<PAGE>
AIM LIFETIME PLUSSM VARIABLE LIFE INSURANCE
Glenbrook Life and Annuity Company Prospectus dated May 1, 2000
3100 Sanders Road
Northbrook, Illinois 60062
Telephone (800) 776-6978
This prospectus describes the AIM Lifetime PlusSM Variable Life Insurance
Contract, 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 DISTRIBUTIONS
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 (the "Trust"). The Trust
currently has seventeen portfolios (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.
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.
IMPORTANT
NOTICES
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.
1
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Special Terms................................................ 4
Summary...................................................... 6
Fees and Expenses............................................ 10
The Company.................................................. 13
The Variable Account......................................... 14
The Funds.................................................... 15
AIM Variable Insurance Funds............................... 15
Investment Advisor for the Funds........................... 17
Overview
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
Contract
Features
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
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................................................ 31
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
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
Other
Information
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 bold. 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 Surrender Value: The Cash Value less all Indebtedness and the Annual
Maintenance Fee, if applicable.
Cash Value: The Account Value less any applicable withdrawal charges and due
and unpaid Premium Tax Charges. 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 PlusSM 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
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.
4
<PAGE>
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.
5
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
THE CONTRACT
The Contracts are life insurance contracts with death benefits, cash values,
and other traditional life insurance features. The Contracts are "variable."
This means that unlike the fixed benefits of ordinary whole life insurance, the
Account Value of a Contract will increase or decrease based on the investment
experience of the 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 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 Variable Sub-
Accounts, each of which invests in a corresponding Fund.
You should read the prospectus for the Trust in connection with the purchase of
a Contract. We have summarized the investment objectives of each of the Funds
below under the Trust, beginning on page 15. The Fund Series has a total of
seventeen Funds available under the Contracts. The Funds include:
. AIM V.I. Aggressive Growth Fund . AIM V.I. Government Securities
. AIM V.I. Balanced Fund Fund
. AIM V.I. Blue Chip Fund . AIM V.I. Growth Fund
. AIM V.I. Capital Appreciation Fund . AIM V.I. Growth and Income Fund
. AIM V.I. Capital Development Fund . AIM V.I. High Yield Fund
. AIM V.I. Dent Demographic Trends Fund . AIM V.I. International Equity Fund
. AIM V.I. Diversified Income Fund . AIM V.I. Money Market Fund
. AIM V.I Global Growth and Income Fund . AIM V.I. Telecommunications and
. AIM V.I. Global Utilities Fund Technology Fund*
- ---------------- . AIM V.I. Value Fund
*Effective May 1, 2000, the Fund's name was changed from AIM V.I.
Telecommunications Fund to AIM V.I. Telecommunications and Technology Fund
to reflect changes in its investment policies. We have made a corresponding
change in the name of the Variable Sub-Account that invests in that Fund.
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;
6
<PAGE>
. 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 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 Trust 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.
7
<PAGE>
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%
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 0.25% 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:
. the investment experience of the Funds underlying the Variable Sub-
Accounts to which you have allocated Account Value;
. interest credited to the Loan Account; and
. 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);
8
<PAGE>
. 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.
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.
9
<PAGE>
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.
Account Value Charges (deducted monthly and shown as an annualized percentage
of Account Value):(/1/)
CONTRACT CHARGES AND DEDUCTIONS
<TABLE>
<CAPTION>
Current(/2/) Maximum
------------ -------
<S> <C> <C>
Cost of Insurance
Charge................ Single Life Single Life
Standard: 0.65% (Contract Years 1-10) Standard--Ranges from
0.55% (Contract Years 11+) $0.06 per $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
0.90% (Contract Years 11+) $0.12 per $1,000 of net
amount at risk (younger
ages) up 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
0.20% (Contract Years 11+) $0.00015 per $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
0.55% (Contract Years 11+) $0.00061 per $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/)
</TABLE>
Annual Separate Account Charges (deducted daily and shown as a percentage of
average net assets):
<TABLE>
<S> <C>
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/)
</TABLE>
- ----------------
(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.
10
<PAGE>
(2) The actual amount of insurance purchased will depend on the insured's age,
sex (where permitted under state law) and rate class. See "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 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.
11
<PAGE>
FUND ANNUAL EXPENSES
(after Voluntary Reductions and Reimbursements)
(as a percentage of Portfolio average daily net assets)(/1/)
<TABLE>
<CAPTION>
Total Annual
Fund Management Fees Other Expenses Fund Expenses
- ---- --------------- -------------- -------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth
Fund(/2/)........................ 0.00% 1.19% 1.19%
AIM V.I. Balanced Fund(/2/)....... 0.65% 0.56% 1.21%
AIM V.I. Blue Chip Fund........... 0.75% 0.55% 1.30%
AIM V.I. Capital Appreciation
Fund............................. 0.62% 0.11% 0.73%
AIM V.I. Capital Development
Fund(/2/)........................ 0.00% 1.23% 1.23%
AIM V.I. Dent Demographic Trends
Fund............................. 0.85% 0.55% 1.40%
AIM V.I. Diversified Income Fund.. 0.60% 0.23% 0.83%
AIM V.I. Global Growth and Income
Fund(/2/)........................ 0.97% 0.37% 1.34%
AIM V.I. Global Utilities Fund.... 0.65% 0.49% 1.14%
AIM V.I. Government Securities
Fund............................. 0.50% 0.40% 0.90%
AIM V.I. Growth Fund.............. 0.63% 0.10% 0.73%
AIM V.I. Growth and Income Fund... 0.61% 0.16% 0.77%
AIM V.I. High Yield Fund(/2/)..... 0.35% 0.79% 1.14%
AIM V.I. International Equity
Fund............................. 0.75% 0.22% 0.97%
AIM V.I. Money Market Fund........ 0.40% 0.20% 0.60%
AIM V.I. Telecommunications and
Technology Fund.................. 1.00% 0.27% 1.27%
AIM V.I. Value Fund............... 0.61% 0.15% 0.76%
- ----------------
(1) Figures shown in the table are for the year ended December 31, 1999, except
for the AIM V.I. Blue Chip, Dent Demographic Trends, Global Growth and
Income, and Telecommunications and Technology Funds which commenced
operations on December 29, 1999, December 29, 1999, October 15, 1999 and
October 15, 1999 respectively. For these funds, the management fee, other
expenses and total annual fund operating expenses are based on estimates
for the Funds' first full fiscal year.
(2) 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:
<CAPTION>
Total Annual
Fund Management Fees Other Expenses Fund Expenses
---- --------------- -------------- -------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund. 0.80% 1.62% 2.42%
AIM V.I. Balanced Fund.......... 0.75% 0.56% 1.31%
AIM V.I. Capital Development
Fund........................... 0.75% 2.67% 3.42%
AIM V.I. Global Growth and
Income Fund.................... 1.00% 0.37% 1.37%
AIM V.I. High Yield Fund........ 0.63% 0.79% 1.42%
</TABLE>
12
<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 the State 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 the State 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.
13
<PAGE>
THE VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
GENERAL
The Company established the Variable Account on January 15, 1996. The Variable
Account is a segregated asset account under Arizona law. 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.
14
<PAGE>
THE FUNDS
- --------------------------------------------------------------------------------
The Variable Account will invest in shares of the AIM Variable Insurance Funds.
The Trust is registered with the SEC as an open-end, series, management
investment company. Registration of the Trust does not involve supervision of
its management, investment practices or policies by the SEC. The Trust has
seventeen 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 Trust currently
foresees any such disadvantages either to variable life insurance or variable
annuity contract owners, the Trust's Board of Trustees 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 Trustees 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 Trust 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.
AIM VARIABLE INSURANCE FUNDS
AIM Variable Insurance Funds, the Trust, offers seventeen 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 Trust 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.
15
<PAGE>
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. Blue Chip Fund ("Blue Chip Fund") is a diversified Fund which seeks to
achieve long-term growth of capital with a secondary objective of current
income.
AIM V.I. Capital Appreciation Fund ("Capital Appreciation Fund") is a
diversified Fund which seeks growth of capital.
AIM V.I. Capital Development Fund ("Capital Development Fund") is a diversified
Fund which seeks long-term growth of capital.
AIM V.I. Dent Demographic Trends Fund ("Dent Demographic Trends 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 Growth and Income Fund ("Global Growth and Income Fund") is a
diversified Fund which seeks long-term growth of capital together with current
income.
AIM V.I. Global Utilities Fund ("Global Utilities Fund") is a nondiversified
Fund which seeks a total return.
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 a secondary objective of current income.
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. Telecommunications and Technology Fund ("Telecommunications and
Technology Fund") is a diversified Fund which seeks long-term growth of
capital.
AIM V.I. Value Fund ("Value Fund") is a diversified Fund which seeks long-term
growth of capital and income as a secondary objective.
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.
Each Fund's investment objective may be changed by the Fund's Board of Trustees
without shareholder approval.
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.
16
<PAGE>
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 Trust
accompanying this prospectus. You should read the prospectus for the Trust 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 120 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.
17
<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
18
<PAGE>
. 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 first, 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 Trust which accompanies this prospectus for a description of
how the assets of the Trust 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
19
<PAGE>
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
Variable Sub-Accounts 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.)
20
<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 special 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> <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
21
<PAGE>
risk rating class has been assigned to an Insured when the Contract is issued,
that rating class will not change if additional premium payments or partial
withdrawals increase or decrease the Specified Amount.
Tax Expense Charge: The Company will deduct monthly from the Account Value a
tax expense charge equal to an annual rate of 0.40% of Account Value for the
first ten Contract Years. This charge compensates the Company for premium taxes
imposed by various states and local jurisdictions and for federal taxes related
to the receipt of premiums under the Contracts. 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 the 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, impose
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 page 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
22
<PAGE>
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:
<TABLE>
<CAPTION>
Percentage of Initial Premium Withdrawn
Contract Year (In Excess of Free Withdrawal Amount)
------------- ---------------------------------------
<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.
We impose a withdrawal charge to cover a portion of the expense we incur in
distributing the Contracts. This expense includes agents' commissions,
underwriting, and the costs associated with establishing policies.
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.
23
<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).
Examples:
<TABLE>
<CAPTION>
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 our 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.
24
<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 (as
defined in the endorsement) 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 (as defined in the endorsement) 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 Accumulation Unit
Values 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 dollar
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 or may submit transfer requests in writing on a form we
provide. 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
25
<PAGE>
themselves and the Contract Owner by name and social security number or other
identifying information. All transfer instructions by telephone are tape
recorded otherwise, you must submit transfer requests in writing on a form we
provide.
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 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.
Example:
Assume that you want your initial purchase payment split among two Variable
Sub-Accounts. You want 40% to be in the Diversified Income Variable Sub-
Account and 60% to be in the Capital Appreciation Variable Sub-Account.
Over the next two months the bond market does very well while the stock
market performs poorly. At the end of the first quarter, the Diversified
Income Variable Sub-Account now represents 50% of your holdings because of
its increase in value. If you choose to have your holdings rebalanced
quarterly, on the first day of the next quarter, we would sell some of your
units in the Diversified Income Variable Sub-Account and use the money to
buy more units in the Capital Appreciation Variable Sub-Account so that the
percentage allocations would again be 40% and 60% respectively.
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.
26
<PAGE>
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
27
<PAGE>
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.
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--Life Income With Guaranteed Payments
The Company will make payments for as long as the payee lives. If the
payee dies before the selected number of guaranteed payments have been
made, we will continue to pay the remainder of the guaranteed payments.
28
<PAGE>
. 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 Valuation 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 Account Value
to reflect any variance between the exchanged Contract and the new contract.
29
<PAGE>
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.
OTHER MATTERS
- --------------------------------------------------------------------------------
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.
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.
30
<PAGE>
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 Trust
which accompanies this prospectus to determine matters on which Trust
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.
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.
31
<PAGE>
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
ALFS, Inc.,* 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.
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 0.50% 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.
- ----------------
*Effective May 1, 2000, Allstate Life Financial Services, Inc., was renamed
ALFS, Inc.
32
<PAGE>
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 policy depend upon
your circumstances. If you are concerned about any tax consequences with regard
to your individual circumstances, you should consult a qualified tax advisor.
TAXATION OF THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Internal Revenue Code. The Separate Account is not an entity separate
from the Company and its operations form a part of the Company. As a
consequence, the Separate Account will not be taxed separately as a "Regulated
Investment Company" under Subchapter M of the Code. Investment income and
realized capital gains are automatically applied to increase reserves under the
Contracts. Under current federal tax law, the Company believes that the
Separate Account investment income and realized net capital gains will not be
taxed to the extent that such income and gains are applied to increase the
reserves under the Contracts. Generally, reserves are amounts that the Company
is legally required to accumulate and maintain in order to meet future
obligations under the Contracts. The Company does not anticipate that it will
incur any federal income tax liability attributable to the Separate Account.
Therefore, we do not intend to make provisions for any such taxes. If we are
taxed on investment income or capital gains of the Separate Account, then we
may impose a charge against the Separate Account in order to make provisions
for any such taxes.
TAXATION OF CONTRACT BENEFITS
In order to qualify as a life insurance policy for federal income tax purposes,
the Contract must meet the definition of a life insurance policy set forth in
Section 7702 of the Code. Section 7702 limits the amount of premiums that may
be invested in a Contract that qualifies as life insurance. The Contract is
structured to meet the Section 7702 definition of a life insurance policy. This
means that the Death Benefit is excluded from the beneficiary's gross income
under Section 101(a) of the Code and you are not taxed on increases in the
Contract Value until a distribution occurs.
If a Contract fails to qualify as life insurance under Section 7702, the
Contract will not provide most of the tax advantages normally provided by life
insurance. The Company has the right to amend the Contracts to comply with any
future changes in the Code, any regulations or rulings under the Code and any
other requirements imposed by the Internal Revenue Service.
If you surrender the Contract, you are subject to income tax on the portion of
the distribution that exceeds the investment in the contract. The investment in
the contract is the gross premium paid for the Contract minus any amounts
previously received from the Contract if such amounts were properly excluded
from your gross income.
If the Contract is not treated as a modified endowment contract, then Contract
loans are not generally treated as taxable distributions, and you are generally
taxed on partial withdrawals to the extent the amount distributed exceeds the
investment in the contract. In certain situations, partial withdrawals, or
reduction in benefits during the first fifteen years of the Contract may result
in a taxable distribution before the investment in the contract is recovered.
Interest paid on a Contract loan is generally not deductible. Withdrawals and
loans from modified endowment contracts are subject to less favorable tax
treatment.
If you are Owner and Insured under the Policy, 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 not your estate, but
33
<PAGE>
you retain incidents of ownership in the Contract, the Death Benefit will also
be included in your gross estate. Examples of incidents of ownership include:
. the right to change beneficiaries,
. to assign the Contract,
. to revoke an assignment,
. to pledge the Contract, or
. to obtain a Contract loan.
If you are Owner and 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 taxes may also apply. In addition,
certain transfers of the Contract or Death Benefit, either during life or at
death, to individuals two or more generations below the transferor may be
subject to the federal generation skipping transfer tax. This rule also applies
if the transfer is to a trust for the benefit of individuals two or more
generations below the transferor.
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. If you are contemplating the use
of a Contract in any of these arrangements, you should consult a qualified tax
advisor regarding the tax attributes of the particular arrangement.
MODIFIED ENDOWMENT CONTRACTS
A life insurance policy is treated as a "modified endowment contract" under
Section 7702A of the Tax 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. 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 specific computational rules for
the seven pay test provided in Section 7702A. Therefore, the Contract will
generally be treated as a modified endowment contract. An exchange under
Section 1035 of the Tax Code of a life insurance policy that is not a modified
endowment contract will not cause the new policy to be a modified endowment
contract if no additional premiums are paid. An exchange under Section 1035 of
the Code of a life insurance policy that is a modified endowment contract for a
new life insurance policy will always cause the new policy 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. The death
benefit is excluded from income and increases in Contract Value are not subject
to current taxation. If you receive any amount as a Contract loan from a
modified endowment contract, or assign or pledge any part of the value of the
Contract, such amount is treated as a distribution. Unlike other life insurance
policies, withdrawals and distributions made before the insured's death are
treated as taxable income first, then as recovery of investment in the
contract. The taxable portion of any distribution from a modified endowment
contract is subject to a 10% penalty tax, except as follows:
. 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.
34
<PAGE>
All modified endowment contracts that are issued within any calendar year to
the same owner by one company or its affiliates shall be treated as one
modified endowment contract in determining the taxable portion of any
distributions.
DIVERSIFICATION REQUIREMENTS
For a Contract to qualify as a variable life insurance policy for federal tax
purposes, the investments in the Separate Account must be "adequately
diversified" consistent with standards under Treasury Department regulations.
If the investments in the Separate Account are not adequately diversified, the
Contract will not be treated as a variable life insurance policy for federal
income tax purposes. As a result, you 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 Portfolios or their investments, we expect the
Portfolios to meet the diversification requirements.
OWNERSHIP TREATMENT
The IRS has stated that you will be considered the owner of Separate Account
assets if you possess 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
the regulations do not provide guidance concerning circumstances in which
investor control of the Separate Account investments may cause an investor to
be treated as the owner of the Separate Account. The Treasury Department also
stated that future guidance would be issued regarding the extent that owners
could direct sub-account investments without being treated as owners of the
underlying assets of the Separate Account.
Your rights under this Contract are different than those described by the IRS
in rulings in which it found that contract owners were not owners of Separate
Account assets. For example, you have the choice to allocate premiums and
Contract values among more investment options. Also, you may be able to
transfer among investment options more frequently than in such rulings. These
differences could result in you being treated as the owner of the Separate
Account. If this occurs, income and gain from the Separate Account assets would
be includible in your gross income. The Company does not know what standards
will be set forth in any regulations or rulings which the Treasury Department
may issue. It is possible that future standards announced by the Treasury
Department could adversely affect the tax treatment of your contract. We
reserve the right to modify the Contract as necessary to attempt to prevent you
from being considered the federal tax owner of the assets of the Separate
Account. However, we make no guarantee that such modification to the Contract
will be successful.
35
<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).
THOMAS J. WILSON, II, 43, President and Chief Operating Officer (2000)*
Also Director (1995-Present) and Senior Vice President (1999) of Allstate
Insurance Company; Director (1999) ALFS, 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.
MICHAEL J. VELOTTA, 54, Vice President, Secretary, General Counsel, and
Director (1992)*
Also Director and Secretary (1993-Present) of ALFS, 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, 45, Director (1996)*
Also Vice President (1990-Present) Allstate Life Insurance Company; Vice
President (1996-Present) Allstate Life Insurance Company of New York; President
and Chief Operating Officer (1998-Present) ALFS, Inc.; Director (1996-1997)
Glenbrook Life Insurance Company; and Director (1994-Present) and Vice
President (1990-Present) Northbrook Life Insurance Company.
G. CRAIG WHITEHEAD, 53, 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, 47, Vice President (1996)*
Also Director (1991-Present) and Vice President (1988-Present) Allstate Life
Insurance Company; Director (1993-1996) ALFS, 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)
36
<PAGE>
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, 43, Vice President and Director (1996)*
Also Assistant Vice President and Assistant Treasurer (1995-1996) Allstate
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
ALFS, 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.
CASEY J. SYLLA, 57, 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.
JAMES P. ZILS, 49, Treasurer (1995)*
Also Vice President and Treasurer (1995-Present) Allstate Insurance Company;
Treasurer (1995-Present) ALFS, 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.
SAMUEL H. PILCH, 53, Controller (1999)
Also Group Vice President and Controller (1999 to Present); Vice President and
Controller (1996-1999) Allstate Insurance Company; Vice President and
Controller (March 2000 to Present), Controller (1999 to 2000) Allstate Life
Insurance Company; Controller (1999 to Present) Allstate Life Insurance Company
of New York; Controller (1999 to Present) Northbrook Life Insurance Company.
KAREN C. GARDNER, 46, Vice President (1999)*
Also Vice President--Tax (March 2000 to Present) Allstate Financial Services,
LLC; Vice President (1996 to Present) Allstate Insurance Company; Vice
President (1997 to 1998) ALFS, Inc.; Vice President (1996 to Present) Allstate
Life Insurance Company; Vice President (1996 to Present) Allstate Life
Insurance Company of New York; Assistant Vice President (1996 to Present)
Lincoln Benefit Life Company; Vice President (1996 to Present) Northbrook Life
Insurance Company; Assistant Vice President (1996 to Present) Surety Life
Insurance Company.
TIMOTHY N. VANDER PAS, 39, Director, Assistant Vice President and Senior Vice
President (1998)*
Also Assistant Vice President (1998 to Present) Allstate Life Insurance
Company; Assistant Vice President (1998 to Present) Allstate Life Insurance
Company of New York; Director (1998 to Present), Vice President and Product
Actuary (1995 to 1996), Assistant Vice President (1998 to Present), Senior Vice
President and Director (1998 to Present) Northbrook Life Insurance Company;
Director (1999 to Present) Charter National Life Insurance Company; Director
(1999 to Present) Intramerica Life Insurance Company.
SARAH R. DONAHUE, 51, Director (1998)*
Assistant Vice President (1993 to Present) Also: Assistant Vice President (1993
to Present) Allstate Life Insurance Company; Director (1998 to Present), First
Vice President--Finance (1995 to 1997), Assistant Vice
37
<PAGE>
President (1993 to Present), Senior Vice President--Product Management (1998 to
1999), First Vice President--Product Management (1997) Northbrook Life
Insurance Company.
BRENT H. HAMANN, Director (1998)*
Also: Vice President (1996 to Present) Allstate Life Financial Services, Inc.;
Assistant Vice President (1999 to Present) Allstate Life Insurance Company;
Director (1999 to Present) Intramerica Life Insurance Company.
- ----------------
* Date elected/appointed to current office.
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
have failed to operate properly in or after the year 1999, if the software was
not reprogrammed or replaced ("Year 2000 Issue"). Glenbrook believes that many
of its counterparties and suppliers also had potential Year 2000 Issues that
could affect Glenbrook. In 1995, Allstate Insurance Company commenced a four-
phase plan intended to mitigate and/or prevent the adverse effects of Year 2000
Issues. These strategies included 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 included Glenbrook actively working with its major
external counterparties and suppliers to assess their compliance efforts and
Glenbrook's exposure to them. Because of the accuracy of this plan, and its
timely completion, Glenbrook has experienced no material impacts on its results
of operations, liquidity or financial position due to the Year 2000 issue. Year
2000 costs are 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 SEC 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.
38
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999 and related
financial statement schedule included in this prospectus, have 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 financial statements of the Variable Account as of December 31, 1999, and
for each of the periods in the two years then ended included in this
prospectus, have 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.
Actuarial matters included in the Registration Statement, including the
hypothetical policy illustrations, have been examined by Matt Monson, FSA,
actuary of the company, and are included in reliance upon his opinion as to
their reasonableness.
FINANCIAL INFORMATION
The financial statements of the Variable Account as of December 31, 1999 and
for each of the periods in the two years then ended, the financial statements
of the Company as of December 31, 1999 and 1998 and for each of the three years
in the period ended December 31, 1999 and related financial statement schedule
and the accompanying Independent Auditors' Reports appear in the pages that
follow. The financial statements and schedule of the Company included herein
should be considered only as bearing upon the ability of the Company to meet
its obligations under the Contracts.
39
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.............................................. F-1
FINANCIAL STATEMENTS:
Statements of Financial Position December 31, 1999 and 1998.............. F-2
Statements of Operations and Comprehensive Income for the Years Ended
December 31, 1999,
1998 and 1997........................................................... F-3
Statements of Shareholder's Equity for the Years Ended December 31, 1999,
1998 and 1997........................................................... F-4
Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and
1997.................................................................... F-5
Notes to Financial Statements............................................ F-6
Schedule IV--Reinsurance for the Years Ended December 31, 1999, 1998 and
1997.................................................................... F-18
</TABLE>
<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, 1999 and 1998, 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, 1999. 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, 1999 and
1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 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 25, 2000
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
($ in thousands,
except par value
data)
<S> <C> <C>
Assets
Investments
Fixed income securities, at fair value (amortized cost
$94,173 and $87,415)................................. $ 92,937 $ 94,313
Short-term............................................ 53,063 4,663
---------- ----------
Total investments................................... 146,000 98,976
Cash................................................... 9 --
Reinsurance recoverable from Allstate Life Insurance
Company............................................... 4,144,165 3,113,278
Deferred income taxes.................................. 293 --
Other assets........................................... 2,706 2,590
Separate Accounts...................................... 1,541,756 993,622
---------- ----------
Total assets........................................ $5,834,929 $4,208,466
========== ==========
Liabilities
Reserve for life-contingent contract benefits.......... 800 --
Contractholder funds................................... 4,143,365 3,113,278
Current income taxes payable........................... 2,360 2,181
Deferred income taxes.................................. -- 2,499
Payable to affiliates, net............................. 4,122 3,583
Separate Accounts...................................... 1,541,756 993,622
---------- ----------
Total liabilities................................... 5,692,403 4,115,163
---------- ----------
Commitments and contingent liabilities (Note 11)
Shareholder's Equity
Common stock, $500 par value, 10,000 and 4,200 shares
authorized, 5,000 and 4,200 shares issued and
outstanding........................................... 2,500 2,100
Additional capital paid-in............................. 119,241 69,641
Retained income........................................ 21,588 17,079
Accumulated other comprehensive (loss) income:
Unrealized net capital (losses) gains................. (803) 4,483
---------- ----------
Total accumulated other comprehensive (loss) income. (803) 4,483
---------- ----------
Total shareholder's equity.......................... 142,526 93,303
---------- ----------
Total liabilities and shareholder's equity.......... $5,834,929 $4,208,466
========== ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December
31,
-----------------------
1999 1998 1997
------- ------ ------
($ in thousands)
<S> <C> <C> <C>
Revenues
Net investment income.................................. $ 6,579 $6,231 $5,304
Realized capital gains and losses...................... 312 (5) 3,460
------- ------ ------
Income from operations before income tax expense........ 6,891 6,226 8,764
Income tax expense...................................... 2,382 2,182 3,078
------- ------ ------
Net income.............................................. 4,509 4,044 5,686
------- ------ ------
Other comprehensive (loss) income, after-tax
Change in unrealized net capital gains and losses...... (5,286) 1,315 378
------- ------ ------
Comprehensive (loss) income............................. $ (777) $5,359 $6,064
======= ====== ======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998 1997
--------- -------- --------
($ in thousands)
<S> <C> <C> <C>
Common stock
Balance, beginning of year........................ $ 2,100 $ 2,100 $ 2,100
Issuance of new shares of stock................... 400 -- --
--------- -------- --------
Balance, end of year.............................. 2,500 2,100 2,100
--------- -------- --------
Additional capital paid-in
Balance, beginning of year........................ 69,641 69,641 69,641
Capital contribution.............................. 49,600 -- --
--------- -------- --------
Balance, end of year.............................. 119,241 69,641 69,641
--------- -------- --------
Retained income
Balance, beginning of year........................ 17,079 13,035 7,349
Net income........................................ 4,509 4,044 5,686
--------- -------- --------
Balance, end of year.............................. 21,588 17,079 13,035
--------- -------- --------
Accumulated other comprehensive (loss) income
Balance, beginning of year........................ 4,483 3,168 2,790
Change in unrealized net capital gains and losses. (5,286) 1,315 378
--------- -------- --------
Balance, end of year.............................. (803) 4,483 3,168
--------- -------- --------
Total shareholder's equity........................ $ 142,526 $ 93,303 $ 87,944
========= ======== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
($ in thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income...................................... $ 4,509 $ 4,044 $ 5,686
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and other non-cash items.......... (65) (24) 29
Realized capital gains and losses.............. (312) 5 (3,460)
Changes in:
Income taxes payable........................... 235 1,590 240
Other operating assets and liabilities......... 264 915 961
-------- -------- --------
Net cash provided by operating activities..... 4,631 6,530 3,456
-------- -------- --------
Cash flows from investing activities
Fixed income securities
Proceeds from sales............................ 9,049 1,966 1,405
Investment collections......................... 4,945 7,123 14,217
Investment purchases........................... (20,328) (15,250) (50,115)
Participation in Separate Accounts.............. -- -- 13,981
Change in short-term investments, net........... (48,288) (369) (2,944)
-------- -------- --------
Net cash used in investing activities......... (54,622) (6,530) (23,456)
-------- -------- --------
Cash flows from financing activities
Proceeds from issuance of common stock.......... 400 -- --
Capital contribution............................ 49,600 -- 20,000
-------- -------- --------
Net cash provided by financing activities..... 50,000 -- 20,000
-------- -------- --------
Net increase in cash............................. 9 -- --
Cash at the beginning of year.................... -- -- --
-------- -------- --------
Cash at end of year.............................. $ 9 $ -- $ --
======== ======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
- --------------------------------------------------------------------------------
1. GENERAL
Basis of Presentation
The accompanying financial statements include the accounts of Glenbrook Life
and Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). These financial statements have been prepared in conformity
with generally accepted accounting principles.
Nature of Operations
The Company markets savings and life insurance products through banks and
securities firms. Savings products include deferred annuities and immediate
annuities without life contingencies. Deferred annuities include fixed rate,
market value adjusted, indexed and variable annuities. Life insurance consists
of interest-sensitive life and variable life insurance. In 1999, substantially
all of the Company's statutory premiums and deposits were from annuities.
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. Recently enacted federal legislation will
allow for banks and other financial organizations to have greater participation
in the securities and insurance businesses. This legislation may present an
increased level of competition for sales of the Company's 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.
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.
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 negatively
impact the Company's sales.
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 were Florida,
California, Pennsylvania, Michigan, Texas, Illinois and New Jersey for the year
ended December 31, 1999. 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.
F-6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 short-term investment
dividends. 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 Recoverable
The Company has reinsurance agreements whereby substantially all 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. Investment income earned on the assets
which support contractholder funds and the reserve for life-contingent contract
benefits is not included in the Company's financial statements as those assets
are owned and managed under terms of reinsurance agreements. Reinsurance
recoverable and the related reserve for life-contingent contract benefits and
contractholder funds are reported separately in the statements of financial
position. The Company continues to have primary liability as the direct insurer
for risks reinsured.
Recognition of Insurance Revenue and Related Benefits and Interest Credited
Interest-sensitive life contracts are insurance contracts whose terms are not
fixed and guaranteed. The terms that may be changed include premiums paid by
the contractholder, interest credited to the contractholder account balance and
one or more amounts assessed against the contractholder. Premiums from these
contracts are reported as deposits to contractholder funds. Contract charge
revenue consists of fees assessed against the contractholder account balance
for cost of insurance (mortality risk), contract administration and surrender
charges. Contract benefits include interest credited to contracts and claims
incurred in excess of the related contractholder account balance.
Contracts that do not subject the Company to significant risk arising from
mortality or morbidity are referred to as investment contracts. Fixed rate
annuities, market value adjusted annuities, indexed annuities and immediate
annuities without life contingencies are considered investment contracts.
Deposits received for such contracts are reported as deposits to contractholder
funds. Contract charge revenue for investment contracts consists of charges
assessed against the contractholder account balance for contract administration
and surrenders. Contract benefits include interest credited and claims incurred
in excess of the related contractholder account balance.
Crediting rates for fixed rate and interest-sensitive life contracts are
adjusted periodically by the Company to reflect current market conditions.
Crediting rates for indexed annuities are based on an interest rate index, such
as LIBOR or an equity index, such as the S&P 500.
F-7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment contracts include variable annuity and variable life contracts which
are sold as Separate Accounts products. The assets supporting these products
are legally segregated and available only to settle Separate Accounts contract
obligations. Deposits received are reported as Separate Accounts liabilities.
The Company's contract charge revenue for these contracts consists of charges
assessed against the Separate Accounts fund balances for contract maintenance,
administration, mortality, expense and surrenders.
All contract charges, contract benefits and interest credited are reinsured.
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. Deferred income taxes arise primarily
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 deferred variable annuity and variable life contracts, the
assets and liabilities of which are legally segregated and recorded as assets
and liabilities of the Separate Accounts. Absent any contract provisions
wherein the Company contractually guarantees either a minimum return or account
value to the beneficiaries of the contractholders in the form of a death
benefit, the contractholders bear the investment risk that the Separate
Accounts' funds may not meet their stated objectives.
The assets of the Separate Accounts are carried at fair value. Separate
Accounts liabilities represent the contractholders' claim to the related assets
and are carried at the fair value of the assets. In the event that the asset
value of certain contractholder accounts are projected to be below the value
guaranteed by the Company, a liability is established through a charge to
earnings. 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 and administration fees, and mortality, surrender and expense
charges.
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.
Reserve for Life-Contingent Contract Benefits
The reserve for life-contingent contract benefits, which relates to certain
variable annuity contract guarantees, is computed on the basis of assumptions
as to mortality, future investment yields, terminations and expenses at the
time the policy is issued. These assumptions include provisions for adverse
deviation and generally vary by such characteristics as type of coverage, year
of issue and policy duration. Detailed reserve assumptions and reserve interest
rates are outlined in Note 6.
F-8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Contractholder Funds
Contractholder funds arise from the issuance of interest-sensitive life and
certain investment contracts. Deposits received are recorded as interest-
bearing liabilities. Contractholder funds are equal to deposits received, net
of commissions, and interest credited to the benefit of the contractholder less
withdrawals, mortality charges, and administrative expenses. Detailed
information on crediting rates and surrender and withdrawal protection on
contractholder funds are outlined in Note 6.
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.
New Accounting Standards
In 1999, the Company adopted Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." 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. Adoption of this statement was not material to the
Company's results of operations or financial position.
3. RELATED PARTY TRANSACTIONS
Reinsurance
The Company has reinsurance agreements whereby substantially all 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. Reinsurance recoverable and the related reserve for life-
contingent contract benefits and contractholder funds are reported separately
in the statements of financial position. The Company continues to have primary
liability as the direct insurer for risks reinsured.
Investment income earned on the assets which support contractholder funds and
the reserve for life-contingent contract benefits 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.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
($ in thousands)
<S> <C> <C> <C>
Contract charges................................. $ 27,175 $ 19,009 $ 11,641
Credited interest, policy benefits, and certain
expenses........................................ 253,945 218,008 179,954
</TABLE>
Business Operations
The Company utilizes services performed 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
F-9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS (Continued)
operating expenses incurred on behalf of the Company. The Company is charged
for the cost of these operating expenses based on the level of services
provided. Operating expenses, including compensation and retirement and other
benefit programs, allocated to the Company were $26,555, $15,949, and $19,243
in 1999, 1998 and 1997, respectively. Of these costs, the Company retains
investment related expenses. All other costs are ceded to ALIC under
reinsurance agreements.
4. INVESTMENTS
Fair Values
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
Gross
Unrealized
Amortized -------------- Fair
Cost Gains Losses Value
--------- ------ ------- -------
($ in thousands)
<S> <C> <C> <C> <C>
At December 31, 1999
U.S. government and agencies............. $24,274 $1,260 $ -- $25,534
Municipal................................ 1,656 -- (112) 1,544
Corporate................................ 49,255 9 (2,022) 47,242
Mortgage-backed securities............... 18,988 96 (467) 18,617
------- ------ ------- -------
Total fixed income securities........... $94,173 $1,365 $(2,601) $92,937
======= ====== ======= =======
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) $94,313
======= ====== ======= =======
</TABLE>
Scheduled Maturities
The scheduled maturities for fixed income securities are as follows at December
31, 1999:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -------
($ in thousands)
<S> <C> <C>
Due after one year through five years..................... $30,974 $31,085
Due after five years through ten years.................... 32,583 30,911
Due after ten years....................................... 11,628 12,324
------- -------
75,185 74,320
Mortgage-backed securities................................ 18,988 18,617
------- -------
Total................................................... $94,173 $92,937
======= =======
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
F-10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS (Continued)
Net Investment Income
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------
1999 1998 1997
------ ------ ------
($ in thousands)
<S> <C> <C> <C>
Fixed income securities................................ $6,458 $6,151 $5,014
Short-term investments................................. 230 183 231
Participation in Separate Accounts..................... -- -- 161
------ ------ ------
Investment income, before expense...................... 6,688 6,334 5,406
Investment expense..................................... 109 103 102
------ ------ ------
Net investment income.................................. $6,579 $6,231 $5,304
====== ====== ======
</TABLE>
Realized Capital Gains and Losses
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1999 1998 1997
----- ---- -------
($ in thousands)
<S> <C> <C> <C>
Fixed income securities................................ $ 312 $(5) $ (61)
Short-term investments................................. -- -- 6
Participation in Separate Accounts..................... -- -- 3,515
----- --- -------
Realized capital gains and losses...................... 312 (5) 3,460
Income Taxes........................................... (109) 2 (1,211)
----- --- -------
Realized capital gains and losses, after tax........... $ 203 $(3) $ 2,249
===== === =======
</TABLE>
Excluding calls and prepayments, gross gains of $370 were realized on sales of
fixed income securities during 1999, and gross losses of $58, $5 and $61 were
realized on sales of fixed income securities during 1999, 1998 and 1997,
respectively. There were no gross gains realized on sales of fixed income
securities during 1998 and 1997.
Unrealized Net Capital Gains and Losses
Unrealized net capital losses on fixed income securities included in
shareholder's equity at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Gross
Cost/ Unrealized Unrealized
Amortized Fair -------------- Net
Cost Value Gains Losses Losses
--------- ------- ------ ------- ----------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Fixed income securities........ $94,173 $92,937 $1,365 $(2,601) $(1,236)
======= ======= ====== =======
Deferred income taxes........................................... 433
-------
Unrealized net capital losses................................... $ (803)
=======
</TABLE>
F-11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS (Continued)
Change in Unrealized Net Capital Gains and Losses
<TABLE>
<CAPTION>
Year Ended December
31,
------------------------
1999 1998 1997
------- ------ -------
($ in thousands)
<S> <C> <C> <C>
Fixed income securities............................ $(8,134) $2,024 $ 2,410
Participation in Separate Accounts................. -- -- (1,829)
Deferred income taxes.............................. 2,848 (709) (203)
------- ------ -------
(Decrease) increase in unrealized net capital
gains........................................... $(5,286) $1,315 $ 378
======= ====== =======
</TABLE>
Securities on Deposit
At December 31, 1999, fixed income securities with a carrying value of $10,346
were on deposit with regulatory authorities as required by law.
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair
value of the Company as a whole since a number of the Company's significant
assets (including reinsurance recoverable and deferred income taxes) and
liabilities (including interest-sensitive life insurance reserves) are not
considered financial instruments and are not carried at fair value. Other
assets and liabilities considered financial instruments, such as accrued
investment income and cash, are generally of a short-term nature. Their
carrying values are assumed to approximate fair value.
Financial Assets
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- -------- --------
($ in thousands)
<S> <C> <C> <C> <C>
Fixed income securities............. $ 92,937 $ 92,937 $ 94,313 $ 94,313
Short-term investments.............. 53,063 53,063 4,663 4,663
Separate Accounts................... 1,541,756 1,541,756 993,622 993,622
</TABLE>
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 are deemed to approximate fair value. Separate Accounts assets are
carried in the statements of financial position at fair value based on quoted
market prices.
F-12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. FINANCIAL INSTRUMENTS (Continued)
Financial Liabilities
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ---------- ---------- ----------
($ in thousands)
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts.......... $4,156,964 $3,924,117 $3,130,228 $2,967,101
Separate Accounts.............. 1,541,756 1,541,756 993,622 993,622
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms
is estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
6. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS
At December 31, 1999 the reserve for life-contingent contract benefits
consisted of reserves for immediate annuities. The assumptions for mortality
generally utilized in calculating immediate annuity reserves is the 1983 group
annuity mortality table. Interest rate assumptions for immediate annuities vary
from 3.5% to 7.2%. Other estimation methods used for immediate annuities
include the present value of contractually fixed benefits.
At December 31, contractholder funds consists of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
($ in thousands)
<S> <C> <C>
Interest-sensitive life............................... $ 9,503 $ 3,335
Fixed annuities:
Immediate annuities.................................. 17,856 12,643
Deferred annuities................................... 4,116,006 3,097,300
---------- ----------
Total contractholder funds.......................... $4,143,365 $3,113,278
========== ==========
</TABLE>
Contractholder funds are equal to deposits received, net of commissions, and
interest credited to the benefit of the contractholder less withdrawals,
mortality charges and administrative expenses. Interest rates credited range
from 4.0% to 7.2% for interest-sensitive life contracts; 3.5% to 7.2% for
immediate annuities and 4.3% to 6.7% for deferred annuities. Withdrawal and
surrender charge protection includes: i) for interest-sensitive life, either a
percentage of account balance or dollar amount grading off generally over 20
years; and, ii) for deferred annuities not subject to a market value
adjustment, either a declining or a level percentage charge generally over nine
years or less. Approximately 1% of deferred annuities are subject to a market
value adjustment.
7. CORPORATION RESTRUCTURING
On November 10, 1999 the Corporation announced a series of strategic
initiatives to aggressively expand its selling and service capabilities. The
Corporation also announced that it is implementing a program to reduce
F-13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. CORPORATION RESTRUCTURING (Continued)
expenses by approximately $600 million. The reduction will result in the
elimination of approximately 4,000 current non-agent positions, across all
employment grades and categories by the end of 2000, or approximately 10% of
the Corporation's non-agent work force. The impact of the reduction in employee
positions is not expected to materially impact the results of operations of the
Company.
These cost reductions are part of a larger initiative to redeploy the cost
savings to finance new initiatives including investments in direct access and
internet channels for new sales and service capabilities, new competitive
pricing and underwriting techniques, new agent and claim technology and
enhanced marketing and advertising. As a result of the cost reduction program,
the Corporation recorded restructuring and related charges of $81 million
pretax during the fourth quarter of 1999. The Corporation anticipates that
additional pretax restructuring related charges of approximately $100 million
will be expensed as incurred throughout 2000. The Company's allocable share of
these expenses were immaterial in 1999 and are expected to be immaterial in
2000.
8. INCOME TAXES
For 1996, the Company filed a separate federal income tax return. Beginning in
1997, the Company joined the Corporation and its other eligible domestic
subsidiaries (the "Allstate Group") in the filing of a consolidated federal
income tax return and is party to a federal income tax allocation agreement
(the "Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing
Agreement, the Company pays to or receives from the Corporation the amount, if
any, by which the Allstate Group's federal income tax liability is affected by
virtue of inclusion of the Company in the consolidated federal income tax
return. Effectively, this results in the Company's annual income tax provision
being computed, with adjustments, as if the Company filed a separate return.
Prior to June 30, 1995, the Corporation was a subsidiary of Sears Roebuck & Co.
("Sears") and was, with its eligible domestic subsidiaries, included in the
Sears consolidated federal income tax return and federal income tax allocation
agreement. Effective June 30, 1995, the Corporation and Sears entered into a
new tax sharing agreement, which governs their respective rights and
obligations with respect to federal income taxes for all periods during which
the Corporation was a subsidiary of Sears, including the treatment of audits of
tax returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's federal income tax returns through the 1993 tax year. Any adjustment
that may result from IRS examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or results of operations
of the Company.
The components of the deferred income tax assets and liabilities at December
31, are as follows:
<TABLE>
<CAPTION>
1999 1998
----- -------
($ in
thousands)
<S> <C> <C>
Deferred assets
Unrealized net capital losses............................... $ 433 $ --
----- -------
Total deferred assets...................................... 433 --
Deferred liabilities
Difference in tax bases of investments...................... (140) (84)
Unrealized net capital gains................................ -- (2,415)
----- -------
Total deferred liabilities................................. (140) (2,499)
----- -------
Net deferred asset (liability)............................. $ 293 $(2,499)
===== =======
</TABLE>
F-14
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. INCOME TAXES (Continued)
Although realization is not assured, management believes it is more likely than
not that the deferred tax asset will be realized based on the assumptions that
certain levels of income will be achieved.
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
($ in thousands)
<S> <C> <C> <C>
Current................................................ $2,326 $2,164 $3,037
Deferred............................................... 56 18 41
------ ------ ------
Total income tax expense............................. $2,382 $2,182 $3,078
====== ====== ======
</TABLE>
The Company paid income taxes of $2,148, $592 and $2,839 in 1999, 1998 and
1997, respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
($ in
thousands)
<S> <C> <C> <C>
Statutory federal income tax rate.......................... 35.0% 35.0% 35.0%
Other...................................................... (.4) -- .1
---- ---- ----
Effective income tax rate.................................. 34.6% 35.0% 35.1%
==== ==== ====
</TABLE>
9. STATUTORY FINANCIAL INFORMATION
The Company's statutory capital and surplus was $141,362 and $84,865 at
December 31, 1999 and 1998, respectively. The Company's statutory net income
was $4,179, $4,698 and $3,636 for the years ended December 31, 1999, 1998 and
1997, respectively.
Permitted Statutory Accounting Practices
The Company prepares its statutory financial statements in accordance with
accounting 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
statutory accounting principles, which the Company will implement in January
2001. The Company's state of domicile, Arizona, has passed legislation revising
various statutory accounting requirements to conform to codification. These
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
F-15
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. STATUTORY FINANCIAL INFORMATION (Continued)
dividends paid in the preceding twelve months. The maximum amount of dividends
that the Company can distribute during 2000 without prior approval of the
Arizona Department of Insurance is $4,179.
Risk-Based Capital
The NAIC has a standard for assessing the solvency of insurance companies,
which is referred to as risk-based capital ("RBC"). The requirement consists of
a formula for determining each insurer's RBC and a model law specifying
regulatory actions if an insurer's RBC falls below specified levels. The RBC
formula for life insurance companies establishes capital requirements relating
to insurance, business, asset and interest rate risks. At December, 31 1999,
RBC for the Company was significantly above levels that would require
regulatory action.
10. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis
for the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ --------------------- ----------------------
Unrealized capital gains After- After- After-
and losses: Pretax Tax Tax Pretax Tax Tax Pretax Tax Tax
- ------------------------ ------- ------ ------- ------ ----- ------ ------ ------- ------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized holding
(losses) gains arising
during the period...... $(7,822) $2,739 $(5,083) $2,019 $(707) $1,312 $4,034 $(1,412) $2,622
Less: reclassification
adjustments............ 312 (109) 203 (5) 2 (3) 3,453 (1,209) 2,244
------- ------ ------- ------ ----- ------ ------ ------- ------
Unrealized net capital
(losses) gains......... $(8,134) $2,848 $(5,286) $2,024 $(709) $1,315 $ 581 $ (203) $ 378
------- ------ ------- ------ ----- ------ ------ ------- ------
Other comprehensive
(loss) income.......... $(8,134) $2,848 $(5,286) $2,024 $(709) $1,315 $ 581 $ (203) $ 378
======= ====== ======= ====== ===== ====== ====== ======= ======
</TABLE>
11. 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
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Guaranty Funds
Under state insurance guaranty fund laws, insurers doing business in a state
can be assessed, up to prescribed limits, for certain obligations of insolvent
insurance companies to policyholders and claimants. The Company's expenses
related to these funds have been immaterial. These expenses are ceded to ALIC
under reinsurance agreements.
Marketing and Compliance Issues
Companies operating in the insurance and financial services markets have come
under the scrutiny of regulators with respect to market conduct and compliance
issues. Under certain circumstances, companies have been held responsible for
providing incomplete or misleading sales materials and for replacing existing
policies with policies that were less advantageous to the policyholder. The
Company monitors its sales materials and enforces compliance procedures to
mitigate any exposure to potential litigation. The Company is a member of the
Insurance Marketplace Standards Association, an organization which advocates
ethical market conduct.
F-17
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Gross Net
Amount Ceded Amount
------- ------- ------
<S> <C> <C> <C>
Year ended December 31, 1999
Life insurance in force................................. $23,586 $23,586 $ --
======= ======= =====
Premiums and contract charges:
Life and annuities..................................... $27,175 $27,175 $ --
======= ======= =====
Year ended December 31, 1998
Life insurance in force................................. $12,056 $12,056 $ --
======= ======= =====
Premiums and contract charges:
Life and annuities..................................... $19,009 $19,009 $ --
======= ======= =====
Year ended December 31, 1997
Life insurance in force................................. $ 4,095 $ 4,095 $ --
======= ======= =====
Premiums and contract charges:
Life and annuities..................................... $11,641 $11,641 $ --
======= ======= =====
</TABLE>
F-18
<PAGE>
GLENBROOK LIFE AIM
VARIABLE LIFE
SEPARATE ACCOUNT A
Financial Statements as of December 31, 1999 and
for the periods ended December 31, 1999 and
December 31, 1998, and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Glenbrook Life and Annuity Company:
We have audited the accompanying statement of net assets of Glenbrook Life AIM
Variable Life Separate Account A as of December 31, 1999 (including the assets
of each of the individual sub-accounts which comprise the Account as disclosed
in Note 1), and the related statements of operations and the statements of
changes in net assets for each of the periods in the two year period then ended
for each of the individual sub-accounts which comprise the Account. These
financial statements are the responsibility of 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 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. Our
procedures included confirmation of securities owned at December 31, 1999 by
correspondence with the account custodians. 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 Glenbrook Life AIM Variable Life Separate
Account A as of December 31, 1999 (including the assets of each of the
individual sub-accounts which comprise the Account), and the results of
operations for each of the individual sub-accounts and the changes in their net
assets for each of the periods in the two year period then ended in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 27, 2000
F-1
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENT OF NET ASSETS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Allocation to Sub-Accounts investing in the AIM Variable Insurance
Funds:
Aggressive Growth, 0 shares (cost $0)............................. $ --
Balanced, 0 shares (cost $0)...................................... --
Capital Appreciation, 9,514 shares (cost $255,743)................ 338,495
Capital Development, 0 shares (cost $0)........................... --
Diversified Income, 26,452 shares (cost $285,270)................. 266,108
Global Utilities, 1,215 shares (cost $21,175)..................... 27,697
Government Securities, 6,212 shares (cost $67,475)................ 66,034
Growth, 16,598 shares (cost $446,890)............................. 535,292
Growth and Income, 8,573 shares (cost $189,125)................... 270,825
High Yield, 0 shares (cost $0).................................... --
International Equity, 2,643 shares (cost $57,377)................. 77,403
Money Market, 41,442 shares (cost $41,442)........................ 41,442
Value, 26,033 shares (cost $737,863).............................. 872,113
----------
Total Assets.................................................... $2,495,409
==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
-------------------------------------------------
Aggressive Capital Capital
Growth Balanced Appreciation Development
---------- -------- ---------------- -----------
1999 (a) 1999 (a) 1999 1998 1999 (a)
---------- -------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends.................. $-- $-- $ 6,013 $ 2,293 $--
Charges from Glenbrook Life
and Annuity Company:
Mortality and expense
risk..................... -- -- (1,307) (278) --
---- ---- ------- ------- ----
Net investment income
(loss)................. -- -- 4,706 2,015 --
---- ---- ------- ------- ----
Realized and unrealized
gains (losses) on
investments
Realized gains (losses)
from sales of investments:
Proceeds from sales....... -- -- 2,905 18,802 --
Cost of investments sold.. -- -- 2,698 19,074 --
---- ---- ------- ------- ----
Net realized gains
(losses)............... -- -- 207 (272) --
---- ---- ------- ------- ----
Change in unrealized gains
(losses)................... -- -- 75,794 6,958 --
---- ---- ------- ------- ----
Net gains (losses) on
investments............ -- -- 76,001 6,686 --
---- ---- ------- ------- ----
Change in net assets
resulting from operations.. $-- $-- $80,707 $ 8,701 $--
==== ==== ======= ======= ====
</TABLE>
- ----------------
(a) For the Period Beginning May 3, 1999 and Ended December 31, 1999.
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
---------------------------------------------------------
Diversified Global
Income Utilities Government Securities
----------------- -------------- -----------------------
1999 1998 1999 1998 1999 1998
-------- ------- ------ ------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 16,724 $ 2,431 $ 437 $ 37 $ 489 $ 1,776
Charges from Glenbrook
Life and Annuity
Company:
Mortality and expense
risk................. (1,647) (203) (159) (3) (602) (391)
-------- ------- ------ ------ ----------- ----------
Net investment
income (loss)...... 15,077 2,228 278 34 (113) 1,385
-------- ------- ------ ------ ----------- ----------
Realized and unrealized
gains (losses) on
investments
Realized gains (losses)
from sales of
investments:
Proceeds from sales... 49,111 561 394 3,492 1,705 3,175
Cost of investments
sold................. 49,408 525 362 3,455 1,679 1,006
-------- ------- ------ ------ ----------- ----------
Net realized gains
(losses)........... (297) 36 32 37 26 2,169
-------- ------- ------ ------ ----------- ----------
Change in unrealized
gains (losses)......... (16,900) (2,262) 6,432 90 (3,355) 1,914
-------- ------- ------ ------ ----------- ----------
Net gains (losses)
on investments..... (17,197) (2,226) 6,464 127 (3,329) 4,083
-------- ------- ------ ------ ----------- ----------
Change in net assets
resulting from
operations............. $ (2,120) $ 2 $6,742 $ 161 $ (3,442) $ 5,468
======== ======= ====== ====== =========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
----------------------------------------------
Growth and
Growth Income High Yield
---------------- ---------------- ----------
1999 1998 1999 1998 1999 (a)
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends..................... $18,475 $ 6,582 $ 2,018 $ 2,340 $--
Charges from Glenbrook Life
and Annuity Company:
Mortality and expense risk... (2,218) (304) (1,801) (681) --
------- ------- ------- ------- ----
Net investment income
(loss).................... 16,257 6,278 217 1,659 --
------- ------- ------- ------- ----
Realized and unrealized gains
(losses) on investments
Realized gains (losses) from
sales of investments:
Proceeds from sales.......... 34,839 8,426 4,729 9,037 --
Cost of investments sold..... 31,729 7,815 3,863 8,770 --
------- ------- ------- ------- ----
Net realized gains
(losses).................. 3,110 611 866 267 --
------- ------- ------- ------- ----
Change in unrealized gains
(losses)...................... 79,097 9,305 60,418 21,282 --
------- ------- ------- ------- ----
Net gains (losses) on
investments............... 82,207 9,916 61,284 21,549 --
------- ------- ------- ------- ----
Change in net assets resulting
from operations............... $98,464 $16,194 $61,501 $23,208 $--
======= ======= ======= ======= ====
</TABLE>
- ----------------
(a) For the Period Beginning May 3, 1999 and Ended December 31, 1999.
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
------------------------------------------------------------
International Equity Money Market Value
---------------------- ----------------- -----------------
1999 1998 1999 1998 1999 1998
---------- ---------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends.............. $ 2,558 $ 251 $ 681 $ 345 $ 13,835 $ 6,927
Charges from Glenbrook
Life and Annuity
Company:
Mortality and expense
risk................. (339) (179) (493) (222) (3,953) (377)
---------- ---------- ------- -------- -------- -------
Net investment
income (loss)...... 2,219 72 188 123 9,882 6,550
---------- ---------- ------- -------- -------- -------
Realized and unrealized
gains (losses) on
investments
Realized gains (losses)
from sales of
investments:
Proceeds from sales... 898 526 99,194 191,705 38,322 36,176
Cost of investments
sold................. 880 502 99,194 191,705 35,246 35,513
---------- ---------- ------- -------- -------- -------
Net realized gains
(losses)........... 18 24 -- -- 3,076 663
---------- ---------- ------- -------- -------- -------
Change in unrealized
gains (losses)......... 21,065 (1,039) -- -- 120,054 14,196
---------- ---------- ------- -------- -------- -------
Net gains (losses)
on investments..... 21,083 (1,015) -- -- 123,130 14,859
---------- ---------- ------- -------- -------- -------
Change in net assets
resulting from
operations............. $ 23,302 $ (943) $ 188 $ 123 $133,012 $21,409
========== ========== ======= ======== ======== =======
</TABLE>
See notes to financial statements.
F-6
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended December 31,
------------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
------------------------------------------------------
Aggressive Capital
Growth Balanced Capital Appreciation Development
---------- -------- ---------------------- -----------
1999 (a) 1999 (a) 1999 1998 1999
---------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
From operations
Net investment income
(loss)................ $ -- $ -- $ 4,706 $ 2,015 $ --
Net realized gains
(losses).............. -- -- 207 (272) --
Change in unrealized
gains (losses)........ -- -- 75,794 6,958 --
-------- -------- ---------- --------- --------
Change in net assets
resulting from
operations............ -- -- 80,707 8,701 --
-------- -------- ---------- --------- --------
From capital
transactions
Deposits............... -- -- -- -- --
Benefit payments....... -- -- -- -- --
Payments on
termination........... -- -- -- -- --
Contract administration
charges............... -- -- (2,118) (570) --
Transfers among the
sub-accounts and with
the Fixed Account--
net................... -- -- 174,001 77,773 --
-------- -------- ---------- --------- --------
Change in net assets
resulting from capital
transactions.......... -- -- 171,883 77,203 --
-------- -------- ---------- --------- --------
Increase (decrease) in
net assets............. -- -- 252,590 85,904 --
Net assets at beginning
of period.............. -- -- 85,904 -- --
-------- -------- ---------- --------- --------
Net assets at end of
period................. $ -- $ -- $ 338,494 $ 85,904 $ --
======== ======== ========== ========= ========
</TABLE>
- ----------------
(a) For the Period Beginning May 3, 1999 and Ended December 31, 1999.
See notes to financial statements.
F-7
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended December 31,
----------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
----------------------------------------------------
Diversified Global Government
Income Utilities Securities
----------------- --------------- ----------------
1999 1998 1999 1998 1999 1998
-------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
From operations
Net investment income
(loss)................. $ 15,077 $ 2,228 $ 278 $ 34 $ (113) $ 1,385
Net realized gains
(losses)............... (297) 36 32 37 26 2,169
Change in unrealized
gains (losses)......... (16,900) (2,262) 6,432 90 (3,355) 1,914
-------- ------- ------- ------ ------- -------
Change in net assets
resulting from
operations............. (2,120) 2 6,742 161 (3,442) 5,468
-------- ------- ------- ------ ------- -------
From capital transactions
Deposits................ 12,500 -- -- -- -- --
Benefit payments........ -- -- -- -- -- --
Payments on termination. -- -- -- -- -- --
Contract administration
charges................ (2,669) (423) (256) (3) (1,090) (851)
Transfers among the sub-
accounts and with the
Fixed Account--net..... 220,844 37,974 19,553 1,500 -- 65,949
-------- ------- ------- ------ ------- -------
Change in net assets
resulting from capital
transactions........... 230,675 37,551 19,297 1,497 (1,090) 65,098
-------- ------- ------- ------ ------- -------
Increase (decrease) in
net assets.............. 228,555 37,553 26,039 1,658 (4,532) 70,566
Net assets at beginning
of period............... 37,553 -- 1,658 -- 70,566 --
-------- ------- ------- ------ ------- -------
Net assets at end of
period.................. $266,108 $37,553 $27,697 $1,658 $66,034 $70,566
======== ======= ======= ====== ======= =======
</TABLE>
See notes to financial statements.
F-8
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended December 31,
------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
------------------------------------------------
High
Growth Growth and Income Yield
------------------ ------------------ --------
1999 1998 1999 1998 1999 (a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
From operations
Net investment income (loss). $ 16,257 $ 6,278 $ 217 $ 1,659 $ --
Net realized gains (losses).. 3,110 611 866 267 --
Change in unrealized gains
(losses).................... 79,097 9,305 60,418 21,282 --
-------- -------- -------- -------- --------
Change in net assets
resulting from operations... 98,464 16,194 61,501 23,208 --
-------- -------- -------- -------- --------
From capital transactions
Deposits..................... 2,500 -- -- -- --
Benefit payments............. -- -- -- -- --
Payments on termination...... -- -- -- -- --
Contract administration
charges..................... (3,447) (626) (3,044) (1,422) --
Transfers among the sub-
accounts and with the Fixed
Account--net................ 332,859 89,347 38,646 151,936 --
-------- -------- -------- -------- --------
Change in net assets
resulting from capital
transactions................ 331,912 88,721 35,602 150,514 --
-------- -------- -------- -------- --------
Increase (decrease) in net
assets....................... 430,376 104,915 97,103 173,722 --
Net assets at beginning of
period....................... 104,915 -- 173,722 -- --
-------- -------- -------- -------- --------
Net assets at end of period... $535,291 $104,915 $270,825 $173,722 $ --
======== ======== ======== ======== ========
</TABLE>
- ----------------
(a) For the Period Beginning May 3, 1999 and Ended December 31, 1999.
See notes to financial statements.
F-9
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period Ended December 31,
------------------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
------------------------------------------------------------
International
Equity Money Market Value
---------------- ---------------------- ------------------
1999 1998 1999 1998 1999 1998
------- ------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
From operations
Net investment income
(loss)................ $ 2,219 $ 72 $ 188 $ 123 $ 9,882 $ 6,550
Net realized gains
(losses).............. 18 24 -- -- 3,076 663
Change in unrealized
gains (losses)........ 21,065 (1,039) -- -- 120,054 14,196
------- ------- ----------- --------- -------- --------
Change in net assets
resulting from
operations............ 23,302 (943) 188 123 133,012 21,409
------- ------- ----------- --------- -------- --------
From capital
transactions
Deposits............... -- -- 1,402,277 589,696 40,000 --
Benefit payments....... -- -- -- -- -- --
Payments on
termination........... -- -- -- -- -- --
Contract administration
charges............... (615) (389) (967) (64) (5,964) (752)
Transfers among the
sub-accounts and with
the Fixed Account--
net................... 23,076 32,972 (1,360,068) (589,743) 552,928 131,479
------- ------- ----------- --------- -------- --------
Change in net assets
resulting from capital
transactions.......... 22,461 32,583 41,242 (111) 586,964 130,727
------- ------- ----------- --------- -------- --------
Increase (decrease) in
net assets............. 45,763 31,640 41,430 12 719,976 152,136
Net assets at beginning
of period.............. 31,640 -- 12 -- 152,136 --
------- ------- ----------- --------- -------- --------
Net assets at end of
period................. $77,403 $31,640 $ 41,442 $ 12 $872,112 $152,136
======= ======= =========== ========= ======== ========
</TABLE>
See notes to financial statements.
F-10
<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.
Glenbrook Life issues the AIM Lifetime Plussm Variable Life, a modified single
premium variable life insurance contract, the deposits of which are invested at
the direction of the contractholders in the sub-accounts that comprise the
Account. Absent any contract provisions wherein Glenbrook Life contractually
guarantees either a minimum return or account value to the beneficiaries of the
contractholders in the form of a death benefit, the contractholders bear the
investment risk that the sub-accounts may not meet their stated objectives. The
sub-accounts invest in the following underlying mutual fund portfolios of the
AIM Variable Insurance Funds (the "Funds"):
.Aggressive Growth .Growth
.Balanced .Growth and Income
.Capital Appreciation .High Yield
.Capital Development .International Equity
.Diversified Income .Money Market
.Global Utilities .Value
.Government Securities
Glenbrook Life provides insurance and administrative services to the
contractholders 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, 1999.
Investment Income--Investment income consists of dividends declared by the
Funds and is recognized on the ex-dividend date.
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 allocable to the Account as the Account did not generate
taxable income.
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-11
<PAGE>
GLENBROOK LIFE AIM VARIABLE LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. EXPENSES
Monthly Deductions--Glenbrook Life charges each contractholder monthly for cost
of insurance, tax expense and administrative expense. The cost of insurance is
determined based upon several variables, including the contractholder's death
benefit amount and Account value. Tax expense is charged at an annual rate
equal to .40% of the Account value for the first ten contract years. Glenbrook
Life deducts a monthly administrative fee of .25% of the Account value.
Mortality and Expense Risk Charge--Glenbrook Life assumes mortality and expense
risks related to the operations of the Account and deducts charges daily at a
rate equal to .90% per annum of the daily net assets of the Account. The
mortality and expense risk charge covers insurance benefits available with the
contract and certain expenses of the contract. It also covers the risk that the
current charges will not be sufficient in the future to cover the cost of
administering the contract.
Annual Maintenance Fee--Glenbrook Life deducts an annual maintenance fee of $35
on each contract anniversary. This charge will be waived on contracts with
aggregate premiums that exceed $50,000.
4. UNITS ISSUED AND REDEEMED
<TABLE>
<CAPTION>
Unit activity during 1999:
---------------------------------
Accumulation Unit
Units Outstanding Units Units Units Outstanding Value
December 31, 1998 Issued Redeemed December 31, 1999 December 31, 1999
----------------- ------ -------- ----------------- -----------------
(Units in whole amounts)
<S> <C> <C> <C> <C> <C>
Investments in the Aim
Variable Insurance
Funds Sub-Accounts:
Aggressive Growth...... -- -- -- -- $ --
Balanced............... -- -- -- -- --
Capital Appreciation... 7,703 13,648 (178) 21,173 15.98
Capital Development.... -- -- --
Diversified Income..... 3,608 27,401 (4,712) 26,297 10.12
Global Utilities....... 135 1,588 (20) 1,703 16.26
Government Securities.. 6,332 -- (105) 6,227 10.60
Growth................. 7,910 24,614 (2,422) 30,102 17.78
Growth and Income...... 13,824 2,592 (223) 16,193 16.72
High Yield............. -- -- -- -- --
International Equity... 2,799 1,707 (51) 4,455 17.37
Money Market........... -- 4,957 (1,147) 3,810 10.88
Value.................. 11,674 42,894 (2,598) 51,970 16.78
</TABLE>
F-12
