AIM LIFETIME PLUS(SM)
GLENBROOK LIFE AND ANNUITY COMPANY PROSPECTUS DATED MAY 1, 1999
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 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 ("we," "us," or the "Company") for
prospective insured persons ages 0-85. The Contract lets you, as 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 33.
YOU WILL BE TAXED ON ANY LOAN, DISTRIBUTION OR OTHER AMOUNT YOU RECEIVE FROM A
MODIFIED ENDOWMENT CONTRACT DURING THE LIFE OF THE INSURED 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 AIM 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. 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.
There is no guaranteed minimum Account Value for a Contract. Your Account Value
in the Contract will vary up or down to reflect the investment experience of the
Funds underlying the sub-accounts of the Variable Account (the "Variable
Sub-accounts") to which you have allocated premiums. You bear the entire
investment risk for all amounts so allocated. The Contract continues in effect
so long as 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, will never be less than the Initial Death Benefit if you make no
withdrawals. 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 you have allocated
premiums. At the death of the Insured, we will pay a Death Benefit to the
beneficiary.
IT MAY NOT BE TO YOUR ADVANTAGE TO PURCHASE VARIABLE LIFE INSURANCE EITHER AS A
REPLACEMENT FOR YOUR CURRENT LIFE INSURANCE OR IF YOU ALREADY OWN A VARIABLE
LIFE INSURANCE CONTRACT.
IMPORTANT NOTICES
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR HAS IT PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A
FEDERAL CRIME.
THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE
RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL INSTITUTIONS OR BY EMPLOYEES OF
SUCH BANKS. HOWEVER, THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY AGENCY. INVESTMENT
IN THE CONTRACTS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THE CONTRACTS ARE NOT FDIC INSURED.
<PAGE>
TABLE OF CONTENTS
Page
OVERVIEW
Special Terms............................................................. 4
Summary................................................................... 6
Fees and Expenses......................................................... 10
The Company............................................................... 13
The Variable Account
The Fund Series
AIM Variable Insurance Funds, Inc....................................... 15
Investment Advisor for the Funds........................................ 17
CONTRACT FEATURES
The Contract
Application for a Contract.............................................. 18
Premiums................................................................ 18
Allocation of Premiums.................................................. 19
Accumulation Unit Values................................................ 19
Deductions and Charges
Monthly Deductions...................................................... 21
Cost of Insurance Charge.............................................. 21
Tax Expense Charge.................................................... 22
Administrative Expense Charge......................................... 22
Other Deductions........................................................ 22
Mortality and Expense Risk Charge..................................... 22
Annual Maintenance Fee................................................ 22
Taxes Charged Against the Variable Account............................ 22
Charges Against the Funds............................................. 22
Withdrawal Charge..................................................... 22
Due and Unpaid Premium Tax Charge..................................... 23
Contract Benefits and Rights
Death Benefit........................................................... 24
Accelerated Death Benefit............................................... 24
Confinement Waiver Benefit.............................................. 25
Account Value........................................................... 25
Transfer of Account Value............................................... 25
Dollar Cost Averaging................................................... 26
Automatic Portfolio Rebalancing......................................... 26
Access to Your Money
Contract Loans.......................................................... 27
Amount Payable on Surrender of the Contract............................. 27
Partial Withdrawals..................................................... 28
Free Withdrawal Amount.................................................. 28
Payment Options......................................................... 28
Maturity................................................................ 29
Lapse and Reinstatement................................................. 29
Cancellation and Exchange Rights........................................ 29
Suspension of Valuation, Payments and Transfers......................... 30
Other Matters
State Exceptions........................................................ 30
Last Survivor Contracts................................................. 30
Voting Privileges....................................................... 30
Statements to Contract Owners........................................... 31
Limit on Right to Contest............................................... 31
Misstatement of Age and Sex............................................. 31
Beneficiary............................................................. 32
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Assignment.............................................................. 32
Dividends............................................................... 32
Distribution of the Contracts........................................... 32
Safekeeping of the Variable Account's Assets............................ 32
Federal Tax Considerations
Introduction............................................................ 33
Taxation of the Company and the Variable Account........................ 33
Taxation of Contract Benefits........................................... 33
Modified Endowment Contracts............................................ 34
Diversification Requirements............................................ 35
Ownership Treatment..................................................... 35
Policy Loan Interest.................................................... 35
OTHER INFORMATION
Additional Information About the Company
Executive Officers and Directors of the Company......................... 36
Year 2000............................................................... 38
Legal Proceedings....................................................... 38
Legal Matters........................................................... 38
Registration Statement.................................................. 38
Experts................................................................. 39
Financial Information................................................... 39
Financial Statements...................................................... F-2
3
<PAGE>
SPECIAL TERMS
This prospectus uses a number of important terms that you may not be familiar
with. The first use of each term in this prospectus appears in hightlight. As
used in this prospectus, the following terms have the indicated meanings
indicated below.
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. 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
4
<PAGE>
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.
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<PAGE>
SUMMARY
NOTE: A glossary of Special Terms used in this Prospectus begins on page 4.
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 Funds underlying the Variable Sub-accounts to which you have
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 you make no
withdrawals. We credit the Contracts with units (the "Accumulation Units") to
calculate Account Values. You may transfer your Account Value among the Variable
Sub-accounts.
We issue the Contracts on either a single life or a "last survivor" basis. For a
discussion of how last survivor Contracts operate differently from single life
Contracts, see "Last Survivor Contracts," page 30.
THE VARIABLE ACCOUNT AND THE FUNDS
The Glenbrook Life AIM 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 with the
Securities and Exchange Commission, ("SEC"), under the Investment Company Act of
1940 ("1940 Act"). It consists of multiple sub-accounts (the "Variable
Sub-Accounts"), each of which invests in a corresponding Fund.
You should read the prospectus for the Fund Series in connection with the
purchase of a Contract. We have summarized the investment objectives of each of
the Funds below under "The Fund Series," beginning on page 15. The Fund Series
has a total of thirteen Funds available under the Contracts. The Funds include:
<TABLE>
<S> <C>
o AIM V.I. Aggressive Growth Fund o AIM V.I. Government Securities Fund
o AIM V.I. Balanced Fund o AIM V.I. Growth Fund
o AIM V.I. Capital Appreciation Fund o AIM V.I. Growth and Income Fund
o AIM V.I. Capital Development Fund o AIM V.I. High Yield Fund
o AIM V.I. Diversified Income Fund o AIM V.I. International Equity Fund
o AIM V.I. Global Utilities Fund o AIM V.I. Money Market Fund
o AIM V.I. Value Fund
</TABLE>
The assets of each Fund are held separately from the other Funds. Each Fund has
distinct investment objectives and policies which the accompanying prospectus
for the Fund Series describes more completely. 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:
* you may make only one premium payment in any Contract Year;
* the minimum additional premium payment is $500;
* the attained age of the insured must be less than 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
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Additional Payment is the lesser of (1) $5,000, or (2) 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 Code.
Other than for the "Guaranteed Additional Payment," we reserve the right to
obtain satisfactory evidence of insurability before accepting any additional
premium payments requiring an increase in the Specified Amount. We reserve the
right to reject an additional premium payment for any reason. You may, however,
pay additional premiums at any time and in any amount necessary to avoid
termination of the Contract.
DEDUCTIONS AND CHARGES
On each Monthly Activity Date, we will deduct a Monthly Deduction Amount from
your Account Value. The Monthly Deduction Amount is taken pro rata from each
Variable Sub-Account to which you have allocated Account Value. 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 our anticipated mortality
costs. The monthly tax expense charge is imposed at an equivalent annual rate of
0.40% for the first ten Contract Years. This charge compensates us 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 (if any) of your
state. The monthly administrative charge is equivalent to an annual rate of
0.25%. This charge compensates us for administrative expenses incurred in the
administration of the Variable Account and the Contracts.
We will also deduct from the Variable Account assets a daily charge, equivalent
to an annual rate of 0.90% of average daily net assets, for the mortality risks
and expense risks we assume 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 21, and "Access to Your Money -- Lapse
and Reinstatement," page 29.
We will deduct an Annual Maintenance Fee of $35 on each Contract Anniversary
from the Variable Sub-Accounts to which you have allocated Account Value, in
proportion to the amounts so allocated. We will waive this fee if total premiums
paid are $50,000 or more. See "Deductions and Charges -- Other Deductions --
Annual Maintenance Fee," page 22.
You 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 22.
Withdrawals in excess of the Free Withdrawal Amount will be subject to a
withdrawal charge as set forth below:
<TABLE>
<CAPTION>
Percentage Of
Contract Year Initial Premium Withdrawn
<S> <C>
1.............................................. 7.75%
2.............................................. 7.75%
3.............................................. 7.75%
4.............................................. 7.25%
7
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5.............................................. 6.25%
6.............................................. 5.25%
7.............................................. 4.25%
8.............................................. 3.25%
9.............................................. 2.25%
10+............................................ 0.00%
</TABLE>
We impose the Withdrawal Charge to cover a portion of the sales expense we incur
in distributing the Contracts. This expense includes agents' commissions,
advertising and the printing of prospectuses. See "Deductions and Charges --
Other Deductions -- Withdrawal Charge," pages 22-23.
During the first nine Contract Years, we impose an additional premium tax charge
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 23.
For a discussion of the tax consequences of a full or a partial withdrawal, see
"Federal Tax Considerations," page 33.
DEATH BENEFIT
At the death of the Insured and 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 24.
ACCOUNT VALUE
The Account Value of your Contract will increase or decrease to reflect:
o the investment experience of the Funds underlying the Variable
Sub-accounts to which you have allocated Account Value;
o interest credited to the Loan Account; and
o deductions for the mortality and expense risk charge, the Monthly
Deduction Amount, and the Annual Maintenance Fee. There is no minimum
guaranteed Account Value. You bear the risk of your investment in the
Variable Sub-accounts. See "Contract Benefits and Rights -- Account
Value," page 25.
CONTRACT LOANS
Two types of cash loans are available from the Company. You may obtain one or
both. Both types of loans are secured by your Contract. The maximum amount
available for such loans is 90% of the Contract's Cash Value, less the sum of:
* the amount of all loans existing on the date of the loan request
(including loan interest to the next Contract Anniversary);
* any Annual Maintenance Fee due on or before the next Contract
Anniversary; and
* any due and unpaid Monthly Deduction Amounts.
See "Access to Your Money -- Contract Loans," page 27. See also "Federal Tax
Considerations," page 33, for a discussion of the potential tax consequences.
LAPSE
Under certain circumstances your Contract may terminate if its Cash Surrender
Value on any Monthly Activity Date is less than the required Monthly Deduction
Amount. If this happens, we will give you (1) written notice, and (2) a 61 day
grace period during which you may pay additional amounts to continue the
Contract. See "Access to Your Money--Contract Loans," page 27 and "Lapse and
Reinstatement," page 29.
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CANCELLATION AND EXCHANGE RIGHTS
You have a limited right to return the Contract for cancellation. This right to
return exists during the cancellation period. The cancellation period is a
number of days (which varies by state) as specified in your Contract. To
exercise this cancellation right, we may require that you return the Contract
for cancellation by mail or hand delivery to the Company at our headquarters, or
to the agent who sold you the Contract, within the cancellation period following
delivery of the Contract to you. If the Contract is returned for cancellation
within the cancellation period, we will return to you 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 those states, and if 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 cancellation period to the AIM V.I. Money Market
Sub-account.
Once the Contract is in effect, you may be able to exchange it during the first
24 months after its issuance for a non-variable permanent life insurance
contract on the life of the Insured without submitting proof of insurability. We
reserve the right to make available a permanent life insurance contract offered
by us or any company affiliated with us without evidence of insurability. See
"Access to Your Money -- Cancellation and Exchange Rights," page 29.
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 33.
PERSONALIZED ILLUSTRATIONS
We will furnish, upon request and at no charge, a personalized illustration
based on the proposed Insured's age, sex, and underwriting classification. Where
applicable, we will also furnish upon request an illustration for a Contract
that is not affected by the sex of the Insured. These personalized illustrations
will be based, as appropriate, on the methodology and format of the hypothetical
illustrations that we have included in our registration statement for the
Contracts. See "Additional Information about the Company -- Registration
Statement," page 38, 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. For further
information, see "Deductions and Charges," page 21.
<TABLE>
<CAPTION>
CONTRACT CHARGES AND DEDUCTIONS
Account Value Charges (deducted monthly and shown as an annualized percentage of
Account Value):(1)
CURRENT(2) MAXIMUM
<S> <C> <C>
Cost of Insurance Charge......... SINGLE Life SINGLE Life
----------- -----------
Standard: 0.65% (Contract Years 1-10) Standard-Ranges from $0.06 per
0.55% (Contract Years 11+) 1,000 of net 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
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0.90% (contract Years 11+) $1,000 of net amount at risk
(younger ages) to $82.92 per
$1,000 of net amount at risk (age 99).
JOINT LIFE JOINT LIFE
Standard: 0.30% (Contract Years 1-10) Standard-Ranges from $0.00015 per
0.20% (Contract Years 11+) $1,000 of net 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
0.55% (Contract Years 11+) $1,000 of net amount at risk (younger
ages) up to $78.71083 per $1,000 of
net amount at risk (age 99).
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:................................ $10(6)
Maximum Withdrawal Charge:....................... 7.75% of initial premium withdrawn(7)
Due and Unpaid Premium Tax Charge:............... 2.25% OF INITIAL PREMIUM WITHDRAWN(8)
<FN>
(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 "Deductions and Charges -- Cost of Insurance
Charge," page 21.
(2) The actual amount of insurance purchased will depend on the insured's
age, sex (where permitted under state law) and rate class. See "Deductions
and Charges -- Cost of Insurance Charge," page 21. 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 "Deductions and Charges -- Tax
Expense Charge," page 22.
(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 "Deductions and Charges
-- Taxes Charged Against the Variable Account," page 22.
(5) We waive this fee if total premiums paid are $50,000 or more.
(6) We currently do not impose this charge 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
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<PAGE>
distributing the Contracts. See "Deductions and Charges -- Other Deductions
-- Withdrawal Charge," page 22. We will not impose a withdrawal charge on
any withdrawl to the extent that aggregate withdrawal charges and the
federal tax portion of the tax expense charge would thenwise exceed 9% of
total premiums paid prior to the Withdrawal. See "Deductions and
Charges--Other Deductions--Withdrawal Charge," page 22. 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 you purchase the Contract. 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.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES (After Voluntary Reductions and Reimbursements) (AS A
PERCENTAGE OF FUND AVERAGE DAILY NET ASSETS)
Management Other Total Annual
Fund Fees Expenses Fund Expenses
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund (1) 0.10% 1.06% 1.16%
AIM V.I. Balanced Fund (1) 0.00% 1.18% 1.18%
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67%
AIM V.I. Capital Development Fund (1) 0.00% 1.21% 1.21%
AIM V.I. Diversified Income Fund 0.60% 0.17% 0.77%
AIM V.I. Global Utilities Fund 0.65% 0.46% 1.11%
AIM V.I. Government Securities Fund 0.50% 0.26% 0.76%
AIM V.I. Growth Fund 0.64% 0.08% 0.72%
AIM V.I. Growth and Income Fund 0.61% 0.04% 0.65%
AIM V.I. High Yield Fund(1) 0.00% 1.13% 1.13%
AIM V.I. International Equity Fund 0.75% 0.16% 0.91%
AIM V.I. Money Market Fund 0.40% 0.18% 0.58%
AIM V.I. Value Fund 0.61% 0.05% 0.66%
-------------------
<FN>
(1) Figures shown in the table are for the year ended December 31, 1998. Absent
voluntary reductions and reimbursements for certain Funds, management fees,
other expenses, and total annual fund expenses expressed as a percentage of
average net assets of the Funds would have been as follows:
</FN>
</TABLE>
<TABLE>
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund 0.80% 3.82% 4.62%
AIM V.I. Balanced Fund 0.75% 2.08% 2.83%
AIM V.I. Capital Development Fund 0.75% 5.05% 5.80%
AIM V.I. High Yield Fund 0.63% 1.87% 2.50%
</TABLE>
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<PAGE>
THE COMPANY
The Company is the issuer of the Contract. The Company is a stock life insurance
company organized in 1998 under the laws of the State of Arizona. Previously,
the Company was organized under the laws of the State 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 headquarters are
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 Company and Allstate Life entered into a reinsurance agreement effective
June 5, 1992. Under the reinsurance agreement, Allstate Life reinsures
substantially all of the Company's liabilities under the Contracts. The
reinsurance agreement provides us with financial backing from Allstate Life.
However, it does not create a direct contractual relationship between Allstate
Life and you. In other words, the obligations of Allstate Life under the
reinsurance agreement are to the Company; and the Company remains the sole
obligor under the Contract to you.
Several independent rating agencies regularly evaluate life insurers'
claims-paying ability, quality of investments, and overall stability. A.M. Best
Company assigns A+ (Superior) to Allstate Life which automatically reinsures all
net business of Glenbrook. A.M. Best Company also assigns Glenbrook the rating
of A+(r) because Glenbrook automatically reinsures all net business with
Allstate Life. Standard & Poor's Insurance Rating Services assigns AA+
(Excellent) to Glenbrook's financial strength and Moody's assigns an Aa2
(Excellent) financial strength rating to Glenbrook. Glenbrook shares the same
ratings of its parent, Allstate Life. These ratings do not reflect the
investment performance of the Variable Account. We may from time to time
advertise these ratings in our sales literature.
12
<PAGE>
THE VARIABLE ACCOUNT
GENERAL
Glenbrook Life AIM Variable Life Separate Account A (the "Variable Account") is
a separate account of the Company established on January 15, 1996 pursuant to
the insurance laws of Illinois. Effective December 28, 1998, the Company
redomesticated under the laws of Arizona. Under Arizona 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 Variable Account is organized as a unit
investment trust and registered as such with the SEC 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.
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 SEC 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 SEC. 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 those funded
through 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 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.
We re-invest all investment income of and other distributions to each Variable
Sub-Account arising from the corresponding Fund 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 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. We
will (1) purchase shares in the Funds in connection with premiums allocated to
the corresponding Variable Sub-Account in accordance with Contract Owners'
directions; and (2) 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.
We reserve 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, we may substitute shares of another
Fund for shares already purchased, or to be purchased in the future, under the
Contracts. We will not make any such substitution without notice to Contract
Owners, and prior approval of the Commission to the extent required under the
1940 Act. We reserve 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, we also reserve 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.
13
<PAGE>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc., the Fund Series, offers thirteen Funds for
use with this Contract. 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 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.
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.
AIM V.I. Capital Appreciation Fund ("Capital Appreciation Fund") is a
diversified Fund which seeks capital appreciation.
AIM V.I. Capital Development Fund ("Capital Development Fund") is a diversified
Fund which seeks long-term growth of capital.
AIM V.I. Diversified Income Fund ("Diversified Income Fund") is a diversified
Fund which seeks a high level of current income.
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.
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.
AIM V.I. Growth Fund ("Growth Fund") is a diversified Fund which seeks growth of
capital.
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.
AIM V.I. High Yield Fund ("High Yield Fund") is a diversified Fund which seeks
to achieve a high level of current income.
AIM V.I. International Equity Fund ("International Fund") is a diversified Fund
which seeks long-term growth of capital.
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.
AIM V.I. Value Fund ("Value Fund") is a diversified Fund which seeks long-term
growth of capital.
An investment in the Money Market Fund is neither insured nor guaranteed by the
U.S. Government. There can be no assurance that the Money Market Fund will be
able to maintain a stable net asset value of $1.00 per share.
14
<PAGE>
All dividends and capital gains distributions from the Funds are automatically
reinvested in shares of the distributing Fund at their net asset value.
Due to the sometime limited availability of common stocks of small-cap companies
that meet the investment criteria for AIM V.I. Aggressive Growth Fund, the Fund
may periodically suspend or limit the offering of its shares. The Fund will be
closed to new participants when Fund assets reach $200 million. If the Fund is
closed, Contract owners maintaining an allocation of Contract Value in that Fund
will nevertheless be permitted to allocate additional purchase payments to the
Fund.
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.
YOU SHOULD READ THE FUND SERIES PROSPECTUS CAREFULLY BEFORE YOU MAKE ANY
DECISION 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.
15
<PAGE>
THE CONTRACT
APPLICATION FOR A CONTRACT
Individuals wishing to purchase a Contract must submit an application to the
Company. We will issue a Contract only on the lives of Insureds ages 0-85 who
supply evidence of insurability satisfactory to us. Acceptance is subject to our
underwriting rules; we reserve the right to reject an application for any lawful
reason. If we do not issue a Contract, we will return the premium to the
applicant. We will not change the terms or conditions of a Contract without the
consent of the Contract Owner except where necessary to comply with tax laws or
maintain the status of the Contract under then applicable law.
Once we have received the initial premium and approved the underwriting, we will
issue the Contract on the date we have received the final requirement for issue.
In the case of simplified underwriting, we will issue the Contract or deny
coverage 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 we establish from time to time
(currently $1,000,000), we will not accept the initial payment with the
application. In other cases, where we receive 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 age of the Insured according to the following
table:
<TABLE>
<CAPTION>
Simplified Underwriting
Issue Age Maximum Initial Premium
<S> <C>
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
</TABLE>
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 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. We reserve the right to reject any additional premium payment for any
reason.
Unless you request otherwise in writing, any additional premium payment we
receive while a Contract loan exists will be applied frist, as a repayment of
Indebtedness, and second, as an additional premium payment, subject to the
conditions described above.
You may make additional premium payments 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 we issue a Contract, we will allocate
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, to the Variable
Account. We will make that allocation 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 to the
AIM V.I. Money Market Sub-Account during the cancellation period in those states
where state law requires premiums to be returned upon exercise of the
cancellation right.
ACCUMULATION UNIT VALUES
The Accumulation Unit Value for each Variable Sub-Account will vary to reflect
the investment experience of the corresponding Fund. We determine these values
on each Valuation Day by multiplying the Accumulation Unit Value of a 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. You 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, because those valuations have a direct bearing on the
Accumulation Unit Values of the corresponding Variable Sub-Accounts and,
therefore, on your Account Value. See "Contract Benefits and Rights -- Account
Value," page 25.
We will determine all valuations in connection with a Contract, (E.G., with
respect to determining Account Value, or with respect to determining the number
of Accumulation Units to be credited to a Contract with each premium) other than
determinations with respect to the initial premium and additional premiums
requiring underwriting, on the date we receive the request or payment in good
order at our headquarters. However, if such date is not a Valuation Day, we will
make the determination 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
17
<PAGE>
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 33.)
18
<PAGE>
DEDUCTIONS AND CHARGES
MONTHLY DEDUCTIONS
On each Monthly Activity Date, including the Contract Date, we will deduct from
your Account Value attributable to the Variable Account an amount ("Monthly
Deduction Amount") to cover charges and expenses incurred in connection with the
Contract. We will deduct this amount from the Variable Sub-Accounts in
proportion to your Account Value attributable to each Variable Sub-Account. 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 "Access to Your Money--Lapse and
Reinstatement," page 29. 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, which is deducted as a specified percentage of your Account
Value, will not exceed the guaranteed cost of insurance charge. This guaranteed
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 guaranteed 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 that difference is the amount for which the Company is at risk to pay
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 -
Death Benefit" on page 24.)
Example:
<TABLE>
<S> <C>
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
</TABLE>
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 guaranteed cost
of insurance charges per $1,000 would be 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.
19
<PAGE>
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. 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%. We will impose the
premium tax deduction regardless of a Contract owner's state of residence.
Therefore, we deduct this amount from your Account Value whether or not any
premium tax applies to your Contract. The deduction may be higher or lower than
any premium tax your state imposes. 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: We will deduct monthly from your Account Value an
administrative expense charge equal to an annual rate of 0.25% of the Account
Value. This charge compensates us for administrative expenses incurred in the
administration of the Variable Account and the Contracts.
We take all monthly deductions by canceling Accumulation Units of the Variable
Account under the Contract.
OTHER DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE: We 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 risk we assume in relation to the Contracts.
The mortality risks assumed include the risk that the cost of insurance charges
specified in the Contract will be insufficient to meet claims. We also assume a
risk that the Death Benefit will exceed the amount on which the cost of
insurance charges were based, because that determination is made 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 your Contract are less
than $50,000, the Company will deduct from your Account Value an Annual
Maintenance Fee of $35 on each Contract Anniversary. This fee will help
reimburse us for administrative and maintenance costs of the Contracts. We will
deduct this fee also upon surrender of the Contract on a date other than a
Contract Anniversary.
TAXES CHARGED AGAINST THE VARIABLE ACCOUNT: Currently we make no charge 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 our
receipt of premiums under the Contract). The Company may, however, make such a
charge in the future. We may also make charges for other taxes, if any,
attributable to the Variable Account or this class of Contracts.
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 Expenses" table on pages 11-12 for a more complete discussion of the fees
and charges applicable to the Funds.
WITHDRAWAL CHARGE: We may assess a Withdrawal Charge upon surrender of the
Contract or partial withdrawals in excess of the Free Withdrawal Amount. The
Free Withdrawal Amount in any Contract Year is 10% of total premiums paid. You
may not carry forward any Free Withdrawal Amount not taken in a Contract Year 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:
20
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL
PREMIUM WITHDRAWN
(IN EXCESS OF FREE WITHDRAWAL AMOUNT)
Contract Year
<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>
After the ninth Contract Year, we will not impose Withdrawal Charges. In
addition, we will not impose a Withdrawal Charge 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. We may waive the Withdrawal Charge 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 25.
Due and Unpaid Premium Tax Charge: During the first nine Contract Years, we will
impose a charge for due and unpaid premium tax 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 Initial Premium withdrawn:
<TABLE>
<CAPTION>
Percentage of
Contract Year Initial Premium Withdrawn
<S> <C>
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%
</TABLE>
After the ninth Contract Year, no due and unpaid premium tax charge will be
imposed. We guarantee that the percentages indicated above will not increase.
21
<PAGE>
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 the sum of
* any Indebtedness; plus
* 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).
<TABLE>
<CAPTION>
Examples:
A B
<S> <C> <C>
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
</TABLE>
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 death
benefit 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) and $73,100 (the Account Value of $34,000 multiplied by the
Death Benefit Ratio of 2.15).
The beneficiary may request that all or part of the proceeds be either paid in
cash, or applied under an Income Plan. See "Access to Your Money -- Payment
Options," page 28.
ACCELERATED DEATH BENEFIT
If the Insured becomes terminally ill, you 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 us that
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 minimum amount of
Death Benefit we will accelerate is $10,000.
The Company will pay benefits due under the Accelerated Death Benefit provision
upon receipt of your written request and due proof that the Insured has been
diagnosed as terminally ill. We reserve the right to require supporting
documentation of the diagnosis and to require, at our expense, an examination of
the Insured by a physician of our choice to confirm the diagnosis. The amount of
the payment will be the amount you requested, reduced by the sum of:
* a 12 month interest discount to reflect the early payment;
* an administrative fee not to exceed $250;
* and a pro rata amount of any outstanding Contract loan and accrued
loan interest.
22
<PAGE>
After the payment has been made, we will reduce on a pro rata basis the
Specified Amount, the Account Value and any outstanding Contract loan.
We allow only one request for an Accelerated Death Benefit per Insured. The
Accelerated Death Benefit may vary by state and may not be available in all
states.
CONFINEMENT WAIVER BENEFIT:
Under the terms of an endorsement to the Contract, we 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.
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 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, the Monthly Deduction Amounts and the Annual Maintenance Fee if
applicable. There is no minimum guaranteed Account Value.
The Account Value of a particular Contract is related to the values of the of
the Variable Sub-accounts to which the Contract owner has allocated premiums
paid on the Contract. 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 19.
TRANSFER OF ACCOUNT VALUE
While the Contract remains in force and subject to the Company's transfer rules
then in effect, you may request to transfer a part or all of the Account Value
of a particular Variable Sub-Account to other Variable Sub-Accounts. We reserve
the right to impose a $10 charge on each such transfer in excess of 12 per
Contract Year. Currently, we do not assess this charge. The minimum amount that
can be transferred is shown on your Contract Data page.
You may make telephone transfer requests by calling 1(800) 776-6978 by 4:00
p.m., Eastern Time. We will not accept telephone transfer requests received at
any other telephone number or after 4:00 p.m., Eastern Time. In the event that
the NYSE closes early, i.e., before 4:00 p.m. Eastern Time, or in the event that
the NYSE closes early for a period of time but then reopens for trading on the
same day, we will process telephone transfer requests as of the close of the
NYSE on that particular day. We will effect telephone transfer requests received
before 4:00 p.m., Eastern Time 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, we will reduce the number of Accumulation Units
credited to the Variable Sub-Account from which the transfer is made by the
amount transferred divided by the Accumulation Unit Value of the Variable
Sub-Account from which the transfer is made on the Valuation Day we receive the
transfer request. Similarly, we will increase the number of Accumulation
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Units credited to the Variable Sub-Account to which the transfer is made by the
amount transferred divided by the Accumulation Unit Value of that Variable
Sub-Account on the Valuation Day we receive the transfer request.
DOLLAR COST AVERAGING
You may make transfers automatically through Dollar Cost Averaging while the
Contract is in force. Dollar Cost Averaging permits you 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
You may make transfers automatically through Automatic Portfolio Rebalancing
while the Contract is in force. If you elect Automatic Portfolio Rebalancing, we
will rebalance your Account Value in the Variable Sub-Accounts to your specified
allocation on a quarterly basis, determined from the first date that you decide
to rebalance. Each quarter, we will transfer your Account Value among the
Variable Sub-Accounts to achieve your requested allocation. Unless you
subsequently change your allocation instructions, the allocation will be the
allocation you selected initially. Any new allocation instructions 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.
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ACCESS TO YOUR MONEY
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 (1)
Preferred Loans (described below), and (2) 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 sum of
* the amount of all Contract loans existing on the date of the loan
(including loan interest to the next Contract Anniversary),
* any due and unpaid Monthly Deduction Amounts,
* and any Annual Maintenance Fee due on or before the next Contract
Anniversary.
We will transfer the loan amount pro rata from each Variable Sub-Account
attributable to the Contract (unless the Contract Owner specifies otherwise) to
the Loan Account. We will credit the amounts allocated to the Loan Account 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 for
non-preferred loans will not exceed the maximum rate indicated in the Contract.
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. We will transfer the
difference between the value of the Loan Account over the Indebtedness 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.
You may repay all or any part of any loan secured by a Contract while the
Contract is still in force. When you make a loan repayment or interest payment,
it will be allocated among the Variable Sub-Accounts in the same percentages as
you have elected for subsequent premium payments (unless the you request a
different allocation). We will deduct an amount equal to the payment from the
Loan Account. You must repay any outstanding loan at the end of a Grace Period
before we will reinstate the Contract. See "Access to Your Money -- Lapse and
Reinstatement," page 29.
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, you may elect, without the consent of the
beneficiary (provided the designation of beneficiary is not irrevocable), to
surrender the Contract. Upon surrender, you will receive the Cash Surrender
Value determined as of the day we receive your written request for surrender, or
the date you specified in your request, whichever is later. The Cash Surrender
Value equals the Cash Value less: (1) the Annual Maintenance Fee, and (2) any
Indebtedness. We will pay the Cash Surrender Value within seven days of our
receipt of the written request or on the effective surrender date you requested,
whichever is later.
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For a discussion of the tax consequences of surrendering the Contract, see
"Federal Tax Considerations," page 33.
You may elect to apply the surrender proceeds to an Income Plan, see Payment
Options," below.
PARTIAL WITHDRAWALS
While the Contract is in force, you 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 33.
FREE WITHDRAWAL AMOUNT
The Free Withdrawal Amount in any Contract Year is 10% of total premiums paid.
You may not carry forward any Free Withdrawal Amount not taken in a Contract
Year to increase the Free Withdrawal Amount available in any subsequent year.
PAYMENT OPTIONS
You may receive the surrender proceeds or Death Benefit proceeds under the
Contract in a lump sum, or you may apply it 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, we may require that the frequency of
income payments be decreased such that the income payments are greater than $20
each, or we 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 our 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 we will determine, 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. We may require proof of age and gender of the
payee (and joint payee, if applicable) before payments begin. We may also
require proof that such person(s) is (are) living before we makes each payment.
The following options are available under the Contracts (we reserve the right to
offer other payment options):
* Income Plan 1 -- Life Income With Guaranteed Payments
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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, we 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, we will
continue to pay the remainder of the guaranteed payments.
We will make any other arrangements for income payments as may be agreed upon.
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. We will give
you written notice that if you do not pay an amount shown in the notice (which
will be sufficient to cover the Monthly Deduction Amount(s) due) within the 61
day Grace Period, there is a danger that the Contract may 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 24.
If the Contract lapses, you may apply for reinstatement of the Contract by
payment of the reinstatement premium (and any applicable charges) required under
the Contract. You must make a request for reinstatement within five years of the
date the Contract entered the Grace Period. If a loan was outstanding at the
time of lapse, we will require repayment of the loan before permitting
reinstatement. In addition, the Company reserves the right to require evidence
of insurability satisfactory us. The reinstatement premium is equal to an amount
sufficient to cover all Monthly Deduction Amounts and Annual Maintenance Fees
due and unpaid during the Grace Period, and 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
You have a limited right to return a Contract for cancellation. This right to
return exists during what we call the cancellation period. The cancellation
period is a number of days (which varies by state) as specified in your
Contract. If you choose to return the Contract for cancellation, you must do so
by mail or personal delivery to the Company(at our headquarters) or to the agent
who sold the Contract within the cancellation period following delivery of the
Contract to you. We will then return to you within 7 days thereafter the sum of
the Account Value on the date the returned Contract is received by us (at our
headquarters) or our agent; plus 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, you may exchange it during the first 24 months
after its issuance for a non-variable permanent life insurance contract we offer
on the life of the Insured. We reserve the right to make available a permanent
life insurance contract offered by us or any company affiliated with us 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
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Account Value to reflect any variance between the exchanged Contract and the new
contract.
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 SEC, or on any day the SEC 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
We offer the Contracts on either a single life or a "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:
* Last survivor Contracts are offered for prospective insured
persons ages 18-85.
* 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.
* To qualify for simplified underwriting under a last survivor
Contract, both Insureds must meet the simplified underwriting
standards.
* For a last survivor Contract to be reinstated, both Insureds must
be alive on the date of reinstatement.
* For a last survivor Contract, provisions regarding misstatement of
age or sex, suicide and incontestability apply to either Insured.
* The Accelerated Death Benefit provision is only available upon
terminal illness of the last survivor.
* The Confinement Waiver Benefit is available upon confinement of
either insured.
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OTHER MATTERS
VOTING PRIVILEGES
In accordance with our view of presently applicable law, we will vote the shares
of the Funds at regular and special meetings of their shareholders in accordance
with instructions from Contract Owners (or their assignees, 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. We will
vote shares for which no instructions have been given and shares which are not
attributable to Contract Owners (I.E., shares we own) in the same proportion as
we vote shares for which we have received instructions. If the 1940 Act or any
rule promulgated thereunder should be amended, however, or if our present
interpretation should change and, as a result, we determine that we are
permitted to vote the shares of the Funds in our own right, we 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 "Access to Your Money--Contract Loans,"
page 27) 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.
We 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.
We also may disregard voting instructions in favor of changes initiated by
Contract Owners in the investment objectives or the investment advisor of the
Funds if we reasonably disapprove of such changes. We would disapprove a change
only if the proposed change is contrary to state law or prohibited by state
regulatory authorities. If we do disregard voting instructions, we will include
a summary of that action and the reasons for such action 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, we will send you 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(s) 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
We will 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. We may contest any increase in the Specified Amount for which
evidence of insurability was obtained for two 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 other 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.
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MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured is incorrectly stated, the Death Benefit will
be appropriately adjusted as specified in the Contract.
BENEFICIARY
You name the beneficiary in your application for the Contract. You may change
the beneficiary (unless irrevocably named) during the Insured's lifetime by
written request to us. If no beneficiary is living when the Insured dies, we
will pay the proceeds to the Contract Owner if living; otherwise to the Contract
Owner's estate.
ASSIGNMENT
Unless required by state law, you may not assign the Contract as collateral for
a loan or other obligation.
DIVIDENDS
No dividends will be paid under the Contracts. The Contracts are
nonparticipating.
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 (the "Exchange Act") 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 Exchange Act, 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, we 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.
Our 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
We hold the assets of the Variable Account. The assets of the Variable Account
are kept physically segregated and held separate and apart from our General
Account. The Company maintains records of all purchases and redemptions of
shares of the Funds.
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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
We are 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. Under the Code, the Company believes that the Variable Account
investment income and net capital gains will not be taxed because they are
applied to increase the reserves under the Contracts. Accordingly, the Company
does not currently make provisions for any such taxes. If the Company is taxed
on investment income or capital gains of the Variable Account, then the Company
may impose a charge against the Variable Account in the future.
TAXATION OF CONTRACT BENEFITS
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. Section 7702 does not address certain features of the
Contract. 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 taxed on the Cash Value of the
Contract, including any increases, until actual distributions from
the Contract.
In addition, under proposed regulations interpreting Section 7702, it is unclear
whether a substandard risk Contract will meet the Section 7702 definition. If a
Contract were not a life insurance contract under Section 7702, the 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.
Upon surrender of the Contract, the cash surrender value is taxable to the
extent it exceeds the investment in the Contract. The investment in the Contract
is the gross premium or other consideration paid for the Contract reduced by any
amounts previously received from the Contract to the extent such amounts were
properly excluded from gross income. For non-modified endowment contracts, a
partial withdrawal, or a reduction in benefit in the first fifteen years of the
Contract, may result in a taxable distribution of income before recovery of the
investment in the Contract. Partial withdrawals and reduction in benefits on
non-modified endowment contracts after fifteen years are taxed first as a
recovery of investment in the Contract, then as a taxable distribution of
income.
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:
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* 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 in which the value
depends in part on tax consequences, you should be sure to consult a qualified
tax advisor about the tax attributes of the 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 increases 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, that amount is treated as a distribution. All
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:
* distributions made on or after the date on which the taxpayer
attains age 59 1/2;
* distributions attributable to the taxpayer's becoming disabled
(within the meaning of Section 72(m)(7) of the Code); or
* 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.
32
<PAGE>
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 Funds or their investments, the Company
expects the Funds 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.
33
<PAGE>
ADDITIONAL INFORMATION ABOUT THE COMPANY
The Company also acts as the sponsor for six of its other 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, Glenbrook Life Variable Life
Separate Account B, Glenbrook LIfe Scudder Variable 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.
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.
THOMAS J. WILSON, II, 41. Vice Chairman (1999)*
Also Director (1995-Present) and Senior Vice President (1999) of Allstate
Insurance Company; Director (1999) Allstate Life Financial Services, Inc.;
Director (1995-Present) and President (1999) Allstate Life Insurance Company;
Director (1999) and President (1998-Present) of Allstate Life Insurance Company
of New York; Director (1999) and Vice Chairman of Glenbrook Life and Annuity
Company; Director (1999) Lincoln Benefit Life Company; Director (1999) and Vice
Chairman of Northbrook Life Insurance Company; Director (1999) of 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
34
<PAGE>
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.
35
<PAGE>
YEAR 2000
Glenbrook is heavily dependent upon complex computer systems for all phases of
its operations, including customer service and policy and contract
administration. Since many of Glenbrook's older computer software programs
recognize only the last two digits of the year in any date, some software may
fail to operate properly in or after the year 1999, if the software is not
reprogrammed or replaced ("YEAR 2000 ISSUE"). Glenbrook believes that may of its
counterparties and suppliers also have Year 2000 Issues which could affect
Glenbrook. In 1995, Allstate Insurance Company commenced a plan intended to
mitigate and/or prevent the adverse effects of Year 2000 Issues. These
strategies include normal development and enhancement of new and existing
systems, upgrades to operating systems already covered by maintenance agreements
and modifications to existing systems to make them Year 2000 compliant. The plan
also includes Glenbrook actively working with it major external counterparties
and suppliers to asses their compliance efforts and Glenbrook's exposure to
them. Glenbrook presently believes that it will resolve the Year 2000 Issue in a
timely manner, and the financial impact will not materially affect its results
of operations, liquidity or financial position. Year 2000 costs are and will be
expensed as incurred.
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
Freedman, Levy, Kroll & Simonds, 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 state law pertaining to the
Contracts, including the validity of the Contracts and the Company's right to
issue such Contracts under state insurance law, have been passed upon by Michael
J. Velotta, General Counsel of the Company.
REGISTRATION STATEMENT
We have filed a registration statement 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 previously filed with this 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 and the related financial statement schedule of
Glenbrook and the financial statements of the Variable Account included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of the Variable Account included herein have also been
audited by Deloitte & Touche LLP, 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 previously included in the registration
statement were approved by Diana Montigney, FSA, Allstate Life Insurance
Company, and were included in reliance upon her opinion as to their
reasonableness.
FINANCIAL INFORMATION
The financial statements for the Company which appear on the following pages
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. The financial statements for the Variable
Account immediately follow the financial statements of the Company in this
prospectus.
<PAGE>
Financial Statements
INDEX
PAGE
Independent Auditors' Report................................................F-1
Financial Statements:
Statements of Financial Position
December 31, 1998 and 1997........................................F-2
Statements of Operations and Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996..................................F-3
Statements of Shareholder's Equity for the Years Ended
December 31, 1998, 1997 and 1996..................................F-4
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996..................................F-5
Notes to Financial Statements........................................F-6
Schedule IV - Reinsurance for the Years Ended
December 31, 1998, 1997 and 1996..................................F-16
<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", an affiliate of The Allstate
Corporation) as of December 31, 1998 and 1997, and the related Statements of
Operations and Comprehensive Income, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1998. Our audits also
included Schedule IV - Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 19, 1999
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
December 31,
------------
($ in thousands) 1998 1997
---- ----
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $87,415 and $81,369) $ 94,313 $ 86,243
Short-term 4,663 4,231
---------- ----------
Total investments 98,976 90,474
Reinsurance recoverable from Allstate Life
Insurance Company 3,113,278 2,637,983
Other assets 2,590 2,549
Separate Accounts 993,622 620,535
---------- ----------
TOTAL ASSETS $4,208,466 $3,351,541
========== ==========
LIABILITIES
Contractholder funds 3,113,278 2,637,983
Current income taxes payable 2,181 609
Deferred income taxes 2,499 1,772
Payable to affiliates, net 3,583 2,698
Separate Accounts 993,622 620,535
---------- ----------
TOTAL LIABILITIES 4,115,163 3,263,597
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 9)
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
Retained income 17,079 13,035
Accumulated other comprehensive income:
Unrealized net capital gains 4,483 3,168
---------- ----------
Total accumulated other comprehensive income 4,483 3,168
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 93,303 87,944
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $4,208,466 $3,351,541
========== ==========
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
REVENUES
Net investment income $ 6,231 $ 5,304 $ 3,774
Realized capital gains and losses (5) 3,460 --
------- ------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 6,226 8,764 3,774
Income tax expense 2,182 3,078 1,339
------- ------- -------
NET INCOME 4,044 5,686 2,435
------- ------- -------
OTHER COMPREHENSIVE INCOME, AFTER-TAX
Change in unrealized net capital
gains and losses 1,315 378 (567)
------- ------- -------
COMPREHENSIVE INCOME $ 5,359 $ 6,064 $ 1,868
======= ======= =======
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
December 31,
------------
($ in thousands) 1998 1997 1996
---- ---- ----
COMMON STOCK $ 2,100 $ 2,100 $ 2,100
-------- -------- --------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year 69,641 69,641 49,641
Capital contribution -- -- 20,000
-------- -------- --------
Balance, end of year 69,641 69,641 69,641
-------- -------- --------
RETAINED INCOME
Balance, beginning of year 13,035 7,349 4,914
Net income 4,044 5,686 2,435
-------- -------- --------
Balance, end of year 17,079 13,035 7,349
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year 3,168 2,790 3,357
Change in unrealized net capital gains
and losses 1,315 378 (567)
-------- -------- --------
Balance, end of year 4,483 3,168 2,790
-------- -------- --------
Total shareholder's equity $ 93,303 $ 87,944 $ 81,880
======== ======== ========
See notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,044 $ 5,686 $ 2,435
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and other non-cash items (24) 29 --
Realized capital gains and losses 5 (3,460) --
Changes in:
Income taxes payable 1,590 240 (1,223)
Other operating assets and liabilities 915 961 717
-------- -------- --------
Net cash provided by operating activities 6,530 3,456 1,929
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,966 1,405 --
Investment collections 7,123 14,217 2,891
Investment purchases (15,250) (50,115) (5,667)
Participation in Separate Accounts -- 13,981 (232)
Change in short-term investments, net (369) (2,944) 815
-------- -------- --------
Net cash used in investing activities (6,530) (23,456) (2,193)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution -- 20,000 --
-------- -------- --------
Net cash provided by financing activities -- 20,000 --
-------- -------- --------
NET DECREASE IN CASH -- -- (264)
CASH AT THE BEGINNING OF YEAR -- -- 264
-------- -------- --------
CASH AT END OF YEAR $ -- $ -- $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash financing activity:
Capital contribution receivable from
Allstate Life Insurance Company $ -- $ -- $ 20,000
======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
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"). These financial statements have been prepared in conformity with
generally accepted accounting principles.
To conform with the 1998 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets savings products and life insurance through banks, direct
marketing and broker-dealers. Savings products include deferred annuities, such
as variable annuities and fixed rate single and flexible premium annuities. Life
insurance includes universal life and variable life products. The Company has
entered into exclusive distribution arrangements with management investment
companies to market its variable annuity contracts. In 1998, substantially all
of the Company's statutory premiums and deposits were from annuities. The
Company re-domesticated its operations from Illinois to Arizona in 1998.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrender or withdrawal by customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal and
state regulation and legislation that, if passed, would allow banks greater
participation in securities and insurance businesses, which would present an
increased level of competition, as well as opportunities, for sales of the
Company's life and savings 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, change in control of these
non-affiliated entities with which the Company has alliances could have a
detrimental effect on the Company's sales.
Additionally, traditional demutualizations of mutual insurance companies and
enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; and (2) increasing competition in the
capital markets.
F-6
<PAGE>
The Company is authorized to sell life and savings products in all states except
New York, as well as in the District of Columbia. The top geographic locations
for statutory premiums and deposits for the Company are Florida, Pennsylvania,
Texas, California and Tennessee for the year ended December 31, 1998. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits.
Substantially all premiums and deposits are ceded to ALIC under reinsurance
agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost or amortized cost, which approximates fair value.
Investment income consists primarily of interest and dividends on short-term
investments. Interest is recognized on an accrual basis and dividends are
recorded at the ex-dividend date. Interest income on mortgage-backed securities
is determined on the effective yield method, based on the estimated principal
repayments. Accrual of income is suspended for fixed income securities that are
in default or when the receipt of interest payments is in doubt. Realized
capital gains and losses are determined on a specific identification basis.
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC. Such amounts are reflected net of such reinsurance in the
statements of operations and comprehensive income. The amounts shown in the
Company's statements of operations and comprehensive income relate to the
investment of those assets of the Company that are not transferred under
reinsurance agreements. Reinsurance recoverable and the related contractholder
funds are reported separately in the statements of financial position. The
Company continues to have primary liability as the direct insurer for risks
reinsured.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Revenues on universal life-type contracts are comprised of contract charges and
fees, and are recognized when assessed against the policyholder account balance.
Revenues on investment contracts include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balance. All premium revenues and contract charges are primarily
reinsured with ALIC.
INCOME TAXES
The income tax provision is calculated under the liability method and presented
net of reinsurance. Deferred tax assets and liabilities are recorded based on
the difference between the financial statement and tax bases of assets and
liabilities at the enacted tax rates.
F-7
<PAGE>
Deferred income taxes arise from unrealized capital gains and losses on fixed
income securities carried at fair value and differences in the tax bases of
investments.
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity and variable life
policies, the assets and liabilities of which are legally segregated and
reflected in the accompanying statements of financial position as assets and
liabilities of the Separate Accounts. The Company's Separate Accounts consist
of: Glenbrook Life and Annuity Company Separate Account A, Glenbrook Life and
Annuity Company Variable Annuity Account, Glenbrook Life Variable Life Separate
Account A, Glenbrook Life Scudder Variable Account (A), Glenbrook Life
Multi-Manager Variable Account, Glenbrook Life AIM Variable Life Separate
Account A and Glenbrook Life Variable Life Separate Account B. Each of the
Separate Accounts are unit investment trusts registered with the Securities and
Exchange Commission.
The assets of the Separate Accounts are carried at fair value. Investment income
and realized capital gains and losses of the Separate Accounts accrue directly
to the contractholders and, therefore, are not included in the Company's
statements of operations and comprehensive income. Revenues to the Company from
the Separate Accounts consist of contract maintenance fees, administration fees,
mortality and expense risk charges and cost of insurance charges, all of which
are reinsured with ALIC.
Prior to 1998, the Company had an ownership interest ("Participation") in the
Separate Accounts. The Company's Participation was carried at fair value and
unrealized gains and losses, net of deferred income taxes, were shown as a
component of shareholder's equity. Investment income and realized capital gains
and losses which arose from the Participation were included in the Company's
statements of operations and comprehensive income. The Company liquidated its
Participation during 1997, which resulted in a pretax realized capital gain of
$3.5 million.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most fixed annuities
and universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the contractholder less withdrawals, mortality
charges and administrative expenses. During 1998, credited interest rates on
contractholder funds ranged from 3.46% to 11.00% for those contracts with fixed
interest rates and from 3.75% to 10.00% for those with flexible rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-8
<PAGE>
NEW ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive income is a
measurement of certain changes in shareholder's equity that result from
transactions and other economic events other than transactions with
shareholders. For the Company, these consist of changes in unrealized gains and
losses on the investment portfolio (See Note 8).
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 redefines how segments are
determined and requires additional segment disclosures for both annual and
interim financial reporting. The Company has identified itself as a single
operating segment.
PENDING ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP is required to be adopted in 1999. The
SOP provides guidance concerning when to recognize a liability for
insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: 1) an assessment has been
imposed or it is probable that an assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying alternatives for estimating the accrual. In addition,
industry groups are working to improve the information available. Adoption of
this standard is not expected to be material to the results of operations or
financial position of the Company.
3. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such reinsurance in the statements of
operations and comprehensive income. The amounts shown in the Company's
statements of operations and comprehensive income relate to the investment of
those assets of the Company that are not transferred under reinsurance
agreements. Reinsurance recoverable and the related contracholder funds are
reported separately in the statements of financial position. The Company
continues to have primary liability as the direct insurer for risks reinsured.
F-9
<PAGE>
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 under terms of reinsurance agreements. The following amounts were ceded
to ALIC under reinsurance agreements.
YEAR ENDED DECEMBER 31,
-----------------------
($ in thousands) 1998 1997 1996
-------- -------- --------
Contract charges $ 19,009 $ 11,641 $ 4,254
Credited interest, policy benefits, and
certain expenses 218,008 179,954 113,703
BUSINESS OPERATIONS
The Company utilizes services provided by AIC and ALIC and business facilities
owned or leased, and operated by AIC in conducting its business activities. The
Company reimburses AIC and ALIC for the operating expenses incurred on behalf of
the Company. The cost to the Company is determined by various allocation methods
and is primarily related to the level of services provided. Operating expenses,
including compensation and retirement and other benefit programs, allocated to
the Company were $15,949, $19,243 and $4,804 in 1998, 1997 and 1996,
respectively. Of these costs, the Company retains investment related expenses.
All other costs are ceded to ALIC under reinsurance agreements.
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
AT DECEMBER 31, 1998
U.S. government and agencies $24,350 $ 4,308 $ -- $28,658
Municipal 656 24 -- 680
Corporate 33,009 1,575 (39) 34,545
Mortgage-backed securities 29,400 1,047 (17) 30,430
------- ------- ------- -------
Total fixed income securities $87,415 $ 6,954 $ (56) $94,313
======= ======= ======= =======
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
======= ======= ======= =======
F-10
<PAGE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at December
31, 1998:
AMORTIZED FAIR
COST VALUE
---- -----
Due in one year or less $ 400 $ 400
Due after one year through five years 8,711 8,943
Due after five years through ten years 36,027 39,009
Due after ten years 12,877 15,531
------- -------
58,015 63,883
Mortgage-backed securities 29,400 30,430
------- -------
Total $87,415 $94,313
======= =======
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
Fixed income securities $ 6,151 $ 5,014 $ 3,478
Short-term investments 183 231 126
Participation in Separate Accounts -- 161 232
------- ------- -------
Investment income, before expense 6,334 5,406 3,836
Investment expense 103 102 62
------- ------- -------
Net investment income $ 6,231 $ 5,304 $ 3,774
======= ======= =======
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
Fixed income securities $ (5) $ (61) $ --
Short-term investments -- 6 --
Participation in Separate Accounts -- 3,515 --
------- ------- -------
Realized capital gains and losses (5) 3,460 --
Income taxes 2 (1,211) --
------- ------- -------
Realized capital gains and losses,
after tax $ (3) $ 2,249 $ --
======= ======= =======
Excluding calls and prepayments, gross losses of $5 and $61 were realized on
sales of fixed income securities during 1998 and 1997, respectively. There were
no gains or losses, excluding calls and prepayments during 1996.
F-11
<PAGE>
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
COST/
AMORTIZED FAIR GROSS UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES NET GAINS
---- ----- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 87,415 $ 94,313 $ 6,954 $ (56) $ 6,898
======== ======== ======== ========
Deferred income taxes (2,415)
--------
Unrealized net capital gains $ 4,483
========
</TABLE>
CHANGE IN UNREALIZED NET CAPITAL GAINS
YEAR ENDED DECEMBER 31,
1998 1997 1996
------- ------- -------
Fixed income securities $ 2,024 $ 2,410 $(2,239)
Participation in Separate Accounts -- (1,829) 1,368
Deferred income taxes (709) (203) 304
------- ------- -------
Increase (decrease) in unrealized
net capital gains $ 1,315 $ 378 $ (567)
======= ======= =======
SECURITIES ON DEPOSIT
At December 31, 1998, fixed income securities with a carrying value of $11,416
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 on the following page are not necessarily
indicative of the amounts the Company might pay or receive in actual market
transactions. Potential taxes and other transaction costs have not been
considered in estimating fair value. The disclosures that follow do not reflect
the fair value of the Company as a whole since a number of the Company's
significant assets (including reinsurance recoverable) and liabilities
(including universal life-type insurance reserves and deferred income taxes) are
not considered financial instruments and are not carried at fair value. Other
assets and liabilities considered financial instruments, such as accrued
investment income, are generally of a short-term nature. Their carrying values
are assumed to approximate fair value.
F-12
<PAGE>
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Fixed income securities $ 94,313 $ 94,313 $ 86,243 $ 86,243
Short-term investments 4,663 4,663 4,231 4,231
Separate Accounts 993,622 993,622 620,535 620,535
Fair values for fixed income securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. Short-term investments are highly
liquid investments with maturities of less than one year whose carrying value
approximates fair value. Separate Accounts assets are carried in the statements
of financial position at fair value based on quoted market prices.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Contractholder funds on
investment contracts $3,130,228 $2,967,101 $2,636,331 $2,492,095
Separate Accounts 993,622 993,622 620,535 620,535
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.
6. INCOME TAXES
For 1996, the Company filed a separate federal income tax return. Beginning in
1997, the Company joined the Corporation and its other eligible domestic
subsidiaries (the "Allstate Group") in the filing of a consolidated federal
income tax return and is party to a federal income tax allocation agreement (the
"Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the
Company pays to or receives from the Corporation the amount, if any, by which
the Allstate Group's federal income tax liability is affected by virtue of
inclusion of the Company in the consolidated federal income tax return.
Effectively, this results in the Company's annual income tax provision being
computed, with adjustments, as if the Company filed a separate return.
F-13
<PAGE>
Prior to Sears, Roebuck and Co.'s ("Sears") distribution ("Sears distribution")
on June 30, 1995 of its 80.3% ownership in the Corporation to Sears
shareholders, the Allstate Group joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Tax Sharing Agreement"). Under the Tax Sharing
Agreement, the Company, through the Corporation, paid to or received from the
Sears Group the amount, if any, by which the Sears Tax Group's federal income
tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return.
As a result of the Sears distribution, the Allstate Group was no longer included
in the Sears Tax Group, and the Tax Sharing Agreement was terminated.
Accordingly, the Allstate Group and Sears Group entered into a new tax sharing
agreement, which adopts many of the principles of the Tax Sharing Agreement and
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Sears distribution, including the treatment
of audits of tax returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's federal income tax returns through the 1993 tax year. Any adjustment
that may result from IRS examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or results of operations of
the Company.
The components of the deferred income tax liability at December 31, are as
follows:
1998 1997
------- -------
Unrealized net capital gains $(2,415) $(1,706)
Difference in tax bases of investments (84) (66)
------- -------
Total deferred liability $(2,499) $(1,772)
======= =======
The components of income tax expense for the year ended December 31, are as
follows:
1998 1997 1996
------ ------ ------
Current $2,164 $3,037 $1,335
Deferred 18 41 4
------ ------ ------
Total income tax expense $2,182 $3,078 $1,339
====== ====== ======
The Company paid income taxes of $592, $2,839 and $2,446 in 1998, 1997 and 1996,
respectively. The Company had a current income tax liability of $2,181 and $609
at December 31, 1998 and 1997, respectively.
F-14
<PAGE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
1998 1997 1996
------ ------ ------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other -- .1 .5
------ ------ ------
Effective income tax rate 35.0% 35.1% 35.5%
====== ====== ======
7. STATUTORY FINANCIAL INFORMATION
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Arizona
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a significant impact on statutory surplus or statutory net
income.
The NAIC's codification initiative has produced a comprehensive guide of revised
statutory accounting principles. While the NAIC has approved a January 1, 2001
implementation date for the newly developed guidance, companies must adhere to
the implementation date adopted by their state of domicile. The Company's state
of domicile, Arizona, is continuing its comparison of codification and current
statutory accounting requirements to determine necessary revisions to existing
state laws and regulations. The requirements are not expected to have a material
impact on the statutory surplus of the Company.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by the Company without the prior approval of the state
insurance regulator is limited to formula amounts based on net income and
capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1999 without prior approval of the Arizona Department of Insurance is
$4,698.
F-15
<PAGE>
8. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ---------------------------- -----------------------------
After- After- After-
Pretax Tax tax Pretax Tax tax Pretax Tax tax
------ --- --- ------ --- --- ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized capital gains
and losses:
- --------------------------
Unrealized holding gains
(losses) arising during
the period $ 2,019 $ (707) $ 1,312 $ 4,034 $(1,412) $ 2,622 $ (871) $ 304 $ (567)
Less: reclassification
adjustment for realized
net capital gains
included in net income (5) 2 (3) 3,453 (1,209) 2,244 -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Unrealized net capital
gains (losses) $ 2,024 $ (709) $ 1,315 $ 581 $ (203) $ 378 $ (871) $ 304 $ (567)
------- ------- ------- ------- ------- ------- ------- ------- -------
Other comprehensive
income $ 2,024 $ (709) $ 1,315 $ 581 $ (203) $ 378 $ (871) $ 304 $ (567)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
9. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing banks
from engaging in the securities and insurance business, tax law changes
affecting the taxation of insurance companies, the tax treatment of insurance
products and its impact on the relative desirability of various personal
investment vehicles, and proposed legislation to prohibit the use of gender in
determining insurance rates and benefits. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
F-16
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
--------- --------- -------
Life insurance in force $ 12,056 $ 12,056 $ --
========= ========= =======
Premiums and contract charges:
Life and annuities $ 19,009 $ 19,009 $ --
========= ========= =======
GROSS NET
YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED AMOUNT
--------- --------- -------
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 $ --
========= ========= =======
F-17
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
Financial Statements as of December 31, 1998
and for the year ended December 31, 1998, and
Independent Auditors' Report
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
Independent Auditors' Report 1
STATEMENTS OF NET ASSETS AS OF DECEMBER 31, 1998 FOR THE FOLLOWING:
Investments in the AIM Variable Insurance Funds, Inc. Portfolios: 2
Aggressive Growth
Balanced
Capital Appreciation
Capital Development
Diversified Income
Global Utilities
Government Securities
Growth
Growth and Income
High Yield
International Equity
Money Market
Value
STATEMENTS OF OPERATIONS FOR THE FOLLOWING:
FOR THE YEAR ENDED DECEMBER 31, 1998
Investments in the AIM Variable Insurance Funds, Inc. Portfolios:
Aggressive Growth 3
Balanced
Capital Appreciation
Capital Development
Diversified Income
Global Utilities
Government Securities
Growth 4
Growth and Income
High Yield
International Equity
Money Market
Value
STATEMENTS OF CHANGES IN NET ASSETS FOR THE FOLLOWING:
FOR THE YEAR ENDED DECEMBER 31, 1998
Investments in the AIM Variable Insurance Funds, Inc. Portfolios:
Aggressive Growth 5
Balanced
Capital Appreciation
Capital Development
Diversified Income
Global Utilities
Government Securities
Growth 6
Growth and Income
High Yield
International Equity
Money Market
Value
NOTES TO FINANCIAL STATEMENTS 7-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Glenbrook Life and Annuity Company:
We have audited the accompanying statements of net assets of each of the
sub-accounts ("portfolios" for purposes of this report), listed in the table of
contents, that comprise Glenbrook Life AIM Variable Life Separate Account A (the
"Account"), a Separate Account of Glenbrook Life and Annuity Company, an
affiliate of The Allstate Corporation, as of December 31, 1998, and the related
statements of operations and changes in net assets for the applicable periods
indicated in the table of contents. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1998. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of each of the portfolios, listed in the table
of contents, that comprise the Account as of December 31, 1998, and the results
of their operations, and the changes in their net assets for each of the
periods, indicated in the table of contents, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 18, 1999
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
(Shares in whole amounts, $ in thousands)
ASSETS
Investments in the AIM Variable Insurance Funds, Inc. Portfolios:
Aggressive Growth $ --
Balanced --
Capital Appreciation, 3,410 shares (cost $79) 86
Capital Development --
Diversified Income, 3,433 shares (cost $40) 38
Global Utilities, 95 shares (cost $2) 2
Government Securities, 6,313 shares (cost $69) 71
Growth, 4,231 shares (cost $96) 105
Growth and Income, 7,316 shares (cost $153) 174
High Yield --
International Equity, 1,613 shares (cost $33) 32
Money Market --
Value, 5,797 shares (cost $138) 152
----------
Net assets $ 660
==========
See notes to financial statement.
2
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------
($ in thousands)
AIM Variable Insurance Funds, Inc. Portfolios
---------------------------------------------------------------------
For the Year Ended December 31, 1998
---------------------------------------------------------------------
Aggre- Capital Capital Diver- Global Government
ssive Appreci- Develop- sified Utili- Securi-
Growth Balanced ation ment Income ties ties
-------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ -- $ -- $ 2 $ -- $ 2 $ -- $ 2
Charges from Glenbrook Life and
Annuity Company:
Mortality and expense risk -- -- -- -- -- -- --
Administrative expense -- -- -- -- -- -- (1)
-------- -------- -------- -------- ------- -------- --------
Net investment income -- -- 2 -- 2 -- 1
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales
of investments:
Proceeds from sales -- -- 19 -- 1 3 3
Cost of investments sold -- -- 19 -- 1 3 1
-------- -------- -------- -------- -------- -------- --------
Net realized gains -- -- -- -- -- -- 2
Change in unrealized gains (losses) -- -- 7 -- (2) -- 2
-------- -------- -------- -------- -------- -------- --------
Net gains (losses) on investments -- -- 7 -- (2) -- 4
-------- -------- -------- -------- -------- -------- --------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ -- $ -- $ 9 $ -- $ -- $ -- 5
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statement.
3
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
($ in thousands)
AIM Variable Insurance Funds, Inc. Portfolios
------------------------------------------------------------
For the Year Ended December 31, 1998
------------------------------------------------------------
Growth Inter-
and High national Money
Growth Income Yield Equity Market Value
-------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 7 $ 2 $ -- $ -- $ -- $ 7
Charges from Glenbrook Life and
Annuity Company:
Mortality and expense risk -- -- -- -- -- --
Administrative expense -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net investment income 7 2 -- -- -- 7
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales
of investments:
Proceeds from sales 8 9 -- 1 192 36
Cost of investments sold 8 9 -- 1 192 36
-------- -------- -------- -------- -------- --------
Net realized gains -- -- -- -- -- --
Change in unrealized gains (losses) 9 21 -- (1) -- 14
-------- -------- -------- -------- -------- --------
Net gains (losses) on investments 9 21 -- (1) -- 14
-------- -------- -------- -------- -------- --------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 16 $ 23 $ -- $ (1) $ -- $ 21
======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
AIM Variable Insurance Funds, Inc. Portfolios
---------------------------------------------------------------------
For the Year Ended December 31, 1998
---------------------------------------------------------------------
Aggre- Capital Capital Diver- Global Government
ssive Appreci- Develop- sified Utili- Securi-
Growth Balanced ation ment Income ties ties
-------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ -- $ -- $ 2 $ -- $ 2 $ -- $ 1
Net realized gains -- -- -- -- -- -- 2
Change in unrealized gains (losses) -- -- 7 -- (2) -- 2
-------- -------- -------- -------- -------- -------- --------
Change in net assets resulting
from operations -- -- 9 -- -- -- 5
-------- -------- -------- -------- -------- -------- --------
FROM CAPITAL TRANSACTIONS
Deposits -- -- -- -- -- -- --
Benefit payments -- -- -- -- -- -- --
Payments on termination -- -- -- -- -- -- --
Contract maintenance charges -- -- (1) -- -- -- (1)
Transfers among the portfolios and
with the Fixed Account - net -- -- 78 -- 38 2 67
-------- -------- -------- -------- -------- -------- --------
Change in net assets resulting
from capital transactions -- -- 77 -- 38 2 66
-------- -------- -------- -------- -------- -------- --------
INCREASE IN NET ASSETS -- -- 86 -- 38 2 71
NET ASSETS AT BEGINNING OF YEAR -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
NET ASSETS AT END OF YEAR $ -- $ -- $ 86 $ -- $ 38 $ 2 $ 71
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statement.
5
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------
($ in thousands)
AIM Variable Insurance Funds, Inc. Portfolios
------------------------------------------------------------
For the Year Ended December 31, 1998
------------------------------------------------------------
Growth Inter-
and High national Money
Growth Income Yield Equity Market Value
-------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 7 $ 2 $ -- $ -- $ -- $ 7
Net realized gains -- -- -- -- -- --
Change in unrealized gains (losses) 9 21 -- (1) -- 14
-------- -------- -------- -------- -------- --------
Change in net assets resulting
from operations 16 23 -- (1) -- 21
-------- -------- -------- -------- -------- --------
FROM CAPITAL TRANSACTIONS
Deposits -- -- -- -- 590 --
Benefit payments -- -- -- -- -- --
Payments on termination -- -- -- -- -- --
Contract maintenance charges (1) (1) -- -- -- (1)
Transfers among the portfolios and
with the Fixed Account - net 90 152 -- 33 (590) 132
-------- -------- -------- -------- -------- --------
Change in net assets resulting
from capital transactions 89 151 -- 33 -- 131
-------- -------- -------- -------- -------- --------
INCREASE IN NET ASSETS 105 174 -- 32 -- 152
NET ASSETS AT BEGINNING OF YEAR -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
NET ASSETS AT END OF YEAR $ 105 $ 174 $ -- $ 32 $ -- $ 152
======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
6
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Glenbrook Life AIM Variable Life Separate Account A (the "Account"), a unit
investment trust registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, is a Separate Account of
Glenbrook Life and Annuity Company ("Glenbrook Life"). The assets of the
Account are legally segregated from those of Glenbrook Life. Glenbrook Life
is wholly owned by Allstate Life Insurance Company, a wholly owned
subsidiary of Allstate Insurance Company, which is wholly owned by The
Allstate Corporation. The Account was established on December 22, 1995, by
resolution of the Board of Directors of Glenbrook Life and began accepting
policyholder deposits on November 11, 1997. No financial statements were
issued in 1997 because contractholder deposits were minimal.
Glenbrook Life issues the AIM Lifetime Plus Variable Life policy, a single
premium variable life insurance policy, the deposits of which are invested
at the direction of the policyholder in the sub-accounts ("portfolios" for
the purposes of this report) that comprise the Account. Policyholders bear
all investment risk. The portfolios invest in the AIM Variable Insurance
Funds, Inc. (the "Fund").
Glenbrook Life provides insurance and administrative services to the
policyholders for a fee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS - Investments consist of shares of the Funds and
are stated at fair value based on quoted market prices at December 31,
1998.
INVESTMENT INCOME - Investment income consists of dividends declared by the
Funds and is recognized on the date of record.
REALIZED GAINS AND LOSSES - Realized gains and losses represent the
difference between the proceeds from sales of portfolio shares by the
Account and the cost of such shares, which is determined on a weighted
average basis.
FEDERAL INCOME TAXES - The Account intends to qualify as a segregated asset
account as defined in the Internal Revenue Code ("Code"). As such, the
operations of the Account are included in the tax return of Glenbrook Life.
Glenbrook Life is taxed as a life insurance company under the Code. No
federal income taxes are payable by the Account in 1998 as the Account did
not generate taxable income.
7
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3. CONTRACT CHARGES
Glenbrook Life charges each policyholder monthly for cost of insurance,
administrative expense, and tax expense. The cost of insurance is
determined based upon several variables, including the policyholder's death
benefit amount and account value. The administrative expense and tax
expense charges are equal to an annual rate of .25% and .40%, respectively,
of Account value.
Glenbrook Life assesses each policyholder for mortality and expense risk on
a daily basis equal to .90% per annum.
If aggregate deposits are less than $50,000, Glenbrook Life will deduct an
annual maintenance charge of $35 on each contract anniversary.
4. FINANCIAL INSTRUMENTS
The only financial instruments of the Account are the investments in each
of the portfolios, which are carried at fair value, based on quoted market
prices.
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<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
Unit activity during 1998:
-------------------------------------------
Units Units Accumulation
Outstanding Outstanding Unit Value
December 31, Units Units December 31, December 31,
1997 Issued Redeemed 1998 1998
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investments in the Aim Variable Insurance Funds,
Inc. Portfolios:
Aggressive Growth -- -- -- -- $ --
Balanced -- -- -- -- --
Capital Appreciation -- 16,412 (8,709) 7,703 11.15
Capital Development -- -- -- -- --
Diversified Income -- 6,801 (3,193) 3,608 10.41
Global Utilities -- 846 (711) 135 12.28
Government Securities -- 12,806 (6,474) 6,332 11.14
Growth -- 14,160 (6,250) 7,910 13.26
Growth & Income -- 25,235 (11,411) 13,824 12.57
High Yield -- -- -- -- --
International Equity -- 5,662 (2,863) 2,799 11.30
Money Market -- 57 (57) -- --
Value -- 24,136 (12,462) 11,674 13.03
</TABLE>
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