GLENBROOK LIFE AND ANNUITY COMPANY
MODIFIED SINGLE PREMIUM
VARIABLE LIFE INSURANCE CONTRACTS
3100 SANDERS ROAD
NORTHBROOK, IL 60062
TELEPHONE (800) 776-6978
This prospectus describes the AIM Lifetime Plus (SM) Variable Life, a modified
single premium variable life insurance contract (the "Contract") offered by
Glenbrook Life and Annuity Company (the "Company") for prospective insured
persons ages 0-85. The Contract lets the Contract Owner pay a significant single
premium and subject to restrictions, additional premiums.
The Contracts are modified endowment contracts for federal income tax purposes,
except in certain cases described under "Federal Tax Considerations," page 20. A
LOAN, DISTRIBUTION OR OTHER AMOUNT RECEIVED FROM A MODIFIED ENDOWMENT CONTRACT
DURING THE LIFE OF THE INSURED WILL BE TAXED TO THE EXTENT OF ANY ACCUMULATED
INCOME IN THE CONTRACT. ANY AMOUNTS THAT ARE TAXABLE WITHDRAWALS WILL BE SUBJECT
TO A 10% ADDITIONAL PENALTY TAX, WITH CERTAIN EXCEPTIONS.
The minimum initial premium payment that the Company will accept is $10,000.
Premiums are allocated to Glenbrook Life A I M Variable Life Separate Account A
(the "Variable Account"). The Variable Account invests in shares of the
portfolios of the AIM Variable Insurance Funds, Inc. (the "Fund Series"). The
Fund Series currently has thirteen funds (the "Funds") available for investment
by the Variable Account: (1) AIM V.I. Aggressive Growth Fund; (2) AIM V.I.
Balanced Fund; (3) AIM V.I. Capital Appreciation Fund; (4) AIM V.I. Capital
Development Fund; (5) AIM V.I. Diversified Income Fund; (6) AIM V.I. Global
Utilities Fund; (7) AIM V.I. Government Securities Fund; (8) AIM V.I. Growth
Fund; (9) AIM V.I. Growth and Income Fund; (10) AIM V.I. High Yield Fund; (11)
AIM V.I. International Equity Fund; (12) AIM V.I. Money Market Fund; and (13)
AIM V.I. Value Fund. Not all of the Funds may be available for investment under
your Contract. You should check with your representative for further information
on the availability of the Funds. The investment advisor for the AIM V.I.
Aggressive Growth Fund has determined that, due to the limited availability of
common stocks of small capitalized companies that meet the investment criteria
for the AIM V.I. Aggressive Growth Fund, the Fund will be closed to new
purchasers as soon as reasonably practicable once the Fund achieves a size in
assets under management of $200 million. To the extent that the Fund is closed,
any Owner of a Contract that maintains his allocation to the Fund will be
permitted to allocate additional premium payments to the Fund despite the
closure of the Fund to new allocations.
There is no guaranteed minimum Account Value for a Contract. The Account Value
of a Contract will vary up or down to reflect the investment experience of the
underlying Funds of the sub-accounts of the Variable Account (the "Variable
Sub-accounts") to which the Contract Owner has allocated premiums. The Contract
Owner bears the entire investment risk for all amounts so allocated. The
Contract continues in effect while the Cash Surrender Value is sufficient to pay
the monthly charges under the Contract (the "Monthly Deduction Amount").
The Contract provides for an Initial Death Benefit shown on the Contract Data
page. The death benefit (the "Death Benefit") payable under a Contract may be
greater than the Initial Death Benefit but so long as the Contract continues in
effect, if no withdrawals are made, will never be less than the Initial Death
Benefit. The Account Value will, and under certain circumstances the Death
Benefit may, increase or decrease based on the investment experience of the
underlying Funds of the Variable Sub-accounts to which premiums have been
allocated. At the death of the Insured, the Company will pay a Death Benefit to
the beneficiary.
IT MAY NOT BE ADVANTAGEOUS TO PURCHASE VARIABLE LIFE INSURANCE AS A REPLACEMENT
FOR YOUR CURRENT LIFE INSURANCE OR IF YOU ALREADY OWN A VARIABLE LIFE INSURANCE
CONTRACT.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED BY THE CURRENT PROSPECTUS FOR AIM
VARIABLE INSURANCE FUNDS, INC. WHICH CONTAINS A FULL DESCRIPTION OF THE FUNDS.
BOTH PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES 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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE CONTRACTS AND THE INVESTMENTS IN THE FUND SERIES ARE NOT DEPOSITS, OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THE CONTRACTS AND SHARES
OF THE FUND SERIES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. THE CONTRACTS ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
The Contracts may not be available in all states.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER 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.
The date of this Prospectus is May 1, 1998.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY....................................................
SPECIAL TERMS..............................................
THE COMPANY................................................
THE VARIABLE ACCOUNT.......................................
General................................................
THE FUND SERIES............................................
AIM Variable Insurance Funds, Inc......................
Investment Advisor for the Funds.......................
THE CONTRACT...............................................
Application for a Contract.............................
Premiums...............................................
Allocation of Premiums.................................
Accumulation Unit Values...............................
DEDUCTIONS AND CHARGES.....................................
Monthly Deductions.....................................
Cost of Insurance Charge...............................
Tax Expense Charge.....................................
Administrative Expense Charge..........................
Other Deductions.......................................
Mortality and Expense Risk Charge......................
Annual Maintenance Fee.................................
Taxes Charged Against the Variable Account.............
Charges Against the Funds..............................
Withdrawal Charge......................................
Due and Unpaid Premium Tax Charge......................
CONTRACT BENEFITS AND RIGHTS...............................
Death Benefit..........................................
Accelerated Death Benefit..............................
Account Value..........................................
Transfer of Account Value..............................
Dollar Cost Averaging..................................
Automatic Portfolio Rebalancing........................
Contract Loans.........................................
Amount Payable on Surrender of the Contract............
Partial Withdrawals....................................
Maturity...............................................
Lapse and Reinstatement................................
Cancellation and Exchange Rights.......................
Confinement Waiver Benefit.............................
Suspension of Valuation, Payments and Transfers........
State Exceptions.......................................
Last Survivor Contracts................................
OTHER MATTERS..............................................
Voting Privileges......................................
Statements to Contract Owners..........................
Limit on Right to Contest..............................
Misstatement as to Age and Sex.........................
Payment Options........................................
Beneficiary............................................
Assignment.............................................
Dividends..............................................
EXECUTIVE OFFICERS AND DIRECTORS OF THE
COMPANY....................................................
DISTRIBUTION OF THE CONTRACTS..............................
SAFEKEEPING OF THE VARIABLE ACCOUNT'S
ASSETS.....................................................
FEDERAL TAX CONSIDERATIONS.................................
Introduction...........................................
Taxation of the Company and the Variable Account.......
Taxation of Contract Benefits..........................
Modified Endowment Contracts...........................
Diversification Requirements...........................
Ownership Treatment....................................
Policy Loan Interest...................................
ADDITIONAL INFORMATION ABOUT THE
COMPANY....................................................
LEGAL PROCEEDINGS..........................................
LEGAL MATTERS..............................................
REGISTRATION STATEMENT.....................................
EXPERTS....................................................
FINANCIAL INFORMATION......................................
FINANCIAL STATEMENTS. ............................... F-1
APPENDIX A. ............................................ A-1
<PAGE>
SUMMARY
NOTE: A glossary of Special Terms used in this Prospectus appears at page 6,
immediately following this Summary.
The Contract
The Contracts are life insurance contracts with death benefits, cash values, and
other traditional life insurance features. The Contracts are "variable." This
means that unlike the fixed benefits of ordinary whole life insurance, the
Account Value of a Contract will increase or decrease based on the investment
experience of the underlying Funds of the Variable Sub-accounts to which the
Contract Owner has allocated premiums. The Death Benefit also may increase or
decrease under certain circumstances, but so long as the Contract remains in
effect, the Death Benefit will not decrease below the Initial Death Benefit if
no withdrawals are made. The Contracts are credited with units (the
"Accumulation Units") to calculate cash values. The Contract Owner may transfer
the Account Value among the Variable Sub-accounts.
The Contracts can be issued on a single life or "last survivor" basis. For a
discussion of how last survivor Contracts operate differently from single life
Contracts, see "Last Survivor Contracts," page 16.
The Variable Account And The Funds
The Glenbrook Life A I M Variable Life Separate Account A (the "Variable
Account") funds the variable life insurance Contracts offered by this
prospectus. The Variable Account is a unit investment trust registered as such
under the Investment Company Act of 1940. It consists of multiple sub-accounts
(the "Variable Sub-Accounts"), each of which invests in a corresponding Fund.
Applicants should read the prospectus for the Fund Series in connection with the
purchase of a Contract. The investment objectives of each of the Funds are
briefly summarized below under "the Fund Series," page 7. The Fund Series has a
total of thirteen Funds available under the Contract. The Funds include: (1) AIM
V.I. Aggressive Growth Fund; (2) AIM V.I. Balanced Fund; (3)AIM V.I. Capital
Appreciation Fund; (4) AIM V.I. Capital Development Fund; (5) AIM V.I.
Diversified Income Fund; (6) AIM V.I. Global Utilities Fund; (7) AIM V.I.
Government Securities Fund; (8) AIM V.I. Growth Fund; (9) AIM V.I. Growth and
Income Fund; (10) AIM V.I. High Yield Fund (11) AIM V.I. International Equity
Fund; (12) AIM V.I. Money Market Fund; and (13) AIM V.I. Value Fund. The assets
of each Fund are held separately from the other Funds and each has distinct
investment objectives and policies which are described in the accompanying
prospectus for the Fund Series. Not all of the Funds may be available for
investment under your Contract.
Premiums
The Contract requires the Contract Owner to pay an initial premium of at least
$10,000. Additional premium payments may be made subject to the following
conditions:
- only one premium payment is allowed in any Contract Year;
- the minimum premium payment is $500;
- the attained age of the insured must be less than age 86; and
- absent submission of new evidence of insurability of the insured, the
maximum additional premium payment permitted in a Contract Year is the
"Guaranteed Additional Payment." The Guaranteed Additional Payment is
the lesser of $5,000 or a percentage of the initial premium payment
(5% for attained ages 40-70, and 0% for attained ages 20-39 and
71-85).
Additional premium payments may require an increase in the Specified Amount for
the Contract to meet the definition of a life insurance contract under the
Internal Revenue Code. Other than for the "Guaranteed Additional Payment," the
Company reserves the right to obtain satisfactory evidence of insurability
before accepting any additional premium payments requiring an increase in the
Specified Amount. The Company reserves the right to reject an additional premium
payment for any reason. Additional premiums may also be paid at any time and in
any amount necessary to avoid termination of the Contract.
Deductions And Charges
On each Monthly Activity Date, the Company will deduct a Monthly Deduction
Amount from the Account Value. The Monthly Deduction Amount will be made pro
rata from each Variable Sub-Account to which Account Value is allocated. The
Monthly Deduction Amount includes a cost of insurance charge, a tax expense
charge and an administrative expense charge. The monthly cost of insurance
charge is to cover the Company's anticipated mortality costs. The Company will
deduct monthly from the Account Value a tax expense charge equal to an annual
rate of 0.40% for the first ten Contract Years. This charge compensates the
Company for premium taxes imposed by various states and local jurisdictions and
for federal taxes resulting from the application of Section 848 of the Code. The
charge includes a premium tax deduction of 0.25% of Account Value and a federal
tax deduction of 0.15% of Account Value. The premium tax deduction represents an
average premium tax of 2.5% of premiums over ten years. Because this charge
represents an average premium tax of 2.5% (premium taxes vary by state and can
range from 0-3.5%) this charge may not correspond to the premium tax of your
state. The Company will deduct from the Account Value a monthly administrative
charge equal to an annual rate of 0.25%. This charge compensates the Company for
administrative expenses incurred in the administration of the Variable Account
and the Contracts. The Company will also deduct from the Variable Account a
daily charge equal to an annual rate of 0.90% of average daily net assets for
the mortality risks and expense risks the Company assumes in relation to the
Contracts. If the Cash Surrender Value is not sufficient to cover a Monthly
Deduction Amount due on any Monthly Activity Date, the Contract may lapse. See
"Deductions and Charges -- Monthly Deductions," page 10, and "Contract Benefits
and Rights -- Lapse and Reinstatement," page 15.
An Annual Maintenance Fee of $35 will be deducted on each Contract Anniversary
from all Variable Sub-Accounts to which Account Value is allocated, in
proportion to the amounts so allocated. This fee will be waived if total
premiums paid are $50,000 or more. See "Deductions and Charges -- Other
Deductions -- Annual Maintenance Fee," page 11.
Applicants should review the prospectus for the Fund Series which accompanies
this prospectus for a description of the charges and expenses borne by the Funds
in connection with their operations. See "Deductions and Charges -- Other
Deductions -- Charges Against the Funds," page 12.
Withdrawals in excess of the Free Withdrawal Amount will be subject to a
withdrawal charge as set forth below:
<TABLE>
Percentage Of
Contract Year Initial Premium Withdrawn
- ------------- -------------------------
<S> <C>
1..................................... 7.75%
2..................................... 7.75%
3..................................... 7.75%
4..................................... 7.25%
5..................................... 6.25%
6..................................... 5.25%
7..................................... 4.25%
8..................................... 3.25%
9..................................... 2.25%
10+................................... 0.00%
</TABLE>
The Withdrawal Charge is imposed to cover a portion of the sales expense
incurred by the Company in distributing the Contracts. This expense includes
agents' commissions, advertising and the printing of prospectuses. See
"Deductions and Charges -- Other Deductions -- Withdrawal Charge," page 12.
During the first nine Contract Years, an additional premium tax charge will be
imposed on full or partial withdrawals. This charge ranges from a maximum of
2.25% in the first Contract Year, decreasing .25% in each of the next nine
Contract Years, with no charge thereafter. See "Deductions and Charges -- Other
Deductions -- Due and Unpaid Premium Tax Charge," page 12.
For a discussion of the tax consequences of a full or a partial withdrawal, see
"Federal Tax Considerations," page 20.
Death Benefit
At the death of the Insured while the Contract is in force, we will pay the
Death Benefit (less any Indebtedness and certain due and unpaid Monthly
Deduction Amounts) to the beneficiary. The Death Benefit determined on the date
of the Insured's death is the greater of: (1) the Specified Amount; or (2) the
Account Value multiplied by the death benefit ratio as found in the Contract.
See "Contract Benefits and Rights -- Death Benefit," page 13.
Account Value
The Account Value of the Contract will increase or decrease to reflect: (1) the
investment experience of the Funds underlying the Variable Sub-accounts to which
Account Value is allocated; and (2) deductions for the mortality and expense
risk charge, the Monthly Deduction Amount, and the Annual Maintenance Fee. There
is no minimum guaranteed Account Value and the Contract Owner bears the risk of
the investment in the Variable Sub-accounts. See "Contract Benefits and Rights
- -- Account Value," page 13.
Contract Loans
A Contract Owner may obtain one or both of two types of cash loans from the
Company. Both types of loans are secured by the Contract. The maximum amount
available for such loans is 90% of the Contract's Cash Value, less the amount of
all loans existing on the date of the loan request (including loan interest to
the next Contract Anniversary), less any Annual Maintenance Fee due on or before
the next Contract Anniversary, and less any due and unpaid Monthly Deduction
Amounts. See "Contract Benefits and Rights -- Contract Loans," page 14.See also
"Federal Tax Considerations," page 20, for a discussion of the potential tax
consequences.
Lapse
Under certain circumstances a Contract may terminate if the Cash Surrender Value
on any Monthly Activity Date is less than the required Monthly Deduction Amount.
The Company will give written notice to the Contract Owner and a 61 day grace
period during which additional amounts may be paid to continue the Contract. See
"Contract Benefits and Rights -- Contract Loans," page 14 and "Lapse and
Reinstatement," page 15.
Cancellation And Exchange Rights
A Contract Owner has a limited right to return the Contract for cancellation.
This right to return exists during the free-look period. The free-look period is
a number of days (which varies by state) as specified in your Contract. The
Contract Owner may return the Contract for cancellation by mail or hand delivery
to the Company or to the agent who sold the Contract within the free-look period
following delivery of the Contract to the Contract Owner. If the Contract is
returned within the free-look period, the Company will return to the Contract
Owner within 7 days thereafter the premiums paid for the Contract adjusted to
reflect any investment gain or loss resulting from allocation to the Variable
Account prior to the date of cancellation. Certain states may require a return
of premium without such adjustments. In states where the Company is required to
return the premiums paid upon a free-look of the Contract and where the
procedure has been approved by the state, the Company reserves the right to
allocate all premium payments made prior to the expiration of the free-look
period to the AIM V.I. Money Market Sub-account.
Once the Contract is in effect, it may be exchanged during the first 24 months
after its issuance for a permanent life insurance contract on the life of the
Insured without submitting proof of insurability. See "Contract Benefits and
Rights -- Cancellation and Exchange Rights," page 16.
Tax Consequences
The current Federal tax law generally excludes all death benefit payments from
the gross income of the Contract beneficiary. The Contracts generally will be
treated as modified endowment contracts. This status does not affect the
Contracts' classification as life insurance, nor does it affect the exclusion of
death benefit payments from gross income. However, loans, distributions or other
amounts received under a modified endowment contract are taxed to the extent of
accumulated income in the Contract (generally, the excess of Account Value over
premiums paid) and may be subject to a 10% penalty tax. See "Federal Tax
Considerations," page 20.
Personalized Illustrations
The Company will furnish, upon request and at no charge, a personalized
illustration reflecting the proposed Insured's age, sex, and underwriting
classification. Where applicable, the Company will also furnish upon request an
illustration for a Contract that is not affected by the sex of the Insured.
Personalized illustrations provided by the Company upon request will be based,
as appropriate, on the methodology and format of the hypothetical illustrations
that the Company has included in its registration statement for the Contracts.
See "Registration Statement," page __, for further information.
Fees and Expenses
The following tables are designed to help you understand the various fees and
expenses that you will bear, directly or indirectly, as a Contract Owner. The
first table describes the Contract charges and deductions you will directly bear
under the Contracts. The second table describes the fees and expenses of the
Funds that you will bear indirectly when you purchase a Contract(s). For
further information, see "Deductions and Charges" on page ___ .
<TABLE>
<CAPTION>
CONTRACT CHARGES AND DEDUCTIONS
Account Value Charges (deducted monthly and shown as an annualized percentage of
Account Value):(1)
<S> <C> <C>
Current(2) Maximum (Monthly Charge)
---------- ------------------------
Cost of Insurance Charge............ Single Life Single Life
----------- -----------
Standard - 0.65% (Contract Years 1-10) Standard-Ranges from $0.06 per $1,000 of net
- 0.55% (Contract Years 11+) amount at risk (younger ages) up to $82.50 per
$1,000 of net amount at risk (age 99)
Special -1.00% (Contract Years 1-10) Special-Ranges from $0.12 per $1,000 of net
-0.90% (Contract Years 11+) amount at risk (younger ages) up to $82.92
per $1,000of net amount at risk (age 99).
Joint Life Joint Life
---------- ----------
Standard -0.30% (Contract Years 1-10) Standard-Ranges from $0.00015 per $1,000 of net
-0.20% (Contract Years 11+) amount at risk (younger ages) up to $61.995
per $1,000 of net amount at risk (age 99)
Special -0.65% (Contract Years 1-10) Special-Ranges from $0.00061 per $1,000 of net
-0.55% (Contract Years 11+) amount at risk (younger ages) up to $78.71083
(age 99).
</TABLE>
Administrative Expense Charge........ 0.25%
Tax Expense Charge................... 0.40%(3)
Annual Separate Account Charges (deducted daily and shown as a percentage of
average net assets):
Mortality and Expense Risk Charge.... 0.90%
Federal Income Tax Charge............ Currently none(4)
Annual Maintenance Fee:................. $35(5)
Transfer Charges:....................... $25(6)
Maximum Withdrawal Charge: ............. 7.75% of initial premium withdrawn(7)
Due and Unpaid Premium Tax Charge: ..... 2.25% of initial premium withdrawn(8)
- ----------------------
(1) Except for the maximum or "guaranteed" cost of insurance charge, which is
expressed as a range of monthly costs per thousand dollars of net amount at
risk. The net amount at risk is the difference between the Death Benefit
and the Account Value. See "Cost of Insurance Charge," page ___.
(2) The actual amount of insurance purchased will depend on the insured's age,
sex (where permitted under state law) and rate class. See "Cost of
Insurance Charge," page __. The current cost of insurance charge under the
Contracts will never exceed the guaranteed cost of insurance charge shown
in your Contract.
(3) This charge includes a premium tax deduction of 0.25%, and a federal tax
deduction of 0.15%, of Account Value. This charge is assessed only during
the first 10 Contract Years. See "Tax Expense Charge," page ___.
(4) The Company does not currently assess a charge for federal income taxes
that may be attributable to the operations of the Variable Account, though
it reserves the right to do so in the future. See "Taxes Charged Against
the Variable Account," page ___.
(5) This fee is waived if total premiums paid are $50,000 or more.
(6) No charges will be imposed on the first 12 transfers in any Contract Year.
The Company reserves the right to assess a $10 charge for each transfer in
excess of 12 in any Contract Year, excluding transfers due to dollar cost
averaging.
(7) This charge applies only upon withdrawals of the initial premium paid at
the time you purchase the Contract. It does not apply to withdrawals of any
additional premium payments paid under a Contract. The withdrawal charge
declines to 0% over ten years and is imposed to cover a portion of the
sales expense incurred by the Company in distributing the Contracts. See
"Deductions and Charges -- Other Deductions -- Withdrawal Charge," page __.
No withdrawal charge will be imposed on any withdrawal to the extent that
aggregate withdrawal charges and the federal tax portion of the tax expense
charge imposed would otherwise exceed 9% of total premiums paid prior to
the Withdrawal. See "Deductions and Charges," page __ and "Withdrawal
Charge," page __. Withdrawal Charges will be assessed on withdrawals in
excess of the Free Withdrawal Amount.
(8) This charge applies only upon withdrawals of the initial premium paid at
the time of Contract purchase. It does not apply to withdrawals of any
additional payments paid under a Contract. The charge for due and unpaid
premium tax declines by 0.25% each year over nine years resulting in 0%
charge in Contract Year 10. The charge is imposed on full or partial
withdrawals in excess of the Free Withdrawal Amount.
<TABLE>
<CAPTION>
FUND EXPENSES
(AS A PERCENTAGE OF FUND NET ASSETS*)
Total Fund
Management Other Annual
Fund Fees Expenses Expenses
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund**......................... 0.80% 0.36% 1.16%
AIM V.I. Balanced Fund**.................................. 0.75% 0.44% 1.19%
AIM V.I. Capital Appreciation Fund........................ 0.63% 0.05% 0.68%
AIM V.I. Capital Development Fund**....................... 0.75% 0.44% 1.19%
AIM V.I. Diversified Income Fund.......................... 0.60% 0.20% 0.80%
AIM V.I. Global Utilities Fund............................ 0.65% 0.63% 1.28%
AIM V.I. Government Securities Fund....................... 0.50% 0.37% 0.87%
AIM V.I. Growth Fund...................................... 0.65% 0.08% 0.73%
AIM V.I. Growth and Income Fund........................... 0.63% 0.06% 0.69%
AIM V.I. High Yield Fund**................................ 0.63% 0.48% 1.11%
AIM V.I. International Equity Fund........................ 0.75% 0.18% 0.93%
AIM V.I. Money Market Fund................................ 0.40% 0.19% 0.59%
AIM V.I. Value Fund....................................... 0.62% 0.08% 0.70%
</TABLE>
* A I M Advisors, Inc., ("AIM") may from time to time voluntarily waive or
reduce its respective fees. Effective May 1, 1998, the Funds reimburse AIM
in an amount up to 0.25% of the average net asset value of each Fund, for
expenses incurred in providing, or assuring that participating insurance
companies provide certain administrative services. Currently, the fee only
applies to the average net asset value of each Fund in excess of the net
asset value of each Fund as calculated on April 30, 1998.
** For the funds designated above with a double asterisk, the fees and
expenses are based on estimated expenses for the current fiscal year.
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
Account Value: The aggregate value under a Contract of the Variable Sub-Accounts
and the Loan Account.
Accumulation Unit: An accounting unit of measure used to calculate the value of
a Variable Sub-Account.
Age: The Insured's age at the Insured's last birthday.
Cash Value: The Account Value less any applicable withdrawal charges and due and
unpaid Premium Tax Charges.
Cash Surrender Value: The Cash Value less all Indebtedness and the Annual
Maintenance Fee, if applicable.
Code: The Internal Revenue Code of 1986, as amended.
Contract: The Glenbrook Life and Annuity Company Modified Single Premium
Variable Life Insurance Contract, known as the AIM Lifetime Plus(SM) Variable
Life Insurance Contract and described in this prospectus. In some states, the
Contracts may be issued in the form of a group Contract. In those states,
certificates will be issued evidencing a purchaser's rights under the group
Contract. Certificates are issued under group Contracts issued to the Financial
Services Group Insurance Trust, an Illinois Trust. The terms "Contract" and
"Contract Owner," as used in this prospectus, refer to and include such a
certificate and certificate owner, respectively.
Contract Anniversary: The same day and month as the Contract Date for each
subsequent year the Contract remains in force.
Contract Date: The date on or as of which coverage under a Contract becomes
effective and the date from which Contract Anniversaries, Contract Years and
Contract months are determined.
Contract Owner: The person having rights to benefits under the Contract during
the lifetime of the Insured; the Contract Owner may or may not be the Insured.
Contract Years: Annual periods computed from the Contract Date.
Death Benefit: The greater of (1) the Specified Amount or (2) the Account Value
on the date of death multiplied by the death benefit ratio as specified in the
Contract.
Free Withdrawal Amount: The amount of a surrender or partial withdrawal that is
not subject to a Withdrawal Charge. This amount in any Contract Year is 10% of
total premiums paid.
Initial Death Benefit: The Initial Death Benefit under a Contract is shown on
the Contract Data page.
Indebtedness: All Contract loans, if any, and accrued loan interest.
Insured: The person whose life is insured under a Contract.
Loan Account: An account in the Company's General Account, established for any
amounts transferred from the Variable Sub-Accounts for requested loans. The Loan
Account credits a fixed rate of interest that is not based on and is different
from the investment experience of the Variable Account.
Monthly Activity Date: The day of each month on which the Monthly Deduction
Amount is deducted from the Account Value of the Contract. Monthly Activity
Dates occur on the same day of the month as the Contract Date. If there is no
date equal to the Monthly Activity Date in a particular month, the Monthly
Activity Date will be the last day of that month.
Monthly Deduction Amount: A deduction on each Monthly Activity Date for the cost
of insurance charge, the tax expense charge and the administrative expense
charge.
Specified Amount: The minimum death benefit under a Contract, equal to the
Initial Death Benefit on the Contract Date. Thereafter it may change in
accordance with the terms of the partial withdrawal and the subsequent premium
provisions of the Contract.
Valuation Day: Every day the New York Stock Exchange is open for trading. The
value of the Variable Account is determined at the close of regular trading on
the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on each valuation
day.
Valuation Period: The period between the close of regular trading on the New
York Stock Exchange on successive Valuation Days.
Variable Account: Glenbrook Life AIM Variable Life Separate Account A, an
account established by the Company to separate the assets funding the Contracts
from other assets of the Company.
Variable Sub-Account: A portion of the Variable Account invested in shares of a
corresponding Fund. The investment performance of each Variable Sub-account is
linked directly to the investment performance of a corresponding Fund.
<PAGE>
THE COMPANY
The Company is the issuer of the Contract. The Company is a stock life insurance
company organized under the laws of Illinois in 1992. The Company was originally
organized under the laws of Indiana in 1965. From 1965 to 1983, the Company was
known as "United Standard Life Assurance Company" and from 1983 to 1992, the
Company was known as "William Penn Life Assurance Company of America." The
Company is licensed to operate in the District of Columbia and all states except
New York. The Company intends to market the Contract in those jurisdictions in
which it is licensed to operate. The Company's home office is located at 3100
Sanders Road, Northbrook, Illinois 60062.
The Company is a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), a stock life insurance company incorporated under the laws of
Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance
Company ("Allstate"), a stock property-liability insurance company incorporated
under the laws of Illinois. All of the outstanding capital stock of Allstate is
owned by The Allstate Corporation (the "Corporation").
THE VARIABLE ACCOUNT
General
Glenbrook Life A I M Variable Life Separate Account A (the "Variable Account")
is a separate account of the Company established on January 15, 1996 pursuant to
the laws of Illinois. The Variable Account is organized as a unit investment
trust and registered as such with the Securities and Exchange Commission (the
"Commission") under the Investment Company Act of 1940 (the "1940 Act"). The
Variable Account meets the definition of a "separate account" under the federal
securities laws. Under Illinois law, the assets of the Variable Account are held
exclusively for the benefit of Contract Owners and persons entitled to payments
under the Contracts. The assets of the Variable Account are not chargeable with
liabilities arising out of any other business which the Company may conduct.
THE FUND SERIES
The Variable Account will invest in shares of the AIM Variable Insurance Funds,
Inc. (the "Fund Series"). The Fund Series is registered with the Commission as
an open-end, series, management investment company. Registration of the Fund
Series does not involve supervision of its management, investment practices or
policies by the Commission. The Fund Series has thirteen portfolios (the "Funds"
or, each, a "Fund"). The Funds are designed to provide investment vehicles for
variable insurance contracts of various insurance companies, in addition to the
Variable Account.
It is possible that in the future it may be disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
a Fund simultaneously. Although neither the Company nor the Fund Series
currently foresees any such disadvantages either to variable life insurance or
variable annuity contract owners, the Fund Series' Board of Directors will
monitor events in order to identify any material conflicts between variable life
and variable annuity contract owners and to determine what action, if any,
should be taken in response. If the Board of Directors were to conclude that
separate funds should be established for variable life and variable annuity
separate accounts, the Company would bear the attendant expenses.
All investment income of and other distributions to each Variable Sub-Account
arising from the corresponding Fund are reinvested in shares of that Fund at net
asset value. The income and both realized and unrealized gains or losses on the
assets of each Variable Sub-Account are therefore separate and are credited to
or charged against the Variable Sub-Account without regard to the income, gains
or losses of any other Variable Sub-Account or from any other business of the
Company. The Company will purchase shares in the Funds in connection with
premiums allocated to the corresponding Variable Sub-Account in accordance with
Contract Owners' directions and will redeem shares in the Funds to meet Contract
obligations or make adjustments in reserves, if any. The Fund Series is required
to redeem Fund shares at net asset value and to make payment of such redemptions
within seven days.
The Company reserves the right, subject to compliance with the law as then in
effect, to make additions to, deletions from, or substitutions for the Fund
shares underlying the Variable Sub-Accounts. If shares of any of the Funds
should no longer be available for investment, or if, in the judgment of the
Company's management, further investment in shares of any Fund should become
inappropriate in view of the purposes of the Contracts, the Company may
substitute shares of another Fund for shares already purchased, or to be
purchased in the future, under the Contracts. No substitution of securities will
take place without notice to Contract Owners and without prior approval of the
Commission to the extent required under the 1940 Act. The Company reserves the
right to establish additional Variable Sub-accounts of the Variable Account,
each of which would invest in shares of another Fund or in the portfolios of
other investment companies. Subject to Contract Owner approval, the Company also
reserves the right to end the registration under the 1940 Act of the Variable
Account or any other separate accounts of which the Company is the depositor or
to operate the Variable Account as a management investment company under the
1940 Act.
Each Fund is subject to certain investment restrictions and policies which may
not be changed without the approval of a majority of the shareholders of that
Fund. See the accompanying prospectus for the Fund Series for further
information on these policies and restrictions.
AIM Variable Insurance Funds, Inc.
AIM Variable Insurance Funds, Inc., the Fund Series, offers thirteen Funds for
use with this Contract: (1) AIM V.I. Aggressive Growth Fund; (2) AIM V.I.
Balanced Fund; (3) AIM V.I. Capital Appreciation Fund; (4) AIM V.I. Capital
Development Fund; (5) AIM V.I. Diversified Income Fund; (6) AIM V.I. Global
Utilities Fund; (7) AIM V.I. Government Securities Fund; (8) AIM V.I. Growth
Fund; (9) AIM V.I. Growth and Income Fund; (10) AIM V.I. High Yield Fund; (11)
AIM V.I. International Equity Fund; (12) AIM V.I. Money Market Fund; and (13)
AIM V.I. Value Fund. Each Fund has different investment objectives and policies
and operates as a separate investment fund. The following is a brief description
of the investment objectives and programs of the Funds. For a more complete
description, please see the prospectus of the Fund Series which accompanies this
prospectus.
AIM V.I. Aggressive Growth Fund ("Aggressive Growth Fund") is a diversified Fund
which seeks to achieve long-term growth of capital by investing primarily in
common stocks, convertible bonds, convertible preferred stocks and warrants of
companies, which in the opinion of the Fund's investment advisor are expected to
achieve earnings growth over time at a rate in excess of 15% per year.
AIM V.I. Balanced Fund ("Balanced Fund") is a diversified Fund which seeks to
achieve as high a total return as possible, consistent with preservation of
capital, by investing in a broadly diversified portfolio of high-yielding
securities, including common stocks, preferred stocks, convertible securities
and bonds. The fund may invest up to 10% of its total assets in debt securities
rated lower than Baa by Moody's Investors Service, Inc. or BBB by Standard &
Poor's Ratings Services, which are commonly known as "junk bonds." The risks of
investing in junk bonds are described in the accompanying prospectus for the
Fund Series, which should be read carefully before investing.
AIM V.I. Capital Appreciation Fund ("Capital Appreciation Fund") is a
diversified Fund which seeks capital appreciation through investments in common
stocks, with emphasis on medium-sized and smaller emerging growth companies.
AIM V.I. Capital Development Fund ("Capital Development Fund") is a diversified
Fund which seeks to invest primarily in common stocks, convertible securities
and bonds. The Fund will invest primarily in securities of small and
medium-sized companies (i.e., companies which fall in the smallest 85% by market
capitalization of publicly traded companies in the United States). The Fund may
also register up to 10% of its total assets in securities of other registered
investment companies.
AIM V.I. Diversified Income Fund ("Diversified Income Fund") is a diversified
Fund which seeks a high level of current income primarily by investing in a
diversified portfolio of foreign and U.S. government and corporate debt
securities, including lower rated high yield debt securities (commonly known as
"junk bonds"). The risks of investing in junk bonds are described in the
accompanying prospectus for the Fund Series, which should be read carefully
before investing.
AIM V.I. Global Utilities Fund ("Global Utilities Fund") is a nondiversified
Fund which seeks a high level of current income, and as a secondary objective,
capital appreciation, by investing primarily in common and preferred stocks of
public utility companies (either domestic or foreign).
AIM V.I. Government Securities Fund ("Government Fund") is a diversified Fund
which seeks a high level of current income consistent with reasonable concern
for safety of principal by investing in debt securities issued, guaranteed or
otherwise backed by the U.S. Government.
AIM V.I. Growth Fund ("Growth Fund") is a diversified Fund which seeks growth of
capital through investments primarily in common stocks of leading U.S. companies
considered by the Advisor to have strong earnings momentum.
AIM V.I. Growth And Income Fund ("Growth & Income Fund") is a diversified Fund
which seeks growth of capital, with current income as a secondary objective, by
investing primarily in dividend paying common stocks which have prospects for
both growth of capital and dividend income.
AIM V.I. High Yield Fund ("High Yield Fund") is a diversified Fund which seeks
to achieve a high level of current income by investing primarily in publicly
traded debt securities of less than investment grade. Debt securities of less
than investment grade are considered "high risk" securities, commonly referred
to as "junk bonds." At least 80% of the value of the Fund's total assets will be
invested in debt securities. The Fund may also invest in preferred stocks. At
least 65% of the value of the Fund's assets will be invested in high yield debt
securities. The securities held by the Fund may be subject to greater risk of
loss of income and principal and are more speculative in nature. The risks of
investing in junk bonds are described in the accompanying prospectus for the
Fund Series, which should be read carefully before investing.
AIM V.I. International Equity Fund ("International Fund") is a diversified Fund
which seeks long-term growth of capital by investing in international equity
securities, the issuers of which are considered by the Advisor to have strong
earnings momentum.
AIM V.I. Money Market Fund ("Money Market Fund") is a diversified Fund which
seeks as high a level of current income as is consistent with the preservation
of capital and liquidity by investing in a diversified portfolio of money market
instruments.
AIM V.I. Value Fund ("Value Fund") is a diversified Fund which seeks long-term
growth of capital by investing primarily in equity securities judged by the
Advisor to be undervalued relative to the current or projected earnings of the
companies issuing the securities, or relative to current market values of assets
owned by the companies issuing the securities or relative to the equity markets
generally. Income is a secondary objective.
An investment in the AIM VI Money Market Fund is neither insured nor guaranteed
by the U.S. Government. There can be no assurance that the AIM VI Money Market
Fund will be able to maintain a stable net asset value of $1.00 per share.
All dividends and capital gains distributions from the Funds are automatically
reinvested in shares of the distributing Fund at their net asset value.
There is no assurance that the Funds will attain their respective stated
objectives. Additional information concerning the investment objectives and
policies of the Funds, as well as information regarding the risks associated
with each Fund, can be found in the current prospectus for the Fund Series
accompanying this prospectus. You should read the prospectus for the Fund Series
in conjunction with this prospectus.
THE FUND SERIES PROSPECTUS SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF PREMIUM PAYMENTS TO A PARTICULAR VARIABLE
SUB-ACCOUNT.
Investment Advisor For The Funds
A I M Advisors, Inc., ("AIM") serves as the investment advisor to each Fund. AIM
was organized in 1976, and together with its domestic subsidiaries, manages or
advises over 50 investment company portfolios (including the Funds) encompassing
a broad range of investment objectives. AIM is a wholly owned subsidiary of
A I M Management Group Inc., ("AIM Management"). AIM Management is a holding
company engaged in the financial services business and is an indirect wholly
owned subsidiary of AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are an
independent investment management group engaged in institutional investment
management and retail mutual fund business in the United States, Europe, and the
Pacific Region. AIM manages each Fund's assets pursuant to a master investment
advisory agreement dated February 28, 1997.
THE CONTRACT
Application For A Contract
Individuals wishing to purchase a Contract must submit an application to the
Company. A Contract will be issued only on the lives of Insureds ages 0-85 who
supply evidence of insurability satisfactory to the Company. Acceptance is
subject to the Company's underwriting rules and the Company reserves the right
to reject an application for any lawful reason. If a Contract is not issued, the
premium will be returned to the individual. No change in the terms or conditions
of a Contract will be made without the consent of the Contract Owner.
Once the Company has received the initial premium and underwriting has been
approved, the Contract will be issued on the date the Company has received the
final requirement for issue. In the case of simplified underwriting, the
Contract will be issued or coverage denied within 3 business days of receipt of
premium. The Insured will be covered under the Contract, however, as of the
Contract Date. Since the Contract Date will generally be the date the Company
receives the initial premium, coverage under a Contract may begin before the
Contract is actually issued. In addition to determining when coverage begins,
the Contract Date determines Monthly Activity Dates, Contract months, and
Contract Years.
If the initial premium is over the limits established from time to time by the
Company (currently $1,000,000), the initial payment will not be accepted with
the application. In other cases, where the Company receives the initial payment
with the application, we will provide fixed conditional insurance during
underwriting according to the terms of a conditional receipt. The fixed
conditional insurance will be the insurance applied for, up to a maximum that
varies by age.
Premiums
The Contract is designed to permit an initial premium payment and, subject to
certain conditions, additional premium payments. The initial premium payment
purchases a Death Benefit initially equal to the Contract's Specified Amount.
The minimum initial payment is $10,000.
Under current underwriting rules, which are subject to change, proposed Insureds
are eligible for simplified underwriting without a medical examination if their
application responses and initial premium payment meet simplified underwriting
standards. Customary underwriting standards will apply to all other proposed
Insureds. The maximum initial premium currently permitted on a simplified
underwriting basis varies with the issue age of the Insured according to the
following table:
Simplified Underwriting
Issue Age Maximum Initial Premium
- --------- -----------------------
0-34..................................... Not available
35-44.................................... $15,000
45-54.................................... $30,000
55-64.................................... $50,000
65-80.................................... $100,000
Over age 80.............................. Not available
Additional premium payments may be made at any time, subject to the following
conditions:
- only one additional premium payment may be made in any Contract Year;
- each additional premium payment must be at least $500;
- attained age of the Insured must be less than age 86; and
- absent submission of new evidence of insurability of the insured, the
maximum additional premium payment permitted in a Contract Year is the
"Guaranteed Additional Payment." The Guaranteed Additional Payment is
the lesser of $5,000 or a percentage of the initial payment (5% for
attained ages 40-70, and 0% for attained ages 20-39 and 71-85).
Additional premium payments may require an increase in the Specified Amount for
the Contract to remain within the definition of a life insurance contract under
Section 7702 of the Code. Other than for the "Guaranteed Additional Payment,"
the Company reserves the right to obtain satisfactory evidence of insurability
upon any additional premium payments requiring an increase in the Specified
Amount. The Company reserves the right to reject any additional premium payment
for any reason.
Unless you request otherwise in writing, any additional premium payment received
while a Contract loan exists will be applied first as a repayment of
Indebtedness, and second, as an additional premium payment, subject to the
conditions described above.
Additional premium payments may be paid at any time and in any amount necessary
to avoid termination of the Contract without evidence of insurability.
Allocation Of Premiums
Upon completion of underwriting, the Company will either issue a Contract, or
deny coverage and return all premiums. If a Contract is issued, the initial
premium payment, plus an amount equal to the interest that would have been
earned had the initial premium been invested in the AIM V.I. Money Market
Sub-Account since the date of receipt of the premium, will be allocated on the
date the Contract is issued according to the initial premium allocation
instructions specified by you on the application. In the future, the Company may
allocate the initial premium (and the interest that would have been earned had
the initial premium been invested in the AIM V.I. Money Market Sub-Account since
its receipt) to the AIM V.I. Money Market Sub-Account during the free look
period in those states where state law requires premiums to be returned upon
exercise of the free-look right.
Accumulation Unit Values
The Accumulation Unit Value for each Variable Sub-Account will vary to reflect
the investment experience of the corresponding Fund and will be determined on
each Valuation Day by multiplying the Accumulation Unit Value of the particular
Variable Sub-Account on the preceding Valuation Day by a "Net Investment Factor"
for that Sub-Account for the Valuation Period then ended. The Net Investment
Factor for each Variable Sub-Account is determined by first dividing (A) the net
asset value per share of the corresponding Fund at the end of the current
Valuation Period (plus the per share dividends or capital gains by that Fund if
the ex-dividend date occurs in the Valuation Period then ended), by (B) the net
asset value per share of the corresponding Fund at the end of the immediately
preceding Valuation Period; and then subtracting from the result an amount equal
to the daily deductions for mortality and expense risk charges imposed during
the Valuation Period. Applicants should refer to the prospectus for the Fund
Series which accompanies this prospectus for a description of how the assets of
the Fund Series are valued since such determination has a direct bearing on the
Accumulation Unit Value of the corresponding Variable Sub-Account and therefore
the Account Value. See "Contract Benefits and Rights -- Account Value," page 13.
All valuations in connection with a Contract, e.g., with respect to determining
Account Value and Cash Surrender Value and in connection with Contract loans, or
calculation of Death Benefits, or with respect to determining the number of
Accumulation Units to be credited to a Contract with each premium, other than
the initial premium and additional premiums requiring underwriting, will be made
on the date the request or payment is received in good order by the Company at
its Home Office if such date is a Valuation Day; otherwise such determination
will be made on the next succeeding date which is a Valuation Day.
Specialized Uses of the Contract: Because the Contract provides for an
accumulation of Cash Value as well as a death benefit, the Contract can be used
for various individual and business financial planning purposes. Purchasing the
Contract in part for such purposes, however, entails certain risks. For example,
if the investment performance of the Variable Sub-Accounts to which Account
Value is allocated is less than expected or if sufficient premiums are not paid,
the Contract may lapse or may not accumulate sufficient Account Value to fund
the purpose for which the Contract was purchased. Withdrawals and Contract loans
may significantly affect current and future Account Value, Cash Surrender Value,
or Death Benefit proceeds. Depending upon the investment performance of the
underlying Funds of the Variable Sub-Account and the amount of a Contract loan,
the loan may cause a Contract to lapse. Contractual fees and charges, such as
the cost of insurance charge will apply. The Contract is designed to provide
benefits on a long-term basis. Before purchasing a Contract for a specialized
purpose, a purchaser should consider whether the long-term nature of the
Contract is consistent with the purpose for which it is being considered. Using
a Contract for a specialized purpose may have tax consequences. (See "Federal
Tax Considerations," page 20.)
DEDUCTIONS AND CHARGES
Monthly Deductions
On each Monthly Activity Date including the Contract Date, the Company will
deduct from the Account Value attributable to the Variable Account an amount
("Monthly Deduction Amount") to cover charges and expenses incurred in
connection with the Contract. Each Monthly Deduction Amount will be deducted pro
rata from each Variable Sub-Account attributable to the Contract such that the
proportion of Account Value of the Contract attributable to each Variable
Sub-Account remains the same before and after the deduction. The Monthly
Deduction Amount will vary from month to month. If the Cash Surrender Value is
not sufficient to cover a Monthly Deduction Amount due on any Monthly Activity
Date, the Contract may lapse. See "Contract Benefits and Rights -- Lapse and
Reinstatement," page 15. The following is a summary of the monthly deductions
and charges which constitute the Monthly Deduction Amount.
Cost of Insurance Charge: The cost of insurance charge covers the Company's
anticipated mortality costs for standard and special risks. Current cost of
insurance rates are lower after the 10th Contract Year. The current cost of
insurance charge will not exceed the guaranteed cost of insurance charge. This
charge is the maximum annual cost of insurance per $1,000 as indicated in the
Contract; multiplied by the difference between the Death Benefit and the Account
Value (both as determined on the Monthly Activity Date); divided by $1,000; and
divided by 12. For standard risks, the guaranteed cost of insurance rate is
based on the 1980 Commissioner's Standard Ordinary Mortality Table, age last
birthday. (Unisex rates may be required in some states). A table of guaranteed
cost of insurance charges per $1,000 will be included in each Contract; however,
the Company reserves the right to use rates less than those shown in the table.
Special risks will be charged at a higher cost of insurance rate that will
not exceed rates based on a multiple of the 1980 Commissioner's Standard
Ordinary Mortality Table, age last birthday. The multiple will be based on the
Insured's substandard rating.
The cost of insurance charge rates are applied to the difference between the
Death Benefit determined on the Monthly Activity Date and the Account Value on
that same date prior to assessing the Monthly Deduction Amount, because the
difference is the amount for which the Company is at risk should the Death
Benefit be then payable. The Death Benefit as computed on a given date is the
greater of: (1) the Specified Amount on that date; or (2) the Account Value on
that date multiplied by the applicable Death Benefit ratio. (For an explanation
of the Death Benefit, see "Contract Benefits and Rights" on page ___.)
Example:
Specified Amount..................................... = $100,000
Account Value on the Monthly Activity Date........... = $30,000
Insured's attained age............................... = 45
Death Benefit ratio for age 45....................... = 2.15
On the Monthly Activity Date in this example, the Death Benefit as then computed
would be $100,000, because the Specified Amount ($100,000) is greater than the
Account Value multiplied by the applicable Death Benefit ratio ($30,000 X 2.15 =
$64,500). Since the Account Value on that date is $30,000, the cost of insurance
charges per $1,000 are applied to the difference ($100,000 - $30,000 = $70,000).
Assume that the Account Value in the above example was $50,000. The Death
Benefit would then be $107,500 (2.15 X $50,000), since this is greater than the
Specified Amount ($100,000). The cost of insurance rates in this case would be
applied to ($107,500 - $50,000) = $57,500.
Because the Account Value and, as a result, the amount for which the Company is
at risk under a Contract may vary monthly, the cost of insurance charge may also
vary on each Monthly Activity Date. However, once a risk rating class has been
assigned to an Insured when the Contract is issued, that rating class will not
change if additional premium payments or partial withdrawals increase or
decrease the Specified Amount.
Tax Expense Charge: The Company will deduct monthly from the Account Value a tax
expense charge equal to an annual rate of 0.40% of Account Value for the first
ten Contract Years. This charge compensates the Company for premium taxes
imposed by various states and local jurisdictions and for federal taxes related
to the receipt of premiums under the Contracts that results from the application
of Section 848 of the Code. The charge includes a premium tax deduction of 0.25%
of Account Value and a federal tax deduction of 0.15% of Account Value. The
0.25% premium tax deduction over ten Contract Years approximates the Company's
average expenses for state and local premium taxes (2.5%). Premium taxes vary,
ranging from zero to 3.5%. The premium tax deduction will be imposed regardless
of a Contract owner's state of residence and, therefore, is made whether or not
any premium tax applies. The deduction may be higher or lower than the premium
tax imposed by the Contract owner's state. The 0.15% federal tax deduction helps
reimburse the Company for approximate expenses incurred for federal taxes
resulting from the application of Section 848 of the Code.
Administrative Expense Charge: The Company will deduct monthly from the Account
Value an administrative expense charge equal to an annual rate of 0.25% of the
Account Value. This charge compensates the Company for administrative expenses
incurred in the administration of the Variable Account and the Contracts.
All monthly deductions are taken by canceling Accumulation Units of the
Variable Account under the Contract.
Other Deductions
Mortality and Expense Risk Charge: The Company will deduct from the Variable
Account a daily charge equivalent to an annual rate of 0.90% of average daily
net assets for the mortality risks and expense risks the Company assumes in
relation to the Contracts. The mortality risk assumed includes the risk that the
cost of insurance charges specified in the Contract will be insufficient to meet
claims. The Company also assumes a risk that the Death Benefit will exceed the
amount on which the cost of insurance charges were based on the Monthly Activity
Date preceding the death of an Insured. The expense risk assumed is that
expenses incurred in issuing and administering the Contracts will exceed the
administrative charges set in the Contract.
Annual Maintenance Fee: If the aggregate premiums paid on a Contract are less
than $50,000, the Company will deduct from the Account Value an Annual
Maintenance Fee of $35 on each Contract Anniversary. This fee will help
reimburse the Company for administrative and maintenance costs of the Contracts.
This fee will also be deducted upon surrender of the Contract on a date other
than a Contract Anniversary.
Taxes Charged Against the Variable Account: Currently no charge is made to the
Variable Account for federal income taxes that may be attributable to the
operations of the Variable Account (as opposed to the federal tax related to the
receipt of premiums under the Contract). The Company may, however, make such a
charge in the future. Charges for other taxes, if any, attributable to the
Variable Account or this class of Contracts may also be made.
Charges Against the Funds: The Variable Account purchases shares of the Funds at
net asset value. The net asset value of each of the Fund's shares reflects
investment advisory fees and administrative expenses already deducted from the
assets of the Funds. Each of the Fund's investment management fees are a
percentage of the average daily value of the net assets of the Funds. See the
"Fund Fees and Expenses" table on page ___ for a complete discussion of the fees
and charges applicable to the Funds.
Withdrawal Charge: Upon surrender of the Contract or partial withdrawals in
excess of the Free Withdrawal Amount, a Withdrawal Charge may be assessed. The
Free Withdrawal Amount in any Contract Year is 10% of total premiums paid. Any
Free Withdrawal Amount not taken in a Contract Year may not be carried forward
to increase the Free Withdrawal Amount available in any subsequent year.
Withdrawals in excess of the Free Withdrawal Amount will be subject to a
Withdrawal Charge as set forth in the table below:
Percentage Of Initial
Premium Withdrawn
(In Excess Of Free
Contract Year Withdrawal Amount)
- ------------- --------------------
1............................................ 7.75%
2............................................ 7.75%
3............................................ 7.75%
4............................................ 7.25%
5............................................ 6.25%
6............................................ 5.25%
7............................................ 4.25%
8............................................ 3.25%
9............................................ 2.25%
10+.......................................... 0.00%
After the ninth Contract Year, no Withdrawal Charges will be imposed. In
addition, no Withdrawal Charge will be imposed on any withdrawal to the extent
that aggregate Withdrawal Charges and the federal tax portion of the tax expense
charge imposed would otherwise exceed 9% of total premiums paid prior to the
withdrawal. The Withdrawal Charge may be waived under certain circumstances if
the Insured is confined to a qualified long-term care facility or hospital. See
"Contract Benefits and Rights -- Confinement Waiver Benefit," page 16.
Due and Unpaid Premium Tax Charge: During the first nine Contract Years, a
charge for due and unpaid premium tax will be imposed on full or partial
withdrawals in excess of the Free Withdrawal Amount. This means that the Free
Withdrawal Amount is not subject to a charge for due and unpaid premium tax.
This charge is shown below, as a percent of the Account Value withdrawn:
Percentage Of
Initial Premium
Contract Year Withdrawn
- ------------- ---------------
1.................................. 2.25%
2.................................. 2.00%
3.................................. 1.75%
4.................................. 1.50%
5.................................. 1.25%
6.................................. 1.00%
7.................................. 0.75%
8.................................. 0.50%
9.................................. 0.25%
10+................................ 0.00%
After the ninth Contract Year, no due and unpaid premium tax charge will be
imposed. The percentages indicated above are guaranteed not to increase.
CONTRACT BENEFITS AND RIGHTS
Death Benefit
The Contracts provide for the payment of Death Benefit proceeds to the named
beneficiary when the Insured under the Contract dies. The proceeds payable to
the beneficiary equal the Death Benefit less any Indebtedness and less any due
and unpaid Monthly Deduction Amounts occurring during a Grace Period (if
applicable). The Death Benefit equals the greater of: (1) the Specified Amount;
or (2) the Account Value multiplied by the Death Benefit Ratio. The ratios vary
according to the attained age of the Insured and are specified in the Contract.
An increase in Account Value due to favorable investment experience may increase
the Death Benefit above the Specified Amount; and a decrease in Account Value
due to unfavorable investment experience may decrease the Death Benefit (but not
below the Specified Amount).
Examples:
A B
Specified Amount:........................... $100,000 $100,000
Insured's Age:.............................. 45 45
Account Value on Date of Death:............. $48,000 $34,000
Death Benefit Ratio......................... 2.15 2.15
In Example A, the Death Benefit equals $103,200, i.e., the greater of $100,000
(the Specified Amount) and $103,200 (the Account Value at the Date of Death of
$48,000, multiplied by the Death Benefit Ratio of 2.15). This amount, less any
Indebtedness and due and unpaid Monthly Deduction Amounts, constitutes the
proceeds which we would pay to the beneficiary.
In Example B, the Death Benefit is $100,000, i.e., the greater of $100,000 (the
Specified Amount) or $73,100 (the Account Value of $34,000 multiplied by the
Death Benefit Ratio of 2.15).
All or part of the proceeds may be paid in cash or applied under an Income Plan.
See "Other Matters -- Payment Options," page 17.
Accelerated Death Benefit
If the Insured becomes terminally ill, the Contract Owner may request an
Accelerated Death Benefit in an amount up to the lesser of: (1) 50% of the
Specified Amount on the day we receive the request; or (2) $250,000 for all
policies issued by the Company which cover the Insured. "Terminally ill" means
an illness or physical condition of the Insured that, notwithstanding
appropriate medical care, will result in a life expectancy of 12 months or less.
If the Insured is terminally ill as the result of an illness, the Accelerated
Death Benefit is not available unless the illness occurred at least 30 days
after the Issue Date. If the Insured is terminally ill as the result of an
accident, the Accelerated Death Benefit is available if the accident occurred
after the Issue Date.
The Company will pay benefits due under the Accelerated Death Benefit provision
upon receipt of a written request from the Contract Owner and due proof that the
Insured has been diagnosed as terminally ill. The Company reserves the right to
require supporting documentation of the diagnosis and to require, at the
Company's expense, an examination of the Insured by a physician of the Company's
choice to confirm the diagnosis. The amount of the payment will be the amount
requested by the Contract Owner, reduced by the sum of: (1) a 12 month interest
discount to reflect the early payment; (2) an administrative fee not to exceed
$250; and (3) a pro rata amount of any outstanding Contract loan and accrued
loan interest. After the payment has been made, the Specified Amount, the
Account Value and any outstanding Contract loan will be reduced on a prorata
basis.
Only one request for an Accelerated Death Benefit per Insured is allowed. The
Accelerated Death Benefit may not be available in all states.
Account Value
The Account Value of a Contract will be computed on each Valuation Day. On the
Contract Date, the Account Value is equal to the initial premium (plus an amount
equal to the interest that would have been earned had the initial premium been
invested in the AIM V.I. Money Market Sub-Account since the date of receipt of
the premium) less the Monthly Deduction Amount for the first month. Thereafter,
the Account Value will vary to reflect the investment experience of the Funds,
the value of the Loan Account and the Monthly Deduction Amounts. There is no
minimum guaranteed Account Value.
The Account Value of a particular Contract is related to the net asset value of
the underlying Funds of the Variable Sub-accounts to which premiums paid on the
Contract have been allocated. The Account Value on any Valuation Day is
calculated by multiplying the number of Accumulation Units credited to the
Contract in each Variable Sub-Account as of the Valuation Day by the then
Accumulation Unit Value of that Variable Sub-Account and then summing the result
for all the Variable Sub-Accounts credited to the Contract and the value of the
Loan Account. See "The Contract -- Accumulation Unit Values," page 10.
Transfer Of Account Value
While the Contract remains in force and subject to the Company's transfer rules
then in effect, the Contract Owner may request that part or all of the Account
Value of a particular Variable Sub-Account be transferred to other Variable
Sub-Accounts. The Company reserves the right to impose a $10 charge on each such
transfer in excess of 12 per Contract Year. Currently, the Company does not
assess this charge. The minimum amount that can be transferred is shown on the
Contract Data page (currently, there is no minimum).
Telephone transfer requests will be accepted by the Company if received at
1(800) 776-6978 by 4:00 p.m., Eastern Time. Telephone transfer requests received
at any other telephone number or after 4:00 p.m., Eastern Time will not be
accepted by the Company. Telephone transfer requests received before 4:00 p.m.,
Eastern Time are effected at the next computed value. Transfers by telephone may
be made by the Contract Owner's agent of record or attorney-in-fact pursuant to
a power of attorney. Telephone transfers may not be permitted in some states.
The policy of the Company and its agents and affiliates is that they will not be
responsible for losses resulting from acting upon telephone requests reasonably
believed to be genuine. The Company will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine; otherwise, the Company
may be liable for any losses due to unauthorized or fraudulent instructions. The
procedures the Company follows for transactions initiated by telephone include
the requirement that callers on behalf of a Contract Owner identify themselves
and the Contract Owner by name and social security number or other identifying
information. All transfer instructions by telephone are tape recorded.
As a result of a transfer, the number of Accumulation Units credited to the
Variable Sub-Account from which the transfer is made will be reduced by the
number obtained by dividing the amount transferred by the Accumulation Unit
Value of the Variable Sub-Account from which the transfer is made on the
Valuation Day that the Company receives the transfer request. The number of
Accumulation Units credited to the Variable Sub-Account to which the transfer is
made will be increased by the number obtained by dividing the amount transferred
by the Accumulation Unit Value of that Variable Sub-Account on the Valuation Day
that the Company receives the transfer request.
Dollar Cost Averaging
Transfers may be made automatically through Dollar Cost Averaging while the
Contract is in force. Dollar Cost Averaging permits the Owner to transfer a
specified amount every month (or some other frequency as may be determined by
the Company) from any Variable Sub-Account to any other Variable Sub-Account.
The theory of Dollar Cost Averaging is that, if purchases of equal dollar
amounts are made at fluctuating prices, the aggregate average cost per unit will
be less than the average of the unit prices on the same purchase dates. However,
participation in the Dollar Cost Averaging program does not assure you of a
greater profit from your purchases under the program, nor will it prevent or
alleviate losses in a declining market. Transfers under Dollar Cost Averaging
are not assessed a $10 charge and are not included in the count toward the 12
free transfers per year currently permitted by the Company.
Automatic Portfolio Rebalancing
Transfers may be made automatically through Automatic Portfolio Rebalancing
while the Contract is in force. By electing Automatic Portfolio Rebalancing, the
Account Value in the Variable Sub-Accounts will be rebalanced to the desired
allocation on a quarterly basis, determined from the first date that you decide
to rebalance. Each quarter, Account Value will be transferred among the Variable
Sub-Accounts to achieve the desired allocation. The desired allocation will be
the allocation initially selected, unless subsequently changed. The new
allocation will be effective with the first rebalancing that occurs after we
receive the proper notice.
Transfers made through Automatic Portfolio Rebalancing are not assessed a $10
charge and are not included in the count toward the 12 free transfers per year
currently permitted by the Company.
Contract Loans
While the Contract is in force, a Contract Owner may obtain, without the consent
of the beneficiary (provided the designation of beneficiary is not irrevocable),
one or both of two types of cash loans from the Company. These types are
Preferred Loans (described below) and non-Preferred Loans. Both types of loans
are secured by the Contract. The maximum amount available for a loan is 90% of
the Contract's Cash Value, less the amount of all Contract loans existing on the
date of the loan (including loan interest to the next Contract Anniversary),
less any due and unpaid Monthly Deduction Amounts, and less any Annual
Maintenance Fee due on or before the next Contract Anniversary.
The loan amount will be transferred pro rata from each Variable Sub-Account
attributable to the Contract (unless the Contract Owner specifies otherwise) to
the Loan Account. The amounts allocated to the Loan Account will be credited
with interest at the loan credited rate set forth in the Contract. Loans will
bear interest at rates determined by the Company from time to time. Rates will
not exceed the maximum rate indicated in the Contract (currently 8% per year).
The amount of the Loan Account that equals the difference between the Account
Value and the total of all premiums paid under the Contract net of any premiums
returned due to partial withdrawals, as determined on each Contract Anniversary,
is considered a "Preferred Loan." Preferred Loans bear interest at a rate not to
exceed the Preferred Loan rate set forth in the Contract. The difference between
the value of the Loan Account and the Indebtedness will be transferred on a
pro-rata basis from the Variable Sub-Accounts to the Loan Account on each
Contract Anniversary. If the aggregate outstanding loan(s) and loan interest
secured by the Contract exceeds the Cash Value of the Contract, the Company will
give written notice to the Contract Owner that unless the Company receives an
additional payment within 61 days (the "Grace Period") to reduce the aggregate
outstanding loan(s) secured by the Contract, the Contract may lapse.
All or any part of any loan secured by a Contract may be repaid while the
Contract is still in force. When loan repayments or interest payments are made,
the repayment will be allocated among the Variable Sub-Accounts in the same
percentage as subsequent payments are allocated (unless the Contract Owner
requests a different allocation), and an amount equal to the payment will be
deducted from the Loan Account. Any outstanding loan at the end of a Grace
Period must be repaid before the Contract will be reinstated.
See "Contract Benefits and Rights -- Lapse and Reinstatement," page 15.
A loan, whether or not repaid, will have a permanent effect on the Account Value
because the investment results of each Variable Sub-Account will apply only to
the amount remaining in that Variable Sub-Account. The longer a loan is
outstanding, the greater the effect is likely to be. The effect could be
favorable or unfavorable. If the Variable Sub-Accounts earn more than the annual
interest rate for amounts held in the Loan Account, a Contract Owner's Account
Value will not increase as rapidly as it would have had no loan been made. If
the Variable Sub-Accounts earn less than that rate, the Contract Owner's Account
Value will be greater than it would have been had no loan been made. Also, if
not repaid, the aggregate outstanding loan(s) will reduce the Death Benefit
proceeds and Cash Surrender Value otherwise payable.
Amount Payable On Surrender Of The Contract
While the Contract is in force, a Contract Owner may elect, without the consent
of the beneficiary (provided the designation of beneficiary is not irrevocable),
to surrender the Contract. Upon surrender, the Contract Owner will receive the
Cash Surrender Value determined as of the day the Company receives the Contract
Owner's written request for surrender or the date requested by the Contract
Owner, whichever is later. The Cash Surrender Value equals the Cash Value less
the Annual Maintenance Fee and any Indebtedness. The Company will pay the Cash
Surrender Value within seven days of receipt by the Company of the written
request or on the effective surrender date requested by the Contract Owner,
whichever is later.
The Contract will terminate on the date of receipt of the written request, or
the date the Contract Owner requests the surrender to be effective, whichever is
later. For a discussion of the tax consequences of surrendering the Contract,
see "Federal Tax Considerations," page 20.
The Contract Owner may elect to apply the surrender proceeds to an Income Plan
(see "Other Matters -- Payment Options," page 17).
Partial Withdrawals
While the Contract is in force, a Contract Owner may elect, by written request,
to make partial withdrawals of at least $50 from the Cash Surrender Value. The
Cash Surrender Value, after the partial withdrawal, must at least equal $2,000;
otherwise, the request will be treated as a request for surrender. The partial
withdrawal will be deducted pro rata from each Variable Sub-Account, unless the
Contract Owner instructs otherwise. The Specified Amount after the partial
withdrawal will be the greater of:
- the Specified Amount prior to the partial withdrawal reduced
proportionately to the reduction in Account Value; or
- the minimum Specified Amount necessary in order to meet the definition
of a life insurance contract under Section 7702 of the Code.
Partial withdrawals in excess of the Free Withdrawal Amount may be subject to a
Withdrawal Charge and any due and unpaid premium tax charges. See "Deductions
and Charges -- Other Deductions -- Withdrawal Charge" and "Premium Tax Charge."
For a discussion of the tax consequences of partial withdrawals, see "Federal
Tax Considerations," page 20.
Maturity
The Contracts have no maturity date.
Lapse And Reinstatement
The Contract will remain in force until the Cash Surrender Value is insufficient
to cover a Monthly Deduction Amount due on a Monthly Activity Date. The Company
will give written notice to the Contract Owner that if an amount shown in the
notice (which will be sufficient to cover the Monthly Deduction Amount(s) due)
is not paid within the 61 day Grace Period, there is a danger of lapse.
The Contract will continue through the Grace Period, but if no payment is
forthcoming, it will terminate at the end of the Grace Period. If the Insured
dies during the Grace Period, the proceeds payable under the Contract will be
reduced by the Monthly Deduction Amount(s) due and unpaid. See "Contract
Benefits and Rights -- Death Benefit," page 13.
If the Contract lapses, the Contract Owner may apply for reinstatement of the
Contract by payment of the reinstatement premium (and any applicable charges)
required under the Contract. A request for reinstatement must be made within
five years of the date the Contract entered the Grace Period. If a loan was
outstanding at the time of lapse, the Company will require repayment of the loan
before permitting reinstatement. In addition, the Company reserves the right to
require evidence of insurability satisfactory to the Company. The reinstatement
premium is equal to an amount sufficient to: (1) cover all Monthly Deduction
Amounts and Annual Maintenance Fees due and unpaid during the Grace Period, and
(2) keep the Contract in force for three months after the date of reinstatement.
The Specified Amount upon reinstatement cannot exceed the Specified Amount of
the Contract at its lapse. The Account Value on the reinstatement date will
reflect the Account Value at the time of termination of the Contract plus the
premiums paid at the time of reinstatement. Withdrawal charges and due and
unpaid premium tax charges, cost of insurance, and tax expense charges will
continue to be based on the original Contract Date.
Cancellation And Exchange Rights
A Contract Owner has a limited right to return a Contract for cancellation. This
right to return exists during the free-look period. The free-look period is a
number of days (which varies by state) as specified in your Contract. If the
Contract is returned for cancellation by mail or personal delivery to the
Company or to the agent who sold the Contract within the free-look period
following delivery of the Contract to the Contract Owner, the Company will
return to the Contract Owner within 7 days the sum of: (1) the Account Value on
the date the returned Contract is received by the Company or its agent; and (2)
any deductions under the Contract or by the Funds for taxes, charges or fees.
Some states may require the Company to return the premiums paid for the returned
Contract.
Once the Contract is in effect, it may be exchanged during the first 24 months
after its issuance for a non-variable permanent life insurance contract offered
by the Company on the life of the Insured. The Company reserves the right to
make available a permanent life insurance contract offered by the Company's
account or any affiliated company without evidence of insurability. The amount
at risk to the Company (i.e., the difference between the Death Benefit and the
Account Value) under the new contract will be equal to or less than the amount
at risk to the Company under the exchanged Contract on the date of exchange.
Premiums under the new contract will be based on the same risk classification as
that of the exchanged Contract. The exchange is subject to adjustments in
premiums and Account Value to reflect any variance between the exchanged
Contract and the new contract. The Company reserves the right to make such a
contract available that is offered by the Company's parent or by any affiliate
of the Company.
Confinement Waiver Benefit
Under the terms of an amendatory endorsement to the Contract, the Company will
waive any Withdrawal Charges on partial withdrawals and surrenders of the
Contract requested while the Insured is confined to a qualified long-term care
facility or hospital for a period of more than 90 consecutive days beginning 30
days or more after the Contract Date, or within 90 days after the Insured is
discharged from such confinement. The confinement must have been prescribed by a
licensed medical doctor or a licensed doctor of osteopathy, operating within the
scope of his or her license, and must be medically necessary. The prescribing
doctor may not be the Insured, the Contract Owner, or any spouse, child, parent,
grandchild, grandparent, sibling or in-law of the Contract Owner. "Medically
necessary" means appropriate and consistent with the diagnosis and which could
not have been omitted without adversely affecting the Insured's condition. The
confinement waiver benefit may not be available in all states.
Suspension Of Valuation, Payments And Transfers
The Company will suspend all procedures requiring valuation of the Variable
Account (including transfers, surrenders and loans) on any day the New York
Stock Exchange is closed or trading is restricted due to an existing emergency
as defined by the Commission, or on any day the Commission has ordered that the
right of surrender of the Contracts be suspended for the protection of Contract
Owners, until such emergency has ended.
State Exceptions
Where required by state law, certain features of your Contract may differ in
certain respects from those described above. For example, certain states may
require that the Accelerated Death Benefit be available on or after the Issue
Date of the Contract while in other states the Accelerated Death Benefit is not
available unless the illness occurred at least 30 days after the Issue Date of
the Contract. Please refer to your Contract for specific information regarding
the benefits available to you.
Last Survivor Contracts
The Contracts are offered on a single life and "last survivor" basis. Contracts
sold on a last survivor basis operate in a manner almost identical to the single
life version. The most important difference is that the last survivor version
involves two Insureds and the proceeds are paid only on the death of the last
surviving Insured. The other significant differences between the last survivor
and single life versions are listed below:
1. Last survivor Contracts are offered for prospective insured persons
age 18-85.
2. The cost of insurance charges under the last survivor Contracts are
determined in a manner that reflects the anticipated mortality of the
two Insureds and the fact that the Death Benefit is not payable until
the death of the second Insured. See the last survivor illustrations
in "Appendix A," page A-1.
3. To qualify for simplified underwriting under a last survivor Contract,
both Insureds must meet the simplified underwriting standards.
4. For a last survivor Contract to be reinstated, both Insureds must be
alive on the date of reinstatement.
5. For a last survivor Contract, provisions regarding misstatement of age
or sex, suicide and incontestability apply to either Insured.
6. The Accelerated Death Benefit provision is only available upon
terminal illness of the last survivor.
7. The Confinement Waiver Benefit is available upon confinement of either
insured.
OTHER MATTERS
Voting Privileges
In accordance with its view of presently applicable law, the Company will vote
the shares of the Funds at regular and special meetings of the shareholders of
the Funds in accordance with instructions from Contract Owners (or the assignee
of the Contract, as the case may be) having a voting interest in the Variable
Account. The number of shares of a Fund held in a Variable Sub-Account which are
attributable to each Contract Owner is determined by dividing the Contract
Owner's interest in that Variable Sub-Account by the per share net asset value
of the corresponding Fund. The Company will vote shares for which no
instructions have been given and shares which are not attributable to Contract
Owners (i.e., shares owned by the Company) in the same proportion as it votes
shares for which it has received instructions. If the 1940 Act or any rule
promulgated thereunder should be amended, however, or if the Company's present
interpretation should change and, as a result, the Company determines it is
permitted to vote the shares of the Funds in its own right, it may elect to do
so.
The voting interests of the Contract Owner (or the assignee) in the Funds will
be determined as follows: Contract Owners are entitled to give voting
instructions to the Company with respect to Fund shares attributable to them as
described above, determined on the record date for the shareholder meeting for
that Fund. Therefore, if a Contract Owner has taken a loan secured by the
Contract, amounts transferred from the Variable Sub-Account(s) to the Loan
Account in connection with the loan (see "Contract Benefits and Rights --
Contract Loans," page 14) will not be considered in determining the voting
interests of the Contract Owner. Contract Owners should review the prospectus
for the Fund Series which accompanies this prospectus to determine matters on
which Fund Series shareholders may vote.
The Company may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the sub-classification or investment objective
of one or more of the Funds or to approve or disapprove an investment advisory
contract for the Funds.
The Company may disregard voting instructions in favor of changes initiated by
Contract Owners in the investment objectives or the investment advisor of the
Funds if the Company reasonably disapproves of such changes. A change would be
disapproved only if the proposed change is contrary to state law or prohibited
by state regulatory authorities. If the Company does disregard voting
instructions, a summary of that action and the reasons for such action will be
included in the next periodic report to Contract Owners.
Statements To Contract Owners
The Company will maintain all records relating to the Variable Account and the
Variable Sub-Accounts. At least once each Contract Year, the Company will send
to each Contract Owner a statement showing the coverage amount and the Account
Value of the Contract (indicating the number of Accumulation Units credited to
the Contract in each Variable Sub-Account and the corresponding Accumulation
Unit Value), and any outstanding loan secured by the Contract as of the date of
the statement. The statement will also show premiums paid, and Monthly Deduction
Amounts under the Contract since the previous statement, and any other
information required by applicable law or regulation.
Limit On Right To Contest
The Company may not contest the validity of the Contract after it has been in
effect during the Insured's lifetime for two years from the Contract Date. If
the Contract is reinstated, the two-year period is measured from the date of
reinstatement. Any increase in the Specified Amount for which evidence of
insurability was obtained is contestable for 2 years from its effective date. In
addition, if the Insured dies by suicide while sane or self destruction while
insane in the two-year period after the Contract Date, or such period as
specified under applicable state law, the benefit payable will be limited to the
premiums paid less any Indebtedness and partial withdrawals. If the Insured dies
by suicide while sane or self-destruction while insane in the two-year period
following an increase in the Specified Amount, the benefit payable with respect
to the increase will be limited to the additional premiums paid for such
increase, less any Indebtedness and partial withdrawals.
Misstatement As To Age And Sex
If the age or sex of the Insured is incorrectly stated, the Death Benefit will
be appropriately adjusted as specified in the Contract.
Payment Options
The surrender proceeds or Death Benefit proceeds under the Contract may be paid
in a lump sum or may be applied to an Income Plan. If the amount to be applied
to an Income Plan is less than $3,000 or if it would result in an initial income
payment of less than $20, the Company may require that the frequency of income
payments be decreased such that the income payments are greater than $20 each,
or the Company may elect to pay the amount in a lump sum. No surrender or
partial withdrawals are permitted after payments under an Income Plan commence.
We will pay interest on the proceeds from the date of the Insured's death to the
date payment is made or a payment option is elected. At such times, the proceeds
are not subject to the investment experience of the Variable Account.
The Income Plans are fixed annuities payable from the Company's general account.
They do not reflect the investment experience of the Variable Account. Fixed
annuity payments are determined by multiplying the amount applied to the annuity
by a rate to be determined by the Company which is no less than the rate
specified in the fixed payment annuity tables in the Contract. The annuity
payment will remain level for the duration of the annuity. The Company may
require proof of age and gender of the payee (and joint payee, if applicable)
before payments begin. The Company may also require proof that such person(s) is
(are) living before it makes each payment.
The following options are available under the Contracts (the Company reserves
the right to offer other payment options):
- Income Plan 1 -- Life Income With Guaranteed Payments
The Company will make payments for as long as the payee lives. If the
payee dies before the selected number of guaranteed payments have been
made, the Company will continue to pay the remainder of the guaranteed
payments.
- Income Plan 2 -- Joint And Survivor Life Income With Guaranteed
Payments
The Company will make payments for as long as either the payee or
joint payee, named at the time of Income Plan selection, is living. If
both the payee and the joint payee die before the selected number of
guaranteed payments have been made, the Company will continue to pay
the remainder of the guaranteed payments.
The Company will make any other arrangements for income payments as may be
agreed upon.
Beneficiary
The applicant names the beneficiary in the application for the Contract. The
Contract Owner may change the beneficiary (unless irrevocably named) during the
Insured's lifetime by written request to the Company. If no beneficiary is
living when the Insured dies, the proceeds will be paid to the Contract Owner if
living; otherwise to the Contract Owner's estate.
Assignment
Unless required by state law, the Contract may not be assigned as collateral for
a loan or other obligation.
Dividends
No dividends will be paid under the Contracts. The Contracts are
nonparticipating.
GLENBROOK LIFE AND ANNUITY COMPANY
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers are listed below, together with information
as to their ages, dates of election and principal business occupations during
the last five years (if other than their present business occupations).
LOUIS G. LOWER, II, 52, 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; Director
(1990-1997), Chairman of the Board of Directors and Chief Executive Officer
(1995-1997), Chairman of the Board of Directors and President (1990-1995) of
Glenbrook Life Insurance 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; Director (1986-Present), Chairman of the Board of Directors and
Chief Executive Officer (1995-Present) of Northbrook Life Insurance Company; and
Chairman of the Board of Directors and Chief Executive Officer (1995-Present)
Surety Life Insurance Company.
PETER H. HECKMAN, 52, 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 (1990-1997), President and Chief Operating Officer
(1996-1997), and Vice President (1990-1996), Glenbrook Life Insurance Company;
Director (1995-Present) and Vice Chairman of the Board (1996-Present) Laughlin
Group Holdings, Inc.; Director (1990-Present) and Vice Chairman of the Board
(1996-Present) Lincoln Benefit Life Company; Director (1988-Present) President
and Chief Operating Officer (1996-Present), and was Vice President (1989-1996),
Northbrook Life Insurance Company; and Director (1995-Present) and Vice Chairman
of the Board (1996-Present) Surety Life Insurance Company.
MICHAEL J. VELOTTA, 52, 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 (1992-1997) Vice President, Secretary and General
Counsel (1993-1997) Glenbrook Life Insurance Company; Director and Secretary
(1995-Present) Laughlin Group Holdings, Inc.; Director (1992-Present) and
Assistant Secretary (1995-Present) Lincoln Benefit Life Company; Director
(1992-Present) Vice President, Secretary and General Counsel (1993-Present)
Northbrook Life Insurance Company; and Director and Assistant Secretary
(1995-Present) Surety Life Insurance Company.
JOHN R. HUNTER, 43, Director (1996)* and Senior Vice President (1995)*
Also Assistant Vice President (1990-Present) Allstate Life Insurance Company;
Assistant Vice President (1996-Present) Allstate Life Insurance Company of New
York; President and Chief Operating Officer (1998-Present) Allstate Life
Financial Services, Inc.; Director (1996-1997) Glenbrook Life Insurance Company;
and Director (1994-Present) and Assistant Vice President (1990-Present)
Northbrook Life Insurance Company.
G. CRAIG WHITEHEAD, 51, Senior Vice President and Director (1995)*
Also Assistant Vice President (1991-Present) Allstate Life Insurance Company;
Director (1994-Present) Assistant Vice President (1991-1997) Glenbrook Life
Insurance Company; Assistant Vice President (1992-Present) Secretary (1995)
Glenbrook Life and Annuity Company; Director (1995-Present) Laughlin Group
Holdings, Inc.
MARLA G. FRIEDMAN, 44, Vice President (1996)*
Also Director (1991-Present) and Vice President (1988-Present) Allstate Life
Insurance Company; Director (1993-1996) Allstate Life Financial Services, Inc.;
Director (1997-Present) and Assistant Vice President (1996-Present) Allstate
Life Insurance Company of New York; Director (1991-1996), President and Chief
Operating Officer (1995-1996) and Vice President (1990-1995) and (1996-1997)
Glenbrook Life Insurance Company; Director and Vice Chairman of the Board
(1995-1996) Laughlin Group Holdings, Inc.; and Director (1989-1996), President
and Chief Operating Officer (1995-1996) and Vice President (1996-Present)
Northbrook Life Insurance Company.
KEVIN R. SLAWIN, 40, Vice President (1996)*
Also Assistant Vice President and Assistant Treasurer (1995-1996) Allstate
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Allstate Financial Services, Inc.; Director and Vice President (1996-Present)
and Assistant Treasurer (1995-1996) Allstate Life Insurance Company; Director
and Vice President (1996-Present) and Assistant Treasurer (1995-1996) Allstate
Life Insurance Company of New York; Director and Vice President (1996-1997) and
Assistant Treasurer (1995-1996) Glenbrook Life Insurance Company; Director
(1996-Present) and Assistant Treasurer (1995-1996) Laughlin Group Holdings,
Inc.; Director (1996-Present) Lincoln Benefit Life Company; Director and Vice
President (1996-Present) and Assistant Treasurer (1995-1996) Northbrook Life
Insurance Company; Director (1996-Present) Surety Life Insurance Company; and
Assistant Treasurer and Director (1994-1995) Sears Roebuck and Co.; and
Treasurer and First Vice President (1986-1994) Sears Mortgage Corporation.
CASEY J. SYLLA, 54, Chief Investment Officer (1995)*
Also Director (1995-Present) Senior Vice President and Chief Investment Officer
(1995-Present) Allstate Insurance Company; Director (1995-Present) Chief
Investment Officer (1995-Present) Allstate Life Insurance Company; Chief
Investment Officer (1995-Present) Allstate Life Insurance Company of New York;
Chief Investment Officer (1995-1997) Glenbrook Life Insurance Company; and
Director and Chief Investment Officer (1995-Present) Northbrook Life Insurance
Company. Prior to 1995 he was Senior Vice President and Executive Officer --
Investments (1992-1995) of Northwestern Mutual Life Insurance Company.
JAMES P. ZILS, 47, 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 (1995-1997) Glenbrook
Life Insurance Company; Treasurer (1995-Present) Laughlin Group Holdings, Inc.;
and Treasurer (1995-Present) Northbrook Life Insurance Company. Prior to 1995 he
was Vice President of Allstate Life Insurance Company. Prior to 1993 he held
various management positions.
* Date elected/appointed to current office.
DISTRIBUTION OF THE CONTRACTS
Allstate Life Financial Services, Inc. ("ALFS"), 3100 Sanders Road, Northbrook
Illinois, a wholly owned subsidiary of Allstate Life Insurance Company, acts as
the principal underwriter of the Contracts. ALFS is registered as a
broker-dealer under the Securities Exchange Act of 1934 and became a member of
the National Association of Securities Dealers, Inc. on June 30, 1993. Contracts
are sold by registered representatives of unaffiliated broker-dealers or bank
employees who are licensed insurance agents appointed by the Company, either
individually or through an incorporated insurance agency and who have entered
into a selling agreement with ALFS and the Company to sell the Contracts. In
some states, Contracts may be sold by representatives or employees of banks
which may be acting as broker-dealers without separate registration under the
Securities Exchange Act of 1934, pursuant to legal and regulatory exceptions.
The maximum sales commission payable to Company agents, independent registered
insurance brokers, and other registered broker-dealers is 8.00% of initial and
subsequent premiums. From time to time, the Company may pay or permit other
promotional incentives, in cash or credit or other compensation. In addition,
under certain circumstances, certain sellers of Contracts may be paid
persistency bonuses which will take into account, among other things, the length
of time premium payments have been held under a Contract, and Contract Values. A
persistency bonus is not expected to exceed .50% on an annual basis, of the
Contract Value considered in connection with the bonus.
The underwriting agreement with ALFS provides for indemnification of ALFS by the
Company for liability to Owners arising out of services rendered or Contracts
issued.
SAFEKEEPING OF THE VARIABLE
ACCOUNT'S ASSETS
The assets of the Variable Account are held by the Company. The assets of the
Variable Account are kept physically segregated and held separate and apart from
the General Account of the Company. The Company maintains records of all
purchases and redemptions of shares of the Funds.
FEDERAL TAX CONSIDERATIONS
Introduction
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or purchase of a life insurance contract depend upon
the individual circumstances of each person. If you are concerned about any tax
consequences with regard to your individual circumstances, you should consult a
qualified tax advisor.
Taxation Of The Company And The Variable Account
The Company is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code. Since the Variable Account is not an entity separate
from the Company and its operations form a part of the Company, it will not be
taxed separately as a "Regulated Investment Company" under Subchapter M of the
Code. Investment income and realized capital gains are automatically applied to
increase reserves under the Contracts. Under existing federal income tax law,
the Company believes that the Variable Account investment income and realized
net capital gains will not be taxed to the extent that such income and gains are
applied to increase the reserves under the Contracts.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Variable Account, and therefore the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the Company
being taxed on income or gains attributable to the Variable Account, then the
Company may impose a charge against the Variable Account (with respect to some
or all Contracts) in order to set aside provisions to pay such taxes.
Taxation Of Contract Benefits
In order to qualify as a life insurance contract for federal income tax
purposes, the Contract must meet the definition of a life insurance contract set
forth in Section 7702 of the Code. Section 7702 limits the amount of premiums
that may be invested in a contract that is treated as life insurance. The manner
in which Section 7702 should be applied to certain features of the Contract
offered in this prospectus is not directly addressed in Section 7702.
Nevertheless, the Company believes that the Contact will meet the Section 7702
definition of a life insurance contract. This means that:
the death benefit should be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
the Contract Owner should not be considered in constructive receipt of the
Cash Value of the Contract, including any increases, until actual
cancellation of the Contract
In addition, in the absence of final regulations or other pertinent
interpretations of Section 7702, there is necessarily some uncertainty as to
whether a substandard risk Contract will meet the statutory life insurance
contract definition. If a Contract were determined not to be a life insurance
contract for purposes of Section 7702, such Contract would not provide most of
the tax advantages normally provided by a life insurance contract. The Company
reserves the right to amend the Contracts to comply with any future changes in
the Code, any regulations or rulings under the Code and any other requirements
imposed by the Internal Revenue Service.
If you own and are the Insured under the Contract, the Death Benefit will be
included in your gross estate for federal estate tax purposes if the proceeds
are payable to your estate. If the beneficiary is other than your estate but you
retained incidents of ownership in the Contract, the Death Benefit will also be
included in your gross estate. Examples of incidents of ownership include, but
are not limited to, the right to change beneficiaries, to assign the Contract or
revoke an assignment, to pledge the Contract or to obtain a policy loan. If you
own and are the Insured under the Contract and you transfer all incidents of
ownership in the Contract, the Death Benefit will be included in your gross
estate if you die within three years from the date of the ownership transfer.
State and local estate and inheritance tax consequences may also apply. In
addition, certain transfers of the Contract or Death Benefit, either during life
or at death, to individuals (or trusts for the benefit of such individuals) two
or more generations below that of the transferor may be subject to the federal
generation skipping transfer tax.
In addition, the Contract may be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans, and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Contract in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.
Modified Endowment Contracts
A life insurance contract is treated as a "modified endowment contract" under
Section 7702A of the Code if it meets the definition of life insurance in
Section 7702 but fails the "seven-pay" test of Section 7702A. The seven-pay test
provides that premiums cannot be paid at a rate more rapidly than that allowed
by the payment of seven annual premiums using specified computational rules
provided in Section 7702A(c). The large single premium permitted under the
Contract (which is equal to 100% of the "Guideline Single Premium" as defined in
Section 7702 of the Code) does not meet the specified computational rules for
the "seven-pay test" under Section 7702A(c). Therefore, the Contract will
generally be treated as a modified endowment contract for federal income tax
purposes. However, an exchange of a life insurance contract that is not a
modified endowment contract will not cause the new contract to be a modified
endowment contract if no additional premiums are paid. An exchange under Section
1035 of the Code of a life insurance contract that is a modified endowment
contract for a new life insurance contract will always cause the new contract to
be a modified endowment contract. A contract that is classified as a modified
endowment contract is generally eligible for the beneficial tax treatment
accorded to life insurance. Accordingly, the death benefit is excluded from
income and increments in value are not subject to current taxation. If a person
receives any amount as a policy loan from a modified endowment contract, or
assigns or pledges any part of the value of the contract, such amount is treated
as a distribution. Unlike other life insurance contracts, distributions received
before the insured's death are treated first as income (to the extent of gain)
and then as recovery of investment in the contract. Any amounts that are taxable
withdrawals will be subject to a 10% additional tax, with certain exceptions:
(1) distributions made on or after the date on which the taxpayer attains age 59
1/2; (2) distributions attributable to the taxpayer's becoming disabled (within
the meaning of Section 72(m)(7) of the Code); or (3) any distribution that is
part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the taxpayer or the
joint lives (or joint life expectancies) of such taxpayer and his or her
beneficiary.
All modified endowment contracts that are issued within any calendar year to the
same Contract Owner by one company or its affiliates shall be treated as one
modified endowment contract in determining the taxable portion of any loan or
distributions.
Diversification Requirements
For a Contract to be treated as a variable life insurance contract for federal
tax purposes, the investments in the Variable Account must be "adequately
diversified" in accordance with the standards provided in the Treasury
regulations. If the investments in the Variable Account are not adequately
diversified, then the Contract will not be treated as a variable life insurance
contract for federal income tax purposes and the Owner will be taxed on the
excess of the Contract Value over the investment in the Contract. Although the
Company does not have control over the Fund Series or their investments, the
Company expects the Fund Series to meet the diversification requirements.
Ownership Treatment
In connection with the issuance of the regulations on the adequate
diversification standards, the Department of the Treasury announced that the
regulations do not provide guidance concerning the extent to which contract
owners may direct their investments among sub-accounts of a Variable Account.
The Internal Revenue Service has previously stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the owner possesses incidents of ownership in those assets such as the
ability to exercise investment control over the assets. At the time the
diversification regulations were issued, the Treasury Department announced that
guidance would be issued in the future regarding the extent that owners could
direct their investments among sub-accounts without being treated as owners of
the underlying assets of the Variable Account.
The ownership rights under this contract are similar to, but different in
certain respects from, those described by the service in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the Owner of this Contract has the choice of more investment options to
which to allocate premiums and contract values, and may be able to transfer
among investment options more frequently than in such rulings. These differences
could result in the Contract Owner being treated as the owner of the Variable
Account. In those circumstances, income and gain from the Variable Account
assets would be includible in the Contract Owner's gross income. In addition,
the Company does not know what standards will be set forth in the regulations or
rulings which the Treasury Department has stated it expects to issue. It is
possible that Treasury Department's position, when announced, may adversely
affect the tax treatment of existing contracts. The Company, therefore, reserves
the right to modify the contract as necessary to attempt to prevent the contract
owner from being considered the federal tax owner of the assets of the Variable
Account. However, the Company makes no guarantee that such modification to the
contract will be successful.
Policy Loan Interest
Interest paid on loans against a Contract is generally not deductible.
ADDITIONAL INFORMATION ABOUT THE COMPANY
The Company also acts as the sponsor for four of its separate accounts that are
registered investment companies: Glenbrook Life and Annuity Company Variable
Annuity Account, Glenbrook Life and Annuity Company Separate Account A,
Glenbrook Life Variable Life Separate Account A, and Glenbrook Life
Multi-Manager Variable Account. The officers and employees of the Company are
covered by a fidelity bond in the amount of $5,000,000. No person beneficially
owns more than 5% of the outstanding voting stock of The Allstate Corporation,
of which the Company is an indirect wholly owned subsidiary.
LEGAL PROCEEDINGS
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. Management, after consultation with legal counsel, does not anticipate
the ultimate liability arising from such pending or threatened litigation to
have a material effect on the financial condition of the Company or the Variable
Account.
LEGAL MATTERS
Jorden Burt Boros Cicchetti Berenson & Johnson LLP, Washington, D.C., has
provided advice on certain legal matters relating to the federal securities laws
applicable to the issue and sale of the Contracts. 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.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended. This prospectus does not
contain all information set forth in the registration statement, its amendments
and exhibits, to all of which reference is made for further information
concerning the Variable Account, the Funds, the Company, and the Contracts. The
exhibits to the registration statement include hypothetical illustrations of the
Contract that show how the Death Benefit, Account Value and Cash Surrender Value
could vary over an extended period of time assuming hypothetical gross rates of
return (i.e., investment income and capital gains and losses, realized or
unrealized) for the Variable Account equal to annual rates of 0%, 6%, and 12%,
an initial premium of $10,000, Insureds in the standard rating class, and based
on current and guaranteed Contract charges. Personalized illustrations provided
by the Company upon request will be based on the methodology and format of these
hypothetical illustrations as appropriate.
EXPERTS
The financial statements of the Company as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 and the related
financial statement schedule included in this prospectus have been audited by
Deloitte & Touche LLP, Two Prudential Plaza, 180 North Stetson Avenue, Chicago,
IL 60601-6779, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The hypothetical Contract illustrations included in this prospectus have been
approved by Diana Montigney, FSA, Allstate Life Insurance Company, and are
included in reliance upon her opinion as to their reasonableness.
FINANCIAL INFORMATION
Financial statements for the Variable Account are not included herein because,
as of the date of this Prospectus, no Contracts have been sold. Accordingly, the
Variable Account has no assets. The financial statements for the Company
appearing immediately below should be considered as bearing only on the ability
of the Company to fulfill its obligations under the Contracts. They do not
relate to the investment performance of the Variable Account.
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (the "Company") as of December 31, 1997 and 1996, and
the related Statements of Operations, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1997. Our audits also
included Schedule IV - Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 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 20, 1998
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
------------
($ in thousands) 1997 1996
---------- ---------
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $81,369 and $46,925) $ 86,243 $ 49,389
Short-term 4,231 1,287
--------------- ---------------
Total investments 90,474 50,676
Reinsurance recoverable from Allstate Life Insurance
Company 2,637,983 2,060,419
Net receivable from affiliates - 18,963
Other assets 2,549 2,049
Separate Accounts 620,535 272,420
--------------- ---------------
Total assets $ 3,351,541 $ 2,404,527
=============== ===============
LIABILITIES
Contractholder funds $ 2,637,983 $ 2,060,419
Income taxes payable 609 410
Deferred income taxes 1,772 1,528
Net payable to affiliates 2,698 -
Separate Accounts 620,535 260,290
--------------- ---------------
Total liabilities 3,263,597 2,322,647
=============== ===============
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 4,200 shares
authorized, issued, and outstanding 2,100 2,100
Additional capital paid-in 69,641 69,641
Unrealized net capital gains 3,168 2,790
Retained income 13,035 7,349
--------------- ---------------
Total shareholder's equity 87,944 81,880
--------------- ---------------
Total liabilities and shareholder's equity $ 3,351,541 $ 2,404,527
=============== ===============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
REVENUES
Net investment income $ 5,304 $ 3,774 $ 3,996
Realized capital gains and losses 3,460 - 459
---------------- --------------- ----------------
INCOME BEFORE INCOME TAX EXPENSE 8,764 3,774 4,455
INCOME TAX EXPENSE 3,078 1,339 1,576
---------------- --------------- ----------------
NET INCOME $ 5,686 $ 2,435 $ 2,879
================ =============== ================
</TABLE>
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
COMMON STOCK $ 2,100 $ 2,100 $ 2,100
--------------- --------------- ---------------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year 69,641 49,641 49,641
Capital contributions - 20,000 -
--------------- --------------- ---------------
Balance, end of year 69,641 69,641 49,641
--------------- --------------- ---------------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year 2,790 3,357 (1,118)
Net change 378 (567) 4,475
--------------- --------------- ---------------
Balance, end of year 3,168 2,790 3,357
--------------- --------------- ---------------
RETAINED INCOME
Balance, beginning of year 7,349 4,914 2,035
Net income 5,686 2,435 2,879
--------------- --------------- ---------------
Balance, end of year 13,035 7,349 4,914
--------------- --------------- ---------------
Total shareholder's equity $ 87,944 $ 81,880 $ 60,012
=============== =============== ===============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,686 $ 2,435 $ 2,879
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and other non-cash
items 29 - -
Realized capital gains and losses (3,460) - (459)
Change in deferred income taxes 41 4 (39)
Changes in other operating assets and liabilities 1,160 (510) 1,217
------------ ------------ ------------
Net cash provided by operating activities 3,456 1,929 3,598
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,405 - 7,836
Investment collections 14,217 2,891 1,568
Investment purchases (50,115) (5,667) (1,491)
Participation in Separate Accounts 13,981 (232) (10,069)
Change in short-term investments, net (2,944) 815 (1,178)
------------ ------------ ------------
Net cash used in investing activities (23,456) (2,193) (3,334)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 20,000 - -
------------ ------------ ------------
Net cash provided by financing activities 20,000 - -
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH - (264) 264
CASH AT BEGINNING OF YEAR - 264 -
------------ ------------ ------------
CASH AT END OF YEAR $ - $ - $ 264
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Noncash financing activity:
Capital contribution receivable from
Allstate Life Insurance Company $ - $ 20,000 $ -
============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. General
Basis of presentation
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity 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 1997 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
Nature of operations
The Company markets life insurance and annuity products in the United States
through banks and broker-dealers. Life insurance includes both
interest-sensitive and variable life insurance products. Annuities include
deferred annuities, such as variable annuities and fixed rate flexible premium
annuities. The Company has entered into exclusive distribution arrangements with
management investment companies to market its variable annuity contracts.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary withdrawal or surrender by customers, subject to applicable
surrender charges. These policies and contracts are reinsured with ALIC (see
Note 3), which invests premiums and deposits to provide cash flows that will be
used to fund future benefits and expenses. In order to support competitive
crediting rates and limit interest rate risk, ALIC, as the Company's reinsurer,
adheres to a basic philosophy of matching assets with related liabilities 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 new and proposed federal
and state regulation and legislation that would allow banks greater
participation in the securities and insurance businesses, which will present an
increased level of competition for sales of the Company's life and annuity
products. Furthermore, the market for deferred annuities and interest-sensitive
life insurance is enhanced by the tax incentives available under current law.
Any legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
Although the Company currently benefits from agreements with financial services
entities who market and distribute its products, consolidation within that
industry and specifically, a change in control of those entities with which the
Company partners, could affect the Company's sales.
Enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; (2) increasing competition in capital
markets; and (3) reopening stock/mutual company disagreements related to such
issues as taxation disparity between mutual and stock insurance companies.
The Company is authorized to sell life and annuity products in all states except
New York, as well as in the District of Columbia. The Company is also authorized
to sell variable annuities in Puerto Rico. The top geographic locations for
statutory premiums and deposits earned by the Company are Florida, Pennsylvania,
California, Texas and Michigan for the year ended December 31, 1997. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits. All
premiums and contract charges are ceded to ALIC under reinsurance agreements.
2. Summary of Significant Accounting Policies
Investments
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ( "available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost which approximates fair value.
F-6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
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.
Reinsurance
The Company and ALIC entered into a reinsurance agreement effective June 5,
1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers.
Contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC 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 the reinsurance agreements. Reinsurance recoverable and
contractholder funds are reported separately in the statements of financial
position. The Company continues to have primary liability as the direct insurer
for risks reinsured.
Recognition of premium revenue and contract charges
Revenues on interest-sensitive life insurance policies 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
balance.
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 at the enacted tax
rates, and reflect the impact of reinsurance agreements. Deferred income taxes
arise primarily from unrealized capital gains and losses on fixed income
securities carried at fair value.
Separate Accounts
The Company issues flexible premium deferred variable annuity contracts and
single premium variable life policies, the assets and liabilities of which are
legally segregated and reflected in the accompanying statements of financial
position as assets and liabilities of the Separate Accounts (Glenbrook Life and
Annuity Company Variable Annuity Account, Glenbrook Life and Annuity Company
Separate Account A, Glenbrook Life Multi-Manager Variable Account and Glenbrook
Life Variable Life Separate Account A, unit investment trusts registered with
the Securities and Exchange Commission).
Assets of the Separate Accounts, including the Company's ownership interest
("Participation"), are carried at fair value. Unrealized gains and losses on the
Company's Participation, net of deferred income taxes, are shown as a component
of shareholder's equity. Investment income and realized capital gains and losses
arising from the Participation are included in the Company's statements of
operations. The Company liquidated its Participation during 1997, resulting in a
realized capital gain of $3,515. At December 31, 1996, the Participation
amounted to $12,130.
Investment income and realized capital gains and losses of the Separate
Accounts, other than the portion related to the Participation, accrue directly
to the contractholders and, therefore, are not included in the Company's
statements of operations. Revenues to the Company from the Separate Accounts
consist of contract maintenance fees, administrative fees, mortality and expense
risk charges, cost of insurance charges and tax expense charges, all of which
are ceded to ALIC.
Contractholder funds
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most annuities and
universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the customer less withdrawals, mortality charges and
administrative expenses. During 1997, credited interest rates on contractholder
funds ranged from 3.55% to 7.45% for those contracts with fixed interest rates
and from 3.70% to 7.85% for those with flexible rates.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
3. Related Party Transactions
Reinsurance
Contract charges ceded to ALIC were $11,641, $4,254 and $1,523 in 1997, 1996 and
1995, respectively. Credited interest, policy benefits and expenses ceded to
ALIC amounted to $179,954, $113,703 and $71,905 in 1997, 1996 and 1995,
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 $5,959, $759 and $348 in 1997, 1996 and 1995, respectively. Of these costs,
the Company retains investment related expenses. All other costs are ceded to
ALIC under reinsurance agreements.
Laughlin Group
Laughlin Group, Inc. ("Laughlin") is an indirect wholly owned subsidiary of
ALIC. Laughlin markets certain of the Company's flexible premium deferred
variable annuity contracts and flexible premium deferred fixed annuity
contracts. Sales commissions paid to Laughlin, for which the related cost was
ceded to ALIC, were $945 and $8,623 during 1997 and 1996, respectively. The
Company had a receivable of $850 from Laughlin at December 31, 1996, which is
included in net receivable from affiliates in the statements of financial
position.
4. Investments
Fair values
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
----------------
Amortized Fair
Cost Gains Losses Value
--------- ----- ------ -----
<S> <C> <C> <C> <C>
At December 31, 1997
U.S. government and agencies $ 24,419 $ 2,961 $ - $ 27,380
Municipal 656 17 - 673
Corporate 25,476 840 - 26,316
Mortgage-backed securities 30,818 1,056 - 31,874
-------- ------- --------- --------
Total fixed income securities $ 81,369 $ 4,874 $ - $ 86,243
======== ======= ========= ========
At December 31, 1996
U.S. government and agencies $ 24,265 $ 1,722 $ (3) $ 25,984
Corporate 6,970 96 (15) 7,051
Mortgage-backed securities 15,690 664 - 16,354
-------- ------- --------- --------
Total fixed income securities $ 46,925 $ 2,482 $ (18) $ 49,389
======== ======= ========= ========
</TABLE>
F-8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Scheduled maturities
The scheduled maturities for fixed income securities are as follows at December
31, 1997:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
Due in one year or less $ 400 $ 400
Due after one year through five years 3,838 3,877
Due after five years through ten years 33,245 35,102
Due after ten years 13,068 14,990
----------- ------------
50,551 54,369
Mortgage-backed securities 30,818 31,874
----------- ------------
Total $ 81,369 $ 86,243
=========== ============
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
<TABLE>
<CAPTION>
Net investment income
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 5,014 $ 3,478 $ 3,850
Short-term investments 231 126 113
Participation in Separate Accounts 161 232 69
-------------- -------------- --------------
Investment income, before expense 5,406 3,836 4,032
Investment expense 102 62 36
-------------- -------------- --------------
Net investment income $ 5,304 $ 3,774 $ 3,996
============== ============== ==============
</TABLE>
Realized capital gains and losses
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ (61) $ - $ 459
Short-term investments 6 - -
Participation in Separate Accounts 3,515 - -
------------- ------------- -------------
Realized capital gains and losses 3,460 - 459
Income taxes (1,211) - (161)
------------- ------------- -------------
Realized capital gains and losses,
after tax $ 2,249 $ - $ 298
============= ============= =============
</TABLE>
Excluding calls and prepayments, gross losses of $61 and gross gains of $459
were realized on sales of fixed income securities during 1997 and 1995,
respectively.
F-9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Unrealized net capital gains
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Cost/ Unrealized
Amortized Fair Net
Cost Value Gains
--------- ----- -----------
<S> <C> <C> <C>
Fixed income securities $ 81,369 $ 86,243 $ 4,874
Deferred income taxes ======== ======== (1,706)
-------
Unrealized net capital gains $ 3,168
=======
</TABLE>
Change in unrealized net capital gains
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 2,410 $ (2,239) $ 6,423
Participation in Separate Accounts (1,829) 1,368 461
Deferred income taxes (203) 304 (2,409)
------------- ------------- -------------
Increase (decrease) in unrealized net capital gains $ 378 $ (567) $ 4,475
============= ============== =============
</TABLE>
Securities on deposit
At December 31, 1997, fixed income securities with a carrying value of
$10,108 were on deposit with regulatory authorities as required by law.
5. Financial Instruments
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable) and liabilities (including deferred income
taxes) are not considered financial instruments and are not carried at fair
value. Other assets and liabilities considered financial instruments, such as
accrued investment income, are generally of a short-term nature. It is assumed
that their carrying value approximates fair value.
F-10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Financial assets
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Fixed income securities $ 86,243 $ 86,243 $ 49,389 $ 49,389
Short-term investments 4,231 4,231 1,287 1,287
Separate Accounts 620,535 620,535 272,420 272,420
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying value approximates fair value.
Separate Accounts assets are carried in the statements of financial position at
fair value.
Financial liabilities
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $ 2,636,331 $ 2,492,095 $ 2,059,642 $ 1,949,329
Separate Accounts 620,535 620,535 260,290 260,290
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
F-11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
6. Income Taxes
For 1996 and 1995, the Company filed a separate federal income tax return. The
Company will join the Corporation and its other eligible domestic subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate Group")
for 1997 and is party to a federal income tax allocation agreement (the "Tax
Sharing Agreement"). Under the Tax Sharing Agreement, the Company paid to or
received from the Corporation the amount, if any, by which the Allstate Group's
federal income tax liability was affected by virtue of inclusion of the Company
in the consolidated federal income tax return. Effectively, this results in the
Company's annual income tax provision being computed, with adjustments, as if
the Company filed a separate return.
Prior to the Distribution, the Corporation and all of its eligible domestic
subsidiaries, including the Company, 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 "Sears Tax Sharing Agreement"). Under the Sears 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 Allstate Group
filed a separate consolidated 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 Sears 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
Sears Tax Sharing Agreement with respect to the Allstate Group's federal income
tax liability.
The components of the deferred income tax liability at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Unrealized net capital gains on fixed income securities $ 1,706 $ 1,503
Difference in tax bases of investments 66 25
------------- -------------
Total deferred liability $ 1,772 $ 1,528
============= =============
</TABLE>
F-12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 3,037 $ 1,335 $ 1,615
Deferred 41 4 (39)
------- ------- -------
Total income tax expense $ 3,078 $ 1,339 $ 1,576
======= ======= =======
</TABLE>
The Company paid income taxes of $2,839, $2,446 and $866 in 1997, 1996 and 1995,
respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other .1 .5 .4
---- ---- ----
Effective federal income tax rate 35.1% 35.5% 35.4%
==== ==== ====
</TABLE>
F-13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
7. Statutory Financial Information
The following tables reconcile net income for the year ended December 31, and
shareholder's equity at December 31, as reported herein in conformity with
generally accepted accounting principles with statutory net income and capital
and surplus, determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities:
<TABLE>
<CAPTION>
Net Income
----------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance per generally accepted accounting principles $ 5,686 $ 2,435 $ 2,879
Deferred income taxes 41 4 (39)
Unrealized gain on participation in
Separate Accounts (1,829) 1,368 -
Statutory investment reserves 93 35 (279)
Other (354) (85) 108
----------- ------------ ------------
Balance per statutory accounting practices $ 3,637 $ 3,757 $ 2,669
=========== ============ ============
Shareholder's Equity
--------------------
1997 1996
---- ----
Balance per generally accepted accounting principles $ 87,944 $ 81,880
Deferred income taxes 1,772 1,528
Unrealized gain/loss on fixed income securities (4,874) (2,464)
Non-admitted assets (86) (850)
Statutory investment reserves 958 (2,282)
Other (3,114) (2,118)
---------- ------------
Balance per statutory accounting practices $ 82,600 $ 75,694
========== ============
</TABLE>
Permitted statutory accounting practices
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Illinois
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a material effect on statutory surplus, statutory net income
or risk-based capital.
Final approval of the NAIC's proposed "Comprehensive Guide" on statutory
accounting principles is expected in early 1998. The requirements may be
effective as early as January 1, 1999, and are not expected to have a material
impact on statutory surplus of the Company.
Dividends
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by 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 1998 without prior approval of the Illinois Department of Insurance is
$8,050.
F-14
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ in thousands)
<TABLE>
<CAPTION>
Gross Net
Year Ended December 31, 1997 amount Ceded amount
- ---------------------------- --------- ------------ --------
<S> <C> <C> <C>
Life insurance in force $ 4,095 $ 4,095 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 11,641 $ 11,641 $ -
================== ================== ==================
Gross Net
Year Ended December 31, 1996 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 2,436 $ 2,436 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 4,254 $ 4,254 $ -
================== =================== ==================
Gross Net
Year Ended December 31, 1995 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 1,250 $ 1,250 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 6,571 $ 6,571 $ -
================== ================== ==================
</TABLE>
F-15
