-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CB7VmqZm1DX/P5c6iKi8fwnvMCfHAxPnFZHq/9gzHyXo4P3jJFGYwe/2Cd+5QPS8 zROJ8ADWkMRAeKCpozOhZw== 0000950131-97-002343.txt : 19970402 0000950131-97-002343.hdr.sgml : 19970402 ACCESSION NUMBER: 0000950131-97-002343 CONFORMED SUBMISSION TYPE: POS AMI PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHBROOK LIFE INSURANCE CO CENTRAL INDEX KEY: 0000716791 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 363001527 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AMI SEC ACT: 1940 Act SEC FILE NUMBER: 033-84480 FILM NUMBER: 97572970 BUSINESS ADDRESS: STREET 1: 3100 SANDERS RD CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 7084025000 MAIL ADDRESS: STREET 1: 3100 SANDERS RD CITY: NORTHBROOK STATE: IL ZIP: 60062 POS AMI 1 POST-EFFECTIVE AMEND. NO. 3 TO S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1997 REGISTRATION NO. 33-84480 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- POST-EFFECTIVE AMENDMENT NO. 3[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 (PRIMARY STANDARD INDUSTRIAL OF 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 registration 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 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
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 - --------------------------------------------------------------------------------------------- Deferred Annuity Contracts and Participating Interests therein * * * * - ---------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- *A maximum aggregate offering price of $500,000,000 was previously registered. No additional amount of securities is being registered by this post-effective amendment to the registration statement. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 an initial Purchase Payment of $1,000, but reserves the right to increase this amount to no more than $4,000 ($1,000 for a Qualified Contract). Additional Purchase Payments of $1,000 or more 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. 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
PAGE ---- GLOSSARY............................... 3 THE CONTRACTS.......................... 5 The Purchase of the Contract......... 5 The Accumulation Phase............... 6 The Parties to the Contract.......... 11 The Death Benefit Provisions......... 11 The Payout Phase..................... 12 AMENDMENT OF THE CONTRACTS............. 14 DISTRIBUTION OF THE CONTRACTS.......... 14 FEDERAL TAX MATTERS.................... 15 Introduction......................... 15 Taxation of the Company.............. 15 Taxation of Annuities in General..... 15 Qualified Plans...................... 16 THE COMPANY............................ 18 Business............................. 18 Reinsurance Agreement................ 18 Investments by the Company........... 18 SELECTED FINANCIAL DATA................ 20
PAGE ---- NORTHBROOK LIFE INSURANCE COMPANY MAN- AGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 21 Results of Operations................ 21 Financial Position................... 21 Liquidity and Capital Resources...... 22 COMPETITION............................ 22 EMPLOYEES.............................. 22 PROPERTIES............................. 22 STATE AND FEDERAL REGULATION........... 23 EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY............................... 23 EXECUTIVE COMPENSATION................. 25 LEGAL PROCEEDINGS...................... 26 EXPERTS................................ 26 LEGAL MATTERS.......................... 26 FINANCIAL STATEMENTS................... F-1 APPENDIX A............................. A-1
2 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 Ac- cumulation Phase will continue until the Payout Start Date, unless the Con- tract is terminated before that date. Adjusted Account Value--The Account Value adjusted by the Market Value Ad- justment less any applicable taxes. The Adjusted Account Value is only used in the Payout Phase. 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 in- cludes any Joint Annuitant. Automatic Additions--Additional Purchase Payments of $1000 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 Ac- cumulation Phase, including on the Issue Date. The Automatic Laddering Program automatically continues and the Owner can discontinue participation upon writ- ten notice to the Company. Beneficiary--The person(s) designated in the Contract who, during the Accu- mulation Phase, after the death of all Owners, may elect to receive the Death Benefit or continue the Contract. If the sole surviving Owner dies after the Payout Start Date, the Beneficiary will receive any guaranteed Income Payments scheduled to continue. Cash Surrender Value--The Cash Surrender Value is the Account Value adjusted by any applicable Market Value Adjustment less any applicable Withdrawal Charges and premium tax. 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 Plus," that is de- scribed 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 Cash Surrender 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. Full Surrender--Termination of the Contract. Guarantee Period--A period of years for which a specified effective annual interest rate is guaranteed. Income Payments--A series of periodic payments under an Income Plan. Income Payments are made by the Company to the Owner during the Payout Phase of the Contract. 3 Income Plan--A plan which provides Income Payments 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 in- terest 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. Partial Withdrawal--Disbursement of a portion of the Account Value. 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. Preferred Withdrawal Amount--A portion of the Account Value which may be an- nually withdrawn from each Sub-Account without incurring a Withdrawal Charge or a Market Value Adjustment. 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. Sub-Accounts--Sub-Accounts are distinguished by Guarantee Period(s) and the dates the period(s) begins. Sub-Accounts are established when Purchase Pay- ments are made; and when previous Sub-Accounts expire and a new Guarantee Pe- riod is selected. Sub-Account Value--The Sub-Account Value is the accumulation of funds allo- cated to that Sub-Account and interest credited. Systematic Withdrawals--Periodic Partial Withdrawals of $100 or more may be deposited in a bank account or a Dean Witter Active Assets(TM) Account. Sys- tematic Withdrawals are available monthly, quarterly, semi-annually and annu- ally. Withdrawal Charge--The charge that will be assessed by the Company on Full Surrenders or Partial Withdrawals in excess of the Preferred Withdrawal Amount. 4 THE CONTRACTS THE PURCHASE OF THE CONTRACT 1. WHAT IS THE PURPOSE OF THE CONTRACT? The Contract described in this Prospectus 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 spe- cial federal income tax treatment. The Contract has an Accumulation Phase and a Payout Phase. The Accumulation Phase is the first of the two phases and be- gins on the Issue Date and continues until the Payout Start Date. During the Accumulation Phase, interest is credited to the Purchase Payment(s) and both a cash withdrawal benefit and a Death Benefit are available. The Payout Phase begins on the Payout Start Date and provides Income Payments under an Income Plan. The Payout Phase continues until the Company makes the last payment as provided by the Income Plan. 2. HOW IS A CONTRACT PURCHASED? A Contract is purchased by submitting a Purchase Payment to an Account Exec- utive of Dean Witter, the principal underwriter of the Contracts. Presently, the Company will accept an initial Purchase Payment of $1,000, but reserves the right to increase this amount to no more than $4,000 ($1,000 for a Quali- fied Contract). The Owner must select the Guarantee Period(s) in which to al- locate the Purchase Payment. Additional Purchase Payments of $1,000 or more may be added to the Contract. Guarantee Periods will be offered at the Company's discretion and may range from one to ten years. No less than $1,000 may be allocated to any one Guarantee Period. The Company will apply Purchase Payments to the Contract within seven days of the receipt of the Purchase Pay- ment and required issuing information. The Company reserves the right to limit or increase the amount of Purchase Payments it will accept. 3. DOES THIS CONTRACT HAVE A FREE-LOOK PROVISION? Yes. The Owner may cancel the Contract anytime within 20 days after the re- ceipt of the Contract and receive a full refund of the entire Purchase Pay- ment. 4. CAN ADDITIONS BE MADE TO THE CONTRACT AFTER THE INITIAL PURCHASE PAYMENT? Yes, additional Purchase Payments may be made at any time during the Accumu- lation Phase of the Contract. Subsequent Purchase Payments must be at least $1,000 and may be made from a bank account or a Dean Witter Active AssetsTM Account through Automatic Additions (the Automatic Additions Program is not available for Qualified Contracts issued pursuant to a Dean Witter Custodial Account). For each Purchase Payment, the Owner must select a Guarantee Peri- od(s) to which the Purchase Payment will be allocated. The Company reserves the right to limit the number of additional purchase payments. 5. ONCE A CONTRACT IS PURCHASED, HOW IS THE OWNER INFORMED AS TO THE STATUS OF THE CONTRACT? There are several ways an Owner may receive information about the Contract. At least once a year, prior to the Payout Start Date, the Owner will be sent a statement containing Account Value information of the Contract. The Owner may also direct questions about the Contract to his/her Dean Witter Account Execu- tive. Another option the Owner has is to call the Company's customer support unit directly at 1-800-654-2397. 5 THE ACCUMULATION PHASE 6. HOW IS INTEREST CREDITED TO THE CONTRACT? Interest will be credited to initial Purchase Payments from the Issue Date. Interest will be credited to subsequent Purchase Payments from the date of receipt. No deductions are made from Purchase Payments. Therefore, the full amount of every Purchase Pay- ment is invested in a Sub-Account for accumulation of interest. Interest is credited daily to each Guarantee Period in the Contract and is based upon the interest rate of the Guarantee Period which has been chosen. 6 The following example illustrates how a Sub-Account Value would grow given an assumed Purchase Payment, Guarantee Period, and effective annual interest rate. The effective annual interest rate is defined as the yield resulting when interest credited at the underlying daily rate has compounded for a full year. EXAMPLE OF INTEREST CREDITING DURING THE GUARANTEE PERIOD Purchase Payment: .................................................. $10,000.00 Guarantee Period: .................................................. 5 years Effective Annual Rate: ............................................. 4.50% ----------
END OF CONTRACT YEAR: - --------------------------------------------------------------------------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ---------- ---------- ---------- ---------- ---------- Beginning Sub-Account Value $10,000.00 X (1 + Effective Annual Rate) 1.045 ---------- $10,450.00 ========== Sub-Account Value at end of Contract $10,450.00 year 1 X (1 + Effective Annual Rate) 1.045 ---------- $10,920.25 ========== Sub-Account Value at end of Contract $10,920.25 year 2 X (1 + Effective Annual Rate) 1.045 ---------- $11,411.66 ========== Sub-Account Value at end of Contract $11,411.66 year 3 X (1 + Effective Annual Rate) 1.045 ---------- $11,925.19 ========== Sub-Account Value at end of Contract year 4 X (1 + Effective Annual Rate) Sub-Account Value at end of Guarantee Period: $11,925.19 1.045 ---------- $12,461.82 ==========
Total Interest Credited in Guarantee Period: $2,461.82 ($12,461.82 - $10,000) NOTE: The above 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 Preferred 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. 7 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. 7. WHAT HAPPENS TO THE SUB-ACCOUNT VALUE AT THE END OF A GUARANTEE PERIOD? Prior to the end of a Guarantee Period, a notice will be mailed to the Owner outlining the options available at the end of a Guarantee Period. Within 30 days after the end of a Guarantee Period the Owner may: ^ take no action and the Company will automatically renew the Sub-Account Value to a Guarantee Period of the same duration to be established on the day the previous Guarantee Period expired; or ^ notify the Company to apply the Sub-Account Value to a Guarantee Period of a new duration to be established on the day the previous Guarantee Period expired; or ^ receive a portion of the Sub-Account Value or the entire Sub-Account Value through a Partial Withdrawal without incurring a Withdrawal Charge or Market Value Adjustment. In this case, the amount withdrawn will be deemed to have been renewed at the shortest Guarantee Period then being offered with current interest credited from the date the Guarantee Pe- riod expired. 8. IS IT POSSIBLE TO PRESELECT A RENEWAL GUARANTEE PERIOD AT THE POINT OF PUR- CHASE? Yes. The Automatic Laddering Program allows the Owner to choose, in advance, one renewal Guarantee Period for all renewing Sub-Accounts. The Owner can se- lect the Automatic Laddering Program at any time during the Accumulation Phase, including on the Issue Date. The Automatic Laddering Program will con- tinue until the Owner gives written notice to the Company. 9. CAN A PARTIAL WITHDRAWAL OR A FULL SURRENDER BE TAKEN AT ANY TIME? Yes. As long as the Contract is still in the Accumulation Phase and has not entered the Payout Phase, the Owner may withdraw money from the Contract or surrender the Contract at any time (a Withdrawal Charge, a Market Value Ad- justment and taxes may apply). Partial Withdrawals may be taken automatically through Systematic Withdrawals (a Dean Witter Account Executive should be con- sulted for information regarding Systematic Withdrawals). The Owner must spec- ify the Sub-Account from which the withdrawal will be taken. If any Partial Withdrawal reduces a Sub-Account Value to less than $1,000, the withdrawal will be treated as a request to withdraw the entire Sub-Account Value. The Company may defer payment of any Partial Withdrawal or Full Surrender for a period not exceeding six months from the date of the receipt of the request. 10. IF A PARTIAL WITHDRAWAL OR FULL SURRENDER IS REQUESTED, HOW IS THE AMOUNT RECEIVED DETERMINED? The main component in determining the amount received by the Owner is the amount which 8 was requested, however, there may be adjustments to the requested amount. A Withdrawal Charge may reduce the amount requested. A Market Value Adjustment may apply which will reduce or increase the amount requested. Premium taxes and federal income tax withholding may apply and would reduce the amount re- quested. In summary: The amount received by the Owner under a Partial Withdrawal or surrender re- quest equals the amount requested less a Withdrawal Charge (if applicable) plus or minus a Market Value Adjustment (if applicable) less premium taxes and withholding (if applicable). The questions which follow further clarify the components used in determin- ing the amount received upon a Partial Withdrawal or Full Surrender. 11. UPON A FULL SURRENDER OF THE ENTIRE CONTRACT, IS IT POSSIBLE THAT THE MAR- KET VALUE ADJUSTMENT AND WITHDRAWAL CHARGE COULD CAUSE THE AMOUNT RECEIVED TO BE LESS THAN THE INITIAL PURCHASE PAYMENT AND ANY SUBSEQUENT PURCHASE PAYMENTS? No. This Contract contains a return of Purchase Payment guarantee which states the amount received upon a Full Surrender is guaranteed never to be less than the sum of the initial and any subsequent Purchase Payments less amounts previously received (prior to withholding and the deduction of any taxes if applicable). To the extent that premium taxes are assessed against the Contract or income tax is withheld, the amount received upon a Full Sur- render may be less than the initial and any subsequent Purchase Payments. 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 guaran- tee will not be adjusted to include any accrued interest, but will continue to apply to the initial and any subsequent Purchase Payments. 12. UPON A PARTIAL WITHDRAWAL OR FULL SURRENDER, IS THE ENTIRE AMOUNT RE- QUESTED SUBJECT TO A WITHDRAWAL CHARGE AND A MARKET VALUE ADJUSTMENT? No. Only amounts in excess of any remaining Preferred Withdrawal Amount within a Sub-Account will be subject to a Withdrawal Charge and a Market Value Adjustment. A Preferred Withdrawal Amount is available in every Sub-Account year of a Guarantee Period and is equal to 10% of the Purchase Payment allo- cated to the Guarantee Period. Any unused Preferred Withdrawal Amount in a Sub-Account year may not be used to increase the Preferred Withdrawal Amount in a subsequent Sub-Account year nor may it be used to increase the Preferred Withdrawal Amount in another Guarantee Period. In addition to the Preferred Withdrawal Amount, any amounts withdrawn from Sub-Accounts which are within the first 30 days of their renewal Guarantee Pe- riods will be completely free from any Withdrawal Charge and Market Value Ad- justment. 13. WHAT IS THE WITHDRAWAL CHARGE UPON A PARTIAL WITHDRAWAL OR FULL SURRENDER? The Withdrawal Charge is 6% of all amounts withdrawn or surrendered which are not exempt from charge as discussed in question 12, above. 14. WHAT IS THE MARKET VALUE ADJUSTMENT UPON A PARTIAL WITHDRAWAL OR FULL SUR- RENDER? The Market Value Adjustment will be applied to all amounts withdrawn or sur- rendered which are not exempt from adjustment as discussed in question 12. 9 The Market Value Adjustment is to reflect the relationship between the cur- rent effective annual interest rate for the duration remaining in the Guaran- tee Period at the time of the request for Partial Withdrawal or Full Surren- der, and the effective annual interest rate guaranteed for that Sub-Account. Since current interest rates are based, in part, upon investment yields avail- able at the time, the effect of the Market Value Adjustment will be closely related to the levels of such yields. As such, the Owner bears some investment risk under the Contract. It is possible, therefore, that, should such yield increase significantly from the time the Purchase Payment was made, coupled with the application of the Withdrawal Charge, less premium taxes and withholding (if applicable), the amount received by the Owner upon full surrender of the Contract would be less than the Purchase Payment plus interest at the minimum guaranteed interest rate under the Contract. HOWEVER, THE COMPANY GUARANTEES THAT THE AMOUNT RE- CEIVED UPON SURRENDER WILL BE AT LEAST EQUAL TO THE PURCHASE PAYMENTS LESS ANY PRIOR PARTIAL WITHDRAWALS. Generally, if the effective annual interest rate for the Sub-Account is lower than the applicable current effective annual interest rate (interest rate for a duration equal to the time remaining in the Sub-Account), then the Market Value Adjustment will result in a lower payment upon Partial Withdrawal or Full Surrender. Similarly, if the effective annual interest rate for the Sub-Account is higher than the applicable current effective annual interest rate, then the Market Value Adjustment will result in a higher payment upon Partial Withdrawal or Full Surrender. For example, assume 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 Withdrawal. If the current interest rate for the 2 year Guarantee Pe- riod is 4.80%, then the Market Value Adjustment will be negative, which will result in a decrease in the amount payable to the Owner upon a Partial With- drawal. Similarly, 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 increase in the amount payable to the Owner upon the Partial Withdrawal. The formula for calculating the Market Value Adjustment is set forth in Ap- pendix A to this prospectus which also contains additional illustrations of the application of the Market Value Adjustment. 15. THE IRS REQUIRES ANNUAL WITHDRAWALS TO BE TAKEN FROM QUALIFIED CONTRACTS UPON ATTAINMENT OF AGE 70 1/2. WILL THESE WITHDRAWALS INCUR WITHDRAWAL CHARGES AND MARKET VALUE ADJUSTMENTS? No. Both the Withdrawal Charge and Market Value Adjustment will be waived on withdrawals taken to satisfy IRS required distribution rules for this Con- tract. 16. WHAT ARE THE TAX IMPLICATIONS ASSOCIATED WITH THE CONTRACT? It varies based upon the Owner's circumstances. Generally, the two areas which may give rise to a taxable situation are personal federal and state in- come taxation and taxation of the Company. With respect to personal federal and state income tax, an annuity contract Owner who is a natural person is not taxed on increases in the Account Value until a distribution occurs. For federal income tax purposes, distributions include the receipt of proceeds from loans and an assignment or pledge of any portion of the value of the Contract, as well as withdrawals, Income Payments, or Death Benefits. In addition, personal federal and state income tax with- holding may be deducted from Partial Withdrawal and Full Surrender payments. 10 Amounts withheld for personal taxes do not necessarily represent the Owner's entire income tax liability. With respect to taxation of the Company, premium taxes and other applicable taxes imposed on the Company may be deducted from the Contract's Purchase Pay- ment or Account Value upon Full Surrender or annuitization of the Contract. Current premium tax rates range from 0 to 3.5%, but are subject to change by state regulation. There are several exceptions to the above generalizations. More complete in- formation can be found in the "Federal Tax Matters" section found on page 15 of this prospectus. THE PARTIES TO THE CONTRACT 17. WHAT RIGHTS DOES AN OWNER HAVE IN THIS CONTRACT? This Contract offers the Owner several rights. The Owner may: ^ receive any withdrawals or periodic Income Payments from the Contract, unless the Owner has directed the Company to pay them to someone else; ^ name and change the Owner, Beneficiary, and Annuitant. The Annuitant can be changed only if the Owner is a natural person; ^ assign interest in the Contract; ^ elect a Death Benefit option upon death of a co-owner or Annuitant; and ^ terminate the Contract. The above may be subject to the rights of any irrevocable Beneficiary. 18. WHAT PURPOSE DOES THE ANNUITANT SERVE? The Annuitant's life determines the latest Payout Start Date and the amount of the Income Payments which will begin on the Payout Start Date. This Con- tract requires an Annuitant at all times during the Accumulation Phase and on the Payout Start Date. The Annuitant must be a natural person. A Death Benefit may be payable upon the death of the Annuitant. 19. WHO IS THE BENEFICIARY TO THE CONTRACT? The Beneficiary varies based upon who the Owner is, and the designation of the parties to the Contract by the Owner. If the Owner is a natural person, the Beneficiary will be determined from the most recent written request of the Owner. If the Owner does not name a Beneficiary or if the Beneficiaries named are no longer living, the Benefi- ciary will be: ^ the Owner's spouse if living; ^ otherwise, the Owner's children, equally, if living; ^ otherwise, the Owner's estate. If the Owner is a grantor trust, then the Beneficiary will be that same grantor trust. If the Owner is a non-natural person other than a grantor trust, the Owner is also the Beneficiary, unless a different Beneficiary has been named. 20. WHAT PURPOSE DOES THE BENEFICIARY SERVE? The Beneficiary becomes the new Owner if the sole surviving Owner dies prior to the Payout Start Date. If the sole surviving Owner dies after the Payout Start Date, the Beneficiary will receive any guaranteed Income Payments sched- uled to continue. THE DEATH BENEFIT PROVISIONS 21. UPON DEATH OF THE OWNER, WHO IS THE NEW OWNER OF THE CONTRACT? The new Owner is any surviving joint Owner(s) or if none, the Beneficiary. 11 22. UPON DEATH OF THE OWNER, WHAT OPTIONS DOES THE NEW OWNER HAVE? In most cases, the new Owner of the Contract has the following three op- tions: ^ receive the Cash Surrender Value within 5 years of the date of death; or ^ 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 ^ apply the Death Benefit to an Income Plan with Income Payments beginning within one year of the Date of Death. Income Payments must be made over the life of the new Owner, or a period not to exceed the life expectancy of the new Owner. If the new Owner is the spouse of the deceased Owner, the new Owner may elect to continue the Contract. See question 23, below. 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. Deaths should be reported to the Company as quickly as possible. If the Com- pany is not notified within 180 days of the date of death, the only option available to the new Owner is to receive the Cash Surrender Value within 5 years of the date of death. Any remaining funds will be distributed at the end of the 5-year period. The Contract should be referred to for the conditions and stipulations which apply to each of the above options. 23. FOR A CONTRACT WITH SPOUSAL CO-OWNERS, WHAT HAPPENS TO THE CONTRACT UPON THE DEATH OF ONE OF THE SPOUSES? In addition to the options available in question 22, a surviving spousal Owner has the following additional options: ^ continue the Contract as if the death had not occurred; and ^ if the Contract is continued, one withdrawal within the year of death is allowed which will not be assessed a Withdrawal Charge (a Market Value Adjustment will apply). The amount which may be withdrawn is limited only by the amount of the available Death Benefit. 24. IF THE OWNER IS NOT THE ANNUITANT AND THE ANNUITANT DIES, WHAT HAPPENS TO THE CONTRACT? In most cases, the Owner has the following three options: ^ continue the Contract as if the death had not occurred. The new Annui- tant will be the youngest Owner unless the Owner names a different Annu- itant; or ^ 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 ^ apply the Death Benefit to an Income Plan. Deaths should be reported to the Company as quickly as possible. If the Com- pany is not notified within 180 days of the date of death, the only option available to the Owner is to continue the Contract as if the death had not oc- curred. The Contract should be referred to for the conditions and stipulations which apply to each of the above options. THE PAYOUT PHASE 25. WHAT IS THE PAYOUT START DATE? This is the date on which the Accumulation Phase ceases and the Payout Phase begins. During the Payout Phase, the Owner receives Income Payments, based upon an Income Plan selected by the Owner, from the Contract. The Payout Phase will continue until the Company makes the last pay- 12 ment as provided by the Income Plan chosen. The Owner may change the Payout Start Date at any time by notifying the Company in writing of the change at least 30 days before the scheduled Payout Start Date. The Payout Start Date must be at least one month after the Issue Date and on or before the later of: ^ the Annuitant's 90th birthday; or ^ the 10th anniversary of the Contract's Issue Date. Unless the Owner notifies the Company in writing requesting an earlier date, the Payout Start Date will be the latest permissible date as outlined above. The owner of a Qualified contract may be limited by the Plan under which the contract is issued with regard to a Payout Start Date after age 70 1/2. 26. WHAT TYPES OF INCOME PLANS ARE AVAILABLE IN THE CONTRACT? Income Payments are made under an Income Plan which may be chosen by the Owner. The types of Income Plans which are available are as follows: ^ Life income with or without guaranteed payments. If the Annuitant dies before all the guaranteed payments have been made, the remainder of the guaranteed payments will be made to the Owner; or ^ Joint and survivor life income with or without guaranteed payments. If both the Annuitant and Joint Annuitant die before the guaranteed pay- ments have been made, the remainder of the guaranteed payments will be made to the Owner; or ^ Guaranteed payments for a specified period. Payments under this option do not depend on the continuation of the Annuitant's life. Any period for which payments are guaranteed may range from 60 to 360 months. If any Owner dies, guaranteed Income Payments will continue as sched- uled. Up to 30 days before the Payout Start Date, the Owner may change the In- come Plan or request any other form of Income Plan agreeable to both the Com- pany 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 guaran- teed. If an Income Plan is chosen which depends on the Annuitant's or Joint Annuitant's life, proof of age will be required before Income Payments begin. The Company reserves the right to accept other Income Plans. 27. HOW ARE THE INCOME PAYMENTS FROM AN INCOME PLAN DETERMINED? To determine the Income Payments, the Adjusted Account Value will be applied to the greater of: ^ payment plan rates declared by the Company; or ^ guaranteed payment plan rates as described in the Contract. If the Adjusted Account Value is less than $2000, or if the monthly Income Payments determined under the Income Plan are less than $20, the Company may pay the Adjusted Account Value in a lump sum or change the payment frequency to an interval which results in Income Payments of at least $20. The Contracts are based on life annuity tables that provide for different benefit payments to men and women of the same age (except in states which re- quire unisex annuity tables). Nevertheless, in accordance with the U.S. Su- preme 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, consideration should be given in consultation with legal counsel, to the impact of 13 AMENDMENT OF THE CONTRACTS DISTRIBUTION OF THE CONTRACTS Norris on any such plan before making any contributions under these Contracts. The dollar amount of Income Payments is generally affected by the duration of the Income Plan selected. For example, if an Income Plan guaranteed for life is chosen, the Income Payments may be greater or lesser than Income Payments under an Income Plan for a specified period depending on the life expectancy of the Annuitant. Also, the Company may require proof that the Annuitant or Joint An- nuitant is still alive before the Company makes each payment that depends on their continued life. 28. CAN PARTIAL WITHDRAWALS BE TAKEN FROM THE CONTRACT OR CAN THE CONTRACT BE SURRENDERED ONCE IT HAS ENTERED THE PAYOUT PHASE? No. After the Adjusted Account Value has been applied to an Income Plan on the Payout Start Date, the Income Plan can not be changed, the exchange of the Adjusted Account Value for an Income Plan can not be reversed, and no withdraw- als can be made. The Company reserves the right to amend the Contracts to meet the require- ments of applicable federal or state laws or regulations. The Company will no- tify the Owner of any such amendments. The Contracts will be distributed exclusively by Dean Witter which serves as the principal underwriter of the Contracts under a General Agency Agreement with the Company. Dean Witter is a wholly owned subsidiary of Dean Witter, Discover & Co. ("Dean Witter Discover"). 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 Association of Securities Dealers. 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. In addition, sale of the Contract may count toward incentive program awards for the Account Executive. 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. 14 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 he 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. 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 sub-account 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. 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 an - 15 nuitant. 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 af- ter 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. 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 16 their employees using the employees' individual retirement annuities if cer- tain criteria are met. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employees to their in- dividual 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 favored 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 distributions" unless an individual elects to make a "direct rollover" of such amounts to another qualified plan or Individual Re- tirement 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 substan- tially equal periodic payments 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 con- tracts which are not considered eligible rollover distributions, the Company may be required to withhold federal and state income taxes unless the recipi- ent elects not to have taxes withheld and properly notifies the Company of such election. 17 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 AGREEMENT 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 liability under such contracts. (See, "Management's Discussion and Analysis of Financial Condition and Results of Operations", pg. 21). However, the obliga- tions of Allstate Life under the reinsurance agreement are to the Company; the Company remains the sole obligor under the Contracts to the Owners. Because the reinsurance obligations of Allstate Life to the Company would be subordi- nated by operation of current state insurance rehabilitation and liquidation laws to the obligations of Allstate Life to its direct policyholders, Allstate Life has established a trust arrangement involving the pledge of assets 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 as- sets would transfer to the Company in the event that Allstate Life should be- come impaired or insolvent. Such arrangement should have the effect of avoid- ing the risk of subordination by operation of state insurance rehabilitation and liquidation laws. INVESTMENTS BY THE COMPANY The Company's general account assets, like the general account assets of other insurance companies including Allstate Life, must be invested in accor- dance with applicable state laws. These laws govern the nature and quality of investments that may be made by life insurance companies and the percentage of their assets 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, corpo- rate bonds, preferred stocks, real estate mortgages, real estate and certain other investments. 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 in- strumentalities, which may or may not be guaranteed by the United States Government; 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 portfolio; Commercial mortgages, mortgage-backed securities collateralized by real es- tate mortgage 18 loans, or securities collateralized by other assets, that are insured or guaranteed by the Federal Home Loan Mortgage Association, the Federal Na- tional Mortgage Association or the Government National Mortgage Associa- tion, 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 na- tionally 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 having 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. 19 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)
YEAR-END FINANCIAL DATA 1996 1995 1994 1993 1992 - ----------------------- ---------- ---------- ---------- ---------- ---------- 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
- ------- 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 $747 thousand and did not have a material impact on net income. 20 NORTHBROOK LIFE INSURANCE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion highlights significant factors influencing results of operations and financial position of Northbrook Life Insurance Company (the "Company"). It should be read in conjunction with the financial statements and related notes. The Company, which is wholly owned by Allstate Life Insurance Company ("ALIC"), markets life insurance contracts and annuity products through Dean Witter Reynolds Inc., a wholly owned subsidiary of Dean Witter, Discover & Co. The Company and ALIC have reinsurance agreements under which all contract related transactions are transferred to ALIC. The Company's results of opera- tions relate to the investment of those assets of the Company that are not transferred to ALIC under the reinsurance agreements. Separate Account assets and liabilities are carried at fair value in the statements of financial position. Investment income and realized gains and losses of the Separate Accounts accrue directly to the contractholders and, therefore, are not included in the Company's statements of operations. RESULTS OF OPERATIONS
1996 1995 1994 ------- ------- ------- ($ IN THOUSANDS) 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 ======= ======= =======
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 $125 thousand in 1994. Overall, the market values of the Company's fixed income securities were higher in 1995 than in 1994 due to declines in interest rates, which resulted in gains in 1995 and losses in 1994 when certain fixed income securities were sold in response to changes in market conditions. FINANCIAL POSITION
1996 1995 ---------- ---------- ($ IN THOUSANDS) 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 ========== ==========
21 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- 22 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 securi- tizations, securities lending, repurchase agreements and insubstance defea- sance 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 Compa- ny. 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 losses in- curred as a result of company insolvencies. The amount of any future assess- ments on the Company under these laws cannot be reasonably estimated. Most of these laws do provide, however, 23 that an assessment may be excused or deferred if it would threaten an insur- er'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. EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY The directors and executive officers are listed below, together with infor- mation as to their ages, dates of election and principal business occupations during the last five years (if other than their present business occupations). Except as otherwise indicated, the directors and executive officers of the Company have been associated with the Company for more than five years in the position shown or in other positions. LOUIS G. LOWER, II, 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 Vice President (1995-1996), Glenbrook Life and Annuity Company; Director 24 (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- 25 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 $341,607.66. Directors of the Company receive no compensation in addition to their compensation as employees of the Company. Shares of the Company and Allstate Life are not directly owned by any direc- tor or officer of the Company. The percentage of shares of The Allstate Corpo- ration beneficially owned by any director, and by all directors and officers of the Company as a group, does not exceed one percent of the class outstand- ing. 26 SUMMARY COMPENSATION TABLE (ALLSTATE LIFE INSURANCE COMPANY)
LONG TERM COMPENSATION ------------------------------ ANNUAL COMPENSATION AWARDS PAYOUTS ------------------------------ --------------------- -------- (A) (B) (C) (D) (E) (F) (G) (H) (I) OTHER SECURITIES ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION POSITION YEAR ($) ($) ($) AWARD(S) SARS(#) ($) ($) ------------------ ---- -------- -------- ------------ ---------- ---------- -------- ------------ Louis G. Lower, II...... 1996 $436,800 $246,781 $10,246 0 $18,258 0 $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
- ------- (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 its predecessor, The Savings and Profit Sharing Fund of Sears employees. 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. Man- agement, after consultation with legal counsel, does not anticipate the ulti- mate 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 in- cluded in this prospectus have been audited by Deloitte & Touche LLP, Two Pru- dential Plaza, 180 N. Stetson Avenue, Chicago IL 60601-6779, independent auditors, as stated in their report appearing herein, and are included in re- liance 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 John- son, 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. 27 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 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, --------------------- 1996 1995 ---------- ---------- ($ IN THOUSANDS) 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 $6,071,603 ========== ==========
See notes to financial statements. F-2 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, --------------------- 1996 1995 1994 ------ ------ ------ ($ IN THOUSANDS) 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 $1,733 ====== ====== ======
See notes to financial statements. F-3 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF SHAREHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, ------------------------- 1996 1995 1994 ------- ------- ------- ($ IN THOUSANDS) 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 $69,502 ======= ======= =======
See notes to financial statements. F-4 NORTHBROOK LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ------- ------ ------- ($ IN THOUSANDS) 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 ======= ====== =======
See notes to financial statements. F-5 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 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 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 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 $5,483 in 1996, 1995 and 1994, respectively. Of these costs, the Company retains investment related expenses. All other costs are ceded to ALIC under reinsurance agreements. 4. EXCLUSIVE DISTRIBUTION AGREEMENT The Company and ALIC have formed a strategic alliance with Dean Witter to develop, market and distribute proprietary annuity and life insurance products through Dean Witter account executives. Dean Witter provides a portion of the funding for these products through loans to an affiliate of the Company. Under the terms of the strategic alliance, which is cancelable by either party, the Company has agreed to use Dean Witter as an exclusive distribution channel for the Company's products. Dean Witter Discover's wholly owned subsidiary, Dean Witter Intercapital Inc., is the investment manager for the Dean Witter Variable Investment Series, the fund in which the assets of the Separate Accounts are invested. On February 5, 1997, Dean Witter Discover and Morgan Stanley Group Inc. announced that they had entered into an agreement and plan of merger, with the combined company to be named Morgan Stanley, Dean Witter, Discover & Co. The parties to the merger anticipate that the transaction will close in mid-1997. The Company does not expect the merger to have a significant impact on its business. F-9 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) ($ IN THOUSANDS) 5. INVESTMENTS FAIR VALUES The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:
GROSS UNREALIZED AMORTIZED ------------------ FAIR AT DECEMBER 31, 1996 COST GAINS (LOSSES) VALUE - -------------------- --------- ----- --------- ------- 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 ======= ======== ======= ======= AT DECEMBER 31, 1995 - -------------------- 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 ======= ======== ======= =======
SCHEDULED MATURITIES The scheduled maturities for fixed income securities are as follows at December 31, 1996:
AMORTIZED FAIR COST VALUE --------- ------- 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 $67,479 ======= =======
Actual maturities may differ from those scheduled as a result of prepayments by the issuers. F-10 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) ($ IN THOUSANDS) NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, -------------------- 1996 1995 1994 ------ ------ ------ 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 ====== ====== ======
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, -------------------------- 1996 1995 1994 ------- ------- -------- Fixed income securities........................ $ (20) $67 $ (193) Income tax benefit (expense)................... 7 (23) 68 ------- ------ -------- Realized capital losses and gains, after tax... $ (13) $ 44 $ (125) ======= ====== ========
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:
COST/ FAIR UNREALIZED AMORTIZED COST VALUE NET GAINS -------------- ------- ---------- Fixed income securities................. $65,500 $67,479 $1,979 ======= ======= Deferred income taxes................... (693) ------ Unrealized net capital gains............ $1,286 ======
F-11 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) ($ IN THOUSANDS) CHANGE IN UNREALIZED NET CAPITAL GAINS
YEAR ENDED DECEMBER 31, ------------------------ 1996 1995 1994 ------- ------ ------- 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) ======= ====== =======
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
AT DECEMBER 31, ------------------------------------------- 1996 1995 --------------------- --------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- 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
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 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONTINUED) ($ IN THOUSANDS) FINANCIAL LIABILITIES
AT DECEMBER 31, ------------------------------------------- 1996 1995 --------------------- --------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- 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
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 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:
AT DECEMBER 31, ---------------- 1996 1995 ------- ------- 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) ======= =======
The components of income tax expense are as follows:
YEAR ENDED DECEMBER 31, -------------------- 1996 1995 1994 ------ ------ ------ Current............................................. $1,642 $1,078 $1,069 Deferred............................................ 24 608 (114) ------ ------ ------ Total income tax expense........................ $1,666 $1,686 $ 955 ====== ====== ======
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:
NET INCOME ----------------------- YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 1994 ------ ------- ------ 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 $1,592 ====== ======= ======
F-14 NORTHBROOK LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) ($ IN THOUSANDS)
SHAREHOLDER'S EQUITY AT DECEMBER 31, ---------------- 1996 1995 ------- ------- 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 ======= =======
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 $7,260. F-15 NORTHBROOK LIFE INSURANCE COMPANY SCHEDULE IV--REINSURANCE ($ IN THOUSANDS) YEAR ENDED DECEMBER 31, 1996
GROSS NET AMOUNT CEDED AMOUNT -------- -------- ------ Life insurance in force................................ $556,242 $556,242 $-- ======== ======== ==== Premiums and contract charges: Life and annuities................................... $ 64,519 $ 64,519 $-- ======== ======== ==== YEAR ENDED DECEMBER 31, 1995 GROSS NET AMOUNT CEDED AMOUNT -------- -------- ------ Life insurance in force................................ $610,478 $610,478 $-- ======== ======== ==== Premiums and contract charges: Life and annuities................................... $ 54,632 $ 54,632 $-- ======== ======== ==== YEAR ENDED DECEMBER 31, 1994 GROSS NET AMOUNT CEDED AMOUNT -------- -------- ------ Life insurance in force................................ $661,356 $661,356 $-- ======== ======== ==== Premiums and contract charges: Life and annuities................................... $ 40,192 $ 40,192 $-- ======== ======== ====
F-16 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 Purchase Payment:................................................. $10,000 Guarantee Period:................................................. 5 years Interest Rate:.................................................... 4.50% Full Surrender:.................................... End of Contract Year 3
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: = .06 X 10,411.66 = $624.70 A-1 Step 4: Calculate the Market Value Adjustment: I= 4.50% J= 4.20% 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 - 624.70 + 56.22 = $10,843.18 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: = .06 X 10,411.66 = $624.70 Step 4: Calculate the Market Value Adjustment: I= 4.50% J= 4.80% 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 - 624.70 - 56.22 = $10,730.74 A-2 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 $30,500 will be incurred or are anticipated to be incurred in connection with the issuance and distribution of the securities to be registered: registration fees - 0, cost of printing and engraving - $25,000, 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) Northbrook Life Insurance Company Flexible Premium Deferred Annuity Certificate 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 (14) NONE (15) NONE (16) NONE (21) NONE (23)(a) Consent of Independent Public Accountants (23)(b) Consent of Attorneys (24) Powers of Attorney (25) NONE (26) NONE (27) Financial Data Schedule** (28) NONE (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 Registrant's 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. 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. SIGNATURE TITLE - --------- ----- */ 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 Peter H. Heckman Director * / JOHN R. HUNTER Director - --- -------------- John R. Hunter */ KEVIN R. SLAWIN Vice President and - --- --------------- Director (Principal Kevin R. Slawin Financial Officer) */ 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) */ By Michael J. Velotta, pursuant to Power of Attorney, previously filed. **/ By Michael J. Velotta, pursuant to Power of Attorney, filed herewith. INDEX TO EXHIBITS The following exhibits are filed herewith: (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 (14) None (15) None (16) None (21) None (23)(a) Consent of Independent Public Accountants (23)(b) Consent of Attorneys (24) Powers of Attorney (25) None (26) None (27) Financial Data Schedule** (28) None (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 Registrant's Form 10-K filed on March 31, 1997
EX-4 2 CONTRACT AND APPLICATION EXHIBIT 4 CONTRACT AND APPLICATION FLEXIBLE PREMIUM DEFERRED ANNUITY CERTIFICATE This Certificate is issued according to the terms of Master Policy Number 64890008 issued by Northbrook Life Insurance Company to Dean Witter Reynolds Inc. Dean Witter Reynolds Inc. is called the Master Policyholder. This Certificate is issued in the state of Delaware and is governed by Delaware law. Throughout this Certificate, "you" and "your" refer to the Certificate's owner(s). "We", "us" and "our" refer to Northbrook Life Insurance Company. CERTIFICATE SUMMARY . The first phase of this Certificate is the accumulation phase which begins on the issue date of the Certificate. The primary feature of this phase is the accumulation of interest, at guaranteed rates for guaranteed periods of time, on all purchase amounts. Additional features of this phase include a partial withdrawal option, a full surrender option, and death benefit options. The partial withdrawal and surrender benefits may be subject to an upward or downward Market Value Adjustment. . The second phase of this Certificate is the payout phase which begins on the Payout Start Date. The primary feature of this phase is the exchange of the Adjusted Account Value for a series of periodic income payments to be made under an Income Plan. Various types of Income Plans are offered in this Certificate. This page of the Certificate is only a summary of the Certificate terms. The detailed provisions of this Certificate, that follow, will control. This Certificate and the Master Policy do not pay dividends. PLEASE READ YOUR CERTIFICATE CAREFULLY. RETURN PRIVILEGE If you are not satisfied with this Certificate for any reason, you may return it to us within 20 days after you receive it. We will refund any purchase payments to you. We appreciate that, through the services of your Dean Witter Reynolds Account Executive, you chose Northbrook Life Insurance Company to help you achieve your long-term financial goals. We value our relationship with you. Michael J. Velotta Louis G. Lower, II Secretary President FLEXIBLE PREMIUM DEFERRED ANNUITY NLU566 Page 1 - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- General Definitions .................................... 2 People Involved ........................................ 4 Accumulation Phase ..................................... 5 Death Benefit Options During Accumulation Phase ........ 7 Payout Phase ........................................... 9 General Provisions ..................................... 10
- -------------------------------------------------------------------------------- GENERAL DEFINITIONS - -------------------------------------------------------------------------------- ACCOUNT VALUE The sum of the Sub-Account values. - ------------- ADJUSTED ACCOUNT VALUE The Account Value adjusted by the Market Value - ---------------------- Adjustment, less any applicable taxes. CASH SURRENDER VALUE The Account Value adjusted by the Market Value - -------------------- Adjustment, less any applicable withdrawal charges and taxes. DEATH BENEFIT The greater of the Account Value and the Cash - ------------- Surrender Value. We will calculate the Death Benefit as of the date we receive a complete request for payment of the Death Benefit. Death Benefit provisions are described in detail on page 7. GUARANTEE PERIOD A period of years for which a specified interest rate - ---------------- is guaranteed. Guarantee Periods will be offered at our discretion and may range from one to ten years. INCOME PLAN An Income Plan distributes payments on a scheduled - ----------- basis during the payout phase. MARKET VALUE ADJUSTMENT An increase or decrease in a partial withdrawal, full - ----------------------- surrender, Death Benefit or Income Plan payment to you, reflecting changes in the level of interest rates since the Sub-Account was established. The method of calculation is explained on page 7. PAYOUT START DATE The date the Adjusted Account Value is applied to an - ----------------- Income Plan. The anticipated date is shown on page 3. You may change the Payout Start Date by writing to us at least 30 days prior to this date. The Payout Start Date must be on or before the later of: . the annuitant's 90th birthday; or . the 10th anniversary of the Certificate's issue date. SUB-ACCOUNT A portion of this Certificate which is identified by - ----------- the Guarantee Period and the date the guarantee begins. A Sub-Account(s) is created when: . a purchase payment is made; or . a new Guarantee Period is selected after the prior Guarantee Period expires. A Sub-Account continues until the end of the Guarantee Period. SUB-ACCOUNT VALUE The funds allocated to a Sub-Account plus the interest - ----------------- credited, less any withdrawals. Page 2 - -------------------------------------------------------------------------------- ANNUITY DATA - -------------------------------------------------------------------------------- CERTIFICATE NUMBER:........................................ 44444444 ISSUE DATE:................................................ JUNE 1, 1995 INITIAL PURCHASE PAYMENT:.................................. $10,000.00 OWNERS:.................................................... JOHN DOE ........................................................... JANE DOE ANNUITANT:................................................. JOHN DOE AGE AT ISSUE:............................................ 35 SEX:..................................................... MALE PAYOUT START DATE:......................................... MAY 19, 2030 ADDITIONAL PURCHASE PAYMENTS: NUMBER OF ADDITIONS ALLOWED:............................. UNLIMITED MINIMUM ADDITION AMOUNT:................................. $1000.00
GUARANTEE ALLOCATION INTEREST CREDITING RATE PERIOD ENDING DATE AMOUNT FOR GUARANTEE PERIOD - ----------- ----------- ---------- ------------------------ 5 YEARS 06/01/00 $5,000.00 X.XX% 10 YEARS 06/01/05 $5,000.00 X.XX%
OWNER'S BENEFICIARY PERCENTAGE - ----------- ---------- JEFF DOE 50% MICHAEL DOE 50% DPN566 Page 3 - -------------------------------------------------------------------------------- PEOPLE INVOLVED - -------------------------------------------------------------------------------- OWNER The person named at the time of enrollment is the owner of - ----- this Certificate unless subsequently changed. As owner, you will receive any periodic income payments, unless you have directed us to pay them to someone else. You may exercise all rights stated in this Certificate, subject to the rights of any irrevocable beneficiary. You may change the owner or beneficiary at any time. If you are a natural person or a grantor trust, you may change the annuitant prior to the Payout Start Date. Once we have received a satisfactory written request for an owner, beneficiary or annuitant change, the change will take effect as of the date you signed it. We are not liable for any payment we make or other action we take before receiving any written request from you. We are not responsible for the tax consequences of an owner, beneficiary or annuitant change. You may assign an interest in this Certificate. No beneficiary may assign benefits under the Certificate until they are due to them. We are not bound by an assignment unless it is signed by you and filed with us. We are not responsible for the validity or tax consequences of an assignment. If the owner is more than one person, then: . owner as used in this Certificate is defined as all people named as owners, unless otherwise indicated; and . any request to exercise ownership rights must be signed by all owners. On the death of the owner (or if multiple owners, on the death of the first owner to die), a Death Benefit option must be elected. A Death Benefit option must also be elected if the owner is a grantor trust and one of the grantors dies prior to the Payout Start Date. See page 7 for more details. ANNUITANT The annuitant must be a natural person. The owner ( or if - --------- multiple owners, the youngest owner) is the annuitant unless a different annuitant has been named. If the annuitant dies prior to the Payout Start Date, a Death Benefit option must be elected. See page 7 for details. BENEFICIARY If the owner is a natural person: - ----------- . we will determine the beneficiary from the most recent written request we have received from you; . if you do not name a beneficiary or if the beneficiaries named are no longer living, the beneficiary will be: . your spouse if living; . otherwise, your children equally if living; . otherwise, your estate. If the owner is a grantor trust, then the beneficiary will be that same grantor trust. If the owner is a non-natural person other than a grantor trust, the owner is also the beneficiary, unless a different beneficiary has been named. Page 4 The beneficiary becomes the new owner if the sole surviving owner dies prior to the Payout Start Date. If the sole surviving owner dies after the Payout Start Date, the beneficiary will receive any guaranteed income payments scheduled to continue. - -------------------------------------------------------------------------------- ACCUMULATION PHASE - -------------------------------------------------------------------------------- PURCHASE PAYMENTS Purchase payments may be made at any time during the - ----------------- accumulation phase. Purchase payments after the initial purchase payment are not required. We may limit the number of additional purchase payments. Any such limit is on page 3. We may also set a maximum acceptable size for each purchase payment. You will be required to designate a Guarantee Period(s) for each purchase payment made. INTEREST CREDITED Interest will be credited daily during the accumulation - ----------------- phase using the effective annual interest rate declared by us for that particular Guarantee Period at the time the Sub- Account is established. Interest will be credited to the initial purchase payment from the issue date. Interest will be credited to subsequent purchase payments from the date of receipt. "Effective annual rate" is defined as the yield resulting when interest credited at the underlying daily rate has compounded for a full year. Interest rates will be declared periodically for each Guarantee Period then being offered. RENEWAL OF A A notice will be mailed prior to the expiry of each Sub- - ------------ Account allowing you to select a renewal Guarantee GUARANTEE PERIOD Period(s). If we do not receive a selection by the expiry - ---------------- of the Sub-Account, a renewal Guarantee Period of the same duration as the previous Guarantee Period will automatically be established. If a renewal Guarantee Period selection is made within the 30 calendar days following the Sub-Account expiry, a Sub-Account will be established according to that selection as of the Sub-Account expiry date. If a full surrender is made within 30 days following the expiry of any Sub-Account or if a partial withdrawal of an entire Sub-Account is made within 30 days following that Sub-Account's expiry, then the affected Sub-Account will be deemed to have been renewed at the shortest Guarantee Period then being offered. 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. PARTIAL WITHDRAWALS You have the right to make a partial withdrawal at any - ------------------- time during the accumulation phase. You must specify the Sub-Account(s) from which you wish to make a withdrawal. If a partial withdrawal would leave a Sub-Account Value of less than $1,000, we will treat the request as a withdrawal of that Sub-Account's entire value. If any partial withdrawal reduces the Account Value of your Certificate to less than $1,000, we will treat the request as full surrender of the entire Account Value and the Certificate will terminate. The amount of any partial withdrawal you request, plus any applicable withdrawal charge and taxes, will reduce your Sub-Account Value. During the first 30 calendar days of a Sub-Account's renewal Guarantee Period, amounts withdrawn from that Sub-Account will not incur withdrawal charges or Market Value Adjustments. After the first 30 calendar days of a Sub-Account's renewal Guarantee Period, amounts withdrawn from that Sub-Account in excess of the remaining preferred withdrawal amount will incur withdrawal charges and Market Value Adjustments. In addition, the amount you receive will reflect the deduction of any applicable taxes. Page 5 Withdrawal charges and Market Value Adjustments will be waived on partial withdrawals taken to satisfy qualified plan required minimum distribution rules as described in the Internal Revenue Code. This waiver is permitted only for withdrawals which satisfy distributions resulting from this Certificate. We reserve the right to defer payment of any partial withdrawal for up to six months after the date you request it. FULL SURRENDER Upon a full surrender, the Certificate will terminate. You have the right to make a full surrender at any time during the accumulation phase. If you surrender your Certificate, a withdrawal charge and Market Value Adjustment will be applied to: . The Account Value less: . The total Sub-Account Value for all Sub-Accounts which are within the first 30 calendar days of their Guarantee Periods, and . The remaining preferred withdrawal amount for any Sub-Accounts which are not within the first 30 days of their Guarantee Periods. In addition, the amount you receive will reflect the deduction of any applicable taxes. We reserve the right to defer payment of any full surrender for up to six months after the date you request it. RETURN OF PURCHASE If you surrender this Certificate, your Cash Surrender PAYMENT (GUARANTEE Value is guaranteed to never be less than: UPON FULL SURRENDER) . The sum of all purchase payments; . less the sum of all amounts previously received (prior to the deduction of any premium taxes or other applicable taxes imposed on us.) PREFERRED WITHDRAWAL A withdrawal amount free of withdrawal charges and Market AMOUNT Value Adjustments will be available in each Sub-Account year for each Sub-Account. The preferred withdrawal amount is 10% of the amount of the Sub-Account's purchase payment or funds allocated to the Sub-Account. Any preferred withdrawal amount not withdrawn in a Sub- Account Year may not be carried over to increase the preferred withdrawal amount in a subsequent Sub-Account Year. Similarly, the preferred withdrawal amount not withdrawn from one Sub-Account may not be transferred to increase the preferred withdrawal amount in another Sub- Account. WITHDRAWAL CHARGE Unless otherwise waived by provisions of this Certificate, a withdrawal charge will be applied to any partial withdrawals or a full surrender of the certificate. The withdrawal charge will be 6% multiplied by the amount defined in the Partial Withdrawal and Full Surrender sections above. TAXES Any premium taxes or other applicable taxes imposed on us for amounts relating to this Certificate may be deducted from the purchase payments or the Account Value when the tax is incurred or at a later time. In addition, personal federal and state income tax withholding may be deducted from partial withdrawal and full surrender payments. Amounts withheld for personal taxes do not necessarily represent your entire tax liability. Page 6 MARKET VALUE ADJUSTMENT Unless otherwise waived by provisions of this Certificate, the Market Value Adjustment will be applied to any partial withdrawals or full surrender of the Certificate. The Market Value Adjustment may be either positive or negative and will be based on the following: I = the interest crediting rate for that Sub- Account; N = the number of complete days from the date the withdrawal request is received to the end of the Sub-Account's Guarantee Period; and J = the current interest rate credited for new certificates, 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 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 will be the result of [.9 X (I - J) X (N / 365)] multiplied by the amount defined in the Partial Withdrawal and Full Surrender sections above. - ------------------------------------------------------------------------------- DEATH BENEFIT OPTIONS DURING ACCUMULATION PHASE - ------------------------------------------------------------------------------- OWNER'S DEATH If any owner dies prior to the Payout Start Date, the new owner (any surviving joint owner(s) or if none, the beneficiary) must elect an applicable option listed below. If the owner is a grantor trust and one of the grantors dies prior to the Payout Start Date, the trustee must elect an applicable option listed below. If the option selected is 1(a), 1(b)(ii), 2(a) or 2(b)(ii) below, and the deceased owner was also the annuitant, the new annuitant will be the youngest new owner, unless the new owner names a different annuitant. 1. IF THE NEW OWNER IS A NATURAL PERSON AND IS NOT THE SPOUSE OF THE DECEASED OWNER. IF IN A GRANTOR TRUST SITUATION, THE SURVIVING GRANTOR, OR IF NONE, THE BENEFICIARY OF THE TRUST, IS A NATURAL PERSON AND IS NOT THE SPOUSE OF THE DECEASED GRANTOR: a. The new owner or trustee may choose to receive the Cash Surrender Value in a lump sum not later than five years from the date of the owner's death; or b. If we receive due proof of death within 180 days of the date of the owner's death, then the new owner or trustee may alternatively choose to: i. Receive the Death Benefit in a lump sum; or ii. Apply the Death Benefit to an Income Plan which must begin within one year of the date of death and must be for a period equal to or less than the life expectancy of the new owner. In a grantor trust situation, the period must be equal to or less than the life expectancy of a surviving grantor (or if none, the beneficiary) selected by the trustee. 2. IF THE NEW OWNER IS THE SURVIVING SPOUSE OF THE DECEASED OWNER. IF IN A GRANTOR TRUST SITUATION, THE SPOUSE IS THE SOLE SURVIVING GRANTOR (OR, IF THERE IS NO SURVIVING GRANTOR, THE SOLE BENEFICIARY OF THE TRUST): a. The surviving spouse may choose to continue the Certificate as if the death had not occurred. If the Certificate is continued as if the death had not occurred, the surviving spouse may make a single Page 7 withdrawal of any amount within one year of the date of death without incurring a withdrawal charge. However, a Market Value Adjustment, determined at the date of the withdrawal, will apply. The single withdrawal amount is in addition to the annual preferred withdrawal amount; or b. If we receive due proof of death within 180 days of the date of the owner's death, then the surviving spouse may alternatively choose to: i. Receive the Death Benefit in a lump sum; or ii. Apply the Death Benefit to an Income Plan which must begin within one year of the date of death and must be for a period equal to or less than the life expectancy of the new owner or, in a grantor trust situation, the life expectancy of the surviving spouse. 3. IF THE NEW OWNER IS A NON-NATURAL PERSON (OTHER THAN A GRANTOR TRUST): The new owner must receive the Death Benefit in a lump sum. ANNUITANT'S DEATH If the annuitant dies and the annuitant is not also an owner, the owner must elect an applicable option listed below. If the option selected is 1(a) or 1(b)(ii) below, the new annuitant will be the youngest owner, unless the owner names a different annuitant. 1. IF THE OWNER IS A NATURAL PERSON OR A GRANTOR TRUST: a. The owner may choose to continue the Certificate as if the death had not occurred; or b. If we receive due proof of death within 180 days of the date of the annuitant's death, then the owner may alternatively choose to: i. Receive the Death Benefit in a lump sum; or ii. Apply the Death Benefit to an Income Plan which must begin within one year of the date of death and must be for a period equal to or less than the life expectancy of the owner, or in a grantor trust situation, the life expectancy of a grantor. 2. IF THE OWNER IS A NON-NATURAL PERSON (OTHER THAN A GRANTOR TRUST): The owner must receive the Death Benefit in a lump sum. PROOF OF DEATH We may require that this Certificate be returned to us prior to any settlement. We must receive due proof of death of the owner prior to settlement of a death claim. Due proof of death is one of the following: . a certified copy of a death certificate; or . a certified copy of a decree of a court of competent jurisdiction as to a finding of death; or . any other proof acceptable to us. Page 8 - ------------------------------------------------------------------------------- PAYOUT PHASE - ------------------------------------------------------------------------------- PAYMENT AMOUNT The Adjusted Account Value on the Payout Start Date, will be exchanged for a series of periodic income payments under an Income Plan. The periodic income payment amount will be calculated by multiplying the Adjusted Account Value on the Payout Start Date, by the greater of: . Payment plan rates declared by us. These rates will provide at least as much income as would our then current Single Premium Immediate Annuity certificate rates; or . Guaranteed payment plan rates. These rates are calculated using the following assumptions for the Income Plan and payment frequency selected: . Interest rate of 3% per year; and . No loading. For Income Plans which include life income, the following additional assumptions will be used: . Mortality rates from the 1983 Table a Annuity Mortality Tables; . Age(s) of the annuitant and joint annuitant (if applicable) on the Payout Start Date set back one year for each six full years between January 1, 1983 and the Payout Start Date; and . Sex(es) of the annuitant and joint annuitant (if applicable) on the Payout Start Date, unless the Certificate was issued under an employer-sponsored program or in a jurisdiction requiring unisex rates (in which case, a 80% female, 20% male blend of the mortality rates will be used). INCOME PLANS Available Income Plans are listed below: 1. LIFE INCOME WITH OR WITHOUT GUARANTEED PAYMENTS. For plans without guaranteed payments, we will make payments only for as long as the annuitant is living. For plans with guaranteed payments, we will make payments for the guaranteed period and thereafter as long as the annuitant is living. The number of months guaranteed range from 60 to 360. 2. JOINT AND SURVIVOR LIFE INCOME WITH OR WITHOUT GUARANTEED PAYMENTS. For plans without guaranteed payments, we will make payments only for as long as either the annuitant or joint annuitant is living. For plans with guaranteed payments, we will make payments for the guaranteed period and thereafter as long as either the annuitant or joint annuitant is living. The number of months guaranteed range from 60 to 360. 3. GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD. We will make payments beginning on the Payout Start Date for a specified period. These payments do not depend on the annuitant's life. The number of months guaranteed may range from 60 to 360. We reserve the right to accept other Income Plans. Page 9 PAYOUT TERMS The income payments are subject to the following terms and AND CONDITIONS conditions: . If the Adjusted Account Value is not enough to provide an initial payment of at least $20, we reserve the right to: . change the payment frequency to make the payment at least $20; or . terminate the Certificate and pay you the Adjusted Account Value in a lump sum. . If we do not receive a written choice of an Income Plan from you at least 30 days before the Payout Start Date, the Income Plan will be life income with 120 months guaranteed. . If you choose an Income Plan which depends on any person's life, we may require proof of age and sex before income payments begin and we may require proof that the annuitant or joint annuitant is still alive before we make each payment. . After the Adjusted Account Value has been applied to an Income Plan on the Payout Start Date, the Income Plan cannot be changed, the exchange of the Adjusted Account Value for an Income Plan can not be reversed and no withdrawals can be made. . If any owner dies during the payout phase, income payments will continue as scheduled. - ------------------------------------------------------------------------------- GENERAL PROVISIONS - ------------------------------------------------------------------------------- THE ENTIRE The entire contract consists of the Master Policy, the Master CONTRACT Policy application, any written enrollments, and any endorsements. All statements made in written enrollments are representations and not warranties. No statement will be used by us in defense of a claim or to void a Certificate unless it is included in a written enrollment. Only our officers may change the Master Policy or Certificate or waive a right or requirement. No other individual may do this. The Master Policy may be amended by us, terminated by us, or terminated by the Master Policyholder without the consent of any other person. No termination completed after the issue date of this Certificate will adversely affect your rights under this Certificate. We may not modify this Certificate without your consent, except to make it comply with any changes in the Internal Revenue Code, or as required by any other applicable law. INCONTESTABILITY We will not contest the validity of this Certificate after the issue date. MISSTATEMENT OF If any age or sex has been misstated, we will pay the amounts AGE OR SEX which would have been paid at the correct age or sex. If we find the misstatement of age or sex after the income payments begin, we will: . pay all amounts underpaid including due interest; or . stop payments until the total payments are equal to the corrected amount plus due interest. Page 10 For purposes of the Misstatement of Age or Sex provision, due interest will be calculated at an effective annual rate of 3% or as required by state law. The misstatement of sex provision described above does not apply to Certificates issued under employer-sponsored programs or Certificates issued in jurisdictions which require unisex rates. ANNUAL STATEMENT At least once a year, prior to the Payout Start Date, we - ---------------- will send you a statement containing Account Value information. The information presented will comply with any applicable law. Page 11 Northbrook Life Insurance Company (herein called "we" or "us") Certificate Endorsement for IRA Plans The following provisions are added to your Certificate and will take precedence over any other provision to the contrary in your Certificate: 1. The owner of this Certificate must be the annuitant. 2. You may not: a. transfer; b. sell; c. assign; d. discount; or e. pledge this Certificate for any purpose. 3. Your rights in this Certificate are nonforfeitable. This Certificate is for the exclusive benefit of you and your beneficiaries. 4. Except as described below, the annual purchase payment under the Certificate shall not exceed the lesser of $2,000 or 100% of compensation. In the case of a spousal IRA, the maximum contribution shall not exceed the lesser of $2,250 or 100% of compensation, but no more than $2,000 can be paid to either spouse's IRA. The exceptions are: a. The above limits shall not apply to "rollover contributions" as that term is described in Sections 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8) and 408(d)(3) of the Internal Revenue Code. b. In addition to any amounts you contribute, your employer can contribute annually up to the lesser of 15% of your compensation or $30,000 under 408(k) of the Internal Revenue Code. c. Any or all of the above contribution limits shall change in step with changes to such limits in the Internal Revenue Code. 5. Your entire interest must be or begin to be distributed by April 1 following the calendar year in which you reach age 70 1/2. You must take distributions in accordance with the requirements of Section 401(a)(9) of the Internal Revenue Code, including the incidental death benefit requirements of Section 401(a)(9)(G) of the Code, and the regulations thereunder, including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the Proposed Income Tax Regulations. The distribution may be made in a single sum or in periodic payments over: a. your life; or b. the lives of you and your "designated beneficiary"; or c. a period certain not extending beyond your life expectancy; or d. a period certain not extending beyond the life expectancy of you and your "designated beneficiary". For purposes of this endorsement "designated beneficiary" is the natural person that you name prior to the payout start date. For the purpose of the distribution rules described in this section, payments must be made in periodic payments at intervals of no longer than one year. In addition, payments must be either nonincreasing or they may increase only as provided in Q&A F-3 of Section 1.401(a)(9)-1 of the Proposed Income Tax Regulations. 6. The minimum amount you are required to receive for any tax year is at least equal to: a. the value of the Certificate at the end of the prior year; divided by b. your life expectancy (or the joint life and last survivor expectancy of you and your "designated beneficiary") using the age(s) as of your birthday(s) in that year. 7. If your spouse is not the "designated beneficiary": a. the minimum amount you are required to receive beginning with the first calendar year for which distributions are required is: 1) the value of the Certificate at the end of the prior year; divided by 2) the lesser of: a) the applicable life expectancy; or b) the applicable divisor contained in Q & A -4 in 1.401(a)(9)-2 of the Proposed Income Tax Regulations. b. if payments are made in the form of a period certain annuity, the maximum period certain at the required beginning date is defined in 1.401(a)(9)-2. c. if the payments are made in the form of a joint and survivor annuity, the payment to the survivor must not exceed the applicable percentage as defined in 1.401(a)(9)-2. 8. For purposes of calculating the minimum annual distribution from this Certificate, life expectancies are determined by the return multiples contained in Tables V and VI of Section 1.72-9 of the Income Tax Regulations. Life expectancies of you and your spouse (if your spouse is the "designated beneficiary") may be recalculated annually. The life expectancy of a non-spousal "designated beneficiary" may not be redetermined. Your life expectancy and any spousal "designated beneficiary's" life expectancy will be redetermined annually using 1.72-9 unless you elect otherwise prior to the start of the required distributions. If you elect not to have life expectancies redetermined annually, then life expectancies will be calculated only once, at the time of the first payment, and will thereafter decrease at the rate of 1 year per year elapsed. If made, this election is irrevocable and will apply to all subsequent years. 9. If you die before distribution has begun and your beneficiary is your surviving spouse, your spouse must elect one of the following forms of distribution: a. a life annuity; or b. one or more certain payments over a period no longer than his/her own life expectancy; or c. treat the account as his/her own IRA. If the form of distribution elected is a. or b. above, equal or substantially equal payments will be made over your spouse's life or life expectancy. The form of distribution must be elected within five years after your death or the calendar year in which you would have attained age 70 1/2, whichever is earlier. If the form of distribution is a. or b. above, payments must commence within one year of your death or the year in which you would have attained age 70 1/2, whichever is later. If your surviving spouse makes a regular IRA contribution to the account, makes a rollover to or from the account, or fails to elect any of the three forms of distribution listed above, c. is automatically assumed. Any amount paid to a child of the owner will be treated as if it were paid to the surviving spouse if the remainder of the interest becomes payable to the surviving spouse when the child reaches age of majority. 10. If you die before distribution has begun and your beneficiary is not your surviving spouse, the beneficiary must either: a. start receiving, within one year of your death, equal or substantially equal payments over the life or life expectancy of your beneficiary; or b. have the proceeds totally distributed within five years of your death. 11. For the purpose of the distribution rules described in the two preceding sections, the payments to be received by your beneficiary will be computed using the return multiples specified in section 1.72-9 of the Income Tax Regulations. Life expectancies of a surviving spousal beneficiary may be recalculated annually. The life expectancy of a non-spousal beneficiary may not be redetermined. If the beneficiary is your spouse, his/her life expectancy will be redetermined annually using Table V and VI of Section 1.72-9 unless he/she elects otherwise prior to the start of the required distributions. If your spouse is the beneficiary and does not elect to have life expectancies redetermined annually, or if your beneficiary is not your spouse, then life expectancies will be calculated only once, at the time of the first payment, and will thereafter decrease at the rate of 1 year per year elapsed. If made, this election is irrevocable and will apply to all subsequent years. Distributions made in accordance with this section are considered to have begun if distributions are made on account of your beneficiary reaching his or her required beginning date or if prior to the required beginning date distributions irrevocably begin for your beneficiary over a period permitted and in an annuity form acceptable under Section 1.401(a)(9) of the Proposed Income Tax Regulations. 12. If you die after distribution has begun, any remaining payments shall continue to be paid to your beneficiaries at least as rapidly as under the method of distribution in effect. 13. We will issue annual reports containing account value information. Michael J. Velotta Louis G. Lower, II ------------------ ------------------ Secretary President NORTHBROOK LIFE INSURANCE COMPANY (HEREIN CALLED "WE" OR "US") CERTIFICATE AMENDMENT FOR 403(B) ANNUITIES The following provisions are added to your Certificate: 1. The owner of this Certificate must be the annuitant. 2. You may not: a. transfer; b. sell; c. assign; d. discount; or e. pledge this Certificate for any purpose, to any person but us. 3. Account balances accruing after December 31, 1986 must begin to be paid out by the April 1 after the calendar year in which you reach age 70 1/2. The distribution may be made in a single sum or in periodic payments. a. The payments must be over: 1) your life; or 2) the lives of you and your "designated beneficiary"; or 3) a period certain not extending beyond your life expectancy; or 4) a period certain not extending beyond the life expectancy of you and your "designated beneficiary". For the purpose of this amendment, the "designated beneficiary" is the natural person that you name prior to the payout start date. b. The minimum amount you are required to receive for any tax year is: 1) the account balance of the Certificate at the end of the prior year, divided by; 2) your life expectancy (or the joint and last survivor expectancy of you and your "designated beneficiary") using the age(s) as of your birthday(s) in that year. 4. For account balances accruing after December 31, 1988 distributions of contributions made under a salary reduction agreement may only occur upon: a. or after attainment of age 59 1/2; or b. separation from service; or c. death; or d. disability (as defined in Internal Revenue Code Section 72(m)(7)); or e. hardship. In the case of hardship distributions, earnings due to these purchase payments cannot be withdrawn. The plan administrator will be responsible for determining whether an individual's circumstances meet the definition of hardship as set forth in the Internal Revenue Code and Regulations. 5. For the purpose of this amendment, "account balances" includes: a. any contributions made after the specified date: 1) December 31, 1986; or 2) December 31, 1988 whichever is applicable; and b. all earnings credited after the specified date. You are permitted to directly rollover all or a portion of any eligible rollover distribution which you receive, to an eligible retirement plan (i.e., IRA, 401(a), or 403(b) ). In the case of an eligible rollover distribution to your surviving spouse, an eligible retirement plan is limited to an IRA. An eligible rollover distribution is any distribution from your account except: 1. one of a series of payments pursuant to a life or a joint life income option, or 2. one of a series of payments pursuant to a period certain income option based on your life expectancy (or joint life expectancy of you and your designated beneficiary), or 3. one of a series of substantially equal periodic payments for a specified period of ten years or more, or 4. one that qualifies as a required minimum distribution as defined by section 401(a)(9) of the Internal Revenue Code. Michael J. Vellota Louis G. Lower, II Secretary President Custom Annuity Plus and Custom Plus G&I Enrollment for Coverage under Group Annuity Contract(s) issued to Dean Witter Reynolds, Inc. Issued by Northbrook Life Insurance Company, Northbrook, Illinois Send Enrollment to: Northbrook Life Insurance Company P.O. Box 94040, Palatine, IL 60094-4040 - -------------------------------------------------------------------------------- 1. Total Purchase Payment $____________________ - -------------------------------------------------------------------------------- 2. Annuity Plan (check only one plan) [_] Custom Annuity Plus (Fill in sub-account allocation(s)) $________ for ____ year(s) $________ for ____ years $________ for ____ year $________ for ____ years $________ for ____ year $________ for ____ years $________ for ____ year $________ for ____ years $________ for ____ year $________ for ____ years [_] Custom Plus Growth & Income Annuity for _____ (5 - 10) years. (2 certificates will be issued) - -------------------------------------------------------------------------------- 3. Federal Withholding Election Do you wish to have Federal Income Tax withheld from your annuity payments? [_] Yes [_] No - -------------------------------------------------------------------------------- 4. Owner(s) [_] Male [_] Female (mm / dd / yy) Name_____________________ Soc. Sec. No. ____________ Birthdate______________ Address__________________ City______________________ State_____ Zip_________ Name_____________________ Soc. Sec. No. ____________ Birthdate______________ Address__________________ City______________________ State_____ Zip_________ - -------------------------------------------------------------------------------- 5. Annuitant (Leave blank if Annuitant same as sole Owner or if this annuity will be part of an IRA, 403(b), or SEP.) (Defining life only, not entitled to benefits.) [_] Male [_] Female Relationship to Owner___________ Name______________________ Soc. Sec. No. ____________ Birthdate______________ Address___________________ City______________________ State_____ Zip_________ - -------------------------------------------------------------------------------- 6. Beneficiary(ies)(Entitled to benefits upon last Owner's death. If Owner is a trust, the beneficiary will be the same trust.) Name___________________________ Relationship to Owner ____________ Name___________________________ Relationship to Owner ____________ - -------------------------------------------------------------------------------- 7. Replacement Will this annuity replace or change any existing annuity or life insurance? [_] Yes [_] No (If yes, complete the following.) Company__________________________________ Policy No. ___________________ Cost basis amount________________________ Policy Date___________________ Intended to qualify as a 1035 exchange? [_] Yes [_] No (If yes, attach copy of signed Absolute Assignment form.) - -------------------------------------------------------------------------------- 8. Tax Qualified Plan [_] Yes [_] No (If yes, complete the following) [_] IRA Rollover [_] IRA Transfer [_] IRA/Year of Contribution_____ [_] 401(a)(pension) [_] 403(b)(TSA) [_] SEP/Year of Contribution_____ (Attach Form 5305) [_] Other_______ - -------------------------------------------------------------------------------- 9. Special Instructions - -------------------------------------------------------------------------------- A copy of this Enrollment signed by the Account Executive will be the receipt for the first purchase payment. If this Enrollment is declined, Northbrook Life Insurance Company ("Northbrook") will have no liability except to return the first purchase payment. I have read the above statements and represent that they are complete and true to the best of my knowledge and belief. I agree that this Enrollment shall be a part of the Certificate issued by Northbook. Northbrook may add to or correct the Enrollment in the space labeled 'Home Office Endorsement.' By accepting the Certificate issued, I agree to any additions or corrections to this Enrollment. Northbrook will obtain written agreement from me for any change in the benefits, type of plan, or birth date. I UNDERSTAND THAT WITHDRAWALS AND SURRENDERS MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT IF EXERCISED PRIOR TO THE END OF A RATE GUARANTEE PERIOD. I ALSO ACKNOWLEDGE RECEIPT OF THE CURRENT PROSPECTUS FOR THIS PRODUCT. Signed at_________________________________________ Date___/___/___ City State Signature(s) of Owner(s)_____________________________________________________ - -------------------------------------------------------------------------------- Home Office Endorsement - -------------------------------------------------------------------------------- AE Use Only Do you have any reason to believe that the Certificate(s) applied for is (are) to replace or change any existing annuity or life insurance? [_] YES [_] NO AE's Signature___________________________________ Quote #____________________ AE's Name______________________________ AE's License ID # (FL only)__________ Branch/AE No.__________ Phone Number (___)__________ Transaction #___________ - --------------------------------------------------------------------------------
EX-5 3 OPINION OF GENERAL COUNSEL EXHIBIT 5 Opinion of General Counsel NORTHBROOK LIFE INSURANCE COMPANY LAW AND REGULATION DEPARTMENT 3100 Sanders Road, J5B Northbrook, Illinois 60062 Direct Dial Number 847-402-2400 Facsimile 847-402-4371 Michael J. Velotta Please direct reply to: Vice President, Secretary Post Office Box 3005 and General Counsel Northbrook, Illinois 60065-3005 September 26, 1994 TO: Northbrook Life Insurance Company Northbrook, Illinois 60062 FROM: Michael J. Velotta Vice President, Secretary and General Counsel RE: Form S-1 Registration Statement Under the Securities Act of 1933 File No. 33-________________ With reference to the Registration Statement on Form S-1 filed by Northbrook Life Insurance Company with the Securities and Exchange Commission covering Individual and Group Market Value Adjusted Deferred Annuity Contracts ("Contracts"), I have examined such documents and such law as I have considered necessary and appropriate, and on the basis of such examination, it is my opinion that: 1. Northbrook Life Insurance Company is duly organized and existing under the laws of the State of Illinois and has been duly authorized to do business and to issue the Contracts by the Director of Insurance of the State of Illinois. 2. The Contracts covered by the above Registration Statement are approved and authorized by the Director of Insurance of the State of Illinois and when issued will be valid, legal and binding obligations of Northbrook Life Insurance Company. I hereby consent to the filing of this opinion as an exhibit to the above Registration Statement and to the use of my name under the caption "Legal Matters" in the Prospectus constituting a part of the Registration statement. Sincerely, /s/ MICHAEL J. VELOTTA Michael J. Velotta Vice President, Secretary and General Counsel EX-10.1 4 REINSURANCE AGREEMENT EXHIBIT 10.1 REINSURANCE AGREEMENT REINSURANCE AGREEMENT between the NORTHBROOK LIFE INSURANCE COMPANY, Northbrook, Illinois (hereinafter "NORTHBROOK") and ALLSTATE LIFE INSURANCE COMPANY, Northbrook, Illinois (hereinafter "ALLSTATE") Article I BASIS OF REINSURANCE -------------------- 1. One-hundred percent (100%) of the net benefits (defined in Article II, Paragraph 1), under all eligible policies (defined in Schedule A) of NORTHBROOK, will be reinsured with ALLSTATE. 2. This reinsurance will be ceded to ALLSTATE on an automatic coinsurance basis. 3. In no event will reinsurance under this Agreement be in force unless the corresponding policy issued by NORTHBROOK or the reinsurance accepted by NORTHBROOK is in force. Article II REINSURANCE BENEFITS -------------------- 1. Net benefits are defined as follows: (a) For a policy issued directly by NORTHBROOK and reinsured under this Agreement, net benefits are the actual amounts payable by NORTHBROOK to the policyholder, less any amounts payable to NORTHBROOK by another reinsurer with respect to the policy. These payments include death benefits, endowment benefits, annuity benefits, disability benefits, benefits under A & H policies, surrender benefits and payments on supplementary contracts with and without life contingencies. (b) For policies reinsured by NORTHBROOK and retroceded under this Agreement, net benefits are the actual amounts payable by NORTHBROOK to the ceding company with respect to the policy reinsured by NORTHBROOK. These payments will include commissions and expense allowances on reinsurance accepted. 2. With respect to policies issued directly or reinsured by NORTHBROOK on or prior to the Effective Date of this Agreement, ALLSTATE's liability for net benefits will begin on the first day following the Agreement's Effective Date. This liability will include net benefits incurred on or prior to the Effective Date of this Agreement, but not paid until after the Agreement's Effective Date. 3. With respect to policies issued directly or reinsured by NORTHBROOK after the Effective Date of this Agreement, ALLSTATE's liability for net benefits will begin simultaneously with that of NORTHBROOK and will include any liability NORTHBROOK may incur as a result of a Temporary Insurance Agreement or Conditional Receipt issued in conjunction with a policy subject to this Agreement. 4. ALLSTATE's liability under this Agreement will continue as long as NORTHBROOK remains liable on the underlying coverage, and will terminate simultaneously with NORTHBROOK's termination of liability. Article III RESERVE TRANSFERS ----------------- 1. On or before the Effective Date of this Agreement, NORTHBROOK shall pay to ALLSTATE one million dollars ($1,000,000) in cash. 2. Within one-hundred and eighty (180) days following the Effective Date of this Agreement, NORTHBROOK shall pay to ALLSTATE assets with statutory book value equal to (a) less (b), where (a) and (b) are as defined below. NORTHBROOK shall also pay to ALLSTATE interest on this amount; such amount being equal to the sum of (c) and (d), as defined below. (a) Net statutory reserves determined as the portion of the following items (i) through (viii), minus items (ix) through (xi) attributable to the policies (or portion of such policies) ceded to ALLSTATE under this Agreement. The applicable portion of these items will be calculated as of the Effective Date of this Agreement and will be based on the corresponding items from NORTHBROOK's General Account statutory financial statement as filed with the Illinois Insurance Department. 2
ITEM NAIC STATEMENT REFERENCE* DESCRIPTION - ---- ------------------------- ----------- (i) Page 3, Line 1 Aggregate reserve for life policies and contracts (ii) Page 3, Line 2 Aggregate reserve for A & H policies and contracts (iii) Page 3, Line 3 Supplementary contracts without life contingencies (iv) Page 3, Lines 4.1 & 4.2 Policy and contract claims (v) Page 3, Line 9 Premium and annuity considerations received in advance (vi) Page 3, Lines 10.1, 10.2 & 10.3 Liability for premiums and other deposit funds (vii) Page 3, Lines 11.1, 11.2 & 11.3 Policy and contract liabilities not included elsewhere (viii) Page 3, Line 15 Cost of collection on premiums and annuity considerations deferred and uncollected in excess of total loading (ix) Page 2, Lines 11.1, 11.2 & 11.3 Reinsurance ceded (amounts due) (x) Page 2, Line 14 Life insurance premiums and annuity considerations deferred and uncollected (xi) Page 2, Line 15 Accident and health premiums due and unpaid
- ----------------------- /*/ References herein are to the 1986 NAIC Statutory Statement. Appropriate adjustment will be made for changes, if any, in the NAIC Statutory Statement on or after the Effective Date. 3 (b) The amount transferred under Article III, Paragraph 1. (c) All interest payments, dividend payments and mortgage payments received by NORTHBROOK, between the Effective Date of this Agreement and the date of asset transfer, on the assets transferred. (d) Interest on cash transferred at an effective rate of six percent (6%) per annum, compounded daily, from the Effective Date of this Agreement to the date of asset transfer. 3. Within sixty (60) days following the filing of ALLSTATE's 1987 Federal Income Tax return, NORTHBROOK shall pay to ALLSTATE assets with statutory book value equal to 0.4 x [(a)-(b)], where (a) and (b) are as defined below. (a) Net statutory reserves on the Effective Date of this Agreement as calculated under Article III, Paragraph 2, Item (a). (b) Net tax reserves on the Effective Date of this Agreement for the items listed in Article III, Paragraph 2, Item (a), as revalued for purposes of calculating the 1987 Federal Income Tax liability. 4. Within ninety (90) days following the recapture by NORTHBROOK of any business ceded to another reinsurer, NORTHBROOK shall pay to ALLSTATE assets with statutory book value equal to (a)x[1+(b)(c)/365], where (a) through (c) are as defined below. (a) Net Statutory reserves, as defined in Article III, Paragraph 2, Item (a), attributable to the policies so recaptured. The applicable portion of these items will be calculated as of the end of the month following the date of recapture. (b) The annual rate of interest appearing on NORTHBROOK's General Account statutory financial statement (NAIC Statement Reference/**/: Exhibit 2, Line 8) as filed with the Illinois Insurance Department as of the end of the calendar year immediately preceding the date of recapture. - ----------------------- /**/ References herein are to the 1986 NAIC Statutory Statement. Appropriate adjustments will be made for changes, if any, in the NAIC Statutory Statement on or after the Effective Date. 4 (c) The number of days between the end of the month following the date of recapture and the date when payment is made. 5. Within sixty (60) days following the filing of an Allstate Federal Income Tax return for a year in which there was a recapture by NORTHBROOK of any business ceded to another reinsurer, NORTHBROOK shall pay to ALLSTATE assets with statutory book value equal to the product of the then current Federal Income Tax rate applicable to ALLSTATE and the amount (a)-(b), where (a) and (b) are as defined below. (a) Net Statutory reserves, as defined in Article III, Paragraph 2, Item (a), attributable to the policies so recaptured. The applicable portion of these items will be calculated as of the end of the calendar year following the date of recapture. (b) Net tax reserves for the items listed in Article III, Paragraph 2, Item (a), attributable to the policies so recaptured and as revalued for purposes of calculating ALLSTATE's Federal Income Tax liability. The applicable portion of these items will be calculated as of the end of the calendar year following the date of recapture. Article IV MONTHLY SETTLEMENTS ------------------- 1. Within thirty (30) days following the end of each calendar month in which this Agreement is in effect, NORTHBROOK shall pay to ALLSTATE, with respect to eligible policies under this Agreement, a reinsurance premium equal to (or the accounting equivalent of) the sum Items (a) and (b) below less the sum of Items (c), (d) and (e) below. (a) Gross premiums (direct and reinsurance assumed) collected by NORTHBROOK during the month. (b) Reserves transferred from a NORTHBROOK Separate Account to the NORTHBROOK General Account during the month. (c) Gross premiums refunded by NORTHBROOK during the month to policyholders. (d) Reserves transferred from the NORTHBROOK General Account to a NORTHBROOK Separate Account during the month. 5 (e) Reinsurance premiums paid by NORTHBROOK during the month to reinsurers other than ALLSTATE. 2. Within thirty (30) days following the end of each calendar month in which this Agreement is in effect, ALLSTATE shall pay to NORTHBROOK a benefit and expense allowance equal to (or the accounting equivalent of) the sum of Items (a), (b), (c) and (d) below. (a) Net benefits (as defined in Article II, Paragraph 1) paid by NORTHBROOK during the month with respect to the policies ceded under this Agreement. (b) Commissions and other sales compensation incurred by NORTHBROOK during the month with respect to the policies ceded under this Agreement. (c) General insurance expenses incurred by NORTHBROOK during the month with respect to the policies ceded under this Agreement. (d) Insurance taxes, licenses and fees (excluding Federal Income Tax) incurred by NORTHBROOK during the month with respect to the policies ceded under this Agreement. Article V OVERSIGHTS ---------- ALLSTATE shall be bound as NORTHBROOK is bound, and it is expressly understood and agreed that if failure to reinsure or failure to comply with any terms of this Agreement is shown to be unintentional and the results of misunderstanding or oversight on the part of either NORTHBROOK or ALLSTATE, both NORTHBROOK and ALLSTATE shall be restored to the positions they would have occupied had no such error or oversight occurred. Article VI POLICY CHANGES -------------- If any change is made in coverage reinsured under this Agreement, NORTHBROOK shall notify ALLSTATE. 6 Article VII RECAPTURE --------- 1. If a policy reinsured under this Agreement becomes ineligible for reinsurance (as specified in Schedule A), the policy will be immediately recaptured by NORTHBROOK. 2. NORTHBROOK shall notify ALLSTATE of any such recapture. 3. Upon receiving notice of recapture, ALLSTATE shall pay to NORTHBROOK an amount equal to the net statutory reserves associated with the recaptured policy. This amount will be determined in accordance with the formula defined in Article III, Paragraph 2, Item (a), as of the end of the month following the date of recapture. Article VIII INSPECTION OF RECORDS --------------------- NORTHBROOK and ALLSTATE shall have the right, at any reasonable time, to examine at the office of the other, any books, documents, reports or records which pertain in any way to the policies reinsured under this Agreement. Article IX INSOLVENCY ---------- 1. In the event of the insolvency of NORTHBROOK, reinsurance hereunder is payable by ALLSTATE on the basis of its liability hereunder without diminution because of the insolvency of NORTHBROOK. 2. Further, in the event of the insolvency of NORTHBROOK, the liquidator, receiver or statutory successor of the insolvent NORTHBROOK shall give written notice to ALLSTATE of the pendency of an obligation of the insolvent NORTHBROOK on any policy reinsured, whereupon ALLSTATE may investigate such claim and interpose at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to NORTHBROOK or its liquidator or statutory successor. The expense thus incurred by ALLSTATE shall be chargeable, subject to court approval, against the insolvent NORTHBROOK as part of the expenses of liquidation to the extent of a proportionate share of the benefit 7 which may accrue to NORTHBROOK solely as a result of the defense undertaken by ALLSTATE. 3. All monies due NORTHBROOK or ALLSTATE under this Agreement shall be offset against each other, dollar for dollar, regardless of any insolvency of either party. Article X ARBITRATION ----------- Any dispute arising with respect to this Agreement which is not settled by mutual agreement of the parties shall be referred to arbitration. Within twenty (20) days from receipt of written notice from one party that an arbitrator has been appointed, the other party will also name an arbitrator. The two arbitrators will choose a third arbitrator and will forthwith notify the contracting parties of such choice. Each arbitrator should be a present or former officer of a life insurance company and should have not present or past affiliation with this Agreement or with either party. The arbitrators will consider this Agreement as an honorable engagement rather than merely as a legal obligation, and will be relieved of all judicial formalities. The decision of the arbitrators will be final and binding upon the parties hereto. Each party shall bear the expenses of its own arbitrator and shall jointly and equally bear the expenses of the third arbitrator and of the arbitration. Any such arbitration will take place at the Home Office of NORTHBROOK, unless some other location is mutually agreed upon. Article XI PARTIES TO AGREEMENT -------------------- This Agreement is solely between NORTHBROOK and ALLSTATE. The acceptance of reinsurance hereunder does not create any right or legal relation whatever between ALLSTATE and any party in interest under any policy reinsured hereunder. NORTHBROOK shall be and remain solely liable to any insured, contract owner, or beneficiary under any policy reinsured hereunder. 8 Article XII DURATION OF AGREEMENT --------------------- This Agreement will be effective as of December 31, 1987, and will be unlimited as to its duration; provided, however, it may be terminated with respect to the reinsurance of new business by either party giving sixty (60) days prior written notice of termination to the other party. IN WITNESS HEREOF, the parties to this Agreement have caused it to be duly executed in duplicate by their respective officers on the date shown below. NORTHBROOK LIFE INSURANCE COMPANY of Northbrook, Illinois By /s/ James D. Clements ------------------------------- Title Assistant Vice President, Assistant Secretary and Assistant General Counsel Date October 20, 1987 ALLSTATE LIFE INSURANCE COMPANY of Northbrook, Illinois By /s/ Joseph A. Haas ------------------------------- Title Vice President and Controller Date October 20, 1987 9
EX-23.A 5 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 (a) CONSENT OF INDEPENDENT ACCOUNTANTS INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 3 to Registration Statement No. 033-84480 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 EX-23.B 6 CONSENT OF ATTORNEYS EXHIBIT 23 (b) CONSENT OF ATTORNEYS ROUTIER, MACKEY AND JOHNSON, P.C. Attorneys at Law 1700 K. Street, N.W. Suite 1003 Washington, D.C. 20006 (202) 296-4852 September 26, 1994 CONSENT OF COUNSEL We hereby consent to the reference to this firm under the caption "Legal Matters" in the prospectus forming part of the Registration statement on Form S-1 to be filed with the Securities and Exchange Commission on or about September 27, 1994, for certain group and individual deferred annuity contracts to be issued by Northbrook Life Insurance Company. Routier, Mackey and Johnson, P.C. By: /s/ GREGOR B. MCCURDY -------------------------- Gregor B. McCurdy EX-24 7 POWERS OF ATTORNEY EXHIBIT NO. (24) POWERS OF ATTORNEY POWERS OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY "CUSTOM ANNUITY PLUS" 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 Plus 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 POWERS OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY "CUSTOM ANNUITY PLUS" 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 Plus 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 POWERS OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY "CUSTOM ANNUITY PLUS" 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 Plus 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 POWERS OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY "CUSTOM ANNUITY PLUS" 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 Plus 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 POWERS OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY "CUSTOM ANNUITY PLUS" 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 Plus 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 and Chief Operating Officer POWERS OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY "CUSTOM ANNUITY PLUS" 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 Plus 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 and Controller POWERS OF ATTORNEY WITH RESPECT TO THE NORTHBROOK LIFE INSURANCE COMPANY "CUSTOM ANNUITY PLUS" 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 Plus 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 EX-99 8 RESOLUTION OF BOARD OF DIRECTORS EXHIBIT 99 RESOLUTION OF BOARD OF DIRECTORS I, Robert S. Seiler, hereby certify that the attached is a true, complete and correct copy of a resolution of the Board of Directors of Northbrook Life Insurance Company, with respect to the Northbrook Life Market Value Adjusted Contract, as adopted on March 1, 1991. IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of said corporation to be affixed this 5th day of March, 1991. /s/ Robert S. Seiler ---------------------------- Robert S. Seiler Senior Vice President, Secretary and General Counsel (Corporate Seal) WRITTEN CONSENT OF ALL DIRECTORS OF NORTHBROOK LIFE INSURANCE COMPANY MARCH 1, 1991 Pursuant to the provisions of Section 10 of the Illinois Insurance Code of 1937, we the undersigned being all of the Directors of Northbrook Life Insurance Company, an Illinois Corporation, do hereby consent to the following actions being taken by and on behalf of Northbrook Life Insurance Company. BE IT RESOLVED, That, pursuant to the Company's plan to issue market value adjusted annuity contracts ("Contracts), the appropriate officers, with such assistance from the Company's auditors, legal counsel and independent consultants or others as they may require, be, and hereby are, authorized and directed to take all action necessary to: (a) register the Contracts on a continuous basis and in such amounts as the officers of the Company shall from time to time deem appropriate under the Securities Act of 1933; and (b) take all other actions which are necessary in connection with the offering of said Contracts for sale in order to comply with the Securities exchange Act of 1934, the Securities Act of 1933, and other applicable federal laws, including the filing of any amendments to registration statements, any undertakings or other requirements of applicable federal laws, as the officers of the Company shall deem necessary or appropriate; and BE IT FURTHER RESOLVED, That the Senior Vice President, Secretary and General Counsel, and the Vice President of the Company's Dean Witter Profit Center, and either of them with full power to act without the other, hereby are severally authorized and empowered to prepare, execute and cause to be filed with the Securities and Exchange Commission on behalf of the Company as issuer of the Contracts, a Registration Statement under the Securities Act of 1933 registering the Contracts, and any and all amendments to the foregoing on behalf of the Company and on behalf of and as attorneys for the principal executive officer and/or the principal financial officer and/or the principal accounting officer and/or any other officer of the Company; and BE IT FURTHER RESOLVED, That the Senior Vice President, Secretary, and General Counsel is hereby appointed as agent for service under any such registration statement and any and all amendments thereof, and is duly authorized to receive communications and notices from the Securities and Exchange Commission under the Securities Act of 1933; and BE IT FURTHER RESOLVED, That the appropriate officers of the Company be, and they hereby are, authorized on behalf of the Company to take any and all action that they may deem necessary or advisable in order to sell the Contracts, including any registrations, filings and qualifications of the Company, its officers, agents and employees, and the Contracts under the insurance and securities laws of any states of the United States of America or other jurisdictions, and in connection therewith, to prepare execute, deliver and file all such applications, reports, covenants, resolutions, applications for exemptions, consents to service of process and other papers and instruments as may be required under such laws, and to take any and all further action which said officers or counsel of the Company may deem necessary or desirable (including entering into whatever agreements and contracts may be necessary) in order to maintain such registrations or qualifications for as long as said officers or counsel deem them to be in the best interest of the Company; and BE IF FURTHER RESOLVED, That the appropriate officers of the Company, and each of them, are hereby authorized to execute and deliver all such documents and papers and to do or cause to be done all such acts and things as they may deem necessary or desirable to carry out the foregoing resolutions and the intent and purposes thereof. UNDERSTANDING OF DIRECTORS - -------------------------- IT IS EXPRESSLY UNDERSTOOD by all of the undersigned Directors of the Corporation that this WRITTEN CONSENT shall and does have the same legal effect as an unanimous vote of the same at a duly called, convened and held Director's meeting. IN WITNESS WHEREOF, all of the Directors of Northbrook Life Insurance Company have signed this WRITTEN CONSENT as of the day and year first above written. /s/ Marla G. Friedman - ---------------------------------- MARLA G. FRIEDMAN /s/ Peter H. Heckman - ---------------------------------- PETER H. HECKMAN /s/ Louis G. Lower, II - ---------------------------------- LOUIS G. LOWER, II /s/ David E. McPherson - ---------------------------------- DAVID E. McPHERSON /s/ Myron J. Resnick - ---------------------------------- MYRON J. RESNICK /s/ Robert S. Seiler - ---------------------------------- ROBERT S. SEILER
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