania for the year ended December 31, 1996. No other
jurisdiction accounted for more than 5% of statutory premiums. All premiums and
contract charges are ceded to ALIC under reinsurance agreements.
F-6
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All
fixed income securities are carried at fair value and may be sold prior to
their contractual maturity ("available for sale"). The difference between
amortized cost and fair value, net of deferred income taxes, is reflected as a
component of shareholder's equity. Provisions are recognized for declines in
the value of fixed income securities that are other than temporary. Such
writedowns are included in realized capital gains and losses.
Short-term investments are carried at cost which approximates fair value.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on the estimated principal repayments.
Accrual of income is suspended for fixed income securities that are in default
or when the receipt of interest payments is in doubt. Realized capital gains
and losses are determined on a specific identification basis.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Revenues on interest-sensitive life insurance contracts are comprised of
contract charges and fees, and are recognized when assessed against the
policyholder account balance. Revenues on annuities, which are considered
investment contracts, include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied
against the contract balances.
REINSURANCE
The Company and ALIC have reinsurance agreements under which all premiums and
deposits are transferred to ALIC. Premiums, contract charges, credited interest
and policy benefits are ceded and reflected net of such cessions in the
statements of operations. The amounts shown in the Company's statements of
operations relate to the investment of those assets of the Company that are not
transferred to ALIC under reinsurance agreements. Reinsurance recoverable and
the related reserve for life-contingent contract benefits and contractholder
funds are reported separately in the statements of financial position. The
Company continues to have primary liability as the direct insurer for risks
reinsured.
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities and the enacted tax
regulations. Deferred income taxes also arise from unrealized capital gains or
losses on fixed income securities carried at fair value.
F-7
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity contracts, the
assets and liabilities of which are legally segregated and reflected in the
accompanying statements of financial position as assets and liabilities of the
Separate Accounts. Assets and liabilities of the Separate Accounts represent
funds of Northbrook Variable Annuity Account and Northbrook Variable Annuity
Account II ("Separate Accounts"), unit investment trusts registered with the
Securities and Exchange Commission.
The assets of the Separate Accounts are carried at fair value. Investment
income and realized capital gains and losses of the Separate Accounts accrue
directly to the contractholders and, therefore, are not included in the
Company's statements of operations. Revenues to the Company from the Separate
Accounts consist of contract maintenance fees, administration fees and
mortality and expense risk charges, which are ceded to ALIC.
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to
structured settlement annuities and supplemental contracts with life
contingencies, is computed on the basis of assumptions as to future investment
yields, mortality, morbidity, terminations and expenses. These assumptions,
which for traditional life are applied using the net level premium method,
include provisions for adverse deviation and generally vary by such
characteristics as type of coverage, year of issue and policy duration. Reserve
interest rates ranged from 3.96% to 11.00% during 1996.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group contracts
that include an investment component, including most annuities and interest-
sensitive life insurance contracts. Payments received are recorded as interest-
bearing liabilities. Contractholder funds are equal to deposits received and
interest credited to the benefit of the contractholder less withdrawals,
mortality charges and administrative expenses. During 1996, credited interest
rates on contractholder funds ranged from 3.10% to 9.51% for those contracts
with fixed interest rates and from 3.25% to 7.86% for those with flexible
rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
F-8
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
3. RELATED PARTY TRANSACTIONS
REINSURANCE
Premiums and contract charges ceded to ALIC were $3,024 and $60,744 in 1996,
$2,284 and $52,348 in 1995, and $1,886 and $38,306 in 1994. Credited interest,
policy benefits and expenses ceded to ALIC amounted to $207,752, $229,525 and
$243,326 in 1996, 1995 and 1994, respectively. Investment income earned on the
assets which support contractholder funds is not included in the Company's
financial statements as those assets are owned and managed by ALIC under the
terms of reinsurance agreements.
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. The
cost to the Company is determined by various allocation methods and is
primarily related to the level of services provided. Operating expenses,
including compensation and retirement and other benefit programs allocated to
the Company were $8,074, $5,341 and $5,483 in 1996, 1995 and 1994,
respectively. Of these costs, the Company retains investment related expenses.
All other costs are ceded to ALIC under reinsurance agreements.
4. EXCLUSIVE DISTRIBUTION AGREEMENT
The Company and ALIC have formed a strategic alliance with Dean Witter to
develop, market and distribute proprietary annuity and life insurance products
through Dean Witter account executives. Dean Witter provides a portion of the
funding for these products through loans to an affiliate of the Company.
Under the terms of the strategic alliance, which is cancelable by either
party, the Company has agreed to use Dean Witter as an exclusive distribution
channel for the Company's products. Dean Witter Discover's wholly owned
subsidiary, Dean Witter Intercapital Inc., is the investment manager for the
Dean Witter Variable Investment Series, the fund in which the assets of the
Separate Accounts are invested.
On February 5, 1997, Dean Witter Discover and Morgan Stanley Group Inc.
announced that they had entered into an agreement and plan of merger, with the
combined company to be named Morgan Stanley, Dean Witter, Discover & Co. The
parties to the merger anticipate that the transaction will close in mid-1997.
The Company does not expect the merger to have a significant impact on its
business.
F-9
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
5. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses and fair value for
fixed income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------ FAIR
AT DECEMBER 31, 1996 COST GAINS (LOSSES) VALUE
- -------------------- --------- ----- --------- -------
<S> <C> <C> <C> <C>
U.S. government and agencies............. $ 8,629 $ 193 $ (54) $ 8,768
Municipal................................ 873 48 -- 921
Corporate................................ 16,902 260 (69) 17,093
Mortgage-backed securities............... 39,096 1,883 (282) 40,697
------- -------- ------- -------
Total fixed income securities........ $65,500 $ 2,384 $ (405) $67,479
======= ======== ======= =======
<CAPTION>
AT DECEMBER 31, 1995
- --------------------
<S> <C> <C> <C> <C>
U.S. government and agencies............. $ 8,619 $ 880 $ -- $ 9,499
Municipal................................ 1,583 83 -- 1,666
Corporate................................ 4,967 349 -- 5,316
Mortgage-backed securities............... 43,973 3,003 (228) 46,748
------- -------- ------- -------
Total fixed income securities........ $59,142 $ 4,315 $ (228) $63,229
======= ======== ======= =======
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at
December 31, 1996:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -------
<S> <C> <C>
Due in one year or less................................ $ 60 $ 60
Due after one year through five years.................. 3,416 3,525
Due after five years through ten years................. 15,706 15,958
Due after ten years.................................... 7,222 7,239
------- -------
26,404 26,782
Mortgage-backed securities............................. 39,096 40,697
------- -------
Total.............................................. $65,500 $67,479
======= =======
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments
by the issuers.
F-10
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
NET INVESTMENT INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Fixed income securities............................. $4,675 $4,633 $2,735
Short-term.......................................... 390 215 192
------ ------ ------
Investment income, before expense................. 5,065 4,848 2,927
Investment expense................................ 177 66 46
------ ------ ------
Net investment income............................. $4,888 $4,782 $2,881
====== ====== ======
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Fixed income securities........................ $ (20) $67 $ (193)
Income tax benefit (expense)................... 7 (23) 68
------- ------ --------
Realized capital losses and gains, after tax... $ (13) $ 44 $ (125)
======= ====== ========
</TABLE>
PROCEEDS FROM SALES OF FIXED INCOME SECURITIES
Proceeds from sales of investments in fixed income securities were $3,522,
$5,423 and $1,256 in 1996, 1995 and 1994, respectively. Gross losses of $32
and $179 were realized on sales of fixed income securities during 1996 and
1994, respectively, and gross gains of $67 were recognized during 1995.
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
COST/ FAIR UNREALIZED
AMORTIZED COST VALUE NET GAINS
-------------- ------- ----------
<S> <C> <C> <C>
Fixed income securities................. $65,500 $67,479 $1,979
======= =======
Deferred income taxes................... (693)
------
Unrealized net capital gains............ $1,286
======
</TABLE>
F-11
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
CHANGE IN UNREALIZED NET CAPITAL GAINS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
------------------------
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Fixed income securities........................ $(2,108) $6,477 $(3,539)
Deferred income taxes.......................... 737 (2,267) 1,239
------- ------ -------
Change in unrealized net capital gains......... $(1,371) $4,210 $(2,300)
======= ====== =======
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1996, fixed income securities with a carrying value of $7,376
were on deposit with regulatory authorities as required by law.
6. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments are not necessarily indicative of the amounts the Company
might pay or receive in actual market transactions. Potential taxes and other
transaction costs have not been considered in estimating fair value. The
disclosures that follow do not reflect the fair value of the Company as a whole
since a number of the Company's assets (including reinsurance recoverable) and
liabilities (including deferred income taxes and reserve for life-contingent
contract benefits) are not considered financial instruments and are not carried
at fair value. Other assets and liabilities considered financial instruments,
including accrued investment income and cash, are generally of a short-term
nature. It is assumed that their carrying value approximates fair value.
FINANCIAL ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1996 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed income securities...... $ 67,479 $ 67,479 $ 63,229 $ 63,229
Short-term investments....... 6,590 6,590 8,049 8,049
Separate Accounts............ 4,354,783 4,354,783 3,354,910 3,354,910
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying value approximates fair value. Assets of the
Separate Accounts are carried in the statements of financial position at fair
value.
F-12
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
FINANCIAL LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1996 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts....... $2,143,482 $2,118,583 $2,294,536 $2,274,053
Separate Accounts........... 4,354,783 4,354,783 3,354,910 3,354,910
</TABLE>
The fair value of contractholder funds on investment contracts is based on
the terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms
is estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Account liabilities are carried at the fair value of the underlying assets.
7. INCOME TAXES
Consolidated federal income tax returns are filed by the Corporation and its
eligible subsidiaries, including the Company. Tax liabilities and benefits
realized by the consolidated group are allocated as generated by the respective
entities.
Prior to the Distribution, the Corporation and all of its domestic
subsidiaries, including the Company (the "Allstate Group") joined with Sears
and its domestic business units (the "Sears Group") in the filing of a
consolidated federal income tax return (the "Sears Tax Group") and were parties
to a federal income tax allocation agreement (the "Tax Sharing Agreement").
Under the Tax Sharing Agreement, the Company, through the Corporation, paid to
or received from the Sears Group the amount, if any, by which the Sears Tax
Group's federal income tax liability was affected by virtue of inclusion of the
Company in the consolidated federal income tax return. Effectively, this
resulted in the Company's annual income tax provision being computed as if the
Company filed a separate return, except that items such as net operating
losses, capital losses or similar items, which might not be recognized in a
separate return, were allocated according to the Tax Sharing Agreement.
The Allstate Group and Sears Group have entered into an agreement which
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Distribution ("Consolidated Tax Years"). The
agreement provides that all Consolidated Tax Years will continue to be governed
by the Tax Sharing Agreement with respect to the Company's federal income tax
liability.
F-13
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
The components of the net deferred income tax liability at December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Difference in tax bases of investments................. $(1,392) $(1,368)
Unrealized net capital gains on fixed income securi-
ties.................................................. (693) (1,430)
------- -------
Total deferred liability........................... $(2,085) $(2,798)
======= =======
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current............................................. $1,642 $1,078 $1,069
Deferred............................................ 24 608 (114)
------ ------ ------
Total income tax expense........................ $1,666 $1,686 $ 955
====== ====== ======
</TABLE>
The Company paid income taxes of $2,308, $1,555 and $1,393 in 1996, 1995 and
1994, respectively, to ALIC. The Company had income taxes payable to ALIC of
$814 and $233 at December 31, 1996 and 1995, respectively.
8. STATUTORY FINANCIAL INFORMATION
The following tables reconcile net income and shareholder's equity as
reported herein in conformity with generally accepted accounting principles
with statutory net income and capital and surplus, determined in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities:
<TABLE>
<CAPTION>
NET INCOME
-----------------------
YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Balance per generally accepted accounting
principles.................................... $3,202 $ 3,163 $1,733
Deferred income taxes........................ 24 608 (114)
Non-admitted assets and statutory reserves... (661) (1,471) (27)
------ ------- ------
Balance per statutory accounting practices..... $2,565 $ 2,300 $1,592
====== ======= ======
</TABLE>
F-14
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SHAREHOLDER'S
EQUITY AT
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Balance per generally accepted accounting principles... $78,706 $76,875
Deferred income taxes................................ 2,085 2,798
Unrealized gain/loss on fixed income securities...... (1,979) (4,087)
Non-admitted assets and statutory reserves........... (2,503) (2,001)
Other................................................ (1,211) (520)
------- -------
Balance per statutory accounting practices............. $75,098 $73,065
======= =======
</TABLE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Illinois
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance
Commissioners, as well as state laws, regulations and general administrative
rules. Permitted statutory accounting practices encompass all accounting
practices not so prescribed. The Company does not follow any permitted
statutory accounting practices that have a material effect on statutory
surplus or risk-based capital.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business
conditions, income, cash requirements of the Company and other relevant
factors. The payment of shareholder dividends by insurance companies without
the prior approval of the state insurance regulator is limited to formula
amounts based on net income and capital and surplus, determined in accordance
with statutory accounting practices, as well as the timing and amount of
dividends paid in the preceding twelve months. The maximum amount of dividends
that the Company can distribute during 1997 without prior approval of both the
Illinois and California Departments of Insurance is $7,260.
F-15
<PAGE>
NORTHBROOK LIFE INSURANCE COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- ------
<S> <C> <C> <C>
Life insurance in force................................ $556,242 $556,242 $--
======== ======== ====
Premiums and contract charges:
Life and annuities................................... $ 64,519 $ 64,519 $--
======== ======== ====
YEAR ENDED DECEMBER 31, 1995
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- ------
<S> <C> <C> <C>
Life insurance in force................................ $610,478 $610,478 $--
======== ======== ====
Premiums and contract charges:
Life and annuities................................... $ 54,632 $ 54,632 $--
======== ======== ====
YEAR ENDED DECEMBER 31, 1994
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
-------- -------- ------
<S> <C> <C> <C>
Life insurance in force................................ $661,356 $661,356 $--
======== ======== ====
Premiums and contract charges:
Life and annuities................................... $ 40,192 $ 40,192 $--
======== ======== ====
</TABLE>
F-16
<PAGE>
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:.................................................... 4.5%
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 (1.045)/3/ = $11,411.66
Step 2: Calculate The Amount Withdrawn in Excess of the Free Withdrawal
Amount:
Amount Withdrawn: 11,411.66
Free Withdrawal Amount: .10 X 10,000.00 = 1,000.00
Amount Withdrawn in Excess of the Free Withdrawal Amount:
= 11,411.66 - 1,000.00 = $10,411.66
Step 3: Calculate the Withdrawal Charge:
= .0225 X 10,411.66 = $234.26
A-1
<PAGE>
Step 4: Calculate the Market Value Adjustment:
I= 4.5%
J= 4.2%
N = 730 days
Market Value Adjustment Factor: .9 X (I-J) X (N/365)
= .9 X (.045 - .042) X (730/365) = .0054
Market Value Adjustment = Factor X Amount in Excess of Free Withdrawal Amount:
= .0054 X 10,411.66 = $56.22
Step 5: Calculate The Net Surrender Value at End of Contract Year 3:
= 11,411.66 - 234.26 + 56.22 = $11,233.62
EXAMPLE 2: (Assumes rising interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.045)/3/ = $11,411.66
Step 2: Calculate The Amount Withdrawn in Excess of the Free Withdrawal Amount:
Amount Withdrawn: 11,411.66
Free Withdrawal Amount: .10 X 10,000.00 = 1,000.00
Amount Withdrawn in Excess of the Free Withdrawal Amount:
= 11,411.66 - 1,000.00 = $10,411.66
Step 3: Calculate the Withdrawal Charge:
= .0225 X 10,411.66 = $234.26
Step 4: Calculate the Market Value Adjustment:
I= 4.5%
J= 4.8%
N = 730 days
Market Value Adjustment Factor: .9 X (I-J) X (N/365)
= .9 X (.045 - .048) X (730/365) = -.0054
Market Value Adjustment = Factor X Amount in Excess of Free Withdrawal Amount:
= -.0054 X 10,411.66 = -$56.22
Step 5: Calculate The Net Surrender Value at End of Contract Year 3:
= 11,411.66 - 234.26 - 56.22 = $11,121.18
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 $22,500
will be incurred or are anticipated to be incurred in connection with
the issuance and distribution of the securities: registration
fees--$0; 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) None
(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) None
(7) None
(8) None
(9) None
(10) Reinsurance Agreement between Northbrook Life Insurance Company
and Allstate Life Insurance Company**
(11) None
(12) None
(13) None
(14) None
(15) None
(16) None
(22) None
(23)(a) Consent of Independent Public Accountants
(23)(b) Consent of Attorneys***
(24) Powers of Attorney
(27) Financial Data Schedule****
(99) Resolution of Board of Directors**
* Previously filed in Form N-4 Registration Statement No. 33-35412 dated
December 31, 1996 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 Registrant's Form 10-K filed on March 31, 1997.
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 and attested, in the Township of
Northfield, State of Illinois on March 26, 1997.
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 and Assistant General Counsel
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 26th day of March, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
*/ LOUIS G. LOWER, II Chairman of the Board
- ----------------------- and Chief Executive Officer
Louis G. Lower, II (Principal Executive Officer)
/s/ MICHAEL J. VELOTTA Vice President, Secretary,
- ----------------------- General Counsel and Director
Michael J. Velotta
**/ PETER H. HECKMAN President, Chief Operating
- ----------------------- Officer and Director
Peter H. Heckman
* JOHN R. HUNTER Director
- -----------------------
John R. Hunter
**/ KEVIN R. SLAWIN Vice President and Director
- ----------------------- (Principal Financial Officer)
Kevin R. Slawin
*/ CASEY J. SYLLA Director and Chief
- ----------------------- Investment Officer
Casey J. Sylla
**/ MARLA G. FRIEDMAN Vice President
-----------------------
Marla G. Friedman
**/ KAREN C. GARDNER Vice President
- ------------------------
Karen C. Gardner
*/ JAMES P. ZILS Treasurer
- -----------------------
James P. Zils
**/ KEITH A. HAUSCHILDT Assistant Vice President
- ----------------------- and Controller
Keith A. Hauschildt (Principal Accounting Officer)
</TABLE>
*/ By Michael J. Velotta, pursuant to Power of Attorney, previously filed.
**/ By Michael J. Velotta, pursuant to Power of Attorney, filed herewith.
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed herewith:
Exhibit No. Description
----------- -----------
(1) Underwriting Agreement*
(2) None
(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) None
(7) None
(8) None
(9) None
(10) Reinsurance Agreement between Northbrook Life Insurance Company
and Allstate Life Insurance Company**
(11) None
(12) None
(13) None
(14) None
(15) None
(16) None
(22) None
(23)(a) Consent of Independent Public Accountants
(23)(b) Consent of Attorneys***
(24) Powers of Attorney
(27) Financial Data Schedule****
(99) Resolution of Board of Directors**
* Previously filed in Form N-4 Registration Statement No. 33-35412 dated
December 31, 1996 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 Registrant's Form 10-K filed on March 31, 1997.
<PAGE>
Exhibit (23)(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 5 to Registration
Statement No. 033-50884 of Northbrook Life Insurance Company on Form S-1 of our
report dated February 21, 1997 relating to the financial statements and
financial statement schedule of Northbrook Life Insurance Company, 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
March 28, 1997
<PAGE>
EXHIBIT NO. (24)
POWERS OF ATTORNEY
<PAGE>
POWERS OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
"CUSTOM ANNUITY" CONTRACT
Know all men by these presents that Michael J. Velotta, whose signature
appears below, constitutes and appoints Louis G. Lower, II, 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.
March 12, 1997
- -----------------------------------
Date
/s/ MICHAEL J. VELOTTA
- -----------------------------------
Michael J. Velotta
Vice President, Secretary, General Counsel
and Director
<PAGE>
POWERS 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.
March 12, 1997
- -----------------------------------
Date
/s/ MARLA G. FRIEDMAN
- -----------------------------------
Marla G. Friedman
Vice President
<PAGE>
POWERS OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
"CUSTOM ANNUITY" CONTRACT
Know all men by these presents that Peter H. Heckman, 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.
March 12, 1997
- -----------------------------------
Date
/s/ PETER H. HECKMAN
- -----------------------------------
Peter H. Heckman
President, Chief Operating Officer
and Director
<PAGE>
POWERS OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
"CUSTOM ANNUITY" CONTRACT
Know all men by these presents that Kevin R. Slawin, 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.
March 12, 1997
- ------------------------------------
Date
/s/ KEVIN R. SLAWIN
- ------------------------------------
Kevin R. Slawin
Vice President and Director
<PAGE>
POWERS OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
"CUSTOM ANNUITY" CONTRACT
Know all men by these presents that John R. Hunter, 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.
March 12, 1997
- ---------------------------
Date
/s/ JOHN R. HUNTER
- ---------------------------
John R. Hunter
Director
<PAGE>
POWERS OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
"CUSTOM ANNUITY" CONTRACT
Know all men by these presents that Keith A. Hauschildt, 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.
March 12, 1997
- -------------------------------------
Date
/s/ KEITH A. HAUSCHILDT
- -------------------------------------
Keith A. Hauschildt
Assistant Vice President & Controller
<PAGE>
POWERS OF ATTORNEY
WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY
"CUSTOM ANNUITY" CONTRACT
Know all men by these presents that Karen C. Gardner 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.
March 12, 1997
- -----------------------------
Date
/s/ KAREN C. GARDNER
- -----------------------------
Karen C. Gardner
Vice President
