GLENBROOK LIFE AND ANNUITY COMPANY
MODIFIED SINGLE PREMIUM
VARIABLE LIFE INSURANCE CONTRACTS
3100 SANDERS ROAD
NORTHBROOK, IL 60062
TELEPHONE (800) 755-5275
This prospectus describes the "Glenbrook Provider Variable Life," a modified
single premium variable life insurance contract ("Contract") offered by
Glenbrook Life and Annuity Company (the "Company") for prospective insured
persons age 0-85. The Contract lets the Contract Owner pay a significant single
premium and, subject to restrictions, additional premiums.
The Contracts are modified endowment contracts for federal income tax purposes,
except in certain cases described under "Federal Tax Matters," page 24. A LOAN,
DISTRIBUTION OR OTHER AMOUNT RECEIVED FROM A MODIFIED ENDOWMENT CONTRACT DURING
THE LIFE OF THE INSURED WILL BE TAXED TO THE EXTENT OF ANY ACCUMULATED INCOME IN
THE CONTRACT. ANY AMOUNTS THAT ARE TAXABLE WITHDRAWALS WILL BE SUBJECT TO A 10%
PENALTY, WITH CERTAIN EXCEPTIONS.
The minimum initial premium the Company will accept is $10,000. Premiums are
allocated to Glenbrook Life Variable Life Separate Account A ("Variable
Account"). The Variable Account will invest in shares of one or more managed
investment companies ("Funds") each of which has multiple investment Portfolios.
All of the Funds which are described in this prospectus may not be available
with your Contract. Presently, the Variable Account invests in shares of the
following Funds:
- AIM Variable Insurance Funds, Inc. ("AIM Fund")
- American Century Variable Portfolios (VP), Inc. ("American Century
Funds")
- Dean Witter Variable Investment Series (VIS), ("Dean Witter Fund")
- Dreyfus Variable Investment Fund (VIF), The Dreyfus Socially
Responsible Growth Fund, Inc. and Dreyfus Stock Index Fund
(collectively the "Dreyfus Funds")
- Fidelity Variable Insurance Products Fund (VIP) and Fidelity Variable
Insurance Products Fund II (VIP II) (collectively the "Fidelity
Funds")
- MFS(R) Variable Insurance Trust ("MFS Fund")
Under the Contracts the AIM FUND has eight available Portfolios: (1) AIM V.I.
Capital Appreciation Fund (2) AIM V.I. Growth and Income Fund (3) AIM V.I.
Global Utilities Fund (4) AIM V.I. Diversified Income Fund (5) AIM V.I.
Government Securities Fund (6) AIM V.I. Growth Fund (7) AIM V.I. International
Equity Fund and (8) AIM V.I. Value Fund; the AMERICAN CENTURY FUNDS have two
available Portfolios: (1) American Century VP Balanced and (2) American Century
VP International. the DEAN WITTER FUND has four available Portfolios: (1) VIS
Dividend Growth (2) VIS European Growth (3) VIS Quality Income Plus and (4) VIS
Utilities; the DREYFUS FUNDS have five available Portfolios: (1) VIF Growth and
Income (2) VIF Money Market (3) The Dreyfus Socially Responsible Growth Fund,
Inc. (4) VIF Small Company Stock and (5) Dreyfus Stock Index Fund; and the
FIDELITY FUNDS have four available Portfolios: (1) VIP II Contrafund (2) VIP
Growth (3) VIP High Income and (4) VIP Equity-Income; and the MFS FUND has two
available Portfolios: (1) MFS Emerging Growth Series and (2) MFS Limited
Maturity Series.
There is no guaranteed minimum Account Value for a Contract. The Account Value
of a Contract will vary up or down to reflect the investment experience of the
Portfolios to which premiums have been allocated. The Contract Owner bears the
investment risk for all amounts so allocated. The Contract continues in effect
while the Cash Surrender Value is sufficient to pay the monthly charges under
the Contract ("Monthly Deduction Amount").
The Contracts provide for an Initial Death Benefit shown on the Contract Data
page. The death benefit ("Death Benefit") payable under a Contract may be
greater than the Initial Death Benefit but so long as the Contract continues in
effect, if no withdrawals are made, it will never be less than the Initial Death
Benefit. The Account Value will, and under certain circumstances the Death
Benefit of the Contract may, increase or decrease based on the investment
experience of the Portfolios to which premiums have been allocated. At the death
of the Insured, we will pay a Death Benefit to the beneficiary.
IT MAY NOT BE ADVANTAGEOUS TO PURCHASE VARIABLE LIFE INSURANCE AS A REPLACEMENT
FOR YOUR CURRENT LIFE INSURANCE OR IF YOU ALREADY OWN A VARIABLE LIFE INSURANCE
CONTRACT.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE
APPLICABLE ELIGIBLE FUNDS WHICH CONTAIN A FULL DESCRIPTION OF THOSE FUNDS. ALL
PROSPECTUSES SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE PRODUCTS DESCRIBED HEREIN ARE NOT DEPOSITS OF, OR GUARANTEED BY, ANY BANK,
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
The Contracts may not be available in all states.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER OR OTHER PERSON IS AUTHORIZED
TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
The date of this Prospectus is May 1, 1998.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY......................................................
SPECIAL TERMS................................................
THE COMPANY..................................................
THE VARIABLE ACCOUNT.........................................
General.................................................
Funds...................................................
THE CONTRACT.................................................
Application for a Contract..............................
Premiums................................................
Allocation of Premiums..................................
Accumulation Unit Values................................
DEDUCTIONS AND CHARGES.......................................
Monthly Deductions......................................
Cost of Insurance Charge.............................
Tax Expense Charge...................................
Administrative Expense Charge........................
Other Deductions........................................
Mortality and Expense Risk Charge....................
Annual Maintenance Fee...............................
Taxes Charged Against the Variable Account...........
Charges Against the Funds............................
Withdrawal Charge....................................
Due and Unpaid Premium Tax Charge....................
CONTRACT BENEFITS AND RIGHTS.................................
Death Benefit...........................................
Accelerated Death Benefit...............................
Account Value...........................................
Transfer of Account Value
Dollar Cost Averaging...................................
Automatic Portfolio Rebalancing
Contract Loans..........................................
Amount Payable on Surrender of the Contract
Partial Withdrawals.....................................
Maturity................................................
Lapse and Reinstatement
Cancellation and Exchange Rights........................
Confinement Waiver Benefit..............................
Suspension of Valuation, Payments and Transfers.........
Last Survivor Contracts.................................
OTHER MATTERS................................................
Voting Rights...........................................
Statements to Contract Owners
Limit on Right to Contest...............................
Misstatement as to Age and Sex..........................
Payment Options.........................................
Beneficiary.............................................
Assignment..............................................
Dividends...............................................
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY..............
DISTRIBUTION OF THE CONTRACTS
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS.................
FEDERAL TAX MATTERS..........................................
Introduction............................................
Taxation of the Company and the Variable
Account.................................................
Taxation of Contract Benefits
Modified Endowment Contracts............................
Diversification Requirements............................
Ownership Treatment.....................................
Policy Loan Interest....................................
ADDITIONAL INFORMATION ABOUT THE COMPANY.....................
LEGAL PROCEEDINGS............................................
LEGAL MATTERS................................................
REGISTRATION STATEMENT.......................................
EXPERTS......................................................
FINANCIAL INFORMATION
INDEPENDENT AUDITORS' REPORT................................. F-1
FINANCIAL STATEMENTS......................................... F-2
<PAGE>
SUMMARY
NOTE: A glossary of Special Terms used in this Prospectus appears at page 8,
immediately following this Summary.
The Contract
The Contracts are life insurance contracts with death benefits, cash values, and
other traditional life insurance features. The Contracts are "variable." Unlike
the fixed benefits of ordinary whole life insurance, the Account Value will
increase or decrease based on the investment experience of the investment
Portfolios of the Funds to which premiums have been allocated. Similarly, the
Death Benefit may increase or decrease under some circumstances, but so long as
the Contract remains in effect it will not decrease below the Initial Death
Benefit if no withdrawals are made. The Contracts are credited with units
("Accumulation Units") to calculate cash values. The Contract Owner may transfer
the Account Value among the Variable Account's underlying investment Portfolios.
The Contracts can be issued on a single life or "last survivor" basis. For a
discussion of how last survivor Contracts operate differently from single life
Contracts, see "Last Survivor Contracts," page 20.
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. In certain states, certificates are issued under group
Contracts issued to the Financial Services Group Insurance Trust, an Illinois
Trust. The terms "Contract" and "Contract Owner", as used in this Prospectus,
refer to and include such a certificate and certificate owner, respectively.
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
under the Investment Company Act of 1940. It consists of multiple sub-accounts
("Variable Sub-Accounts"), each investing in a corresponding Fund Portfolio.
Applicants should read the prospectuses for the Funds in connection with the
purchase of a Contract. The investment objectives of the Fund Portfolios are
briefly summarized below under "Funds," page 9. Presently, the Variable Account
invests in shares of the following Funds:
- AIM Fund
- American Century Funds
- Dean Witter Fund
- Dreyfus Funds
- Fidelity Funds
- MFS Fund
The AIM FUND has eight available Portfolios: (1) AIM V.I. Capital Appreciation
Fund (2) AIM V.I. Growth and Income Fund (3) AIM V.I. Global Utilities Fund (4)
AIM V.I. Diversified Income Fund (5) AIM V.I. Government Securities Fund (6) AIM
V.I. Growth Fund (7) AIM V.I. International Equity Fund and (8) AIM V.I. Value
Fund; the AMERICAN CENTURY FUNDS have two available Portfolios: (1) American
Century VP Balanced and (2) American Century VP International; the DEAN WITTER
FUND has four available Portfolios: (1) VIS Dividend Growth (2) VIS European
Growth (3) VIS Quality Income Plus and (4) VIS Utilities; the DREYFUS FUNDS have
five available Portfolios: (1) VIF Growth and Income (2) VIF Money Market (3)
The Dreyfus Socially Responsible Growth Fund, Inc. (4) VIF Small Company Stock
and (5) Dreyfus Stock Index Fund; the FIDELITY FUNDS have four available
Portfolios: (1) VIP II Contrafund (2) VIP Growth (3) VIP High Income and (4) VIP
Equity-Income; and the MFS FUND has two available Portfolios: (1) MFS Emerging
Growth Series and (2) MFS Limited Maturity Series.
The assets of each Portfolio are accounted for separately from the other
Portfolios and each has distinct investment objectives and policies which are
described in the accompanying prospectuses for the Funds.
Premiums
The Contract requires the Contract Owner to pay an initial premium of at least
$10,000. Additional premium payments may be made at any time, subject to the
following conditions:
- only one payment is allowed in any Contract Year;
- the minimum payment is $500;
- the attained age of the insured must be less than age 86; and
- absent submission of new evidence of insurability of the insured, the
maximum additional 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 71-80).
Additional premium payments may require an increase in the Specified Amount in
order for the Contract to meet the definition of a life insurance contract under
the Internal Revenue Code. The Company reserves the right to obtain satisfactory
evidence of insurability before accepting any additional premium payments
requiring an increase in Specified Amount. However, we reserve the right to
reject an additional premium payment for any reason. Additional Premiums may
also be paid at any time and in any amount necessary to avoid termination of the
Contract.
Death Benefit
At the death of the Insured while the Contract is in force, we will pay the
Death Benefit (less any Indebtedness and certain due and unpaid Monthly
Deduction Amounts) to the beneficiary. The Death Benefit determined on the date
of the Insured's death is the greater of (1) the Specified Amount, or (2) the
Account Value multiplied by the Death Benefit ratio as found in the Contract.
See "Contract Benefits and Rights -- Death Benefit," page 16.
Account Value
The Account Value of the Contract will increase or decrease to reflect (1) the
investment experience of the Fund Portfolios underlying the Variable Sub-Account
to which Account Value is allocated, and (2) deductions for the mortality and
expense risk charge, the Monthly Deduction Amount, and the annual maintenance
fee. There is no minimum guaranteed Account Value and the Contract Owner bears
the risk of the investment in the Fund Portfolios. See "Contract Benefits and
Rights -- Account Value," page 17.
Contract Loans
A Contract Owner may obtain one or both of two types of cash loans from the
Company. Both types of loans are secured by the Contract. The maximum amount
available for such loans is 90% of the Contract's Cash Value, less the amount of
all loans existing on the date of the loan request (including loan interest to
the next Contract Anniversary), less any annual maintenance fee due on or before
the next Contract Anniversary, and less any due and unpaid Monthly Deduction
Amounts. See "Contract Benefits and Rights -- Contract Loans," page 18.
Lapse
Under certain circumstances a Contract may terminate if the Cash Surrender Value
on any Monthly Activity Date is less than the required Monthly Deduction Amount.
The Company will give written notice to the Contract Owner and a 61 day grace
period during which additional amounts may be paid to continue the Contract. See
"Contract Benefits and Rights -- Contract Loans," page 18 and "Lapse and
Reinstatement," page 19.
Cancellation and Exchange Rights
A Contract Owner has a limited right to return his or her Contract for
cancellation. The right to return exists during the free-look period. The
free-look period is a number of days (which varies by state) as specified in
your contract. If the Contract Owner returns the Contract for cancellation, by
mail or hand delivery, to the agent who sold the Contract, within the free-look
period following delivery of the Contract to the Contract Owner, the Company
will return to the Contract Owner within 7 days 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, unless
state law requires a return of premium without such adjustments. In those states
where the Company is required to return the premiums paid upon a free-look of
the Contract and where it has been approved by the state, the Company reserves
the right to allocate all premium payments made prior to the expiration of the
free-look period to the money market sub-account of the Variable Account.
In addition, once the Contract is in effect it may be exchanged during the first
24 months after its issuance for a permanent life insurance contract on the life
of the Insured without submitting proof of insurability. See "Contract Benefits
and Rights -- Cancellation and Exchange Rights," page 20.
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
Matters," page 24.
Personalized Illustrations
The Company will furnish, upon request and at no charge, a personalized
illustration reflecting the proposed Insured's age, sex, and underwriting
classification. Where applicable, the Company will also furnish upon request an
illustration for a Contract that is not affected by the sex of the Insured.
Personalized illustrations provided by the Company upon request will be based,
as appropriate, on the methodology and format of the hypothetical illustrations
that the Company has included in its registration statement for the Contracts.
See "Registration Statement," page 27, for further information.
Fees and Expenses
The following tables are designed to help you understand the various fees and
expenses that you will bear, directly or indirectly, as a Contract owner. The
first table describes the Contract charges and deductions you will directly bear
under the Contracts. The second table describes the fees and expenses of the
Fund Portfolios you will indirectly bear when you invest in the Contracts. For
further information, see "Deductions and Charges," page 14.
<TABLE>
<CAPTION>
CONTRACT CHARGES AND DEDUCTIONS
Account Value Charges (deducted monthly and shown as an annualized percentage of
Account Value):(1)
<S> <C> <C>
Current(2) Maximum (Monthly Charge)
---------- ------------------------
Cost of Insurance Charge............ Single Life Single Life
----------- -----------
Standard - 0.65% (Contract Years 1-10) Standard - Ranges from $0.06 per $1,000 of net
- 0.55% (Contract Years 11+) amount at risk (younger ages) up to $82.50 per
$1,000 of net amount at risk (age 99)
Special - 1.00% (Contract Years 1-10) Special - Ranges from $0.12 per $1,000 of net
- 0.90% (Contract Yaers 11+) amount at risk (younger ages) up to $82.92
(age 99).
Joint Life Joint Life
---------- ----------
Standard - 0.30% (Contract Years 1-10) Standard - Ranges from $0.00015 per $1,000 of
- 0.20% (Contract Years 11+) net amount at risk (younger ages) up to $61.995
per $1,000 of net amount at risk (age 99)
Special - 0.65% (Contract Years 1-10) Special - Ranges from $0.00061 per $1,000 of
- 0.55% (Contract Years 11+) net amount at risk (younger ages) up to
$78.71083 (age 99).
</TABLE>
Administrative Expense Charge........ 0.25%
Tax Expense Charge................... 0.40%(3)
Annual Separate Account Charges (deducted daily and shown as a percentage of
average net assets):
Mortality and Expense Risk Charge.... 0.90%
Federal Income Tax Charge............ Currently none(4)
Annual Maintenance Fee:................. $35(5)
Transfer Charges:....................... $25(6)
Maximum Withdrawal Charge: ............. 7.75% of initial premium withdrawn(7)
Due and Unpaid Premium Tax Charge: ..... 2.25% of initial premium withdrawn(8)
- ----------------------
(1) Except for the maximum or "guaranteed" cost of insurance charge, which is
expressed as a range of monthly costs per thousand dollars of net amount at
risk. The net amount at risk is the difference between the Death Benefit
and the Account Value. See "Cost of Insurance Charge," page 14.
(2) The actual amount of insurance purchased will depend on the insured's age,
sex (where permitted) and rate class. See "Cost of Insurance Charge," page
14. The current cost of insurance charge under the Contracts will never
exceed the guaranteed cost of insurance charge shown in your Contract.
(3) This charge includes a premium tax deduction of 0.25%, and a federal tax
deduction of 0.15%, of Account Value. This charge is assessed only during
the first 10 Contract Years. See "Tax Expense Charge," page 15.
(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 may do so in the future. See "Taxes Charged Against the Variable
Account," page 15.
(5) This fee is waived if total premiums paid are $50,000 or more.
(6) No charges will be imposed on the first 12 transfers in any Contract Year.
The Company reserves the right to assess a $25 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 of Contract purchase. It does not apply to withdrawals of any
additional 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 16. No withdrawal
charge will be imposed on any withdrawal to the extent that aggregate
withdrawal charges and the federal tax portion of the tax expense charge
imposed would otherwise exceed 9% of total premiums paid prior to the
Withdrawal. See "Deductions and Charges," page 14 and "Withdrawal Charge,"
page 16.
(8) This charge applies only upon withdrawals of the initial premium paid at
the time of Contract purchase. It does not apply to withdrawals of any
additional payments paid under a Contract. The charge for due and unpaid
premium tax declines to 0% over nine years and is imposed on full or
partial withdrawals in excess of the Free Withdrawal Amount.
<TABLE>
<CAPTION>
PORTFOLIO EXPENSES (Net of Voluntary Reductions and Reimbursements)
(As a Percentage of Portfolio Assets)
MANAGEMENT OTHER TOTAL FUND
PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- --------- ---- -------- ---------------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund(1)... 0.63% 0.05% 0.68%
AIM V.I. Growth and Income Fund(1)...... 0.63% 0.06% 0.69%
AIM V.I. Global Utilities Fund(1)....... 0.65% 0.63% 1.28%
AIM V.I. Diversified Income Fund(1)..... 0.60% 0.20% 0.80%
AIM V.I. Government Securities Fund(1).. 0.50% 0.37% 0.87%
AIM V.I. Growth Fund(1)................. 0.65% 0.08% 0.73%
AIM V.I. International Equity Fund(1)... 0.75% 0.18% 0.93%
AIM V.I. Value Fund(1).................. 0.62% 0.08% 0.70%
American Century VP International....... 1.50% 0.00% 1.50%
American Century VP Balanced............ 1.00% 0.00% 1.00%
VIS Dividend Growth..................... 0.625%(2) 0.01% 0.635%
VIS European Growth..................... 1.00% (3) 0.12% 1.11%
VIS Utilities........................... 0.65%(4) 0.02% 0.67%
VIS Quality Income Plus................. 0.50%(5) 0.03% 0.53%
VIP Growth.............................. 0.60% 0.09% 0.69%
VIP High Income 0.59% 0.12% 0.71%(6)
VIP Equity-Income....................... 0.50% 0.08% 0.58%
VIP II Contrafund....................... 0.60% 0.11% 0.71%(6)
Dreyfus Socially Responsible Growth..... 0.75% 0.07% 0.82%
Dreyfus Stock Index..................... 0.25% 0.03% 0.28%
VIF Small Company Stock................. 0.75% 0.37% 1.12%
VIF Growth and Income................... 0.75% 0.05% 0.80%
VIF Money Market........................ 0.50% 0.11% 0.61%
MFS Emerging Growth Series.............. 0.75% 0.12% 0.87%
MFS Limited Maturity Series(7).......... 0.55% 0.45% 1.00%
</TABLE>
(1) AIM Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its respective fees. Effective May 1, 1998, the Funds reimburse AIM
in an amount up to 0.25% of the average net asset value of each Fund, for
expenses incurred in providing, or assuring that participating insurance
companies provide, certain administrative services. Currently, the fee
only applies to the average net asset value of each Fund in excess of the
net asset value of each Fund as calculated on April 30, 1998.
(2) Applicable to net assets of up to $500 million. For net assets which exceed
$500 million, the fee will be 0.50%, for assets that exceed $1 billion, the
fee will be 0.475%, and for assets that exceed $2 billion, the fee will be
0.45%.
(3) Applicable to net assets of up to $500 million. For net assets which exceed
$500 million, the fee will be 0.95%.
(4) This percentage is applicable to Portfolio net assets of up to $500
million. For net assets which exceed $500 million, the management fee is
0.45%.
(5) This percentage is applicable to Portfolio net assets of up to $500
million. For net assets which exceed $500 million, the management fee is
0.55%.
(6) A portion of the brokerage commissions that certain funds pay was used to
reduce fund's expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Including these reductions, the total operating
expenses presented in the table would have been .67% for VIP Growth
Portfolio and .71% for VIPII Contrafund Portfolio.
(7) The Adviser has agreed to bear expenses for the limited Maturity Portfolio,
subject to reimbursement by the Portfolio, such that the Portfolios' "Other
Expenses" shall not exceed 0.45% of the average daily net assets for the
Limited Maturity Portfolio. See "Information Concerning Shares of Each
Portfolio -- Expenses" for the Limited Maturity Portfolio would be 5.65%
and 6.20% respectively.
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
Account Value: The aggregate value under a Contract of the Variable Sub-Accounts
and the Loan Account.
Accumulation Unit: An accounting unit of measure used to calculate the value of
a Variable Sub-Account.
Age: The Insured's age at the Insured's last birthday.
Cash Value: The Account Value less any applicable withdrawal charges and due and
unpaid Premium Tax Charges.
Cash Surrender Value: The Cash Value less all Indebtedness and the annual
maintenance fee, if applicable.
Code: The Internal Revenue Code of 1986, as amended.
Contract 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 15% of
total premiums paid.
Initial Death Benefit: The Initial Death Benefit under a Contract is shown on
the Contract Data page.
Funds: The registered management investment companies in which assets of the
Variable Account may be invested.
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 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, a tax expense charge and an administrative expense charge.
Specified Amount: The minimum death benefit under a Contract, equal to the
Initial Death Benefit on the Contract Date. Thereafter it may change in
accordance with the terms of the partial withdrawal and the subsequent premium
provisions of the Contract.
Valuation Day: Every day the New York Stock Exchange is open for trading. The
value of the Variable Account is determined at the close of regular trading on
the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on such days.
Valuation Period: The period between the close of regular trading on the New
York Stock Exchange on successive Valuation Days.
Variable Account: Glenbrook Life 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: The subdivisions of the Variable Account used to allocate
a Contract Owner's Account Value, less Indebtedness, among the Portfolios of the
Funds.
<PAGE>
THE COMPANY
The Company is the issuer of the Contract. The Company is a stock life insurance
company which was organized under the laws of the State of Illinois in 1992. The
Company was originally organized under the laws of the State 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." As of the date of this prospectus, the Company is
licensed to operate in the District of Columbia and all states except New York.
The Company intends to market the Contract in those jurisdictions in which it is
licensed to operate. The Company's home office is located at 3100 Sanders Road,
Northbrook, Illinois 60062.
The Company is a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), a stock life insurance company incorporated under the laws of
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 Illinois. All of the outstanding capital stock of
Allstate is owned by The Allstate Corporation ("Corporation"). On June 30, 1995,
Sears, Roebuck and Co. ("Sears") distributed its 80.3% ownership in the
Corporation to Sears common shareholders through a tax-free dividend.
THE VARIABLE ACCOUNT
General
The Variable Account is a separate account of the Company established on January
15, 1996 pursuant to the insurance laws of the State of Illinois. The Variable
Account is organized as a unit investment trust and registered as such with the
Securities and Exchange Commission under the Investment Company Act of 1940. The
Variable Account meets the definition of "separate account" under federal
securities law. Under Illinois law, the assets of the Variable Account are held
exclusively for the benefit of Contract Owners and persons entitled to payments
under the Contracts. The assets of the Variable Account are not chargeable with
liabilities arising out of any other business which the Company may conduct.
Funds
The Variable Account will invest in shares of one or more Funds. The Funds are
registered with the Securities and Exchange Commission as open-end, series,
management investment companies. Registration of the Funds does not involve
supervision of their management, investment practices or policies by the
Securities and Exchange Commission. The Funds' Portfolios are designed to
provide investment vehicles for variable insurance contracts of various
insurance companies, in addition to the Variable Account. The Funds available
for investment by the Variable Account are listed below.
I. AIM Fund
- AIM V.I. Capital Appreciation Fund - is a diversified Portfolio which
seeks to provide capital appreciation through investments in common
stocks, with emphasis on medium-sized and smaller emerging growth
companies.
- AIM V.I. Diversified Income Fund - is a diversified Portfolio which
seeks to achieve a high level of current income primarily by investing
in a diversified portfolio of foreign and U.S. government and
corporate debt securities, including lower rated high yield debt
securities (commonly known as "junk bonds"). The risks of investing in
junk bonds are described in the accompanying prospectus for the
Portfolio, which should be read carefully before investing.
- AIM V.I. Global Utilities Fund - is a non-diversified Portfolio which
seeks to achieve a high level of current income and, as a secondary
objective, to achieve capital appreciation, by investing primarily in
common and preferred stocks of public utility companies (either
domestic or foreign).
- AIM V.I. Government Securities Fund - is a diversified Portfolio which
seeks to achieve a high level of current income consistent with
reasonable concern for safety of principal by investing in debt
securities issued, guaranteed or otherwise backed by the U.S.
Government.
- AIM V.I. Growth Fund - is a diversified Portfolio which seeks to
provide growth of capital through investments primarily in common
stocks of leading U.S. companies considered by A I M Advisors, Inc.
("AIM") to have strong earnings momentum.
- AIM V.I. International Equity Fund - is a diversified Portfolio which
seeks to provide long-term growth of capital by investing in
international equity securities, the issuers of which are considered
by AIM to have strong earnings momentum.
- AIM V.I. Value Fund - is a diversified Portfolio which seeks to
achieve long-term growth of capital by investing primarily in equity
securities judged by AIM to be undervalued relative to the current or
projected earnings of the companies issuing the securities, or
relative to current market values of assets owned by the companies
issuing the securities or relative to the equity markets generally.
Income is a secondary objective.
AIM serves as the investment advisor to the AIM Fund. AIM was organized in 1976
and, together with its domestic subsidiaries, manages or advises over 50
investment company portfolios (including the Portfolios listed above)
encompassing a broad range of investment objectives. AIM is a wholly owned
subsidiary of A I M Management Group Inc. Its principal place of business is 11
Greenway Plaza, Suite 1919, Houston, Texas 77046-1173.
II. American Century Funds
- American Century VP Balanced -- the investment objective of American
Century VP Balanced is capital growth and current income. It will seek
to achieve its investment objective by maintaining approximately 60%
of the assets of American Century VP Balanced in common stocks that
are considered by management to have better-than-average prospects for
appreciation and the remaining assets in bonds and other fixed income
securities.
- American Century VP International -- the investment objective of
American Century VP International is Capital Growth. It will seek to
achieve its investment objective by investing primarily in an
internationally diversified portfolio of common stocks that are
considered by management to have prospects for appreciation. The Fund
will invest primarily in securities of issuers located in developed
markets.
American Century Investment Management, Inc. serves as the investment manager of
American Century Variable Portfolios, Inc. Its principal place of business is
American Century Tower, 4500 Main Street, Kansas City, Missouri 64111.
III. Dean Witter Fund
- VIS Dividend Growth Portfolio -- seeks to provide reasonable current
income and long-term growth of income and capital by investing
primarily in common stock of companies with a record of paying
dividends and the potential for increasing dividends.
- VIS European Growth Portfolio -- seeks to maximize the capital
appreciation on its investments by investing primarily in securities
issued by issuers located in Europe.
- VIS Quality Income Plus Portfolio -- seeks, as its primary objective,
to earn a high level of current income and, as a secondary objective,
capital appreciation, but only when consistent with its primary
objective, by investing primarily in debt securities issued by the
U.S. Government, its agencies and instrumentalities, including zero
coupon securities, and in fixed-income securities rated A or higher by
Moody's Investors Service, Inc. (Moody's) or Standard & Poor's
Corporation (Standard & Poor's) or non-rated securities of comparable
quality, and by writing covered call and put options against such
securities.
- VIS Utilities Portfolio -- seeks to provide current income and
long-term growth of income and capital by investing primarily in
equity and fixed-income securities of companies engaged in the public
utilities industry.
Dean Witter InterCapital Inc. ("InterCapital"), Two World Trade Center, New
York, New York 10048, is the Fund's Investment Manager. InterCapital is a wholly
owned subsidiary of Dean Witter, Discover & Co. Morgan Grenfell Investment
Services Limited, 20 Finsbury Circus, London, England, is the Sub-Advisor of the
European Growth Portfolio of the Fund.
IV. Dreyfus Funds
- VIF Growth & Income Portfolio -- seeks to provide long-term capital
growth, current income and growth of income, consistent with
reasonable investment risk.
- VIF Money Market Portfolio -- seeks to provide as high a level of
current income as is consistent with the preservation of capital and
the maintenance of liquidity.
- The Dreyfus Socially Responsible Growth Fund, Inc. -- seeks to provide
capital growth. Current income is a secondary goal. Invests
principally in common stocks, or securities convertible into common
stock, of companies which, in the opinion of the Fund's management,
not only meet traditional investment standards, but also show evidence
that they conduct their business in a manner that contributes to the
enhancement of the quality of life in America.
- VIF Small Company Stock Portfolio -- seeks to provide investment
results that are greater than the total return performance of
publicly-traded common stocks in the aggregate, as represented by the
Russell 2500 Index. Invests primarily in a portfolio of equity
securities of small - to medium-sized domestic issuers, while
attempting to maintain volatility and diversification similar to that
of the Russell 2500 Index.
- Dreyfus Stock Index Fund - seeks to provide investment results that
correspond to the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the Standard and
Poor's 500 Composite Stock Price Index.
An investment in the Dreyfus VIF Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government. There can be no assurance that the Money
Market Portfolio will be able to maintain a stable net asset value of $1.00 per
share.
The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166, was formed
in 1947 and serves as the Fund's investment manager. The Dreyfus Corporation is
a wholly-owned subsidiary of Mellon Bank, N.A., which is a wholly-owned
subsidiary of Mellon Bank Corporation. NCM Capital Management Group, Inc., 105
West Main Street, Durham, North Carolina 27701, serves as sub-investment advisor
to the Dreyfus Socially Responsible Growth Fund, Inc. Mellon Equity Associates,
an affiliate of Dreyfus, located at 500 Grant Street, Pittsburgh, PA 15258,
serves as the index fund manager to Dreyfus Stock Index Fund.
V. Fidelity Funds
- VIP II Contrafund -- seeks capital appreciation by investing in
securities of companies whose value Fidelity Management & Research
Company ("FMR") believes is not fully recognized.
- VIP Growth -- seeks capital appreciation by investing primarily in
common stocks. The fund may also pursue capital appreciation through
the purchase of bonds and preferred stocks.
- VIP High Income -- seeks high current income by investing primarily in
all types of income-producing debt securities, preferred stocks, and
convertible securities.
- VIP Equity-Income - seeks reasonable income by investing primarily in
income-producing equity securities. When choosing the Portfolio's
investments, Fidelity Management & Research Company also considers the
potential for capital appreciation. The Portfolio seeks to achieve a
yield that exceeds the yield on the securities comprising that of the
S&P 500.
Fidelity Management & Research Company, 82 Devonshire Street, Boston,
Massachusetts, is the Investment Manager of the Funds.
VI. MFS Fund
- MFS Emerging Growth Series -- seeks to provide long-term growth of
capital. Dividend and interest income from portfolio securities, if
any, is incidental to the Portfolio's investment objective of
long-term growth of capital.
- MFS Limited Maturity Series -- the primary investment objective is to
provide as high a level of current income as is believed to be
consistent with prudent investment risk. The Portfolio's secondary
objective is to protect shareholders' capital.
MFS manages each Series pursuant to an Investment Advisory Agreement with the
Trust on behalf of each Portfolio. MFS provides the Series with overall
investment advisory and administrative services, as well as general office
facilities. Its principal place of business is 500 Boylston Street, Boston,
Massachusetts 02116.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
All dividends and capital gains distributions from the Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value.
There is no assurance that the Portfolios will attain their respective stated
objectives. Additional information concerning the investment objectives and
policies of the Portfolios can be found in the current prospectuses for the
Funds accompanying this prospectus.
You will find more complete information about the Portfolios, including the
risks associated with each Portfolio, in the accompanying prospectuses. You
should read the prospectuses for the Funds in conjunction with this prospectus.
THE FUND PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR VARIABLE
SUB-ACCOUNT.
It is conceivable 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 any such Fund currently
foresees any such disadvantages either to variable life insurance or variable
annuity contract owners, the Company has been advised that each Fund's Board of
Directors intends to monitor events in order to identify any material conflicts
between variable life and variable annuity contract owners and to determine what
action, if any, should be taken in response thereto. If the Board of Directors
were to conclude that separate funds should be established for variable life and
variable annuity separate accounts, the Company may be required to bear the
attendant expenses.
All investment income of and other distributions to each Variable Sub-Account
arising from the corresponding Portfolio are reinvested in shares of that
Portfolio at net asset value. The income and both realized and unrealized gains
or losses on the assets of each Variable Sub-Account are therefore separate and
are credited to or charged against the Variable Sub-Account without regard to
income, gains or losses from any other Variable Sub-Account or from any other
business of the Company. The Company will purchase shares in the Funds in
connection with premiums allocated to the corresponding Variable Sub-Account in
accordance with Contract Owners' directions and will redeem shares in the Funds
to meet Contract obligations or make adjustments in reserves, if any.
The Company reserves the right, subject to compliance with the law as then in
effect, to make additions to, deletions from, or substitutions for the Fund
shares underlying the Variable Sub-Accounts. If shares of any of the Funds
should no longer be available for investment, or if, in the judgment of the
Company's management, further investment in shares of any Fund should become
inappropriate in view of the purposes of the Contracts, the Company may
substitute shares of another Fund for shares already purchased, or to be
purchased in the future, under the Contracts. No substitution of securities will
take place without notice to Contract Owners and without prior approval of the
Securities and Exchange Commission to the extent required by the Investment
Company Act of 1940 ("1940 Act"). The Company reserves the right to establish
additional Variable Sub-accounts of the Variable Account, each of which would
invest in shares of another Fund. Subject to Contract Owner approval, the
Company also reserves the right to end the registration under the 1940 Act of
the Variable Account or any other separate accounts of which it is the depositor
or to operate the Variable Account as a management 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 the
Fund. See the accompanying prospectuses for the Funds for further information.
THE CONTRACT
Application for a Contract
Individuals wishing to purchase a Contract must submit an application to the
Company. A Contract will be issued only on the lives of Insureds age 0-85 who
supply evidence of insurability satisfactory to the Company. Acceptance is
subject to the Company's underwriting rules and the Company reserves the right
to reject an application for any lawful reason. If a Contract is not issued, the
premium will be returned to you. No change in the terms or conditions of a
Contract will be made without the consent of the Contract Owner.
Once the Company has received the initial premium and underwriting has been
approved, the Contract will be issued on the date the Company has received the
final requirement for issue. In the case of simplified underwriting, the
Contract will be issued or coverage denied within 3 business days of receipt of
premium. The Insured will be covered under the Contract, however, as of the
Contract Date. Since the Contract Date will generally be the date the Company
receives the initial premium, coverage under a Contract may begin before it is
actually issued. In addition to determining when coverage begins, the Contract
Date determines Monthly Activity Dates, Contract months, and Contract Years.
If the initial premium is over the limits established from time to time by the
Company ($1,000,000 as of the date of this Prospectus), the initial payment will
not be accepted 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 issue age of the insured according to the
following table:
Simplified Underwriting
Issue Age Maximum Initial Premium
- --------- -----------------------
0-34.................................... Not available
35-44................................... $ 15,000
45-54................................... $ 30,000
55-64................................... $ 50,000
65-80................................... $ 100,000
Over age 80............................. Not available
Additional premium payments may be made at any time, subject to the following
conditions:
- only one additional premium payment may be made in any Contract Year;
- each additional premium payment must be at least $500;
- the attained age of the Insured must be less than age 86; and
- absent submission of new evidence of insurability of the insured, the
maximum additional 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 Specified Amount in order
for the Contract to remain within the definition of a life insurance contract
under Section 7702 of the Code. The Company reserves the right to obtain
satisfactory evidence of insurability upon any additional premium payments
requiring an increase in Specified Amount. However, we reserve the right to
reject any additional premium payment for any reason.
Unless you request otherwise in writing, any additional premium payment received
while a Contract loan exists will be applied: first, as a repayment of
Indebtedness, and second, as an additional premium payment, subject to the
conditions described above.
Additional premiums may be paid at any time and in any amount necessary to avoid
termination of the Contract without evidence of insurability.
Allocation Of Premiums
Upon completion of underwriting, the Company will either issue a Contract, or
deny coverage and return all premiums. If a Contract is issued, the initial
premium payment, plus an amount equal to the interest that would have been
earned had the initial premium been invested in the Money Market Sub-Account
since the date of receipt of the premium, will be allocated on the date the
Contract is issued according to the initial premium allocation instructions
specified on the application. In the future, the Company may allocate the
initial premium (and the interest that would have been earned had the initial
premium been invested in the Money Market Sub-Account since its receipt) to the
Money Market Sub-Account during the free look period in those states where state
law requires premiums to be returned upon exercise of the free-look right.
Accumulation Unit Values
The Accumulation Unit Value for each Variable Sub-Account will vary to reflect
the investment experience of the corresponding Fund Portfolio and will be
determined on each Valuation Day by multiplying the Accumulation Unit Value of
the particular Variable Sub-Account on the preceding Valuation Day by a "Net
Investment Factor" for that Sub-Account for the Valuation Period then ended. The
Net Investment Factor for each Variable Sub-Account is determined by first
dividing (A) the net asset value per share of the corresponding Fund Portfolio
at the end of the current Valuation Period (plus the per share dividends or
capital gains by that Fund Portfolio if the ex-dividend date occurs in the
Valuation Period then ended), by (B) the net asset value per share of the
corresponding Fund Portfolio at the end of the immediately preceding Valuation
Period; and then subtracting from the result an amount equal to the daily
deductions for mortality and expense risk charges imposed during the Valuation
Period. Applicants should refer to the prospectuses for the Funds which
accompany this prospectus for a description of how the assets of each Fund are
valued since such determination has a direct bearing on the Accumulation Unit
Value of the corresponding Sub-Account and therefore the Account Value of a
Contract. See "Contract Benefits and Rights -- Account Value," page 17.
All valuations in connection with a Contract, e.g., with respect to determining
Account Value and Cash Surrender Value and in connection with Contract loans, or
calculation of Death Benefits, or with respect to determining the number of
Accumulation Units to be credited to a Contract with each premium, other than
the initial premium and additional premiums requiring underwriting, will be made
on the date the request or payment is received in good order by the Company at
its Home Office if such date is a Valuation Day; otherwise such determination
will be made on the next succeeding date which is a Valuation Day.
Specialized Uses of the Contract: Because the Contract provides for an
accumulation of cash value as well as a death benefit, the Contract can be used
for various individual and business financial planning purposes. Purchasing the
Contract in part for such purposes entails certain risks. For example, if the
investment performance of Sub-Accounts to which Account Value is allocated is
poorer 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 Sub-Account investment performance and
the amount of a Contract loan, the loan may cause a Contract to lapse. Because
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 Matters," Page 24.
DEDUCTIONS AND CHARGES
Monthly Deductions
On each Monthly Activity Date including the Contract Date, the Company will
deduct from the Account Value attributable to the Variable Account an amount
("Monthly Deduction Amount") to cover charges and expenses incurred in
connection with a Contract. Each Monthly Deduction Amount will be deducted pro
rata from each Variable Sub-Account attributable to the Contract such that the
proportion of Account Value of the Contract attributable to each Sub-Account
remains the same before and after the deduction. The Monthly Deduction Amount
will vary from month to month. If the Cash Surrender Value is not sufficient to
cover a Monthly Deduction Amount due on any Monthly Activity Date, the Contract
may lapse. See "Contract Benefits and Rights -- Lapse and Reinstatement," page
19. The following is a summary of the monthly deductions and charges which
constitute the Monthly Deduction Amount:
Cost of Insurance Charge: The cost of insurance charge covers the Company's
anticipated mortality costs for standard and special risks. Current cost of
insurance rates are lower after the 10th Contract Year. The current cost of
insurance charge will not exceed the guaranteed cost of insurance charge. This
charge is the maximum annual cost of insurance per $1,000 as indicated in the
Contract; multiplied by the difference between the Death Benefit and the Account
Value (both as determined on the Monthly Activity Date); divided by $1,000; and
divided by 12. For standard risks, the guaranteed cost of insurance rate is
based on the 1980 Commissioners 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 Commissioners Standard Ordinary
Mortality Table, age last birthday. The multiple will be based on the Insured's
substandard rating.
The cost of insurance charge rates are applied to the difference between the
Death Benefit determined on the Monthly Activity Date and the Account Value on
that same date prior to assessing the Monthly Deduction Amount, because the
difference is the amount for which the Company is at risk should the Death
Benefit be then payable. The Death Benefit as computed on a given date is the
greater of (1) the Specified Amount on that date, and (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," page 16.)
Example:
Specified Amount = $100,000
Account Value on the Monthly Activity Date = $30,000
Insured's attained age = 45
Death Benefit ratio for age 45 = 2.15
On the Monthly Activity Date in this example, the Death Benefit as then computed
would be $100,000, because the Specified Amount ($100,000) is greater than the
Account Value multiplied by the applicable Death Benefit ratio ($30,000 x 2.15 =
$64,500). Since the Account Value on that date is $30,000, the cost of insurance
charges per $1,000 are applied to the difference ($100,000 - $30,000 = $70,000).
Assume that the Account Value in the above example was $50,000. The Death
Benefit would then be $107,500 (2.15 x $50,000), since this is greater than the
Specified Amount ($100,000). The cost of insurance rates in that case would be
applied to ($107,500 - $50,000) = $57,500.
The level of specified amount that an initial premium will purchase will vary
based on age and sex. For example, a $10,000 initial premium paid by a male at
age 45 would result in a specified amount of $39,998. If a female age 65 paid a
$10,000 premium, the specified amount would be equal to $22,749.
Because the Account Value and, as a result, the amount for which the Company is
at risk under a Contract may vary from month to month, the cost of insurance
charge may also vary on each Monthly Activity Date. However, once a risk rating
class has been assigned to an Insured when the Contract is issued, that rating
class will not change if additional premium payments or partial withdrawals
increase or decrease the Specified Amount.
Tax Expense Charge: The Company will deduct monthly from the Account Value a tax
expense charge equal to an annual rate of 0.40% 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 Contract and that results from the application of section 848
of the Code. The charge includes a premium tax deduction of 0.25% and a federal
tax deduction of 0.15%. The 0.25% premium tax deduction over ten Contract Years
approximates the Company's average expenses for state and local premium taxes
(2.5%). Premium taxes vary, ranging from zero to 3.5%. The premium tax deduction
will be imposed regardless of a contract owner's state of residence and,
therefore, is made whether or not any premium tax applies. The deduction may be
higher or lower than the premium tax imposed. However, the Company does not
expect to make a profit from this deduction. The 0.15% federal tax deduction
helps reimburse the Company for approximate expenses incurred for federal taxes
resulting from the application of Section 848 of the Code.
Administrative Expense Charge: The Company will deduct monthly from the Account
Value an administrative expense charge equal to an annual rate of 0.25%. This
charge compensates the Company for administrative expenses incurred in the
administration of the Variable Account and the Contracts.
All monthly deductions are taken by canceling Accumulation Units of the Variable
Account under your Contract.
Other Deductions
Mortality and Expense Risk Charge: The Company will deduct from the Variable
Account a daily charge equivalent to an annual rate of 0.90% for the mortality
risks and expense risks the Company assumes in relation to the Contracts. The
mortality risk assumed includes the risk that the cost of insurance charges
specified in the Contract will be insufficient to meet claims. The Company also
assumes a risk that the Death Benefit will exceed the amount on which the cost
of insurance charges were based on the Monthly Activity Date preceding the death
of an Insured. The expense risk assumed is that expenses incurred in issuing and
administering the Contracts will exceed the administrative charges set in the
Contract.
Annual Maintenance Fee: If the aggregate premiums paid on a Contract are less
than $50,000, the Company will deduct from the Account Value an annual
maintenance fee of $35 on each Contract Anniversary. This fee will help
reimburse the Company for administrative and maintenance costs of the Contracts.
Taxes Charged Against the Variable Account: Currently, no charge is made to the
Variable Account for federal income taxes that may be attributable to the
operations of the Variable Account (as opposed to the federal tax related to the
receipt of premiums under the Contract). The Company may, however, make such a
charge in the future. Charges for other taxes, if any, attributable to the
Variable Account or this class of Contracts may also be made.
Charges Against the Funds: The Variable Account purchases shares of the Funds at
net asset value. The net asset value of the Fund shares reflect Fund investment
management fees already deducted from the assets of the Funds. The Fund
investment management fees are a percentage of the average daily value of the
net assets of the Portfolios. See the "Portfolio Expenses" table on page .
Withdrawal Charge: Upon surrender of the Contract and partial withdrawals in
excess of the Free Withdrawal Amount, a withdrawal charge may be assessed. The
Free Withdrawal Amount in any Contract Year is 15% of total premiums paid. Any
Free Withdrawal Amount not taken in a Contract Year may not be carried forward
to increase the Free Withdrawal Amount in any subsequent year. Withdrawals in
excess of the Free Withdrawal Amount will be subject to a withdrawal charge as
set forth in the table below:
Percentage of Initial
Contract Year Premium Withdrawn
- ------------- ---------------------
1....................................... 7.75%
2....................................... 7.75%
3....................................... 7.75%
4....................................... 7.25%
5....................................... 6.25%
6....................................... 5.25%
7....................................... 4.25%
8....................................... 3.25%
9....................................... 2.25%
10+..................................... 0.00%
After the ninth Contract Year, no withdrawal charges will be imposed. In
addition, no withdrawal charge will be imposed on any withdrawal to the extent
that aggregate withdrawal charges and the federal tax portion of the tax expense
charge imposed would otherwise exceed 9% of total premiums paid prior to the
withdrawal. The withdrawal charge may be waived under certain circumstances if
the Insured is confined to a qualified long-term care facility or hospital. See
"Contract Benefits and Rights -- Confinement Waiver Benefit," page 20.
The withdrawal charge is imposed to cover a portion of the sales expense
incurred by the Company in distributing the Contracts. This expense includes
agents' commissions, advertising and the printing of prospectuses.
Due and Unpaid Premium Tax Charge: During the first nine Contract Years, a
charge for due and unpaid premium tax will be imposed on full or partial
withdrawals in excess of the Free Withdrawal Amount. This charge is shown below,
as a percent of the Account Value withdrawn:
Percentage of Initial
Year Premium Withdrawn
- ---- ---------------------
1....................................... 2.25%
2....................................... 2.00%
3....................................... 1.75%
4....................................... 1.50%
5....................................... 1.25%
6....................................... 1.00%
7....................................... 0.75%
8....................................... 0.50%
9....................................... 0.25%
10+..................................... 0.00%
After the ninth Contract Year, no due and unpaid premium tax charge will be
imposed. The percentages indicated above are guaranteed not to increase.
CONTRACT BENEFITS AND RIGHTS
Death Benefit
The Contracts provide for the payment of Death Benefit proceeds to the named
beneficiary when the Insured under the Contract dies. The proceeds payable to
the beneficiary equal the Death Benefit less any Indebtedness and less any due
and unpaid Monthly Deduction Amounts occurring during a Grace Period (if
applicable). The Death Benefit equals the greater of (1) the Specified Amount or
(2) the Account Value multiplied by the Death Benefit ratio. The ratios vary
according to the attained age of the Insured and are specified in the Contract.
Therefore, an increase in Account Value due to favorable investment experience
may increase the Death Benefit above the Specified Amount; and a decrease in
Account Value due to unfavorable investment experience may decrease the Death
Benefit (but not below the Specified Amount).
Examples:
A B
Specified Amount: $100,000 $100,000
Insured's Age: 45 45
Account Value on Date of Death: $48,000 $34,000
Death Benefit Ratio 2.15 2.15
In Example A, the Death Benefit equals $103,200, i.e., the greater of $100,000
(the Specified Amount) and $103,200 (the Account Value at the Date of Death of
$48,000, multiplied by the Death Benefit ratio of 2.15). This amount, less any
Indebtedness and due and unpaid Monthly Deduction Amounts, constitutes the
proceeds which we would pay to the beneficiary.
In Example B, the Death Benefit is $100,000, i.e., the greater of $100,000 (the
Specified Amount) or $73,100 (the Account Value of $34,000 multiplied by the
Death Benefit ratio of 2.15).
All or part of the proceeds may be paid in cash or applied under an Income Plan.
See "Other Matters -- Payment Options," page .
Accelerated Death Benefit
If the Insured becomes terminally ill, the Contract Owner may request an
accelerated Death Benefit in an amount up to the lesser of (1) 50% of the
Specified Amount on the day we receive the request, and (2) $250,000 for all
policies issued by the Company which cover the Insured. "Terminally ill" means
an illness or physical condition of the Insured that, notwithstanding
appropriate medical care, will result in a life expectancy of 12 months or less.
If the Insured is terminally ill as the result of an illness, the accelerated
Death Benefit is not available unless the illness occurred at least 30 days
after the issue date. If the Insured is terminally ill as the result of an
accident, the accelerated Death Benefit is available if the accident occurred
after the issue date.
We will pay benefits due under the accelerated Death Benefit provision upon
receipt of a written request from the Contract Owner and due proof that the
Insured has been diagnosed as terminally ill. The Company also reserves the
right to require supporting documentation of the diagnosis and to require (at
the Company's expense) an examination of the Insured by a physician of the
Company's choice to confirm the diagnosis. The amount of the payment will be the
amount requested by the Contract Owner, reduced by the sum of (1) a 12 month
interest discount to reflect the early payment; (2) an administrative fee (not
to exceed $250); and (3) a pro rata amount of any outstanding Contract loan and
accrued loan interest. After the payment has been made, the Specified Amount,
the Account Value and any outstanding Contract loan will be reduced on a pro
rata basis.
Only one request for an accelerated Death Benefit per Insured is allowed. The
accelerated Death Benefit may not be available in all states. In addition, its
features may differ from those discussed above as required by state law. Please
refer to the Contract for further information.
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 and the Monthly Deduction Amounts. There is no minimum guaranteed
Account Value.
The Account Value of a particular Contract is related to the net asset value of
the Funds to which premiums on the Contract have been allocated. The Account
Value on any Valuation Day is calculated by multiplying the number of
Accumulation Units credited to the Contract in each Variable Sub-Account as of
the Valuation Day by the then Accumulation Unit Value of that Sub-Account and
then adding the results for all the Sub-Accounts credited to the Contract to the
value of the Loan Account. See "The Contract -- Accumulation Unit Values," page
__.
Transfer of Account Value
While the Contract remains in force and subject to the Company's transfer rules
then in effect, the Contract Owner may request that part or all of the Account
Value of a particular Variable Sub-Account be transferred to other Variable
Sub-Accounts. The Company reserves the right to impose a $10 charge on each such
transfer in excess of 12 per Contract Year. However, there are no charges on
transfers at the present time. The minimum amount that can be transferred is
shown on the Contract Data page (currently, there is no minimum).
On days when the New York Stack Exchange ("NYSE") is open for trading, telephone
transfer requests will be accepted by the Company if received at 1(800) 526-4827
by 4:00 p.m., Eastern Time. Telephone transfer requests received by the Company
before 4:00 p.m., Eastern Time are effected at the next computed value. 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, telephone transfer requests will be processed by the
Company as of the close of the NYSE on that particular day. Telephone requests
received at any telephone number other than the number that appears in this
paragraph or received after the close of trading on the NYSE will not be
accepted by the Company.
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 requirements that callers on
behalf of a Contract Owner identify themselves and the Contract Owner by name
and social security number or other identifying information. All transfer
instructions by telephone are tape recorded.
As a result of a transfer, the number of Accumulation Units credited to the
Variable Sub-Account from which the transfer is made will be reduced by the
number obtained by dividing the amount transferred by the Accumulation Unit
Value of the Sub-Account from which the transfer is made next computed on the
Valuation Date the Company receives the transfer request. The number of
Accumulation Units credited to the Sub-Account to which the transfer is made
will be increased by the number obtained by dividing the amount transferred by
the Accumulation Unit Value of that Sub-Account next computed on the Valuation
Day the Company receives the transfer request.
Dollar Cost Averaging
Transfers may be made automatically through Dollar Cost Averaging while the
Contract is in force. Dollar Cost Averaging permits the Owner to transfer a
specified amount every month (or some other frequency as may be determined by
the Company) from the Money Market 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. There are no additional
charges imposed upon participants in the Dollar Cost Averaging program.
Transfers under Dollar Cost Averaging are not counted toward the 12 free
transfers per Contract Year currently permitted.
Automatic Portfolio Rebalancing
Transfers may be made automatically through Automatic Portfolio Rebalancing
while the Contract is in force. By electing Automatic Portfolio Rebalancing, the
Account Value in the Variable Sub-Accounts will be rebalanced to the desired
allocation on a quarterly basis, determined from the first date that you decide
to rebalance. Each quarter, Account Value will be transferred among Variable
Sub-Accounts to achieve the desired allocation.
The desired allocation will be the allocation initially selected, unless
subsequently changed. You may change the allocation at any time by giving us
written notice. The new allocation will be effective with the first rebalancing
that occurs after we receive the written request. We are not responsible for
rebalancing that occurs prior to receipt of the written request.
Contract Loans
While the Contract is in force, a Contract Owner may obtain, without the consent
of the beneficiary (provided the designation of beneficiary is not irrevocable),
one or both of two types of cash loans from the Company. These types are
Preferred Loans (described below) and non-Preferred Loans. Both types of loans
are secured by the Contract. The maximum amount available for a loan is 90% of
the Contract's Cash Value, less the amount of all Contract loans existing on the
date of the loan (including loan interest to the next Contract Anniversary),
less any due and unpaid Monthly Deduction Amounts, and less any annual
maintenance fee due on or before the next Contract Anniversary.
The loan amount will be transferred pro rata from each Variable Sub-Account
attributable to the Contract (unless the Contract Owner specifies otherwise) to
the Loan Account. The amounts allocated to the Loan Account will be credited
with interest at the loan credited rate set forth in the Contract. Loans will
bear interest at rates determined by the Company from time to time, but which
will not exceed the maximum rate indicated in the Contract (currently, 8% per
year). The amount of the Loan Account that equals the excess of the Account
Value over the total of all premiums paid under the Contract net of any premiums
returned due to partial withdrawals, as determined on each Contract Anniversary,
is considered a "Preferred Loan." Preferred Loans bear interest at a rate not to
exceed the Preferred Loan rate set forth in the Contract. The difference between
the value of the Loan Account and the Indebtedness will be transferred on a pro
rata basis from the Variable Sub-Accounts to the Loan Account on each Contract
Anniversary. If the aggregate outstanding loan(s) and loan interest secured by
the Contract exceeds the Cash Value of the Contract, the Company will give
written notice to the Contract Owner that unless the Company receives an
additional payment within 61 days to reduce the aggregate outstanding loan(s)
secured by the Contract, the Contract may lapse.
All or any part of any loan secured by a Contract may be repaid while the
Contract is still in effect. When loan repayments or interest payments are made,
the repayment will be allocated among the Variable Sub-Accounts in the same
percentage as subsequent payments are allocated (unless the Contract Owner
requests a different allocation), and an amount equal to the payment will be
deducted from the Loan Account. Any outstanding loan at the end of a grace
period must be repaid before the Contract will be reinstated. See "Contract
Benefits and Rights -- Lapse and Reinstatement," page 19.
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 Sub-Account. The longer a loan is outstanding, the
greater the effect is likely to be. The effect could be favorable or
unfavorable. If the Variable Sub-Accounts earn more than the annual interest
rate for amounts held in the Loan Account, a Contract Owner's Account Value will
not increase as rapidly as it would have had no loan been made. If the Variable
Sub-Accounts earn less than that rate, the Contract Owner's Account Value will
be greater than it would have been had no loan been made. Also, if not repaid,
the aggregate outstanding loan(s) will reduce the Death Benefit proceeds and
Cash Surrender Value otherwise payable.
Amount Payable On Surrender Of The Contract
While the Contract is in force, a Contract Owner may elect, without the consent
of the beneficiary (provided the designation of beneficiary is not irrevocable),
to fully surrender the Contract. Upon surrender, the Contract Owner will receive
the Cash Surrender Value determined as of the day the Company receives the
Contract Owner's written request or the date requested by the Contract Owner,
whichever is later. The Cash Surrender Value equals the Cash Value less the
annual maintenance fee and any Indebtedness. The Company will pay the Cash
Surrender Value of the Contract within seven days of receipt by the Company of
the written request or on the effective surrender date requested by the Contract
Owner, whichever is later.
The Contract will terminate on the date of receipt of the written request, or
the date the Contract Owner requests the surrender to be effective, whichever is
later. For a discussion of the tax consequences of surrendering the Contract,
see "Federal Tax Matters," page 24.
The Contract Owner may elect to apply the surrender proceeds to an Income Plan
(see "Other Matters -- Payment Options," page 22).
Partial Withdrawals
While the Contract is in force, a Contract Owner may elect, by written request,
to make partial withdrawals of at least $50 from the Cash Surrender Value. The
Cash Surrender Value, after the partial withdrawal, must at least equal $2,000;
otherwise, the request will be treated as a request for full 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 "Due and Unpaid
Premium Tax Charge," page 16. For a discussion of the tax consequences of
partial withdrawals, see "Federal Tax Matters," page 24.
Maturity
The Contracts have no maturity date.
Lapse and Reinstatement
The Contract will remain in force until the Cash Surrender Value is insufficient
to cover a Monthly Deduction Amount due on a Monthly Activity Date. The Company
will give written notice to the Contract Owner that if an amount shown in the
notice (which will be sufficient to cover the Monthly Deduction Amount(s) due)
is not paid within 61 days ("grace period"), there is a danger of lapse.
The Contract will continue through the grace period, but if no payment is
forthcoming, it will terminate at the end of the grace period. If the Insured
dies during the grace period, the proceeds payable under the Contract will be
reduced by the Monthly Deduction Amount(s) due and unpaid. See "Contract
Benefits and Rights -- Death Benefit," page 16.
If the Contract lapses, the Contract Owner may apply for reinstatement of the
Contract by payment of the reinstatement premium (and any applicable charges)
required under the Contract. A request for reinstatement must be made within
five years of the date the Contract entered a grace period. If a loan was
outstanding at the time of lapse, the Company will require repayment of the loan
before permitting reinstatement. In addition, the Company reserves the right to
require evidence of insurability satisfactory to the Company. The reinstatement
premium is equal to an amount sufficient to (1) cover all Monthly Deduction
Amounts and annual maintenance fees due and unpaid during the grace period, and
(2) keep the Contract in force for three months after the date of reinstatement.
The Specified Amount upon reinstatement cannot exceed the Specified Amount of
the Contract at its lapse. The Account Value on the reinstatement date will
reflect the Account Value at the time of termination of the Contract plus the
premiums paid at the time of reinstatement. Withdrawal charges and due and
unpaid premium tax charges, cost of insurance, and tax expense charges will
continue to be based on the original Contract Date.
Cancellation and Exchange Rights
A Contract Owner has a limited right to return a Contract for cancellation. This
right to return exists during the free-look period. The free-look period is a
number of days which varies by state as specified in your contract. If the
Contract is returned for cancellation by mail or personal delivery to the
Company or to the agent who sold the Contract within the free-look period
following delivery of the Contract to the Contract Owner, the Company will
return to the Contract Owner within 7 days the sum of (1) the Account Value on
the date the returned Contract is received by the Company or its agent; and (2)
any deductions under the Contract or by the Funds for taxes, charges or fees.
Some states may require the Company to return the premiums paid for the returned
Contract.
Once the Contract is in effect, it may be exchanged during the first 24 months
after its issuance for a non-variable permanent life insurance contract offered
by the Company on the life of the Insured. The 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 the exchanged
Contract. The exchange is subject to adjustments in premiums and Account Value
to reflect any variance between the exchanged Contract and the new contract. The
Company reserves the right to make such a contract available that is offered by
the Company's parent or by any affiliate of the Company.
Confinement Waiver Benefit
Under the terms of an amendatory endorsement to the Contract, the Company will
waive any withdrawal charges on partial withdrawals and surrenders of the
Contract requested while the Insured is confined to a qualified long-term care
facility or hospital for a period of more than 90 consecutive days beginning 30
days or more after the issue date, or within 90 days after the Insured is
discharged from such confinement. The confinement must have been prescribed by a
licensed medical doctor or a licensed doctor of osteopathy, operating within the
scope of his or her license, and must be medically necessary. The prescribing
doctor may not be the Insured, the Contract Owner, or any spouse, child, parent,
grandchild, grandparent, sibling or in-law of the Contract Owner. "Medically
necessary" means appropriate and consistent with the diagnosis and which could
not have been omitted without adversely affecting the Insured's condition. The
confinement waiver benefit may not be available in all states. The Company
reserves the right to discontinue the offering of the confinement waiver benefit
amendatory endorsement upon the purchase of a new Contract.
Suspension of Valuation, Payments and Transfers
The Company will suspend all procedures requiring valuation of the Variable
Account (including transfers, surrenders and loans) on any day the New York
Stock Exchange is closed or trading is restricted due to an existing emergency
as defined by the Securities and Exchange Commission, or on any day the
Securities and Exchange Commission has ordered that the right of surrender of
the Contracts be suspended for the protection of Contract Owners, until such
condition has ended.
Last Survivor Contracts
The Contracts are offered on a single life and "last survivor" basis. Contracts
sold on a last survivor basis operate in a manner almost identical to the single
life version. The most important difference is that the last survivor version
involves two Insureds and the proceeds are paid only on the death of the last
surviving Insured. The other significant differences between the last survivor
and single life versions are listed below:
1. Last survivor Contracts are offered for prospective insured persons age
18-85.
2. The cost of insurance charges under the last survivor Contracts are
determined in a manner that reflects the anticipated mortality of the two
Insureds and the fact that the Death Benefit is not payable until the death
of the second Insured.
3. To qualify for simplified underwriting under a last survivor Contract, both
Insureds must meet the simplified underwriting standards.
4. For a last survivor Contract to be reinstated, both Insureds must be alive
on the date of reinstatement.
5. The Contract provisions regarding misstatement of age or sex, suicide and
incontestability apply to either Insured.
6. Additional tax disclosures applicable to last survivor Contracts are
provided in "Federal Tax Matters," page 24.
7. The Accelerated Death Benefit provision is only available upon terminal
illness of the last survivor.
8. The Confinement Waiver Benefit is available upon confinement of either
Insured.
OTHER MATTERS
Voting Rights
In accordance with its view of presently applicable law, the Company will vote
the shares of the Funds at regular and special meetings of the shareholders of
the Funds in accordance with instructions from Contract Owners (or the assignee
of the Contract, as the case may be) having a voting interest in the Variable
Account. The number of shares of a Fund Portfolio 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 Portfolio. The Company will vote shares
for which no instructions have been given and shares which are not attributable
to Contract Owners (i.e., shares owned by the Company) in the same proportion as
it votes shares for which it has received instructions. If the Investment
Company Act of 1940 or any rule promulgated thereunder should be amended,
however, or if the Company's present interpretation should change and, as a
result, the Company determines it is permitted to vote the shares of the Funds
in its own right, it may elect to do so.
The voting interests of the Contract Owner (or the assignee) in the Funds will
be determined as follows: Contract Owners are entitled to give voting
instructions to the Company with respect to Fund Portfolio 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 Sub-Account(s) to the Loan Account
in connection with the loan (see "Contract Benefits and Rights -- Contract
Loans," page 18) will not be considered in determining the voting interests of
the Contract Owner. Contract Owners should review the prospectuses for the Funds
which accompany this prospectus to determine matters on which Fund shareholders
may vote.
The Company may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the sub-classification or investment objective
of one or more of the Funds or to approve or disapprove an investment advisory
contract for the Funds.
In addition, the Company itself may disregard voting instructions in favor of
changes initiated by Contract Owners in the investment objectives or the
investment adviser of the Funds if the Company reasonably disapproves of such
changes. A change would be disapproved only if the proposed change is contrary
to state law or prohibited by state regulatory authorities. If the Company does
disregard voting instructions, a summary of that action and the reasons for such
action will be included in the next periodic report to Contract Owners.
Statements to Contract Owners
The Company will maintain all records relating to the Variable Account and the
Variable Sub-Accounts. At least once each Contract Year, the Company will send
to each Contract Owner a statement showing the coverage amount and the Account
Value of the Contract (indicating the number of Accumulation Units credited to
the Contract in each Variable Sub-Account and the corresponding Accumulation
Unit), and any outstanding loan secured by the Contract as of the date of the
statement. The statement will also show premium paid, Monthly Deduction Amounts
under the Contract since the last statement, and any other information required
by any applicable law or regulation.
Limit on Right to Contest
The Company may not contest the validity of the Contract after it has been in
effect during the Insured's lifetime for two years from the Contract Date. If
the Contract is reinstated, the two-year period is measured from the date of
reinstatement. Any increase in the Specified Amount for which evidence of
insurability was obtained is contestable for 2 years from its effective date. In
addition, if the Insured dies by suicide while sane or self destruction while
insane in the two-year period after the Contract Date, or such period as
specified in 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 premium paid for such increase, less
any Indebtedness and partial withdrawals.
Misstatement as to Age and Sex
If the age or sex of the Insured is incorrectly stated, the Death Benefit will
be appropriately adjusted as specified in the Contract.
Payment Options
The surrender proceeds or Death Benefit proceeds under the Contracts may be paid
in a lump sum or may be applied to one of the Company's Income Plans. If the
amount to be applied to an Income Plan is less than $3,000 or if it would result
in an initial income payment of less than $20, the Company may require that the
frequency of income payments be decreased such that the income payments are
greater than $20 each, or it may elect to pay the amount in a lump sum. No
surrender or partial withdrawals are permitted after payments under an Income
Plan commence.
We will pay interest on the proceeds from the date of the Insured's death to the
date payment is made or a payment option is elected. At such times, the proceeds
are not subject to the investment experience of the Variable Account.
The Income Plans are fixed annuities payable from the Company's general account.
They do not reflect the investment experience of the Variable Account. Fixed
annuity payments are determined by multiplying the amount applied to the annuity
by a rate to be determined by the Company which is no less than the rate
specified in the fixed payment annuity tables in the Contract. The annuity
payment will remain level for the duration of the annuity. The Company may
require proof of age and gender of the payee (and joint payee, if applicable)
before payments begin. The Company may also require proof that such person(s)
are living before it makes each payment.
The following options are available under the Contracts (the Company may offer
other payment options):
INCOME PLAN 1 -- Life Income With Guaranteed Payments
The Company will make payments for as long as the payee lives. If the payee
dies before the selected number of guaranteed payments have been made, the
Company will continue to pay the remainder of the guaranteed payments.
INCOME PLAN 2 -- Joint And Survivor Life Income With Guaranteed Payments
The Company will make payments for as long as either the payee or Joint
payee, named at the time of Income Plan selection, is living. If both the
payee and the Joint payee die before the selected number of guaranteed
payments have been made, the Company will continue to pay the remainder of
the guaranteed payments.
The Company will make any other arrangements for income payments as may be
agreed on.
Beneficiary
The applicant names the beneficiary in the application for the Contract. The
Contract Owner may change the beneficiary (unless irrevocably named) during the
Insured's lifetime by written request to the Company. If no beneficiary is
living when the Insured dies, the proceeds will be paid to the Contract Owner if
living; otherwise to the Contract Owner's estate.
Assignment
Unless required by state law, the Contract may not be assigned as collateral for
a loan or other obligation.
Dividends
No dividends will be paid under the Contracts.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers of the Company are listed below, together
with information as to their ages, dates of election and principal business
occupations during the last five years (if other than their present business
occupations).
LOUIS G. LOWER, II, 52, Chief Executive Officer and Chairman of the Board
(1995)*
Also Director (1986-Present) and Senior Vice President (1995-Present) of
Allstate Insurance Company; Director (1991-Present) of Allstate Life Financial
Services, Inc.; Director (1986-Present) and President (1990-Present) Allstate
Life Insurance Company; Director (1983-Present) and Chairman of the Board
(1990-Present) of Allstate Life Insurance Company of New York; Director
(1990-1997), Chairman of the Board of Directors and Chief Executive Officer
(1995-1997), Chairman of the Board of Directors and President (1990-1995) of
Glenbrook Life Insurance Company; Director and Chairman of the Board
(1995-Present) of Laughlin Group Holdings, Inc.; Director and Chairman of the
Board of Directors and Chief Executive Officer (1989-Present) Lincoln Benefit
Life Company; Director (1986-Present), Chairman of the Board of Directors and
Chief Executive Officer (1995-Present) of Northbrook Life Insurance Company; and
Chairman of the Board of Directors and Chief Executive Officer (1995-Present)
Surety Life Insurance Company.
PETER H. HECKMAN, 52, President, Chief Operating Officer and Director (1996)*
Also Director and Vice President (1988-Present) of Allstate Life Insurance
Company; Director (1990-1996), Vice President (1989-Present), Allstate Life
Insurance Company of New York; Director (1991-1993) of Allstate Life Financial
Services, Inc.; Director (1990-1997), President and Chief Operating Officer
(1996-1997), and Vice President (1990-1996), Glenbrook Life Insurance Company;
Director (1995-Present) and Vice Chairman of the Board (1996-Present) Laughlin
Group Holdings, Inc.; Director (1990-Present) and Vice Chairman of the Board
(1996-Present) Lincoln Benefit Life Company; Director (1988-Present) President
and Chief Operating Officer (1996-Present), and was Vice President (1989-1996),
Northbrook Life Insurance Company; and Director (1995-Present) and Vice Chairman
of the Board (1996-Present) Surety Life Insurance Company.
MICHAEL J. VELOTTA, 52, Vice President, Secretary, General Counsel, and Director
(1992)*
Also Director and Secretary (1993-Present) of Allstate Life Financial Services,
Inc.; Director (1992-Present) Vice President, Secretary and General Counsel
(1993-Present) Allstate Life Insurance Company; Director (1992-Present) Vice
President, Secretary and General Counsel (1993-Present) Allstate Life Insurance
Company of New York; Director (1992-1997) Vice President, Secretary and General
Counsel (1993-1997) Glenbrook Life Insurance Company; Director and Secretary
(1995-Present) Laughlin Group Holdings, Inc.; Director (1992-Present) and
Assistant Secretary (1995-Present) Lincoln Benefit Life Company; Director
(1992-Present) Vice President, Secretary and General Counsel (1993-Present)
Northbrook Life Insurance Company; and Director and Assistant Secretary
(1995-Present) Surety Life Insurance Company.
JOHN R. HUNTER, 43, Director (1996)* and Senior Vice President (1995)*
Also Assistant Vice President (1990-Present) Allstate Life Insurance Company;
Assistant Vice President (1996-Present) Allstate Life Insurance Company of New
York; President and Chief Operating Officer (1998-Present) Allstate Life
Financial Services Inc.; Director (1996-1997) Glenbrook Life Insurance Company;
and Director (1994-Present) and Assistant Vice President (1990-Present)
Northbrook Life Insurance Company.
G. CRAIG WHITEHEAD, 51, Senior Vice President and Director (1995)*
Also Assistant Vice President (1991-Present) Allstate Life Insurance Company;
Director (1994-1997) Assistant Vice President (1991-1997) Glenbrook Life
Insurance Company; Assistant Vice President (1992-Present) Secretary (1995)
Glenbrook Life and Annuity Company; Director (1995-Present) Laughlin Group
Holdings, Inc.
MARLA G. FRIEDMAN, 44, Vice President (1996)*
Also Director (1991-Present) and Vice President (1988-Present) Allstate Life
Insurance Company; Director (1993-1996) Allstate Life Financial Services, Inc.;
Director (1997-Present), and Assistant Vice President (1996-Present) Allstate
Life Insurance Company of New York; Director (1991-1996), President and Chief
Operating Officer (1995-1996) and Vice President (1990-1995) and (1996-1997)
Glenbrook Life Insurance Company; Director and Vice Chairman of the Board
(1995-1996) Laughlin Group Holdings, Inc.; and Director (1989-1996), President
and Chief Operating Officer (1995-1996) and Vice President (1996-Present)
Northbrook Life Insurance Company.
KEVIN R. SLAWIN, 40, Vice President (1996)*
Also Assistant Vice President and Assistant Treasurer (1995-1996) Allstate
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Allstate Life Financial Services, Inc.; Director and Vice President
(1996-Present) and Assistant Treasurer (1995-1996) Allstate Life Insurance
Company; Director and Vice President (1996-Present) and Assistant Treasurer
(1995-1996) Allstate Life Insurance Company of New York; Director and Vice
President (1996-1997) and Assistant Treasurer (1995-1996) Glenbrook Life
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Laughlin Group Holdings, Inc.; Director (1996-Present) Lincoln Benefit Life
Company; Director and Vice President (1996-Present) and Assistant Treasurer
(1995-1996) Northbrook Life Insurance Company; Director (1996-Present) Surety
Life Insurance Company; and Assistant Treasurer and Director (1994-1995) Sears
Roebuck and Co.; and Treasurer and First Vice President (1986-1994) Sears
Mortgage Corporation.
CASEY J. SYLLA, 54, Chief Investment Officer (1995)*
Also Director (1995-Present ) Senior Vice President and Chief Investment Officer
(1995-Present) Allstate Insurance Company; Director (1995-Present) Chief
Investment Officer (1995-Present) Allstate Life Insurance Company; Chief
Investment Officer (1995-Present) Allstate Life Insurance Company of New York;
Chief Investment Officer (1995-1997) Glenbrook Life Insurance Company; and
Director and Chief Investment Officer (1995-Present) Northbrook Life Insurance
Company. Prior to 1995 he was Senior Vice President and Executive
Officer-Investments (1992-1995) of Northwestern Mutual Life Insurance Company.
JAMES P. ZILS, 47, Treasurer (1995)*
Also Vice President and Treasurer (1995-Present) Allstate Insurance Company;
Treasurer (1995-Present) Allstate Life Financial Services, Inc.; Treasurer
(1995-Present) Allstate Life Insurance Company; Treasurer (1995-Present)
Allstate Life Insurance Company of New York; Treasurer (1995-1997) Glenbrook
Life Insurance Company; Treasurer (1995-Present) Laughlin Group Holdings, Inc.;
and Treasurer (1995-Present) Northbrook Life Insurance Company. From 1993 to
1995, he was Vice President of Allstate Life Insurance Company. Prior to 1993,
he held various management positions.
* Date elected to current office.
DISTRIBUTION OF THE CONTRACTS
Allstate Life Financial Services, Inc. ("ALFS"), 3100 Sanders Road, Northbrook
Illinois, a wholly owned subsidiary of Allstate Life, acts as the principal
underwriter of the Contracts. ALFS is registered as a broker-dealer under the
Securities Exchange Act of 1934 and became a member of the National Association
of Securities Dealers, Inc. on June 30, 1993. Contracts are sold by registered
representatives of unaffiliated broker-dealers or bank employees who are
licensed insurance agents appointed by the Company, either individually or
through an incorporated insurance agency and who have entered into a selling
agreement with ALFS and the Company to sell the Contracts. In some states,
Contracts may be sold by representatives or employees of banks which may be
acting as broker-dealers without separate registration under the Securities
Exchange Act of 1934, pursuant to legal and regulatory exceptions.
Commissions paid may vary, but in the aggregate are not anticipated to exceed
7.25% of any purchase payment. These commissions are intended to cover
distribution expenses. In addition, sale of the Contract may count toward
incentive program awards for the registered representative.
The underwriting agreement with ALFS provides for indemnification of ALFS by the
Company for liability to Owners arising out of services rendered or Contracts
issued.
SAFEKEEPING OF THE VARIABLE
ACCOUNT'S ASSETS
The assets of the Variable Account are held by the Company. The assets of the
Variable Account are kept physically segregated and held separate and apart from
the general account of the Company. The Company maintains records of all
purchases and redemptions of shares of the Funds.
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or purchase of a life insurance contract depend upon
the individual circumstances of each person. If you are concerned about any tax
consequences with regard to your individual circumstances, you should consult a
qualified tax advisor.
TAXATION OF THE COMPANY AND THE VARIABLE ACCOUNT
The Company is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code. Since the Variable Account is not an entity separate
from the Company and its operations form a part of the Company, it will not be
taxed separately as a "Regulated Investment Company" under Subchapter M of the
Code. Investment income and realized capital gains are automatically applied to
increase reserves under the Contracts. Under existing federal income tax law,
the Company believes that the Variable Account investment income and net capital
gains will not be taxed to the extent that such income and gains are applied to
increase the reserves under the Contracts. Accordingly, the Company does not
anticipate that it will incur any federal income tax liability attributable to
the Variable Account, and therefore the Company does not intend to make
provisions for any such taxes. If the Company is taxed on investment income or
capital gains of the Variable Account, then the Company may impose a charge
against the Variable Account in order to make provision for such taxes.
TAXATION OF CONTRACT BENEFITS
In order to qualify as a life insurance contract for federal income tax
purposes, the Contract must meet the definition of a life insurance contract set
forth in Section 7702 of the Code. Section 7702 limits the amount of premiums
that may be invested in a contract that is treated as life insurance. The manner
in which Section 7702 should be applied to certain features of the Contract
offered in this prospectus is not directly addressed in Section 7702.
Nevertheless, the Company believes that the Contact will meet the Section 7702
definition of a life insurance contract. This means that:
- the death benefit should be fully excludable from the gross income of
the beneficiary under Section 101(a)(1) of the Code; and
- the Contract Owner should not be considered in constructive receipt of
the Cash Value of the Contract, including any increases, until actual
cancellation of the Contract
In addition, in the absence of final regulations or other pertinent
interpretations of Section 7702, there is necessarily some uncertainty as to
whether a substandard risk Contract will meet the statutory life insurance
contract definition. If a Contract were determined not to be a life insurance
contract for purposes of Section 7702, such Contract would not provide most of
the tax advantages normally provided by a life insurance contract. The Company
reserves the right to amend the Contracts to comply with any future changes in
the Code, any regulations or rulings under the Code and any other requirements
imposed by the Internal Revenue Service.
Upon surrender of the Contract, the cash surrender value is taxable to the
extent it exceeds the investment in the Contract. The investment in the Contract
is the gross premium or other consideration paid for the Contract reduced by any
amounts previously received from the Contract to the extent such amounts were
properly excluded from gross income. For non-modified endowment contracts, in
the event of a partial withdrawal, or a reduction in benefit in the first
fifteen years of the Contract, the partial withdrawal or reduction in benefit
may result in a taxable distribution of income before recovery of the investment
in the Contract. Partial withdrawals and reduction in benefits on non-modified
endowment contracts after fifteen years are taxed first as a recovery of
investment in the Contract, then as a taxable distribution of income.
If you own and are the Insured under the Contract, the Death Benefit will be
included in your gross estate for federal estate tax purposes if the proceeds
are payable to your estate. If the beneficiary is other than your estate but you
retained incidents of ownership in the Contract, the Death Benefit will also be
included in your gross estate. Examples of incidents of ownership include, but
are not limited to, the right to change beneficiaries, to assign the Contract or
revoke an assignment, to pledge the Contract or to obtain a policy loan. If you
own and are the Insured under the Contract and you transfer all incidents of
ownership in the Contract, the Death Benefit will be included in your gross
estate if you die within three years from the date of the ownership transfer.
State and local estate and inheritance tax consequences may also apply. In
addition, certain transfers of the Contract or Death Benefit, either during life
or at death, to individuals (or trusts for the benefit of such individuals) two
or more generations below that of the transferor may be subject to the federal
generation skipping transfer tax.
In addition, the Contract may be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans, and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Contract in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.
MODIFIED ENDOWMENT CONTRACTS
A life insurance contract is treated as a "modified endowment contract" under
Section 7702A of the Code if it meets the definition of life insurance in
Section 7702 but fails the "seven-pay" test of Section 7702A. The seven-pay test
provides that premiums cannot be paid at a rate more rapidly than that allowed
by the payment of seven annual premiums using specified computational rules
provided in Section 7702A(c). The large single premium permitted under the
Contract (which is equal to 100% of the "Guideline Single Premium" as defined in
Section 7702 of the Code) does not meet the specified computational rules for
the "seven-pay test" under Section 7702A(c). Therefore, the Contract will
generally be treated as a modified endowment contract for federal income tax
purposes. However, an exchange of a life insurance contract that is not a
modified endowment contract will not cause the new contract to be a modified
endowment contract if no additional premiums are paid. An exchange under Section
1035 of the Code of a life insurance contract that is a modified endowment
contract for a new life insurance contract will always cause the new contract to
be a modified endowment contract. A contract that is classified as a modified
endowment contract is generally eligible for the beneficial tax treatment
accorded to life insurance. Accordingly, the death benefit is excluded from
income and increments in value are not subject to current taxation. If a person
receives any amount as a policy loan from a modified endowment contract, or
assigns or pledges any part of the value of the contract, such amount is treated
as a distribution. Unlike other life insurance contracts, distributions received
before the insured's death are treated first as income (to the extent of gain)
and then as recovery of investment in the contract. Any amounts that are taxable
withdrawals will be subject to a 10% additional tax, with certain exceptions:
(1) distributions made on or after the date on which the taxpayer attains age 59
1/2; (2) distributions attributable to the taxpayer's becoming disabled (within
the meaning of Section 72(m)(7) of the Code); or (3) any distribution that is
part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the taxpayer or the
joint lives (or joint life expectancies) of such taxpayer and his or her
beneficiary.
All modified endowment contracts that are issued within any calendar year to the
same Contract Owner by one company or its affiliates shall be treated as one
modified endowment contract in determining the taxable portion of any loan or
distributions.
<PAGE>
DIVERSIFICATION REQUIREMENTS
For a Contract to be treated as a variable life insurance contract for federal
tax purposes, the investments in the Variable Account must be "adequately
diversified" in accordance with the standards provided in the Treasury
regulations. If the investments in the Variable Account are not adequately
diversified, then the Contract will not be treated as a variable life insurance
contract for federal income tax purposes and the Owner will be taxed on the
excess of the Contract Value over the investment in the Contract. Although the
Company does not have control over the Funds or their investments, the Company
expects the Funds to meet the diversification requirements.
OWNERSHIP TREATMENT
In connection with the issuance of the regulations on the adequate
diversification standards, the Department of the Treasury announced that the
regulations do not provide guidance concerning the extent to which contract
owners may direct their investments among sub-accounts of a separate account.
The Internal Revenue Service has previously stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the owner possesses incidents of ownership in those assets such as the
ability to exercise investment control over the assets. At the time the
diversification regulations were issued, the Treasury Department announced that
guidance would be issued in the future regarding the extent that owners could
direct their investments among sub-accounts without being treated as owners of
the underlying assets of the separate account.
The ownership rights under the Contract described in this prospectus are similar
to, but different in certain respects from, those described by the service in
rulings in which it was determined that contract owners were not owners of
separate account assets. For example, the owner of the Contract has the choice
of more investment options to which to allocate premiums and Contract values,
and may be able to transfer among investment options more frequently than in
such rulings. These differences could result in the Contract Owner being treated
as the owner of the Variable Account. In those circumstances, income and gain
from the Variable Account assets would be includible in the Contract Owner's
gross income. In addition, the Company does not know what standards will be set
forth in the regulations or rulings which the Treasury Department has stated it
expects to issue. It is possible that Treasury Department's position, when
announced, may adversely affect the tax treatment of existing contracts. The
Company, therefore, reserves the right to modify the contract as necessary to
attempt to prevent the Contract Owner from being considered the federal tax
owner of the assets of the Variable Account. However, the Company makes no
guarantee that such modification to the contract will be successful.
POLICY LOAN INTEREST
Interest paid on loans against a Contract is generally not deductible.
ADDITIONAL INFORMATION ABOUT THE COMPANY
The Company also acts as the sponsor for three other of its separate accounts
that are registered investment companies: Glenbrook Life and Annuity Company
Variable Annuity Account, Glenbrook Life and Annuity Company Separate Account A,
Glenbrook Life AIM Variable Life Separate Account A and Glenbrook Life
Multi-Manager Variable Account. The officers and employees of the Company are
covered by a fidelity bond in the amount of $5,000,000. No person beneficially
owns more than 5% of the outstanding voting stock of The Allstate Corporation,
of which the Company is an indirect wholly owned subsidiary.
LEGAL PROCEEDINGS
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. Management, after consultation with legal counsel, does not anticipate
the ultimate liability arising from such pending or threatened litigation to
have a material effect on the financial condition of the Company or the Variable
Account.
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised the Company on
certain federal securities law matters. All matters of Illinois law pertaining
to the Contracts, including the validity of the Contracts and the Company's
right to issue such Contracts under Illinois insurance law, have been passed
upon by Michael J. Velotta, General Counsel of the Company.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This Prospectus does
not contain all information set forth in the registration statement, its
amendments and exhibits, to all of which reference is made for further
information concerning the Variable Account, the Funds, the Company, and the
Contracts. The exhibits to the registration statement include hypothetical
illustrations of the Contract that show how the Death Benefit, Account Value and
Cash Surrender Value could vary over an extended period of time assuming
hypothetical gross rates of return (i.e., investment income and capital gains
and losses, realized or unrealized) for the Variable Account equal to annual
rates of 0%, 6%, and 12%, an initial premium of $10,000, Insureds in the
standard rating class, and based on current and guaranteed Contract charges.
Personalized illustrations provided by the Company upon request will be based on
the methodology and format of these hypothetical illustrations as appropriate.
EXPERTS
The financial statements of the Variable Account and the financial statements
and financial statement schedule of the Company included in this prospectus,
have been audited by Deloitte & Touche LLP, Two Prudential Plaza, 180 North
Stetson Avenue, Chicago, Illinois 60601-6779, independent auditors, as stated in
their reports appearing herein and incorporated by reference in this prospectus,
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The hypothetical Contract illustrations included in the Company's registration
statement have been approved by Diana Montigney, FSA, Allstate Life Insurance
Company, and are included in reliance upon her opinion as to their
reasonableness.
FINANCIAL INFORMATION
The financial statements of the Company and the Variable Account appear
immediately below. The financial statements for the Company should be considered
as bearing only on the ability of the Company to fulfill its obligations under
the Contracts. They do not relate to the investment performance of the Variable
Account.
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (the "Company") as of December 31, 1997 and 1996, and
the related Statements of Operations, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1997. Our audits also
included Schedule IV - Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 20, 1998
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
------------
($ in thousands) 1997 1996
---------------- ----------------
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $81,369 and $46,925) $ 86,243 $ 49,389
Short-term 4,231 1,287
--------------- ---------------
Total investments 90,474 50,676
Reinsurance recoverable from Allstate Life Insurance
Company 2,637,983 2,060,419
Net receivable from affiliates - 18,963
Other assets 2,549 2,049
Separate Accounts 620,535 272,420
--------------- ---------------
Total assets $ 3,351,541 $ 2,404,527
=============== ===============
LIABILITIES
Contractholder funds $ 2,637,983 $ 2,060,419
Income taxes payable 609 410
Deferred income taxes 1,772 1,528
Net payable to affiliates 2,698 -
Separate Accounts 620,535 260,290
--------------- ---------------
Total liabilities 3,263,597 2,322,647
=============== ===============
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 4,200 shares
authorized, issued, and outstanding 2,100 2,100
Additional capital paid-in 69,641 69,641
Unrealized net capital gains 3,168 2,790
Retained income 13,035 7,349
--------------- ---------------
Total shareholder's equity 87,944 81,880
--------------- ---------------
Total liabilities and shareholder's equity $ 3,351,541 $ 2,404,527
=============== ===============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
REVENUES
Net investment income $ 5,304 $ 3,774 $ 3,996
Realized capital gains and losses 3,460 - 459
---------------- --------------- ----------------
INCOME BEFORE INCOME TAX EXPENSE 8,764 3,774 4,455
INCOME TAX EXPENSE 3,078 1,339 1,576
---------------- --------------- ----------------
NET INCOME $ 5,686 $ 2,435 $ 2,879
================ =============== ================
</TABLE>
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
COMMON STOCK $ 2,100 $ 2,100 $ 2,100
--------------- --------------- ---------------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year 69,641 49,641 49,641
Capital contributions - 20,000 -
--------------- --------------- ---------------
Balance, end of year 69,641 69,641 49,641
--------------- --------------- ---------------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year 2,790 3,357 (1,118)
Net change 378 (567) 4,475
--------------- --------------- ---------------
Balance, end of year 3,168 2,790 3,357
--------------- --------------- ---------------
RETAINED INCOME
Balance, beginning of year 7,349 4,914 2,035
Net income 5,686 2,435 2,879
--------------- --------------- ---------------
Balance, end of year 13,035 7,349 4,914
--------------- --------------- ---------------
Total shareholder's equity $ 87,944 $ 81,880 $ 60,012
=============== =============== ===============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,686 $ 2,435 $ 2,879
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and other non-cash
items 29 - -
Realized capital gains and losses (3,460) - (459)
Change in deferred income taxes 41 4 (39)
Changes in other operating assets and liabilities 1,160 (510) 1,217
------------ ------------ ------------
Net cash provided by operating activities 3,456 1,929 3,598
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,405 - 7,836
Investment collections 14,217 2,891 1,568
Investment purchases (50,115) (5,667) (1,491)
Participation in Separate Accounts 13,981 (232) (10,069)
Change in short-term investments, net (2,944) 815 (1,178)
------------ ------------ ------------
Net cash used in investing activities (23,456) (2,193) (3,334)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 20,000 - -
------------ ------------ ------------
Net cash provided by financing activities 20,000 - -
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH - (264) 264
CASH AT BEGINNING OF YEAR - 264 -
------------ ------------ ------------
CASH AT END OF YEAR $ - $ - $ 264
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Noncash financing activity:
Capital contribution receivable from
Allstate Life Insurance Company $ - $ 20,000 $ -
============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. General
Basis of presentation
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). On June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed
its 80.3% ownership in the Corporation to Sears common shareholders through a
tax-free dividend (the "Distribution"). These financial statements have been
prepared in conformity with generally accepted accounting principles.
To conform with the 1997 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
Nature of operations
The Company markets life insurance and annuity products in the United States
through banks and broker-dealers. Life insurance includes both
interest-sensitive and variable life insurance products. Annuities include
deferred annuities, such as variable annuities and fixed rate flexible premium
annuities. The Company has entered into exclusive distribution arrangements with
management investment companies to market its variable annuity contracts.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary withdrawal or surrender by customers, subject to applicable
surrender charges. These policies and contracts are reinsured with ALIC (see
Note 3), which invests premiums and deposits to provide cash flows that will be
used to fund future benefits and expenses. In order to support competitive
crediting rates and limit interest rate risk, ALIC , as the Company's reinsurer,
adheres to a basic philosophy of matching assets with related liabilities while
maintaining adequate liquidity and a prudent and diversified level of credit
risk.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be new and proposed federal
and state regulation and legislation that would allow banks greater
participation in the securities and insurance businesses, which will present an
increased level of competition for sales of the Company's life and annuity
products. Furthermore, the market for deferred annuities and interest-sensitive
life insurance is enhanced by the tax incentives available under current law.
Any legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
Although the Company currently benefits from agreements with financial services
entities who market and distribute its products, consolidation within that
industry and specifically, a change in control of those entities with which the
Company partners, could affect the Company's sales.
Enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; (2) increasing competition in capital
markets; and (3) reopening stock/mutual company disagreements related to such
issues as taxation disparity between mutual and stock insurance companies.
The Company is authorized to sell life and annuity products in all states except
New York, as well as in the District of Columbia. The Company is also authorized
to sell variable annuities in Puerto Rico. The top geographic locations for
statutory premiums and deposits earned by the Company are Florida, Pennsylvania,
California, Texas and Michigan for the year ended December 31, 1997. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits. All
premiums and contract charges are ceded to ALIC under reinsurance agreements.
2. Summary of Significant Accounting Policies
Investments
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ( "available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost which approximates fair value.
F-6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on the estimated principal repayments. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
Reinsurance
The Company and ALIC entered into a reinsurance agreement effective June 5,
1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers.
Contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such cessions in the statements of
operations. The amounts shown in the Company's statements of operations relate
to the investment of those assets of the Company that are not transferred to
ALIC under the reinsurance agreements. Reinsurance recoverable and
contractholder funds are reported separately in the statements of financial
position. The Company continues to have primary liability as the direct insurer
for risks reinsured.
Recognition of premium revenue and contract charges
Revenues on interest-sensitive life insurance policies are comprised of contract
charges and fees, and are recognized when assessed against the policyholder
account balance. Revenues on annuities, which are considered investment
contracts, include contract charges and fees for contract administration and
surrenders. These revenues are recognized when levied against the contract
balance.
Income taxes
The income tax provision is calculated under the liability method. Deferred tax
assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted tax
rates, and reflect the impact of reinsurance agreements. Deferred income taxes
arise primarily from unrealized capital gains and losses on fixed income
securities carried at fair value.
Separate Accounts
The Company issues flexible premium deferred variable annuity contracts and
single premium variable life policies, the assets and liabilities of which are
legally segregated and reflected in the accompanying statements of financial
position as assets and liabilities of the Separate Accounts (Glenbrook Life and
Annuity Company Variable Annuity Account, Glenbrook Life and Annuity Company
Separate Account A, Glenbrook Life Multi-Manager Variable Account and Glenbrook
Life Variable Life Separate Account A, unit investment trusts registered with
the Securities and Exchange Commission).
Assets of the Separate Accounts, including the Company's ownership interest
("Participation"), are carried at fair value. Unrealized gains and losses on the
Company's Participation, net of deferred income taxes, are shown as a component
of shareholder's equity. Investment income and realized capital gains and losses
arising from the Participation are included in the Company's statements of
operations. The Company liquidated its Participation during 1997, resulting in a
realized capital gain of $3,515. At December 31, 1996, the Participation
amounted to $12,130.
Investment income and realized capital gains and losses of the Separate
Accounts, other than the portion related to the Participation, accrue directly
to the contractholders and, therefore, are not included in the Company's
statements of operations. Revenues to the Company from the Separate Accounts
consist of contract maintenance fees, administrative fees, mortality and expense
risk charges, cost of insurance charges and tax expense charges, all of which
are ceded to ALIC.
Contractholder funds
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most annuities and
universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the customer less withdrawals, mortality charges and
administrative expenses. During 1997, credited interest rates on contractholder
funds ranged from 3.55% to 7.45% for those contracts with fixed interest rates
and from 3.70% to 7.85% for those with flexible rates.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
3. Related Party Transactions
Reinsurance
Contract charges ceded to ALIC were $11,641, $4,254 and $1,523 in 1997, 1996 and
1995, respectively. Credited interest, policy benefits and expenses ceded to
ALIC amounted to $179,954, $113,703 and $71,905 in 1997, 1996 and 1995,
respectively. Investment income earned on the assets which support
contractholder funds is not included in the Company's financial statements as
those assets are owned and managed by ALIC under the terms of reinsurance
agreements.
Business operations
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. The
cost to the Company is determined by various allocation methods and is primarily
related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $5,959, $759 and $348 in 1997, 1996 and 1995, respectively. Of these costs,
the Company retains investment related expenses. All other costs are ceded to
ALIC under reinsurance agreements.
Laughlin Group
Laughlin Group, Inc. ("Laughlin") is an indirect wholly owned subsidiary of
ALIC. Laughlin markets certain of the Company's flexible premium deferred
variable annuity contracts and flexible premium deferred fixed annuity
contracts. Sales commissions paid to Laughlin, for which the related cost was
ceded to ALIC, were $945 and $8,623 during 1997 and 1996, respectively. The
Company had a receivable of $850 from Laughlin at December 31, 1996, which is
included in net receivable from affiliates in the statements of financial
position.
4. Investments
Fair values
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
----------------
Amortized Fair
Cost Gains Losses Value
--------- ----- --------- ----------
<S> <C> <C> <C> <C>
At December 31, 1997
U.S. government and agencies $ 24,419 $ 2,961 $ - $ 27,380
Municipal 656 17 - 673
Corporate 25,476 840 - 26,316
Mortgage-backed securities 30,818 1,056 - 31,874
-------- ------- --------- --------
Total fixed income securities $ 81,369 $ 4,874 $ - $ 86,243
======== ======= ========= ========
At December 31, 1996
U.S. government and agencies $ 24,265 $ 1,722 $ (3) $ 25,984
Corporate 6,970 96 (15) 7,051
Mortgage-backed securities 15,690 664 - 16,354
-------- ------- --------- --------
Total fixed income securities $ 46,925 $ 2,482 $ (18) $ 49,389
======== ======= ========= ========
</TABLE>
F-8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Scheduled maturities
The scheduled maturities for fixed income securities are as follows at December
31, 1997:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
Due in one year or less $ 400 $ 400
Due after one year through five years 3,838 3,877
Due after five years through ten years 33,245 35,102
Due after ten years 13,068 14,990
----------- ------------
50,551 54,369
Mortgage-backed securities 30,818 31,874
----------- ------------
Total $ 81,369 $ 86,243
=========== ============
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
<TABLE>
<CAPTION>
Net investment income
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 5,014 $ 3,478 $ 3,850
Short-term investments 231 126 113
Participation in Separate Accounts 161 232 69
-------------- -------------- --------------
Investment income, before expense 5,406 3,836 4,032
Investment expense 102 62 36
-------------- -------------- --------------
Net investment income $ 5,304 $ 3,774 $ 3,996
============== ============== ==============
</TABLE>
Realized capital gains and losses
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ (61) $ - $ 459
Short-term investments 6 - -
Participation in Separate Accounts 3,515 - -
------------- ------------- -------------
Realized capital gains and losses 3,460 - 459
Income taxes (1,211) - (161)
------------- ------------- -------------
Realized capital gains and losses,
after tax $ 2,249 $ - $ 298
============= ============= =============
</TABLE>
Excluding calls and prepayments, gross losses of $61 and gross gains of $459
were realized on sales of fixed income securities during 1997 and 1995,
respectively.
F-9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Unrealized net capital gains
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Cost/ Unrealized
Amortized Fair Net
Cost Value Gains
--------- ----- -----------
<S> <C> <C> <C>
Fixed income securities $ 81,369 $ 86,243 $ 4,874
Deferred income taxes ======== ======== (1,706)
-------
Unrealized net capital gains $ 3,168
=======
</TABLE>
Change in unrealized net capital gains
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 2,410 $ (2,239) $ 6,423
Participation in Separate Accounts (1,829) 1,368 461
Deferred income taxes (203) 304 (2,409)
------------- ------------- -------------
Increase (decrease) in unrealized net capital gains $ 378 $ (567) $ 4,475
============= ============== =============
</TABLE>
Securities on deposit
At December 31, 1997, fixed income securities with a carrying value of
$10,108 were on deposit with regulatory authorities as required by law.
5. Financial Instruments
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable) and liabilities (including deferred income
taxes) are not considered financial instruments and are not carried at fair
value. Other assets and liabilities considered financial instruments, such as
accrued investment income, are generally of a short-term nature. It is assumed
that their carrying value approximates fair value.
F-10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Financial assets
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Fixed income securities $ 86,243 $ 86,243 $ 49,389 $ 49,389
Short-term investments 4,231 4,231 1,287 1,287
Separate Accounts 620,535 620,535 272,420 272,420
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying value approximates fair value.
Separate Accounts assets are carried in the statements of financial position at
fair value.
Financial liabilities
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $2,636,331 $2,492,095 $2,059,642 $1,949,329
Separate Accounts 620,535 620,535 260,290 260,290
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
F-11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
6. Income Taxes
For 1996 and 1995, the Company filed a separate federal income tax return. The
Company will join the Corporation and its other eligible domestic subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate Group")
for 1997 and is party to a federal income tax allocation agreement (the "Tax
Sharing Agreement"). Under the Tax Sharing Agreement, the Company paid to or
received from the Corporation the amount, if any, by which the Allstate Group's
federal income tax liability was affected by virtue of inclusion of the Company
in the consolidated federal income tax return. Effectively, this results in the
Company's annual income tax provision being computed, with adjustments, as if
the Company filed a separate return.
Prior to the Distribution, the Corporation and all of its eligible domestic
subsidiaries, including the Company, joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Sears Tax Sharing Agreement"). Under the Sears Tax
Sharing Agreement, the Company, through the Corporation, paid to or received
from the Sears Group the amount, if any, by which the Sears Tax Group's federal
income tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed as if the Allstate Group
filed a separate consolidated return, except that items such as net operating
losses, capital losses or similar items, which might not be recognized in a
separate return, were allocated according to the Sears Tax Sharing Agreement.
The Allstate Group and Sears Group have entered into an agreement which governs
their respective rights and obligations with respect to federal income taxes for
all periods prior to the Distribution ("Consolidated Tax Years"). The agreement
provides that all Consolidated Tax Years will continue to be governed by the
Sears Tax Sharing Agreement with respect to the Allstate Group's federal income
tax liability.
The components of the deferred income tax liability at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Unrealized net capital gains on fixed income securities $ 1,706 $ 1,503
Difference in tax bases of investments 66 25
------------- -------------
Total deferred liability $ 1,772 $ 1,528
============= =============
</TABLE>
F-12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Current $ 3,037 $ 1,335 $ 1,615
Deferred 41 4 (39)
------- ------- -------
Total income tax expense $ 3,078 $ 1,339 $ 1,576
======= ======= =======
</TABLE>
The Company paid income taxes of $2,839, $2,446 and $866 in 1997, 1996 and 1995,
respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other .1 .5 .4
---- ---- ----
Effective federal income tax rate 35.1% 35.5% 35.4%
==== ==== ====
</TABLE>
F-13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
7. Statutory Financial Information
The following tables reconcile net income for the year ended December 31, and
shareholder's equity at December 31, as reported herein in conformity with
generally accepted accounting principles with statutory net income and capital
and surplus, determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities:
<TABLE>
<CAPTION>
Net Income
----------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance per generally accepted accounting principles $ 5,686 $ 2,435 $ 2,879
Deferred income taxes 41 4 (39)
Unrealized gain on participation in
Separate Accounts (1,829) 1,368 -
Statutory investment reserves 93 35 (279)
Other (354) (85) 108
----------- ------------ ------------
Balance per statutory accounting practices $ 3,637 $ 3,757 $ 2,669
=========== ============ ============
Shareholder's Equity
--------------------
1997 1996
---- ----
Balance per generally accepted accounting principles $ 87,944 $ 81,880
Deferred income taxes 1,772 1,528
Unrealized gain/loss on fixed income securities (4,874) (2,464)
Non-admitted assets (86) (850)
Statutory investment reserves 958 (2,282)
Other (3,114) (2,118)
---------- ------------
Balance per statutory accounting practices $ 82,600 $ 75,694
========== ============
</TABLE>
Permitted statutory accounting practices
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Illinois
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a material effect on statutory surplus, statutory net income
or risk-based capital.
Final approval of the NAIC's proposed "Comprehensive Guide" on statutory
accounting principles is expected in early 1998. The requirements may be
effective as early as January 1, 1999, and are not expected to have a material
impact on statutory surplus of the Company.
Dividends
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by insurance companies without the prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1998 without prior approval of the Illinois Department of Insurance is
$8,050.
F-14
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ in thousands)
<TABLE>
<CAPTION>
Gross Net
Year Ended December 31, 1997 amount Ceded amount
- ---------------------------- --------- ------------ --------
<S> <C> <C> <C>
Life insurance in force $ 4,095 $ 4,095 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 11,641 $ 11,641 $ -
================== ================== ==================
Gross Net
Year Ended December 31, 1996 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 2,436 $ 2,436 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 4,254 $ 4,254 $ -
================== =================== ==================
Gross Net
Year Ended December 31, 1995 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 1,250 $ 1,250 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 6,571 $ 6,571 $ -
================== ================== ==================
</TABLE>
F-15
<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
Variable Life Separate Account A (the "Account") as of December 31, 1997, and
the related statements of operations and changes in net assets for the period
from December 29, 1997 (date operations commenced) to December 31, 1997, of the
American Century VP Balanced and American Century VP International portfolios of
the American Century Variable Portfolios, Inc., the VIS Dividend Growth, VIS
European Growth, VIS Quality Income Plus, and VIS Utilities portfolios of the
Dean Witter Variable Investment Series, the VIF Growth and Income, VIF Money
Market, and VIF Small Company Stock portfolios of the Dreyfus Variable
Investment Fund, The Dreyfus Socially Responsible Growth Fund, Inc. portfolio,
the VIP Growth and VIP High Income portfolios of the Fidelity Variable Insurance
Products Fund, the VIP II Contrafund portfolio of the Fidelity Variable
Insurance Products Fund II, and the MFS Emerging Growth Series and MFS Limited
Maturity Series portfolios of the MFS Variable Insurance Trust that comprise the
Account. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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, 1997. 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Account as of December 31, 1997, the
results of its operations and the changes in its net assets for the period from
December 29, 1997 (date operations commenced) to December 31, 1997, of each of
the portfolios comprising the Account, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 20, 1998
F-16
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSETS
Investments in the American Century Variable Portfolios, Inc. Portfolios:
American Century VP Balanced, 6,126 shares (cost $50,358) $ 50,480
American Century VP International, 0 shares (cost $0) -
Investments in the Dean Witter Variable Investment Series Portfolios:
VIS Dividend Growth, 0 shares (cost $0) -
VIS European Growth, 0 shares (cost $0) -
VIS Quality Income Plus, 0 shares (cost $0) -
VIS Utilities, 0 shares (cost $0) -
Investments in the Dreyfus Variable Investment Fund Portfolios:
VIF Growth and Income, 2,456 shares (cost $50,616) 51,034
VIF Money Market, 75,440 shares (cost $75,440) 75,440
VIF Small Company Stock, 0 shares (cost $0) -
Investment in The Dreyfus Socially Responsible Growth Fund, Inc.,
0 shares (cost $0) -
Investments in the Fidelity Variable Insurance Products Fund Portfolios:
VIP Growth, 1,380 shares (cost $50,867) 51,184
VIP High Income, 0 shares (cost $0) -
Investment in the Fidelity Variable Insurance Products Fund II Portfolio:
VIP II Contrafund, 0 shares (cost $0) -
Investments in the MFS Variable Insurance Trust Portfolios:
MFS Emerging Growth Series, 0 shares (cost $0) -
MFS Limited Maturity Series, 5,603 shares (cost $56,085) 56,085
---------
Net assets $ 284,223
=========
See notes to financial statements.
</TABLE>
F-17
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 29, 1997 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1997
- ------------------------------------------------------------------
American Century Variable
Portfolios, Inc. Portfolios
-------------------------------------
American American
Century Century
VP Balanced VP International
-------------------------------------
INVESTMENT INCOME
Dividends $ -- $ --
Charges from Glenbrook Life
and Annuity Company:
Mortality and expense risk (1) --
Administative expense -- --
--------- ---------
Net investment income (loss) (1) --
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains from sales of investments:
Proceeds from sales 1 --
Cost of investments sold (1) --
--------- ---------
Net realized gains -- --
Change in unrealized gains 122 --
--------- ---------
Net gains on investments 122 --
--------- ---------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 121 $ --
========= =========
F-18
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE PERIOD FROM DECEMBER 29, 1997 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1997
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Dean Witter Variable Investment Series Portfolios
----------------------------------------------------------------------
VIS Dividend VIS European VIS Quality
Growth Growth Income Plus VIS Utilities
----------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Dividends $ -- $ -- $ -- $ --
Charges from Glenbrook Life
and Annuity Company:
Mortality and expense risk -- -- -- --
Administative expense -- -- -- --
--------- ----------- ----------- ---------
Net investment income (loss) -- -- -- --
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains from sales of investments:
Proceeds from sales -- -- -- --
Cost of investments sold -- -- -- --
--------- ----------- ----------- ---------
Net realized gains -- -- -- --
Change in unrealized gains -- -- -- --
--------- ----------- ----------- ---------
Net gains on investments -- -- -- --
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ -- $ -- $ -- $ --
========= =========== =========== =========
</TABLE>
F-19
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE PERIOD FROM DECEMBER 29, 1997 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1997
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Dreyfus Variable Investment Fund Portfolios The Dreyfus
-------------------------------------------- Socially
Responsible
VIF Growth & VIF Money VIF Small Growth Fund
Income Market Company Stock Inc.
-------------------------------------------- ------------
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Dividends $ - $ - $ - $ -
Charges from Glenbrook Life and Annuity
Company:
Mortality and expense risk (1) - - -
Administative expense - - - -
---------- ---------- ---------- ----------
Net investment income (loss) (1) - - -
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains from sales of investments:
Proceeds from sales 1 - - -
Cost of Investments sold (1) - - -
---------- ---------- ----------- -----------
Net realized gains - - - -
Change in unrealized gains 418 - - -
---------- ---------- ----------- -----------
Net gains on investments 418 - - -
---------- ---------- ----------- -----------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 417 $ - $ - $ -
========== ========== =========== ===========
</TABLE>
See notes to financial statements.
F-20
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE PERIOD FROM DECEMBER 29, 1997 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Variable
Fidelity Variable Insurance Insurance Products MFS Variable Insurance
Products Fund Portfolios Fund II Portfolio Trust Portfolios
---------------------------- -------------------- --------------------------
MFS Emerging MFS Limited
VIP Growth VIP High VIP II Growth Maturity
Fund Income Fund Contrafund Series Series Total
------------ ------------- ---------- ---------- ------------- -------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C>
Dividends $ - $ - $ - $ - $ 3,220 $ 3,220
Charges from Glenbrook Life and Annuity
Company:
Mortality and expense risk (1) - - - (1) (4)
Administative expense
- - - - - -
--------- --------- --------- ---------- -------- --------
Net investment income (loss) (1) - - - 3,219 3,216
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains from sales of investments:
Proceeds from sales 1 - - - 1 4
Cost of investments sold (1) - - - (1) (4)
--------- --------- --------- ---------- -------- --------
Net realized gains - - - - - -
Change in unrealized gains 317 - - - - 857
--------- --------- --------- ---------- -------- --------
Net gains on investments 317 - - - - 857
--------- --------- --------- ---------- -------- --------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 316 $ - - - $ 3,219 $ 4,073
========= ========= ========= ========== ======== ========
See notes to financial statements.
</TABLE>
F-21
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM DECEMBER 29, 1997 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
American Century Variable
Portfolios, Inc. Portfolios Dean Witter Variable Investment Series Portfolios
-------------------------------- --------------------------------------------------------
American American
Century Century VIS Dividend VIS European VIS Quality
VP Balanced VP International Growth Growth Income Plus VIS Utilities
----------- ---------------- ----------------------------------------------------------
FROM OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ (1) $ - $ - $ - $ - $ -
Net realized gains - - - - - -
Change in unrealized gains 122 - - - - -
---------- ---------- ---------- ---------- ---------- ---------
Change in net assets resulting
from operations 121 - - - - -
FROM CAPITAL TRANSACTIONS
Deposits - - - - - -
Benefits payments - - - - - -
Payments on termination - - - - - -
Contract charges (69) - - - - -
Transfer among the portfolios and
with the general account - net 50,428 - - - - -
---------- ---------- ---------- ---------- ---------- ---------
Change in net assets resulting
from capital transactions 50,359 - - - - -
---------- ---------- ---------- ---------- ---------- ---------
INCREASE IN NET ASSETS 50,480 - - - - -
NET ASSETS AT BEGINNING OF PERIOD - - - - - -
---------- ---------- ---------- ---------- ---------- ---------
NET ASSETS AT END OF PERIOD $ 50,480 $ - $ - $ - $ - $ -
Net asset value per unit at end
of period $ 10.21 $ - $ - $ - $ - $ -
========== ========== ========== ========== ========== =========
Units outstanding at end of period 4,945 - - - - -
========== ========== ========== ========== ========== ==========
</TABLE>
F-22
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD FROM DECEMBER 29, 1997 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund Portfolios The Dreyfus
--------------------------------------------- Socially
Responsible
VIF Growth & VIF Money VIF Small Growth Fund,
Income Market Company Stock Inc.
--------------------------------------------- ------------
FROM OPERATIONS
<S> <C> <C> <C> <C>
Net investment income (loss) $ (1) $ - $ - $ -
Net realized gains - - - -
Change in unrealized gain 418 - - -
---------- ---------- ---------- ----------
Change in net assets resulting
from operations 417 - - -
FROM CAPITAL TRANSACTIONS
Deposits - - - -
Benefits payments - - - -
Payments on termination - - - -
Contract charges (69) (103) - -
Transfer among the portfolios and
with the general account - net 50,686 75,543 - -
---------- ---------- ---------- ----------
Change in net assets resulting
from capital transactions 50,617 75,440 - -
---------- ---------- ---------- ----------
INCREASE IN NET ASSETS 51,034 75,440 - -
NET ASSETS AT BEGINNING OF PERIOD - - - -
---------- ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 51,034 $ 75,440 $ - $ -
Net asset value per unit at end
of period $ 10.35 $ 10.19 $ - $ -
========== ========== ========== ==========
Units outstanding at end of period 4,931 7,405 - -
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-23
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIOD FROM DECEMBER 29, 1997 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Variable
Fidelity Variable Insurance Insurance Products MFS Variable Insurance
Products Fund Portfolios Fund II Portfolio Trust Portfolios
---------------------------- ------------------- ---------------------------
MFS Emerging MFS Limited
VIP Growth VIP High VIP II Growth Maturity
Fund Income Fund Contrafund Series Series Total
------------ ------------- ---------- ----------- ------------ --------
FROM OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ (1) $ - $ - $ - $ 3,219 $ 3,216
Net realized gains - - - - - -
Change in unrealized gains
317 - - - - 857
--------- --------- --------- --------- --------- --------
Change in net assets resulting
from operations 316 - - - 3,219 4,073
FROM CAPITAL TRANSACTIONS
Deposits - - - - - -
Benefits payments - - - - - -
Payments on termination - - - - - -
Contract charges (69) - - - (69) (379)
Transfer among the portfolios and
with the general account - net 50,937 - - - 52,935 280,529
--------- --------- --------- --------- --------- --------
Change in net assets resulting
from capital transactions 50,868 - - - 52,866 280,150
--------- --------- --------- --------- --------- --------
INCREASE IN NET ASSETS $ 51,184 $ - $ - $ - $ 56,085 $284,223
NET ASSETS AT BEGINNING OF PERIOD - - - - - -
--------- --------- --------- --------- --------- --------
NET ASSETS AT END OF PERIOD $ 51,184 $ - $ - $ - $ 56,085 $284,223
========= ========= ========= ========= ========= ========
Net asset value per unit at end of
period $ 10.51 $ - $ - $ - $ 11.51
========= ========= ========= ========= =========
Units outstanding at end of period 4,868 - - - 4,871
========= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-24
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 29, 1997 (DATE OPERATIONS COMMENCED)
TO DECEMBER 31, 1997
- ------------------------------------------------------------------
1. ORGANIZATION
Glenbrook Life 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 a wholly owned
subsidiary of The Allstate Corporation. The Account was established January
15, 1996, by resolution of the Board of Directors of Glenbrook Life and
began accepting policyholder deposits on December 29, 1997.
Glenbrook Life writes certain life insurance policies, the proceeds of
which are invested at the direction of the policyholder. Policyholders
invest in units of the portfolios comprising the Account, for which they
bear all of the investment risk. The Account, in turn, invests in the
shares of the portfolios of the American Century Variable Portfolios, Inc,
the Dean Witter Variable Investment Series, the Dreyfus Variable Investment
Funds, The Dreyfus Socially Responsible Growth Fund, Inc. (available for
investment beginning February 5, 1998), the Fidelity Variable Insurance
Products Fund, the Fidelity Variable Insurance Products Fund II, and the
MFS Variable Insurance Trust (collectively the "Funds"). Glenbrook Life
provides administrative and insurance services to the Account 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.
Recognition of Investment Income - Investment income consists of dividends
declared by of the Funds and is recognized on the date of record.
Realized Gains and Losses - Realized gains and losses represent the
difference between the proceeds from sales of shares by the Account and the
cost of such shares, which is determined on a weighted average basis.
Policyholder Account Activity - Account activity is reflected in individual
policyholder accounts on a daily basis.
Federal Income Taxes - The Account is intended to qualify as a segregated
asset account as defined in the Internal Revenue Code ("Code"). As such,
the operations of the Account are included with and taxed as a part of
Glenbrook Life. Glenbrook Life is taxed as a life insurance company under
the Code. Under current law, no federal income taxes are payable by the
Account.
Account Value - Certain calculations that could be made in the financial
statements may differ from published amounts due to the truncation of
actual Account values.
3. MORTALITY AND EXPENSE RISK AND CONTRACT CHARGES
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. Glenbrook Life guarantees
that the rate of this charge will not increase over the life of the
contract.
Glenbrook Life deducts certain contract charges including cost of
insurance, tax expense charges and contract maintenance charges. The cost
of insurance charge covers Glenbrook Life's anticipated mortality costs for
standard and substandard risks. The cost of insurance will not exceed the
guaranteed cost of insurance as determined by the 1980 Commissioners
Standard Mortality Table for standard risks. Substandard risks are charged
a higher cost of insurance that will not exceed rates based on a multiple
of the previously mentioned table. The multiple is based on the insured's
substandard rating.
Glenbrook Life deducts monthly a tax expense charge equal to .40% per annum
of policy value for the first 10 years of the policy to cover Glenbrook
Life's expenses for state and federal taxes relating to receipt of premium.
Glenbrook Life deducts a monthly administration fee equal to .25% per annum
of policy value on a monthly basis to compensate Glenbrook Life for
administrative expenses incurred in the administration of the Account.
F-25
<PAGE>
For each year or portion of a year a contract is in effect, Glenbrook Life
deducts a fixed annual contract maintenance charge of $35 as reimbursement
for expenses related to the maintenance of each contract and the Account.
The amount of this charge is guaranteed not to increase over the life of
the contract. This charge is waived if the total purchase payments are
$50,000 or more on a contract anniversary.
4. FINANCIAL INSTRUMENTS
The investments of the Account are carried at fair value, based upon quoted
market prices.
F-26
<PAGE>
5. UNITS ISSUED AND REDEEMED
Units issued and redeemed by the Account during 1997 were as follows:
<TABLE>
<CAPTION>
American Century Variable
Portfolios, Inc.Portfolios Dean Witter Variable Investment Series Portfolios
------------------------------- -------------------------------------------------------
American American
Century Century VIS Dividend VIS European VIS Quality
VP Balanced VP International Growth Growth Income Plus VIS Utilities
----------- ---------------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at beginning of
period - - - - - -
Unit activity during 1997:
Issued 4,952 - - - - -
Redeemed (7) - - - - -
-------- -------- -------- -------- -------- --------
Units outstanding at end of period 4,945 - - - - -
======== ======== ======== ======== ======== ========
</TABLE>
Dreyfus Variable
Investment Fund Portfolios
---------------------------
VIF Growth & VIF Money
Income Market
------------ ---------
Units outstanding at beginning of
period - -
Unit activity during 1997:
Issued 4,938 7,415
Redeemed (7) (10)
-------- --------
Units outstanding at end of period 4,931 7,405
======== ========
F-27
<PAGE>
5. UNITS ISSUED AND REDEEMED (CONTINUED)
Units issued and redeemed by the Account during 1997 were as follows:
<TABLE>
<CAPTION>
Dreyfus Variable Fidelity Variable
Investment Fund Fidelity Variable Insurance Insurance Products
Portfolios The Dreyfus Products Fund Portfolios Fund II Portfolio
--------------- Socially --------------------------- ------------------
Responsible
VIF Small Growth Fund, VIP Growth VIP High VIP II
Company Stock Inc. Fund Income Fund Contrafund
----------- -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Units outstanding at beginning of - - - - -
period
Unit activity during 1997:
Issued - - 4,875 - -
Redeemed - - (7) - -
-------- -------- --------- -------- --------
Units outstanding at end of period - - 4,868 - -
======== ======== ========= ======== ========
</TABLE>
MFS Variable Insurance
Trust Portfolios
----------------------------
MFS Emerging MFS Limited
Growth Maturity
Series Series
------------- ------------
Units outstanding at beginning of
period - -
Unit activity during 1997:
Issued - 4,878
Redeemed - (7)
-------- --------
Units outstanding at end of period - 4,871
======== ========
F-28
