As filed with the Securities and Exchange Commission on April 30, 1999.
-----------------------------------------------------------------------
File No. 333-02581
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 4
TO THE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
(Exact Name of Trust)
GLENBROOK LIFE AND ANNUITY COMPANY
(Name of Depositor)
3100 SANDERS ROAD
NORTHBROOK, IL 60062
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL J. VELOTTA, ESQ.
GLENBROOK LIFE AND ANNUITY COMPANY
3100 SANDERS ROAD
NORTHBROOK, IL 60062
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
RICHARD T. CHOI, ESQUIRE TERRY R. YOUNG, ESQUIRE
FREEDMAN, LEVY, KROLL & SIMONDS ALLSTATE LIFE FINANCIAL SERVICES, INC
1050 CONNECTICUT AVENUE, N.W. 3100 SANDERS ROAD
SUITE 825 NORTHBROOK, IL 60062
WASHINGTON, D.C. 20036-5366
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
/ /immediately upon filing pursuant to paragraph (b) of Rule 485
/x/on May 1, 1999 pursuant to paragraph (b) of Rule 485
/ /60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on (date) pursuant to paragraph (a)(i) of Rule 485
<PAGE>
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ /This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Securities being offered - interests in Glenbrook Life Variable Life Separate
Account A of Glenbrook Life and Annuity Company under modified single premium
variable life insurance contracts.
Approximate date of proposed public offering: continuous.
<PAGE>
GLENBROOK PROVIDER VARIABLE LIFE
GLENBROOK LIFE AND ANNUITY COMPANY PROSPECTUS DATED MAY 1, 1999
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 ("we", "us", or the "Company") for
prospective insured persons age 0-85. The Contract lets you, as the Contract
Owner, pay a significant single premium and, subject to restrictions,
additional premiums.
The Contracts are modified endowment contracts for federal income tax
purposes, except in certain cases described under "Federal Tax Matters," page
__. YOU WILL BE TAXED ON ANY LOAN, DISTRIBUTION OR OTHER AMOUNT YOU RECEIVE
FROM A MODIFIED ENDOWMENT CONTRACT DURING THE LIFE OF THE INSURED TO THE
EXTENT OF ANY ACCUMULATED INCOME IN THE CONTRACT. ANY AMOUNTS THAT ARE TAXABLE
WITHDRAWALS WILL BE SUBJECT TO A 10% PENALTY, WITH CERTAIN EXCEPTIONS.
The minimum initial premium we will accept is $10,000. We allocate premiums to
Glenbrook Life Variable Life Separate Account A ("Variable Account"). The
Variable Account will invest in shares of one or more mutual funds ("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, Inc. ("American Century Funds")
Dreyfus Variable Investment Fund and The Dreyfus Socially Responsible
Growth Fund, Inc. (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")
There is no guaranteed minimum Account Value for a Contract. The Account Value
of your Contract will vary up or down to reflect the investment experience of
the Variable Sub-Accounts to which you have allocated premiums. You bear the
investment risk for all amounts so allocated. The Contract continues in effect
so long as its 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 and 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 you have allocated premiums.
At the death of the Insured, we will pay Death Benefit proceeds to the
beneficiary.
IT MAY NOT BE TO YOUR ADVANTAGE TO PURCHASE VARIABLE LIFE INSURANCE EITHER AS
A REPLACEMENT FOR YOUR CURRENT LIFE INSURANCE OR IF YOU ALREADY OWN A VARIABLE
LIFE INSURANCE CONTRACT.
<PAGE>
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SECURITIES DESCRIBED IN THIS PROSPECTUS, NOR HAS IT PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A
FEDERAL CRIME.
THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE
RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL INSTITUTIONS OR BY EMPLOYEES OF
SUCH BANKS. HOWEVER, THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY AGENCY. INVESTMENT
IN THE CONTRACTS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THE CONTRACTS ARE NOT FDIC INSURED.
2
<PAGE>
TABLE OF CONTENTS
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Page
Special Terms
Summary
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
Confinement Waiver Benefit
Account Value
Transfer of Account Value
Dollar Cost Averaging
Automatic Portfolio Rebalancing
Access to Your Money
Contract Loans
Amount Payable on Surrender of the Contract
Partial Withdrawals
Payment Options
Maturity
Lapse and Reinstatement
Cancellation and Exchange Rights
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
Beneficiary
Assignment
Dividends
3
<PAGE>
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
Executive Officers and Directors of the Company
Year 2000
Legal Proceedings
Legal Matters
Registration Statement
Experts
Financial Information
Financial Statements
4
<PAGE>
SPECIAL TERMS
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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.
Accumulated Income: The Account Value less the total premiums paid (assuming
no loans have been taken).
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.
5
<PAGE>
Specified Amount: The minimum death benefit under a Contract, equal to the
Initial Death Benefit on the Contract Date. Thereafter it may change in
accordance with the terms of the partial withdrawal and the subsequent premium
provisions of the Contract.
Valuation Day: Every day the New York Stock Exchange is open for trading. The
value of the Variable Account is determined at the close of regular trading on
the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on 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.
6
<PAGE>
SUMMARY
NOTE: A glossary of Special Terms used in this Prospectus appears at page __.
THE CONTRACT
The Contracts are life insurance contracts with death benefits, cash values,
and other traditional life insurance features. However, 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 you as the Contract Owner,
have allocated premiums. Similarly, the Death Benefit may increase or decrease
under some circumstances. Nevertheless, so long as the Contract remains in
effect, the Death Benefit will not decrease below the Initial Death Benefit if
no withdrawals are made. We credit the Contracts with units ("Accumulation
Units") to calculate cash values. You may transfer your Account Value among
the Variable Account's Variable Sub-Accounts.
We issue the Contracts on either a single life or a "last survivor" basis. For
a discussion of how last survivor Contracts operate differently from single
life Contracts, see "Access to Your Money--Last Survivor Contracts," page __.
In some states, we issue the Contracts in the form of a group Contract. In
those states, we will issue you a certificate evidencing your rights under the
group Contract. In certain states, we issue certificates 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 with the Securities and Exchange Commission, or "SEC", under the
Investment Company Act of 1940 ("1940 Act"). 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 "The Variable Account--Funds," page __.
Presently, the Variable Account invests in shares of the following Funds:
AIM Fund
American Century Funds
Dreyfus Funds
Fidelity Funds
MFS Fund
The AIM FUND has eight available Portfolios:
AIM V.I. Capital Appreciation Fund
AIM V.I. Growth and Income Fund
AIM V.I. Global Utilities Fund
AIM V.I. Diversified Income Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
7
<PAGE>
The AMERICAN CENTURY FUNDS have two available Portfolios:
American Century VP Balanced
American Century VP International
The DREYFUS FUNDS have five available Portfolios:
VIF Growth and Income
VIF Money Market
The Dreyfus Socially Responsible Growth Fund, Inc.
VIF Small Company Stock
Dreyfus Stock Index Fund
The FIDELITY FUNDS have four available Portfolios:
VIP II Contrafund
VIP Growth
VIP High Income
VIP Equity-Income
The MFS FUND has two available Portfolios:
MFS Emerging Growth Series
MFS Limited Maturity Series
The assets of each Portfolio are accounted for separately from the other
Portfolios. Each has distinct investment objectives and policies, which the
accompanying prospectuses for the Funds describe.
PREMIUMS
The Contract requires you to pay an initial premium of at least $10,000. You
may make additional premium payments 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 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 (1) $5,000, or (2) 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 continue to meet requirements of the Internal
Revenue Code. The Specified Amount is the guaranteed minimum death benefit
under a Contract. We reserve the right to obtain satisfactory evidence of
insurability before accepting any additional premium payments requiring an
increase in Specified Amount. However, we also reserve the right to reject an
8
<PAGE>
additional premium payment for any reason. You may make additional premium
payments 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 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 __.
ACCOUNT VALUE
The Account Value of your Contract will increase or decrease to reflect (1)
the investment experience of the Fund Portfolios underlying the Variable
Sub-Accounts to which you have allocated Account Value; (2) interest credited
to the Loan Account; and (3) deductions for the mortality and expense risk
charge, the Monthly Deduction Amount, and the annual maintenance fee. There is
no minimum guaranteed Account Value; you bear the risk of the investment in
the Variable Sub-Accounts. See "Contract Benefits and Rights -- Account
Value," page __.
CONTRACT LOANS
You may obtain one or both of two types of cash loans from the Company. Both
types of loans are secured by your Contract. The maximum amount available for
these loans is 90% of the Contract's Cash Value, less the sum of:
the amount of all loans existing on the date of the loan request
(including loan interest to the next Contract Anniversary),
any annual maintenance fee due on or before the next Contract
Anniversary, and
any due and unpaid Monthly Deduction Amounts. See "Access to Your
Money--Contract Loans," page __.
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. If that happens, we will give you (1) written notice and (2) a 61 day
grace period during which you may pay additional amounts to continue the
Contract. See "Assess to Your Money--Contract Loans," page __ and "Lapse and
Reinstatement," page __.
CANCELLATION AND EXCHANGE RIGHTS
You have a limited right to return your Contract for cancellation. The right
to return exists during what we call the cancellation period. The cancellation
period is a number of days (which varies by state) as specified in your
contract. If you choose to return the Contract for cancellation, you must
return it by mail or hand delivery, to [US OR] the agent who sold you the
Contract, within the cancellation period following delivery of the Contract to
you. The Company will return to you within 7 days thereafter the premiums paid
for the Contract adjusted to reflect any investment gain or loss resulting
from allocation to the Variable Account prior to the date of cancellation,
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
cancellation of the Contract, the Company reserves the right to allocate all
premium payments made prior to the expiration of the cancellation period to
the VIF Money Market Variable Sub-Account, if that procedure has been approved
by the state.
In addition, once the Contract is in effect you may be able to exchange it
during the first 24 months after its issuance for a non-variable permanent
life insurance contract on the life of the Insured without submitting proof of
insurability. We reserve the right to make such a contract available that is
offered by the Company's parent or any other affiliate of the company. See
"Access to Your Money--Cancellation and Exchange Rights," page __.
9
<PAGE>
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 prior to the
Insured's death 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 __.
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.
These illustrations will be based, as appropriate, on the methodology and
format of the hypothetical illustrations that the Company has included in its
registration statement filed with the SEC for the Contracts. See "Additional
Information About the Company--Registration Statement," page __, for further
information.
FEES AND EXPENSES
The following tables are designed to help you understand the various fees and
expenses that you will bear, directly or indirectly, as a Contract owner. The
first table describes the Contract charges and deductions you will directly
bear under the Contracts. The second table describes the fees and expenses of
the Fund Portfolios you will indirectly bear when you invest in the Contracts.
For further information, see "Deductions and Charges" on page ___ .
CONTRACT CHARGES AND DEDUCTIONS
Account Value Charges (deducted monthly and shown as an annualized percentage
of Account Value):(1)
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT(2) Maximum
---------- -------
Cost of Insurance Charge......... SINGLE Life SINGLE Life
----------- -----------
Standard: 0.65% (Contract Years 1-10); Standard-Ranges from $0.06 per
0.55% (Contract Years 11+) 1,000 of net amount at risk (younger
ages) up to $82.50 per $1,000 of net
amount at risk (age 99)
Special: 1.00% (Contract Years 1-10); Special-Ranges from $0.12 per
0.90% (contract Years 11+) $1,000 of net amount at risk
[(YOUNGER AGES)?] up to $82.92 per
$1,000 of net amount at risk (age 99).
JOINT LIFE JOINT LIFE
---------- ----------
Standard: 0.30% (Contract Years 1-10); Standard-Ranges from $0.00015 per
0.20% (Contract Years 11+) $1,000 of net amount at risk
(younger ages) up to $61.995 per $1,000 of net
amount at risk (age 99)
Special: 0.65% (Contract Years 1-10); Special-Ranges from $0.00061 per
0.55% (Contract Years 11+) $1,000 of net amount at risk (younger
ages) up to $78.71083 per $1,000 of
net amount at risk (age 99).
10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Administrative Expense Charge 0.25%
Tax Expense Charge...................... 0.40%(3)
Annual Separate Account Charges (deducted daily and shown as a percentage of
average net assets):
Mortality and Expense Risk Charge.....0.90% Federal
Income Tax Charge........................Currently none(4)
Annual Maintenance Fee:..................$35(5)
Transfer Charges:........................$10(6)
Maximum Withdrawal Charge:............... 7.75% of initial premium withdrawn(7)
Due and Unpaid Premium Tax Charge: 2.25% OF INITIAL PREMIUM WITHDRAWN(8)
-------------------------------------
</TABLE>
(1) Except for the maximum or "guaranteed" cost of insurance charge,
which is expressed as a range of monthly costs per thousand dollars of
net amount at risk. The net amount at risk is the difference between the
Death Benefit and the Account Value. See "Deductions and
Charges--Monthly Deductions--Cost of Insurance Charge," page ___.
(2) The actual amount of insurance purchased will depend on the
insured's age, sex (where permitted) and rate class. See "Deductions and
Charges--Monthly Deductions--Cost of Insurance Charge," page __. The
current cost of insurance charge under the Contracts will never exceed
the guaranteed cost of insurance charge shown in your Contract.
(3) This charge includes a premium tax deduction of 0.25%, and a federal
tax deduction of 0.15%, of Account Value. We assess this charge only
during the first 10 Contract Years. See "Deductions and Charges--Monthly
Deductions--Tax Expense Charge," page ___.
(4) The Company does not currently assess a charge for federal income
taxes that may be attributable to the operations of the Variable
Account, although it may do so in the future. See "Deductions and
Charges--Other Deductions--Taxes Charged Against the Variable Account,"
page ___.
(5) We waive this fee if total premiums paid are $50,000 or more.
(6) We do not impose this charge on the first 12 transfers in any
Contract Year. The Company reserves the right to assess a $10 charge for
each transfer in excess of 12 in any Contract Year, excluding transfers
due to dollar cost averagin .
(7) This charge applies only upon withdrawals of the initial premium
paid at the time of Contract purchase, and it only applies to
withdrawals in excess of the Free Withdrawal Amount. It does not apply
to withdrawals of any additional payments paid under a Contract. The
withdrawal charge declines to 0% over ten years. We impose it to cover a
portion of the sales expense we incur in distributing the Contracts. See
"Deductions and Charges -- Other Deductions -- Withdrawal Charge," page
__. We will not impose a withdrawal charge on any withdrawal to the
extent that aggregate withdrawal charges and the federal tax portion of
the tax expense charge imposed would otherwise exceed 9% of total
premiums paid prior to the withdrawal. See "Deductions and Charges,"
page __ and "Withdrawal Charge," page __.
(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.
11
<PAGE>
PORTFOLIO ANNUAL EXPENSES (After Voluntary Reductions and Reimbursements)
(as a percentage of Portfolio average daily assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total Portfolio
Portfolio Management Fees Other Expenses Annual Expenses
--------- --------------- -------------- ---------------
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67%
AIM V.I. Diversified Income Fund 0.60% 0.17% 0.77%
AIM V.I. Growth and Income Fund 0.61% 0.04% 0.65%
AIM V.I. Global Utilities Fund 0.65% 0.46% 1.11%
AIM V.I. Government Securities Fund 0.50% 0.26% 0.76%
AIM V.I. Growth Fund 0.64% 0.08% 0.72%
AIM V.I. International Equity Fund 0.75% 0.16% 0.91%
AIM V.I. Value Fund 0.61% 0.05% 0.66%
American Century VP Balanced 0.97% 0.0% 0.97%
American Century VP International 1.47% 0.0% 1.47%
VIP Growth(1) 0.59% 0.07% 0.66%
VIP High Income 0.58% 0.12% 0.70%
VIP Equity-Income(1) 0.49% 0.08% 0.57%
VIP II Contrafund(1) 0.59% 0.07% 0.66%
Dreyfus Socially Responsible Growth 0.75% 0.05% 0.80%
Dreyfus Stock Index Fund 0.25% 0.01% 0.26%
VIF Small Company Stock 0.75% 0.23% 0.98%
VIF Growth and Income 0.75% 0.03% 0.78%
VIF Money Market 0.50% 0.06% 0.56%
MFS Emerging Growth 0.75% 0.10% 0.85%
MFS Limited Maturity(2) 0.55% 0.48% 1.03%
</TABLE>
(1) Absent expense offset and other arrangements that reduce expenses,
total Portfolio annual expenses expressed as a percentage of average
net assets of the Portfolios would have been 0.68% for VIP Growth,
0.58% for VIP Equity-Income, and 0.70% for VIP II Contrafund.
(2) The total Portfolio annual expenses shown do not reflect expense
offset and other arrangements, and are therefore higher than the
actual expenses of the Portfolio.
12
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THE COMPANY
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The Company is the issuer of the Contract. It is a stock life insurance
company organized in 1998 under the laws of the State of Arizona. Previously,
Glenbrook was organized under the laws of the State of Illinois in 1992. The
Company was originally organized under the laws of Indiana in 1965. From 1965
to 1983, the Company was known as "United Standard Life Assurance Company" and
from 1983 to 1992, the Company was known as "William Penn Life Assurance
Company of America." The Company is licensed to operate in the District of
Columbia and all states except New York. The Company intends to market the
Contract in those jurisdictions in which it is licensed to operate. The
Company's headquarters are located at 3100 Sanders Road, Northbrook, Illinois
60062.
The Company is a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), a stock life insurance company incorporated under the laws
of Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance
Company ("Allstate"), a stock property-liability insurance company
incorporated under the laws of Illinois. All of the outstanding capital stock
of Allstate is owned by The Allstate Corporation (the "Corporation").
Glenbrook and Allstate Life entered into a reinsurance agreement effective
June 5, 1992. Under the reinsurance agreement, Allstate Life reinsures
substantially all of Glenbrook's liabilities under its insurance and annuity
contracts. The reinsurance agreement provides us with financial backing from
Allstate Life. However, it does not create a direct contractual relationship
between Allstate Life and you. In other words, the obligations of Allstate
Life under the reinsurance agreement are to Glenbrook; Glenbrook remains the
sole obligor under the Contract to you.
Several independent rating agencies regularly evaluate life insurers'
claims-paying ability, quality of investments, and overall stability. A.M.
Best Company assigns A+ (Superior) to Allstate Life which automatically
reinsures all net business of Glenbrook. A.M. Best Company also assigns
Glenbrook the rating of A+(r) because Glenbrook automatically reinsures all
net business with Allstate Life. Standard & Poor's Insurance Rating Services
assigns AA+ (Excellent) to Glenbrook's financial strength and Moody's assigns
an Aa2 (Excellent) financial strength rating to Glenbrook. Glenbrook shares
the same ratings of its parent, Allstate Life. These ratings do not reflect
the investment performance of the Variable Account. We may from time to time
advertise these ratings in our sales literature.
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<PAGE>
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 SEC under the 1940 Act. The Variable Account meets the
definition of "separate account" under federal securities law. Under Arizona
law, the assets of the Variable Account are held exclusively for the benefit
of Contract Owners and persons entitled to payments under the Contracts. The
assets of the Variable Account are not chargeable with liabilities arising out
of any other business which the Company may conduct.
FUNDS
The Variable Account will invest in shares of one or more Funds. The Funds are
registered with the SEC under the 1940 Act as open-end, series, management
investment companies. Registration of the Funds does not involve supervision
of their management, investment practices or policies by the SEC. 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.
AIM FUND
AIM V.I. Capital Appreciation Fund -- is a diversified Portfolio which
seeks to provide growth of capital.
AIM V.I. Diversified Income Fund -- is a diversified Portfolio which
seeks to achieve a high level of current income. Its investments include
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 growth of capital.
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.
AIM V.I. Growth Fund -- is a diversified Portfolio which seeks to
provide growth of capital.
AIM V.I. Growth and Income Fund -- is a diversified Portfolio which
seeks to provide growth of capital, with current income as a secondary
objective.
AIM V.I. International Equity Fund -- is a diversified Portfolio which
seeks to provide long-term growth of capital.
AIM V.I. Value Fund -- is a diversified Portfolio which seeks to achieve
long-term growth of capital. Income is a secondary objective.
A I M Advisors, Inc. ("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.
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.
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
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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.
FIDELITY FUNDS
VIP II Contrafund - seeks capital appreciation by investing in companies
that Fidelity Management & Research Company ("FMR") believes to be
undervalued due to an overly pessimistic appraisal by the public.
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.
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<PAGE>
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.
NOTE: AS OF MAY 1, 1999, THE MFS LIMITED MATURITY SERIES IS CLOSED TO NEW
INVESTORS, INCLUDING ADDITIONAL ALLOCATIONS AND TRANSFERS MADE BY EXISTING
INVESTORS.
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.
YOU SHOULD READ THE FUND PROSPECTUSES CAREFULLY BEFORE YOU MAKE ANY DECISION
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.
We reinvest all investment income of and other distributions to each Variable
Sub-Account arising from the corresponding Portfolio 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. We will purchase shares in the
Funds in connection with premiums allocated to the corresponding Variable
Sub-Account in accordance with Contract Owners' directions. We 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, we may substitute
shares of another Fund for shares already purchased, or to be purchased in the
future, under the Contracts. We will not make any such substitution without
notice to Contract Owners and without prior approval of the Securities and
Exchange Commission (to the extent such approval is required by the 1940 Act).
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We reserve 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.
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THE CONTRACT
APPLICATION FOR A CONTRACT
Individuals wishing to purchase a Contract must submit an application to the
Company. We will issue a Contract only on the lives of Insureds age 0-85 who
supply evidence of insurability satisfactory to the Company. Acceptance is
subject to the Company's underwriting rules, and we reserve the right to
reject an application for any lawful reason. If we do not issue a Contract, we
will return the premium. We will not change the terms or conditions of a
Contract without the consent of the Contract Owner.
Once we have received the initial premium and approved underwriting, we will
issue the Contract on the date we receive the final requirement for issue. In
the case of simplified underwriting, we will issue the Contract or deny
coverage within 3 business days of our 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 we receive the initial premium,
coverage under a Contract may begin before we issue it. In addition to
determining when coverage begins, the Contract Date determines Monthly
Activity Dates, Contract months, and Contract Years.
If the initial premium is over the limits we establish from time to time
($1,000,000 as of the date of this Prospectus), we will not accept the initial
payment with the application. In other cases where we receive the initial
payment with the application, we will provide fixed conditional insurance
during the underwriting period 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 require a substantial initial premium payment and,
subject to certain conditions, to permit 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 payments 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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
Additional premium payments may be made at any time, subject to the following
conditions:
only one additional premium payment may be made in any Contract Year;
each additional premium payment must be at least $500;
the attained age of the Insured must be less than 86; and
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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 (1) $5,000, or (2) 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 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, we will apply any additional payment
we receive while a Contract loan exists first to reduce Indebtedness, and
second, as an additional premium payment, subject to the conditions described
above.
You may pay additional premiums 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, we will either (1) issue a Contract, or (2)
deny coverage and return all premiums. If we issue a Contract, we will
allocate the initial premium payment, plus an amount equal to the interest
that would have been earned had the initial premium been invested in the AIM
V.I. Money Market Sub-Account since the date of receipt of the premium,
according to the initial premium allocation instructions specified on the
application. We will make this allocation on the date the Contract is issued.
In the future, the Company may allocate the initial premium to the AIM V.I.
Money Market Sub-Account during the cancellation period, in those states where
state law requires premiums to be returned upon exercise of the 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. We will
determine those values on each Valuation Day by multiplying the Accumulation
Unit Value of the particular Variable Sub-Account on the preceding Valuation
Day by the "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 distributed 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. We then subtract from the result
an amount equal to the daily deductions for mortality and expense risk charges
imposed during the Valuation Period. You should refer to the prospectuses for
the Funds which accompany this prospectus for a description of how the assets
of each Fund are valued, because that determination has a direct bearing on
the Accumulation Unit Value of the corresponding Variable Sub-Account (and
therefore on your Account Value). See "Contract Benefits and Rights -- Account
Value," page __.
We make all valuations in connection with a Contract, (E.G., with respect to
determining Account Value and Cash Surrender Value 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), on the date the request or payment is received in good order by
the Company at its headquarters. However, if such date is not a Valuation Day,
we will make the determination on the next succeeding date that 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, you can use the
Contract 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 you
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<PAGE>
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 __.)
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DEDUCTIONS AND CHARGES
MONTHLY DEDUCTIONS
On each Monthly Activity Date including the Contract Date, we 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. We will deduct a portion of the Monthly Deduction Amount from each
Variable Sub-Account proportion to your Account Value allocated to that
Variable Sub-Account. The Monthly Deduction Amount will vary from month to
month. If the Cash Surrender Value is not sufficient to cover a Monthly
Deduction Amount due on any Monthly Activity Date, the Contract may lapse. See
"Access to Your Money--Contract Benefits and Rights--Lapse and Reinstatement,"
page __. 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. However, the current
cost of insurance charge, which we impose by deducting a specified percentage
of your Account Value, will not exceed the guaranteed cost of insurance
charge. This guaranteed charge is the maximum annual cost of insurance per
$1,000 as indicated in the Contract; multiplied by the difference between the
Death Benefit and the Account Value (both as determined on the Monthly
Activity Date); divided by $1,000; and divided by 12. For standard risks, the
guaranteed cost of insurance rate is based on the 1980 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 is
included in each Contract; however, the Company reserves the right to use
rates less than those shown in the table. We will assess special risks at a
higher cost of insurance rate that will, however, 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 maximum guaranteed cost of insurance charge rates are applied to the
difference between the Death Benefit determined on the Monthly Activity Date
and the Account Value on that same date prior to assessing the Monthly
Deduction Amount, because that difference is the amount for which we are 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" on page __.)
Example:
Specified Amount = $100,000
Account Value on the Monthly Activity Date = $30,000
Insured's attained age = 45
Death Benefit ratio for age 45 = 2.15
On the Monthly Activity Date in this example, the Death Benefit as then
computed would be $100,000, because the Specified Amount ($100,000) is greater
than the Account Value multiplied by the applicable Death Benefit ratio
($30,000 x 2.15 = $64,500). Since the Account Value on that date is $30,000,
the guaranteed maximum cost of insurance charges per $1,000 would be applied
to the difference ($100,000 - $30,000 = $70,000).
Assume that the Account Value in the above example was $50,000. The Death
Benefit would then be $107,500 (2.15 x $50,000), since this is greater than
the Specified Amount ($100,000). The maximum 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.
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<PAGE>
Because the Account Value (and, as a result, the amount for which we are 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 we have
assigned a risk rating class 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: We will deduct monthly from the Account Value a tax
expense charge equivalent to an annual rate of 0.40% for the first ten
Contract Years. This charge compensates us for premium taxes imposed by
various states and local jurisdictions and for federal taxes related to our
receipt of premiums under the Contract. 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%. We impose the premium tax deduction regardless of a Contract
Owner's state of residence and, therefore, we assess it whether or not any
premium tax applies. The deduction may be higher or lower than any premium tax
your state imposes. However, we do not expect to make a profit from this
deduction. The 0.15% federal tax deduction helps reimburse us for approximate
expenses we incur for federal taxes resulting from the application of Section
848 of the Code.
ADMINISTRATIVE EXPENSE CHARGE: We will deduct monthly from your Account Value
an administrative expense charge equivalent to an annual rate of 0.25%. This
charge compensates us for administrative expenses we incur in our
administration of the Variable Account and the Contracts.
We take all monthly deductions by canceling Accumulation Units of the Variable
Account under your Contract.
OTHER DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE: We will deduct from the Variable Account a
daily charge equivalent to an annual rate of 0.90% for the mortality risks and
expense risks we assume 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. We also assume a risk that the
Death Benefit will exceed the amount on which the cost of insurance charges
were based, because that determination is made on the Monthly Activity Date
preceding the death of an Insured. The expense risk we assume is that expenses
we incur 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, we will deduct from your Account Value an annual maintenance fee
of $35 on each Contract Anniversary. This fee helps reimburse us for our
administrative and maintenance costs relating to the Contracts.
TAXES CHARGED AGAINST THE VARIABLE ACCOUNT: Currently, we make no charge to
the Variable Account for federal income taxes that may be attributable to the
operations of the Variable Account (as opposed to the federal tax related to
the receipt of premiums under the Contract). We may, however, make such a
charge in the future. We may also assess charges for other taxes, if any,
attributable to the Variable Account or this class of Contracts.
CHARGES AGAINST THE FUNDS: The Variable Account purchases shares of the Funds
at net asset value. The net asset value of 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 "Fund Fees and 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:
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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, we will impose no withdrawal charges. In
addition, we will not impose a withdrawal charge 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.
We impose the withdrawal charge to cover a portion of the sales expense we
incur in distributing the Contracts. This expense includes agents'
commissions, advertising and the printing of prospectuses.
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 applies.
We guarantee that the percentages indicated above will not increase.
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CONTRACT BENEFITS AND RIGHTS
------------------------------------------------------------------------------
DEATH BENEFIT
The Contracts provide for the payment of Death Benefit proceeds to the named
beneficiary when the Insured under the Contract dies. The proceeds payable to
the beneficiary equal the Death Benefit less the sum of:
any Indebtedness, and
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 Death Benefit 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) and $73,100 (the Account Value of $34,000 multiplied by
the Death Benefit ratio of 2.15).
The beneficiary may (1) take all or part of the proceeds in cash, or (2) apply
the proceeds to an Income Plan. See "Other Matters -- Payment Options," page
__.
ACCELERATED DEATH BENEFIT
If the Insured becomes terminally ill, the you may request an accelerated
Death Benefit in an amount up to the lesser of (1) 50% of the Specified Amount
on the day we receive the request, and (2) $250,000 for all policies issued by
the Company that cover the Insured. "Terminally ill" means an illness or
physical condition of the Insured that, notwithstanding appropriate medical
care, will result in a life expectancy of 12 months or less. If the Insured is
terminally ill as the result of an illness, the accelerated Death Benefit is
not available unless the illness occurred at least 30 days after the issue
date. If the Insured is terminally ill as the result of an accident, the
accelerated Death Benefit is available if the accident occurred after the
issue date. The minimum amount of Death Benefit we will accelerate is $10,000.
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. We also reserve the right to
require supporting documentation of the diagnosis and to require (at our
expense) an examination of the Insured by a physician of our choice to confirm
the diagnosis. The amount of the payment will be the amount requested by the
Contract Owner, reduced by the sum of:
a 12 month interest discount to reflect the early payment;
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an administrative fee (not to exceed $250); and
a pro rata amount of any outstanding Contract loan and accrued loan
interest.
After the payment has been made, we will reduce the Specified Amount, the
Account Value and any outstanding Contract loan 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.
CONFINEMENT WAIVER BENEFIT
Under the terms of an endorsement to the Contract, we will waive any
withdrawal charges on partial withdrawals and surrenders of the Contract 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. You must request this waiver either during the period of
confinement 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. We reserve the
right to discontinue the offering of the confinement waiver benefit amendatory
endorsement upon the purchase of a new Contract.
ACCOUNT VALUE
We will compute the Account Value of a Contract 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 Variable 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, you may request that part or all of your Account Value
in a particular Variable Sub-Account be transferred to other Variable
Sub-Accounts. We reserve the right to impose a $10 charge on each such
transfer in excess of 12 per Contract Year. 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 Stock Exchange ("NYSE") is open for trading, you may
make telephone transfer requests by calling 1(800) 526-4827. We effect
telephone transfer requests that we receive before 4:00 p.m., Eastern Time, 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, we will process
telephone transfer requests as of the close of the NYSE on that particular
day. We will not accept 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.
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 they reasonably believe are genuine. We will
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employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; otherwise, we may be liable for any losses due to
unauthorized or fraudulent instructions. The procedures we follow 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, we will reduce the number of Accumulation Units
credited to the Variable Sub-Account from which the transfer is made by an
amount equal to the amount transferred, divided by the Accumulation Unit Value
of the Variable Sub-Account from which the transfer is made next computed
after we receive the transfer request. Similarly, we will increase the number
of Accumulation Units credited to the Variable Sub-Account to which the
transfer is made by an amount equal to the amount transferred, divided by the
Accumulation Unit Value of that Variable Sub-Account next computed after we
receives the transfer request.
DOLLAR COST AVERAGING
You may make transfers automatically through Dollar Cost Averaging while the
Contract is in force. Dollar Cost Averaging permits you to transfer a
specified amount every month (or some other interval as may be determined by
the Company) from the Money Market Variable Sub-Account to any other Variable
Sub-Account. The theory of Dollar Cost Averaging is that, if purchases of
equal dollar amounts are made at fluctuating prices, the aggregate average
cost per unit will be less than the average of the unit prices on the same
purchase dates. However, participation in the Dollar Cost Averaging program
does not assure you of a greater profit from your purchases under the program;
nor will it prevent or alleviate losses in a declining market. We impose no
additional charges upon participants in the Dollar Cost Averaging program.
Transfers under Dollar Cost Averaging are not counted toward the 12 free
transfers per Contract Year we currently permit.
AUTOMATIC PORTFOLIO REBALANCING
You may make transfers automatically through Automatic Portfolio Rebalancing
while the Contract is in force. Under our Automatic Portfolio Rebalancing
program, we will rebalance your Account Value in the Variable Sub-Accounts to
your desired allocation on a quarterly basis, determined from the first date
that you rebalance.
The allocation we use will be the allocation you initially selected, unless
you subsequently changed it. 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 our receipt of the written
request.
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ACCESS TO YOUR MONEY
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CONTRACT LOANS
While the Contract is in force, you 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 your Contract. The maximum amount available for a loan is 90% of
the Contract's Cash Value, less the sum of:
the amount of all Contract loans existing on the date of the loan
(including loan interest to the next Contract Anniversary),
any due and unpaid Monthly Deduction Amounts, and
any annual maintenance fee due on or before the next Contract
Anniversary.
We will transfer the loan amount to the Loan Account from the Variable
Sub-Accounts in proportion to your Account Value in each (unless you specify
otherwise). We will credit the amounts allocated to the Loan Account with
interest at the loan credited rate set forth in the Contract. Loans will bear
interest at rates we determine 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 from the Variable Sub-Accounts (in proportion to your Account
Value in each) 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, we will give you written notice that,
unless we receive 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 percentages as apply to subsequent premium payments (unless you request a
different allocation). We will deduct from the Loan Account an amount equal to
the payment. Any outstanding loan at the end of a grace period must be repaid
before we will reinstate the Contract. See "Contract Benefits and Rights --
Lapse and Reinstatement," page __.
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, you may elect, without the consent of the
beneficiary (provided the designation of beneficiary is not irrevocable), to
fully surrender the Contract. Upon surrender, you will receive the Cash
Surrender Value determined as of the day we receive your written request or,
if later, the date you requested. The Cash Surrender Value equals the Cash
Value less the annual maintenance fee and any Indebtedness. We will pay the
Cash Surrender Value of the Contract within seven days of our receipt of the
written request or on the effective surrender date you requested, whichever is
later.
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The Contract will terminate on the date of our receipt of your written
request, or the date you request the surrender to be effective, whichever is
later. For a discussion of the tax consequences of surrendering the Contract,
see "Federal Tax Matters," page __.
You may elect to apply the surrender proceeds to an Income Plan (see "Other
Matters -- Payment Options," page __).
PARTIAL WITHDRAWALS
While the Contract is in force, you may elect, by written request, to make
partial withdrawals of at least $50 from the Contract's Cash Surrender Value.
The Cash Surrender Value, after the partial withdrawal, must at least equal
$2,000; otherwise, we will treat the request as a request for full surrender.
The partial withdrawal will be deducted from the Variable Sub-Accounts in
proportion to your Account Value in each, unless you instruct 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 __. For a discussion of the tax consequences
of partial withdrawals, see "Federal Tax Matters," page __ . PAYMENT OPTIONS
The surrender proceeds or Death Benefit proceeds under the Contracts may be
paid in a lump sum, or you may apply the proceeds to one of our 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, we may require
that the frequency of income payments be decreased such that the income
payments are greater than $20 each, or we may elect to pay the amount in a
lump sum. No surrender or partial withdrawals are permitted after payments
under an Income Plan commence.
We will pay interest on the proceeds from the date of the Insured's death to
the date payment is made or a payment option is elected. At such times, the
proceeds are not subject to the investment experience of the Variable Account.
The Income Plans are fixed annuities payable from our general account. They do
not reflect the investment experience of the Variable Account. We will
determine fixed annuity payments by multiplying the amount applied to the
annuity by a rate we determine, which is no less than the rate specified in
the fixed payment annuity tables in the Contract. The annuity payment will
remain level for the duration of the annuity. We may require proof of age and
sex of the payee (and joint payee, if applicable) before payments begin. We
may also require proof that such person(s) are living before it makes each
payment.
The following options are available under the Contracts (we 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
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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.
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. If that happens, we give you written notice 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 __.
If the Contract lapses, you may apply for reinstatement of the Contract by
paying the reinstatement premium (and any applicable charges) required under
the Contract. You must make a request for reinstatement within five years of
the date the Contract entered a grace period. If a loan was outstanding at the
time of lapse, we will require repayment of the loan before permitting
reinstatement. In addition, we reserve the right to require evidence of
insurability satisfactory to us. The reinstatement premium is equal to an
amount sufficient to:
cover all Monthly Deduction Amounts and annual maintenance fees due and
unpaid during the grace period, and
keep the Contract in force for three months after the date of
reinstatement.
The Specified Amount upon reinstatement cannot exceed the Specified Amount of
the Contract at its lapse. The Account Value on the reinstatement date will
reflect the Account Value at the time of termination of the Contract plus the
premiums paid at the time of reinstatement. Withdrawal charges and due and
unpaid premium tax charges, cost of insurance, and tax expense charges will
continue to be based on the original Contract Date.
CANCELLATION AND EXCHANGE RIGHTS
You have a limited right to return a Contract for cancellation. This right to
return exists during what we call the cancellation period. The cancellation
period is a number of days which varies by state as specified in your
contract. If you choose to exercise this right, you must return the Contract
for cancellation by mail or personal delivery to the Company (or to the agent
who sold the Contract) within the cancellation period following delivery of
the Contract to you. We will then return to you within 7 days thereafter the
sum of:
the Account Value on the date the returned Contract is received by the
Company or its agent; and
any deductions under the Contract or by the Funds for taxes, charges or
fees.
Some states may require the Company to return the premiums paid for the
returned Contract.
Once the Contract is in effect, you may exchange it during the first 24 months
after its issuance for a non-variable permanent life insurance contract we
offer on the life of the Insured. 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.
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We reserve the right to make such a contract available that is offered by the
Company's parent or by any other affiliate of the Company.
SUSPENSION OF VALUATION, PAYMENTS AND TRANSFERS
We will suspend all procedures requiring valuation of the Variable Account
(including transfers, surrenders and loans) on any day the New York Stock
Exchange is closed or trading is restricted due to an existing emergency as
defined by the SEC, or on any day the SEC has ordered that the right of
surrender of the Contracts be suspended for the protection of Contract Owners,
until such condition has ended.
LAST SURVIVOR CONTRACTS
We offer the Contracts on either a single life or a "last survivor" basis.
Contracts sold on a last survivor basis operate in a manner almost identical
to the single life version. The most important difference is that the last
survivor version involves two Insureds and the proceeds are paid only on the
death of the last surviving Insured. The other significant differences between
the last survivor and single life versions are listed below:
Last survivor Contracts are offered for prospective insured persons age
18-85.
The cost of insurance charges under the last survivor Contracts are
determined in a manner that reflects the anticipated mortality of the
two Insureds and the fact that the Death Benefit is not payable until
the death of the second Insured.
To qualify for simplified underwriting under a last survivor Contract,
both Insureds must meet the simplified underwriting standards.
For a last survivor Contract to be reinstated, both Insureds must be
alive on the date of reinstatement.
The Contract provisions regarding misstatement of age or sex, suicide
and incontestability apply to either Insured.
Additional tax disclosures applicable to last survivor Contracts are
provided in "Federal Tax Matters," page __.
The Accelerated Death Benefit provision is only available upon terminal
illness of the last survivor.
The Confinement Waiver Benefit is available upon confinement of either
Insured.
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OTHER MATTERS
VOTING RIGHTS
In accordance with our view of presently applicable law, we will vote the
shares of the Funds at regular and special meetings of their shareholders in
accordance with instructions from Contract Owners (or their assignees, as the
case may be) having a voting interest in the Variable Account. We determine
the number of shares of a Fund Portfolio held in a Variable Sub-Account that
are attributable to each Contract Owner by dividing the Contract Owner's
interest in that Variable Sub-Account by the per share net asset value of the
corresponding Fund Portfolio. We will vote shares for which no instructions
have been given and shares which are not attributable to Contract Owners
(I.E., shares we own) in the same proportion as we vote shares for which we
have received instructions. If the 1940 Act or any rule promulgated thereunder
should be amended, however, or if our present interpretation should change
and, as a result, we determine we are permitted to vote the shares of the
Funds in our own right, we may elect to do so.
We will determine the voting interests of the Contract Owner (or the assignee)
in the Funds as follows: Contract Owners are entitled to give us voting
instructions 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 Variable Sub-Account(s) to the Loan
Account in connection with the loan (see "Access to Your Money--Contract
Benefits and Rights--Contract Loans," page __) will not be considered in
determining the voting interests of the Contract Owner. You should review the
prospectuses for the Funds which accompany this prospectus to determine
matters on which Fund shareholders may vote.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require us to vote the shares so as to
cause a change in the sub-classification or investment objective of one or
more of the Fund Portfolios or to approve or disapprove an investment advisory
contract for any of the Fund Portfolios.
In addition, we may disregard voting instructions in favor of changes
initiated by Contract Owners in the investment objectives or the investment
adviser of the Funds if we reasonably disapprove of such changes. We will
disapprove a change only if the proposed change would be contrary to state law
or prohibited by state regulatory authorities. If we do disregard voting
instructions, we will include a summary of that action and the reasons for it
in the next periodic report to Contract Owners.
STATEMENTS TO CONTRACT OWNERS
The Company will maintain all records relating to the Variable Account and the
Variable Sub-Accounts. At least once each Contract Year, we will send to each
Contract Owner a statement showing the coverage amount and the Account Value
of the Contract (indicating the number of Accumulation Units credited to the
Contract in each Variable Sub-Account and the corresponding Accumulation Unit
Value), and any outstanding loan secured by the Contract as of the date of the
statement. The statement will also show 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
We 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 the effective date
of the increase. 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.
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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.
BENEFICIARY
You name the beneficiary in your application for the Contract. You may change
the beneficiary (unless irrevocably named) during the Insured's lifetime by
written request to the Company. If no beneficiary is living when the Insured
dies, we will pay the proceeds to the Contract Owner if living; otherwise to
the Contract Owner's estate.
ASSIGNMENT
Unless required by state law, the Contract may not be assigned as collateral
for a loan or other obligation.
DIVIDENDS
No dividends will be paid under the Contracts.
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, sales 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 Contract 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.
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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
We are taxed as a life insurance company under Part I of Subchapter L of the
Internal Revenue Code. Since the Variable Account is not an entity separate
from the Company and its operations form a part of the Company, it will not be
taxed separately. Under the Code, the Company believes that the Variable
Account investment income and net capital gains will not be taxed because they
are applied to increase the reserves under the Contracts. Accordingly, the
Company does not currently make provisions for any such taxes. If the Company
is taxed on investment income or capital gains of the Variable Account, then
the Company may impose a charge against the Variable Account in the future.
TAXATION OF CONTRACT BENEFITS
To qualify as a life insurance contract for federal income tax purposes, the
Contract must meet the definition of a life insurance contract set forth in
Section 7702 of the Code. Section 7702 limits the amount of premiums that may
be invested in a contract. Section 7702 does not address certain features of
the Contract. Nevertheless, the Company believes that the Contact will meet
the Section 7702 definition of a life insurance contract. This means that:
the death benefit will be fully excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code; and
the Contract Owner will not be taxed on the Cash Value of the Contract,
including any increases, until actual distributions from the Contract.
In addition, under proposed regulations interpreting Section 7702, it is
unclear whether a substandard risk Contract will meet the Section 7702
definition. If a Contract were not a life insurance contract under Section
7702, the Contract would not provide most of the tax advantages normally
provided by a life insurance contract. The Company reserves the right to amend
the Contracts to comply with any future changes in the Code, any regulations
or rulings under the Code and any other requirements imposed by the Internal
Revenue Service.
Upon surrender of the Contract, the cash surrender value is taxable to the
extent it exceeds the investment in the Contract. The investment in the
Contract is the gross premium or other consideration paid for the Contract
reduced by any amounts previously received from the Contract to the extent
such amounts were properly excluded from gross income. For non-modified
endowment contracts, a partial withdrawal, or a reduction in benefit in the
first fifteen years of the Contract, may result in a taxable distribution of
income before recovery of the investment in the Contract. Partial withdrawals
and reduction in benefits on non-modified endowment contracts after fifteen
years are taxed first as a recovery of investment in the Contract, then as a
taxable distribution of income.
If you own and are the Insured under the Contract, the Death Benefit will be
included in your gross estate for federal estate tax purposes if the proceeds
are payable to your estate. If the beneficiary is other than your estate but
you retained incidents of ownership in the Contract, the Death Benefit will
also be included in your gross estate. Examples of incidents of ownership
include, but are not limited to, the right:
to change beneficiaries.
to assign the Contract or revoke an assignment,
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to pledge the Contract, or
to obtain a policy loan.
If you own and are the Insured under the Contract and you transfer all
incidents of ownership in the Contract, the Death Benefit will be included in
your gross estate if you die within three years from the date of the ownership
transfer. State and local estate and inheritance tax consequences may also
apply. In addition, certain transfers of the Contract or Death Benefit, either
during life or at death, to individuals (or trusts for the benefit of such
individuals) two or more generations below that of the transferor may be
subject to the federal generation skipping transfer tax.
In addition, the Contract may be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans, and
others. The tax consequences of such plans may vary depending on the
particular facts and circumstances of each individual arrangement. Therefore,
if you are contemplating the use of a Contract in any arrangement in which the
value depends in part on tax consequences, you should be sure to consult a
qualified tax advisor about the tax attributes of the arrangement.
MODIFIED ENDOWMENT CONTRACTS
A life insurance contract is treated as a "modified endowment contract" under
Section 7702A of the Code if it meets the definition of life insurance in
Section 7702 but fails the "seven-pay" test of Section 7702A. The seven-pay
test provides that premiums cannot be paid at a rate more rapidly than that
allowed by the payment of seven annual premiums using specified computational
rules provided in Section 7702A(c).
The large single premium permitted under the Contract (which is equal to 100%
of the "Guideline Single Premium" as defined in Section 7702 of the Code) does
not meet the specified computational rules for the "seven-pay test" under
Section 7702A(c). Therefore, the Contract will generally be treated as a
modified endowment contract for federal income tax purposes. However, an
exchange of a life insurance contract that is not a modified endowment
contract will not cause the new contract to be a modified endowment contract
if no additional premiums are paid. An exchange under Section 1035 of the Code
of a life insurance contract that is a modified endowment contract for a new
life insurance contract will always cause the new contract to be a modified
endowment contract.
A contract that is classified as a modified endowment contract is generally
eligible for the beneficial tax treatment accorded to life insurance.
Accordingly, the death benefit is excluded from income and increases in value
are not subject to current taxation. If a person receives any amount as a
policy loan from a modified endowment contract, or assigns or pledges any part
of the value of the contract, that amount is treated as a distribution. All
distributions received before the insured's death are treated first as income
(to the extent of gain) and then as recovery of investment in the contract.
Any amounts that are taxable withdrawals will be subject to a 10% additional
tax, with certain exceptions:
distributions made on or after the date on which the taxpayer attains
age 59 1/2;
distributions attributable to the taxpayer's becoming disabled (within
the meaning of Section 72(m)(7) of the Code); or
any distribution that is part of a series of substantially equal
periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of such taxpayer and his or her beneficiary.
All modified endowment contracts that are issued within any calendar year to
the same Contract Owner by one company or its affiliates shall be treated as
one modified endowment contract in determining the taxable portion of any loan
or distributions.
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.
35
<PAGE>
Although the Company does not have control over the Funds or their
investments, the Company expects the Funds to meet the diversification
requirements.
OWNERSHIP TREATMENT
In connection with the issuance of the regulations on the adequate
diversification standards, the Department of the Treasury announced that the
regulations do not provide guidance concerning the extent to which contract
owners may direct their investments among sub-accounts of a Variable Account.
The Internal Revenue Service has previously stated in published rulings that a
variable contract owner will be considered the owner of separate account
assets if the owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. At the time the
diversification regulations were issued, the Treasury Department announced
that guidance would be issued in the future regarding the extent that owners
could direct their investments among sub-accounts without being treated as
owners of the underlying assets of the Variable Account.
The ownership rights under this contract are similar to, but different in
certain respects from, those described by the service in rulings in which it
was determined that contract owners were not owners of separate account
assets. For example, the owner of this contract has the choice of more
investment options to which to allocate premiums and contract values, and may
be able to transfer among investment options more frequently than in such
rulings. These differences could result in the contract owner being treated as
the owner of the Variable Account. In those circumstances, income and gain
from the Variable Account assets would be includible in the Contract Owner's
gross income. In addition, the Company does not know what standards will be
set forth in the regulations or rulings which the Treasury Department has
stated it expects to issue. It is possible that the 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.
36
<PAGE>
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.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers of the Company are listed below, with
information as to their ages, dates of election and principal business
occupations during the last five years (if other than their present business
occupations).
LOUIS G. LOWER, II, 52, Chief Executive Officer and Chairman of the Board
(1995)*
Also Director (1986-Present) and Senior Vice President (1995-Present) of
Allstate Insurance Company; Director (1991-Present) of Allstate Life Financial
Services, Inc.; Director (1986-Present) and President (1990-Present) Allstate
Life Insurance Company; Director (1983-Present) and Chairman of the Board
(1990-Present) of Allstate Life Insurance Company of New York; Director
(1990-1997), Chairman of the Board of Directors and Chief Executive Officer
(1995-1997), Chairman of the Board of Directors and President (1990-1995) of
Glenbrook Life Insurance Company; Director and Chairman of the Board
(1995-Present) of Laughlin Group Holdings, Inc.; Director and Chairman of the
Board of Directors and Chief Executive Officer (1989-Present) Lincoln Benefit
Life Company; Director (1986-Present), Chairman of the Board of Directors and
Chief Executive Officer (1995-Present) of Northbrook Life Insurance Company;
and Chairman of the Board of Directors and Chief Executive Officer
(1995-Present) Surety Life Insurance Company.
THOMAS J. WILSON, II, 41, Vice Chairman (1999)* Also Director (1995-Present) and
Senior Vice President (1999) of Allstate Insurance Company; Director (1999)
Allstate Life Financial Services, Inc.; Director (1995-Present) and President
(1999) Allstate Life Insurance Company; Director (1999) and President
(1998-Present) of Allstate Life Insurance Company of New York; Director (1999)
and Vice Chairman of Glenbrook Life and Annuity Company; Director (1999) Lincoln
Benefit Life Company; Director (1999) and Vice Chairman of Northbrook Life
Insurance Company; Director (1999) of Surety Life Insurance Company.
PETER H. HECKMAN, 52, President, Chief Operating Officer and Director (1996)*
Also Director and Vice President (1988-Present) of Allstate Life Insurance
Company; Director (1990-1996), Vice President (1989-Present), Allstate Life
Insurance Company of New York; Director (1991-1993) of Allstate Life Financial
Services, Inc.; Director (1990-1997), President and Chief Operating Officer
(1996-1997), and Vice President (1990-1996), Glenbrook Life Insurance Company;
Director (1995-Present) and Vice Chairman of the Board (1996-Present) Laughlin
Group Holdings, Inc.; Director (1990-Present) and Vice Chairman of the Board
(1996-Present) Lincoln Benefit Life Company; Director (1988-Present) President
and Chief Operating Officer (1996-Present), and was Vice President
(1989-1996), Northbrook Life Insurance Company; and Director (1995-Present)
and Vice Chairman of the Board (1996-Present) Surety Life Insurance Company.
MICHAEL J. VELOTTA, 52, Vice President, Secretary, General Counsel, and
Director (1992)*
Also Director and Secretary (1993-Present) of Allstate Life Financial
Services, Inc.; Director (1992-Present) Vice President, Secretary and General
Counsel (1993-Present) Allstate Life Insurance Company; Director
(1992-Present) Vice President, Secretary and General Counsel (1993-Present)
Allstate Life Insurance Company of New York; Director (1992-1997) Vice
President, Secretary and General Counsel (1993-1997) Glenbrook Life Insurance
Company; Director and Secretary (1995-Present) Laughlin Group Holdings, Inc.;
Director (1992-Present) and Assistant Secretary (1995-Present) Lincoln Benefit
Life Company; Director (1992-Present) Vice President, Secretary and General
Counsel (1993-Present) Northbrook Life Insurance Company; and Director and
Assistant Secretary (1995-Present) Surety Life Insurance Company.
JOHN R. HUNTER, 43, Director (1996)*
37
<PAGE>
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.
YEAR 2000
Glenbrook is heavily dependent upon complex computer systems for all phases of
its operations, including customer service, and policy and contract
administration. Since many of Glenbrook's older computer software programs
recognize only the last two digits of the year in any date, some software may
fail to operate properly in or after the year 1999, if the software is not
reprogrammed or replaced ("Year 2000 Issue"). Glenbrook believes that many of
its counterparties and suppliers also have Year 2000 Issues which could affect
Glenbrook. In 1995, Allstate Insurance Company commenced a plan intended to
mitigate and/or prevent the adverse effects of Year 2000 Issues. These
strategies include normal development and enhancement of new and existing
systems, upgrades to operating systems already covered by maintenance agreements
and modifications to existing systems to make them Year 2000 compliant. The plan
also includes Glenbrook actively working with its major external counterparties
and suppliers to assess their compliance efforts and Glenbrook's exposure to
them. Glenbrook presently believes that it will resolve the Year 2000 Issue in a
timely manner, and the financial impact will not materially affect its results
of operations, liquidity or financial position. Year 2000 costs are and will be
expensed as incurred.
38
<PAGE>
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 state law pertaining to
the Contracts, including the validity of the Contracts and the Company's right
to issue such Contracts under state insurance law, have been passed upon by
Michael J. Velotta, General Counsel of the Company.
REGISTRATION STATEMENT
We have filed a registration statement with respect to the Contracts 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 and the related financial statement schedule of
Glenbrook and the financial statements of the Variable Account included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The hypothetical Contract illustrations previously included in the Company's
registration statement have been approved by Diana Montigney, FSA, Allstate Life
Insurance Company, and were included in reliance upon her opinion as to their
reasonableness.
FINANCIAL INFORMATION
The financial statements 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.
39
<PAGE>
Financial Statements
INDEX
PAGE
Independent Auditors' Report................................................F-1
Financial Statements:
Statements of Financial Position
December 31, 1998 and 1997........................................F-2
Statements of Operations and Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996..................................F-3
Statements of Shareholder's Equity for the Years Ended
December 31, 1998, 1997 and 1996..................................F-4
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996..................................F-5
Notes to Financial Statements........................................F-6
Schedule IV - Reinsurance for the Years Ended
December 31, 1998, 1997 and 1996..................................F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (the "Company", an affiliate of The Allstate
Corporation) as of December 31, 1998 and 1997, and the related Statements of
Operations and Comprehensive Income, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1998. Our audits also
included Schedule IV - Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 19, 1999
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
December 31,
------------
($ in thousands) 1998 1997
---- ----
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $87,415 and $81,369) $ 94,313 $ 86,243
Short-term 4,663 4,231
---------- ----------
Total investments 98,976 90,474
Reinsurance recoverable from Allstate Life
Insurance Company 3,113,278 2,637,983
Other assets 2,590 2,549
Separate Accounts 993,622 620,535
---------- ----------
TOTAL ASSETS $4,208,466 $3,351,541
========== ==========
LIABILITIES
Contractholder funds 3,113,278 2,637,983
Current income taxes payable 2,181 609
Deferred income taxes 2,499 1,772
Payable to affiliates, net 3,583 2,698
Separate Accounts 993,622 620,535
---------- ----------
TOTAL LIABILITIES 4,115,163 3,263,597
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 9)
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 4,200 shares
authorized, issued and outstanding 2,100 2,100
Additional capital paid-in 69,641 69,641
Retained income 17,079 13,035
Accumulated other comprehensive income:
Unrealized net capital gains 4,483 3,168
---------- ----------
Total accumulated other comprehensive income 4,483 3,168
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 93,303 87,944
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $4,208,466 $3,351,541
========== ==========
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
REVENUES
Net investment income $ 6,231 $ 5,304 $ 3,774
Realized capital gains and losses (5) 3,460 --
------- ------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 6,226 8,764 3,774
Income tax expense 2,182 3,078 1,339
------- ------- -------
NET INCOME 4,044 5,686 2,435
------- ------- -------
OTHER COMPREHENSIVE INCOME, AFTER-TAX
Change in unrealized net capital
gains and losses 1,315 378 (567)
------- ------- -------
COMPREHENSIVE INCOME $ 5,359 $ 6,064 $ 1,868
======= ======= =======
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
December 31,
------------
($ in thousands) 1998 1997 1996
---- ---- ----
COMMON STOCK $ 2,100 $ 2,100 $ 2,100
-------- -------- --------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year 69,641 69,641 49,641
Capital contribution -- -- 20,000
-------- -------- --------
Balance, end of year 69,641 69,641 69,641
-------- -------- --------
RETAINED INCOME
Balance, beginning of year 13,035 7,349 4,914
Net income 4,044 5,686 2,435
-------- -------- --------
Balance, end of year 17,079 13,035 7,349
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year 3,168 2,790 3,357
Change in unrealized net capital gains
and losses 1,315 378 (567)
-------- -------- --------
Balance, end of year 4,483 3,168 2,790
-------- -------- --------
Total shareholder's equity $ 93,303 $ 87,944 $ 81,880
======== ======== ========
See notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,044 $ 5,686 $ 2,435
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and other non-cash items (24) 29 --
Realized capital gains and losses 5 (3,460) --
Changes in:
Income taxes payable 1,590 240 (1,223)
Other operating assets and liabilities 915 961 717
-------- -------- --------
Net cash provided by operating activities 6,530 3,456 1,929
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,966 1,405 --
Investment collections 7,123 14,217 2,891
Investment purchases (15,250) (50,115) (5,667)
Participation in Separate Accounts -- 13,981 (232)
Change in short-term investments, net (369) (2,944) 815
-------- -------- --------
Net cash used in investing activities (6,530) (23,456) (2,193)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution -- 20,000 --
-------- -------- --------
Net cash provided by financing activities -- 20,000 --
-------- -------- --------
NET DECREASE IN CASH -- -- (264)
CASH AT THE BEGINNING OF YEAR -- -- 264
-------- -------- --------
CASH AT END OF YEAR $ -- $ -- $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash financing activity:
Capital contribution receivable from
Allstate Life Insurance Company $ -- $ -- $ 20,000
======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). These financial statements have been prepared in conformity with
generally accepted accounting principles.
To conform with the 1998 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets savings products and life insurance through banks, direct
marketing and broker-dealers. Savings products include deferred annuities, such
as variable annuities and fixed rate single and flexible premium annuities. Life
insurance includes universal life and variable life products. The Company has
entered into exclusive distribution arrangements with management investment
companies to market its variable annuity contracts. In 1998, substantially all
of the Company's statutory premiums and deposits were from annuities. The
Company re-domesticated its operations from Illinois to Arizona in 1998.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrender or withdrawal by customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal and
state regulation and legislation that, if passed, would allow banks greater
participation in securities and insurance businesses, which would present an
increased level of competition, as well as opportunities, for sales of the
Company's life and savings products. Furthermore, the market for deferred
annuities and interest-sensitive life insurance is enhanced by the tax
incentives available under current law. Any legislative changes which lessen
these incentives are likely to negatively impact the demand for these products.
Although the Company currently benefits from agreements with financial services
entities who market and distribute its products, change in control of these
non-affiliated entities with which the Company has alliances could have a
detrimental effect on the Company's sales.
Additionally, traditional demutualizations of mutual insurance companies and
enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; and (2) increasing competition in the
capital markets.
F-6
<PAGE>
The Company is authorized to sell life and savings products in all states except
New York, as well as in the District of Columbia. The top geographic locations
for statutory premiums and deposits for the Company are Florida, Pennsylvania,
Texas, California and Tennessee for the year ended December 31, 1998. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits.
Substantially all premiums and deposits are ceded to ALIC under reinsurance
agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost or amortized cost, which approximates fair value.
Investment income consists primarily of interest and dividends on short-term
investments. Interest is recognized on an accrual basis and dividends are
recorded at the ex-dividend date. Interest income on mortgage-backed securities
is determined on the effective yield method, based on the estimated principal
repayments. Accrual of income is suspended for fixed income securities that are
in default or when the receipt of interest payments is in doubt. Realized
capital gains and losses are determined on a specific identification basis.
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC. Such amounts are reflected net of such reinsurance in the
statements of operations and comprehensive income. The amounts shown in the
Company's statements of operations and comprehensive income relate to the
investment of those assets of the Company that are not transferred under
reinsurance agreements. Reinsurance recoverable and the related contractholder
funds are reported separately in the statements of financial position. The
Company continues to have primary liability as the direct insurer for risks
reinsured.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Revenues on universal life-type contracts are comprised of contract charges and
fees, and are recognized when assessed against the policyholder account balance.
Revenues on investment contracts include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balance. All premium revenues and contract charges are primarily
reinsured with ALIC.
INCOME TAXES
The income tax provision is calculated under the liability method and presented
net of reinsurance. Deferred tax assets and liabilities are recorded based on
the difference between the financial statement and tax bases of assets and
liabilities at the enacted tax rates.
F-7
<PAGE>
Deferred income taxes arise from unrealized capital gains and losses on fixed
income securities carried at fair value and differences in the tax bases of
investments.
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity and variable life
policies, the assets and liabilities of which are legally segregated and
reflected in the accompanying statements of financial position as assets and
liabilities of the Separate Accounts. The Company's Separate Accounts consist
of: Glenbrook Life and Annuity Company Separate Account A, Glenbrook Life and
Annuity Company Variable Annuity Account, Glenbrook Life Variable Life Separate
Account A, Glenbrook Life Scudder Variable Account (A), Glenbrook Life
Multi-Manager Variable Account, Glenbrook Life AIM Variable Life Separate
Account A and Glenbrook Life Variable Life Separate Account B. Each of the
Separate Accounts are unit investment trusts registered with the Securities and
Exchange Commission.
The assets of the Separate Accounts are carried at fair value. Investment income
and realized capital gains and losses of the Separate Accounts accrue directly
to the contractholders and, therefore, are not included in the Company's
statements of operations and comprehensive income. Revenues to the Company from
the Separate Accounts consist of contract maintenance fees, administration fees,
mortality and expense risk charges and cost of insurance charges, all of which
are reinsured with ALIC.
Prior to 1998, the Company had an ownership interest ("Participation") in the
Separate Accounts. The Company's Participation was carried at fair value and
unrealized gains and losses, net of deferred income taxes, were shown as a
component of shareholder's equity. Investment income and realized capital gains
and losses which arose from the Participation were included in the Company's
statements of operations and comprehensive income. The Company liquidated its
Participation during 1997, which resulted in a pretax realized capital gain of
$3.5 million.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most fixed annuities
and universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the contractholder less withdrawals, mortality
charges and administrative expenses. During 1998, credited interest rates on
contractholder funds ranged from 3.46% to 11.00% for those contracts with fixed
interest rates and from 3.75% to 10.00% for those with flexible rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-8
<PAGE>
NEW ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive income is a
measurement of certain changes in shareholder's equity that result from
transactions and other economic events other than transactions with
shareholders. For the Company, these consist of changes in unrealized gains and
losses on the investment portfolio (See Note 8).
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 redefines how segments are
determined and requires additional segment disclosures for both annual and
interim financial reporting. The Company has identified itself as a single
operating segment.
PENDING ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP is required to be adopted in 1999. The
SOP provides guidance concerning when to recognize a liability for
insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: 1) an assessment has been
imposed or it is probable that an assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying alternatives for estimating the accrual. In addition,
industry groups are working to improve the information available. Adoption of
this standard is not expected to be material to the results of operations or
financial position of the Company.
3. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such reinsurance in the statements of
operations and comprehensive income. The amounts shown in the Company's
statements of operations and comprehensive income relate to the investment of
those assets of the Company that are not transferred under reinsurance
agreements. Reinsurance recoverable and the related contracholder funds are
reported separately in the statements of financial position. The Company
continues to have primary liability as the direct insurer for risks reinsured.
F-9
<PAGE>
Investment income earned on the assets which support contractholder funds is not
included in the Company's financial statements as those assets are owned and
managed under terms of reinsurance agreements. The following amounts were ceded
to ALIC under reinsurance agreements.
YEAR ENDED DECEMBER 31,
-----------------------
($ in thousands) 1998 1997 1996
-------- -------- --------
Contract charges $ 19,009 $ 11,641 $ 4,254
Credited interest, policy benefits, and
certain expenses 218,008 179,954 113,703
BUSINESS OPERATIONS
The Company utilizes services provided by AIC and ALIC and business facilities
owned or leased, and operated by AIC in conducting its business activities. The
Company reimburses AIC and ALIC for the operating expenses incurred on behalf of
the Company. The cost to the Company is determined by various allocation methods
and is primarily related to the level of services provided. Operating expenses,
including compensation and retirement and other benefit programs, allocated to
the Company were $15,949, $19,243 and $4,804 in 1998, 1997 and 1996,
respectively. Of these costs, the Company retains investment related expenses.
All other costs are ceded to ALIC under reinsurance agreements.
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
AT DECEMBER 31, 1998
U.S. government and agencies $24,350 $ 4,308 $ -- $28,658
Municipal 656 24 -- 680
Corporate 33,009 1,575 (39) 34,545
Mortgage-backed securities 29,400 1,047 (17) 30,430
------- ------- ------- -------
Total fixed income securities $87,415 $ 6,954 $ (56) $94,313
======= ======= ======= =======
AT DECEMBER 31, 1997
U.S. government and agencies $24,419 $ 2,961 $ -- $27,380
Municipal 656 17 -- 673
Corporate 25,476 840 -- 26,316
Mortgage-backed securities 30,818 1,056 -- 31,874
------- ------- ------- -------
Total fixed income securities $81,369 $ 4,874 $ -- $86,243
======= ======= ======= =======
F-10
<PAGE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at December
31, 1998:
AMORTIZED FAIR
COST VALUE
---- -----
Due in one year or less $ 400 $ 400
Due after one year through five years 8,711 8,943
Due after five years through ten years 36,027 39,009
Due after ten years 12,877 15,531
------- -------
58,015 63,883
Mortgage-backed securities 29,400 30,430
------- -------
Total $87,415 $94,313
======= =======
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
Fixed income securities $ 6,151 $ 5,014 $ 3,478
Short-term investments 183 231 126
Participation in Separate Accounts -- 161 232
------- ------- -------
Investment income, before expense 6,334 5,406 3,836
Investment expense 103 102 62
------- ------- -------
Net investment income $ 6,231 $ 5,304 $ 3,774
======= ======= =======
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
Fixed income securities $ (5) $ (61) $ --
Short-term investments -- 6 --
Participation in Separate Accounts -- 3,515 --
------- ------- -------
Realized capital gains and losses (5) 3,460 --
Income taxes 2 (1,211) --
------- ------- -------
Realized capital gains and losses,
after tax $ (3) $ 2,249 $ --
======= ======= =======
Excluding calls and prepayments, gross losses of $5 and $61 were realized on
sales of fixed income securities during 1998 and 1997, respectively. There were
no gains or losses, excluding calls and prepayments during 1996.
F-11
<PAGE>
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
COST/
AMORTIZED FAIR GROSS UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES NET GAINS
---- ----- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 87,415 $ 94,313 $ 6,954 $ (56) $ 6,898
======== ======== ======== ========
Deferred income taxes (2,415)
--------
Unrealized net capital gains $ 4,483
========
</TABLE>
CHANGE IN UNREALIZED NET CAPITAL GAINS
YEAR ENDED DECEMBER 31,
1998 1997 1996
------- ------- -------
Fixed income securities $ 2,024 $ 2,410 $(2,239)
Participation in Separate Accounts -- (1,829) 1,368
Deferred income taxes (709) (203) 304
------- ------- -------
Increase (decrease) in unrealized
net capital gains $ 1,315 $ 378 $ (567)
======= ======= =======
SECURITIES ON DEPOSIT
At December 31, 1998, fixed income securities with a carrying value of $11,416
were on deposit with regulatory authorities as required by law.
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented on the following page are not necessarily
indicative of the amounts the Company might pay or receive in actual market
transactions. Potential taxes and other transaction costs have not been
considered in estimating fair value. The disclosures that follow do not reflect
the fair value of the Company as a whole since a number of the Company's
significant assets (including reinsurance recoverable) and liabilities
(including universal life-type insurance reserves and deferred income taxes) are
not considered financial instruments and are not carried at fair value. Other
assets and liabilities considered financial instruments, such as accrued
investment income, are generally of a short-term nature. Their carrying values
are assumed to approximate fair value.
F-12
<PAGE>
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Fixed income securities $ 94,313 $ 94,313 $ 86,243 $ 86,243
Short-term investments 4,663 4,663 4,231 4,231
Separate Accounts 993,622 993,622 620,535 620,535
Fair values for fixed income securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. Short-term investments are highly
liquid investments with maturities of less than one year whose carrying value
approximates fair value. Separate Accounts assets are carried in the statements
of financial position at fair value based on quoted market prices.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Contractholder funds on
investment contracts $3,130,228 $2,967,101 $2,636,331 $2,492,095
Separate Accounts 993,622 993,622 620,535 620,535
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
6. INCOME TAXES
For 1996, the Company filed a separate federal income tax return. Beginning in
1997, the Company joined the Corporation and its other eligible domestic
subsidiaries (the "Allstate Group") in the filing of a consolidated federal
income tax return and is party to a federal income tax allocation agreement (the
"Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the
Company pays to or receives from the Corporation the amount, if any, by which
the Allstate Group's federal income tax liability is affected by virtue of
inclusion of the Company in the consolidated federal income tax return.
Effectively, this results in the Company's annual income tax provision being
computed, with adjustments, as if the Company filed a separate return.
F-13
<PAGE>
Prior to Sears, Roebuck and Co.'s ("Sears") distribution ("Sears distribution")
on June 30, 1995 of its 80.3% ownership in the Corporation to Sears
shareholders, the Allstate Group joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Tax Sharing Agreement"). Under the Tax Sharing
Agreement, the Company, through the Corporation, paid to or received from the
Sears Group the amount, if any, by which the Sears Tax Group's federal income
tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return.
As a result of the Sears distribution, the Allstate Group was no longer included
in the Sears Tax Group, and the Tax Sharing Agreement was terminated.
Accordingly, the Allstate Group and Sears Group entered into a new tax sharing
agreement, which adopts many of the principles of the Tax Sharing Agreement and
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Sears distribution, including the treatment
of audits of tax returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's federal income tax returns through the 1993 tax year. Any adjustment
that may result from IRS examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or results of operations of
the Company.
The components of the deferred income tax liability at December 31, are as
follows:
1998 1997
------- -------
Unrealized net capital gains $(2,415) $(1,706)
Difference in tax bases of investments (84) (66)
------- -------
Total deferred liability $(2,499) $(1,772)
======= =======
The components of income tax expense for the year ended December 31, are as
follows:
1998 1997 1996
------ ------ ------
Current $2,164 $3,037 $1,335
Deferred 18 41 4
------ ------ ------
Total income tax expense $2,182 $3,078 $1,339
====== ====== ======
The Company paid income taxes of $592, $2,839 and $2,446 in 1998, 1997 and 1996,
respectively. The Company had a current income tax liability of $2,181 and $609
at December 31, 1998 and 1997, respectively.
F-14
<PAGE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
1998 1997 1996
------ ------ ------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other -- .1 .5
------ ------ ------
Effective income tax rate 35.0% 35.1% 35.5%
====== ====== ======
7. STATUTORY FINANCIAL INFORMATION
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Arizona
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a significant impact on statutory surplus or statutory net
income.
The NAIC's codification initiative has produced a comprehensive guide of revised
statutory accounting principles. While the NAIC has approved a January 1, 2001
implementation date for the newly developed guidance, companies must adhere to
the implementation date adopted by their state of domicile. The Company's state
of domicile, Arizona, is continuing its comparison of codification and current
statutory accounting requirements to determine necessary revisions to existing
state laws and regulations. The requirements are not expected to have a material
impact on the statutory surplus of the Company.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by the Company without the prior approval of the state
insurance regulator is limited to formula amounts based on net income and
capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1999 without prior approval of the Arizona Department of Insurance is
$4,698.
F-15
<PAGE>
8. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ---------------------------- -----------------------------
After- After- After-
Pretax Tax tax Pretax Tax tax Pretax Tax tax
------ --- --- ------ --- --- ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized capital gains
and losses:
- --------------------------
Unrealized holding gains
(losses) arising during
the period $ 2,019 $ (707) $ 1,312 $ 4,034 $(1,412) $ 2,622 $ (871) $ 304 $ (567)
Less: reclassification
adjustment for realized
net capital gains
included in net income (5) 2 (3) 3,453 (1,209) 2,244 -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Unrealized net capital
gains (losses) $ 2,024 $ (709) $ 1,315 $ 581 $ (203) $ 378 $ (871) $ 304 $ (567)
------- ------- ------- ------- ------- ------- ------- ------- -------
Other comprehensive
income $ 2,024 $ (709) $ 1,315 $ 581 $ (203) $ 378 $ (871) $ 304 $ (567)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
9. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing banks
from engaging in the securities and insurance business, tax law changes
affecting the taxation of insurance companies, the tax treatment of insurance
products and its impact on the relative desirability of various personal
investment vehicles, and proposed legislation to prohibit the use of gender in
determining insurance rates and benefits. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
F-16
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
--------- --------- -------
Life insurance in force $ 12,056 $ 12,056 $ --
========= ========= =======
Premiums and contract charges:
Life and annuities $ 19,009 $ 19,009 $ --
========= ========= =======
GROSS NET
YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED AMOUNT
--------- --------- -------
Life insurance in force $ 4,095 $ 4,095 $ --
========= ========= =======
Premiums and contract charges:
Life and annuities $ 11,641 $ 11,641 $ --
========= ========= =======
GROSS NET
YEAR ENDED DECEMBER 31, 1996 AMOUNT CEDED AMOUNT
--------- --------- -------
Life insurance in force $ 2,436 $ 2,436 $ --
========= ========= =======
Premiums and contract charges:
Life and annuities $ 4,254 $ 4,254 $ --
========= ========= =======
F-17
<PAGE>
- --------------------------------------------------------------------------------
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
Financial Statements as of December 31, 1998
and for the periods ended December 31,1998,
and December 31,1997, and Independent
Auditors' Report
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Independent Auditors' Report 1
Statements of Net Assets as of December 31, 1998 for the following:
Investments in the American Century Variable Portfolios, Inc. Portfolios: 2
American Century VP Balanced
American Century VP International
Investments in the Morgan Stanley Dean Witter Variable Investment Series
Portfolios:
VIS Dividend Growth
VIS European Growth
VIS Quality Income Plus
VIS Utilities
Investments in the Dreyfus Variable Investment Fund Portfolios:
VIF Growth and Income
VIF Money Market
VIF Small Company Stock
Investment in the Dreyfus Socially Responsible Growth Fund, Inc. Portfolio
Investment in the Dreyfus Stock Index Fund Portfolio
Investments in the Fidelity Variable Insurance Products Fund Portfolios:
VIP Growth
VIP High Income
VIP Equity-Income
Investment in the Fidelity Variable Insurance Products Fund II Portfolio:
VIP II Contrafund
Investments in the MFS Variable Insurance Trust Portfolios:
MFS Emerging Growth Series
MFS Limited Maturity Series
Investments in the AIM Variable Insurance Funds, Inc. Portfolios:
Capital Appreciation
Diversified Income
Government Securities
Growth
Growth and Income
International Equity
Global Utilities
Value
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Statements of Operations for the following:
For the Year Ended December 31, 1998 and the Period
December 29, 1997 (commencement of operations) to December 31, 1997
Investments in the American Century Variable Portfolios, Inc. Portfolios 3, 7
American Century VP Balanced
American Century VP International
Investments in the Morgan Stanley Dean Witter Variable Investment Series
Portfolios:
VIS Dividend Growth
VIS European Growth
VIS Quality Income Plus
VIS Utilities
Investments in the Dreyfus Variable Investment Fund Portfolios: 4, 7
VIF Growth and Income
VIF Money Market
VIF Small Company Stock
Investment in the Dreyfus Socially Responsible Growth Fund, Inc. Portfolio 4, 8
For the Period July 23, 1998 to December 31, 1998:
Investment in the Dreyfus Stock Index Fund Portfolio 4
For the Year Ended December 31, 1998 and the Period
December 29, 1997 (commencement of operations) to December 31, 1997
Investments in the Fidelity Variable Insurance Products Fund Portfolios: 5, 8
VIP Growth Fund
VIP High Income
For the Period July 23, 1998 to December 31, 1998:
Investments in the Fidelity Variable Insurance Products Fund Portfolio: 5
VIP Equity-Income
For the Year Ended December 31, 1998 and the Period
December 29, 1997 (commencement of operations) to December 31, 1997
Investments in the Fidelity Variable Insurance Products Fund
II Portfolio: 5, 8
VIP II Contrafund
Investments in the MFS Variable Insurance Trust Portfolios:
MFS Emerging Growth Series
MFS Limited Maturity Series
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
For the Period July 23, 1998 to December 31, 1998:
Investments in the AIM Variable Insurance Funds, Inc. Portfolios: 6
Capital Appreciation
Diversified Income
Government Securities
Growth
Growth and Income
International Equity
Global Utilities
Value
Statements of Changes in Net Assets for the following:
For the Year Ended December 31, 1998 and the Period
December 29, 1997 (commencement of operations) to December 31, 1997
Investments in the American Century Variable Portfolios, Inc. Portfolios: 9, 13
American Century VP Balanced
American Century VP International
Investments in the Morgan Stanley Dean Witter Variable Investment
Series Portfolios:
VIS Dividend Growth
VIS European Growth
VIS Quality Income Plus
VIS Utilities
Investments in the Dreyfus Variable Investment Fund Portfolios: 10, 13
VIF Growth and Income
VIF Money Market
VIF Small Company Stock
Investment in the Dreyfus Socially Responsible Growth Fund,
Inc. Portfolio 10, 14
For the Period July 23, 1998 to December 31, 1998:
Investment in the Dreyfus Stock Index Fund Portfolio 10
For the Year Ended December 31, 1998:
Investments in the Fidelity Variable Insurance Products Fund Portfolios: 11, 14
VIP Growth
VIP High Income
For the Period July 23, 1998 to December 31, 1998:
Investments in the Fidelity Variable Insurance Products Fund Portfolios:
VIP Equity-Income 11
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
For the Year Ended December 31, 1998 and the Period
December 29, 1997 (commencement of operations) to December 31, 1997
Investments in the Fidelity Variable Insurance Products
Fund II Portfolios: 11, 14
VIP II Contrafund
Investments in the MFS Variable Insurance Trust Portfolios:
MFS Emerging Growth Series
MFS Limited Maturity Series
For the Period July 23, 1998 to December 31, 1998:
Investments in the AIM Variable Insurance Funds, Inc. Portfolios: 12
Capital Appreciation
Diversified Income
Government Securities
Growth
Growth and Income
International Equity
Global Utilities
Value
Notes to Financial Statements 15 - 17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Glenbrook Life and Annuity Company:
We have audited the accompanying statements of net assets of each of the
sub-accounts ("portfolios" for the purposes of this report), listed in the table
of contents, that comprise Glenbrook Life Variable Life Separate Account A (the
"Account"), a Separate Account of Glenbrook Life and Annuity Company, an
affiliate of The Allstate Corporation, as of December 31, 1998, and the related
statements of operations and changes in net assets for the applicable periods
indicated in the table of contents. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1998. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of each of the portfolios, listed in the table
of contents, that comprise the Account as of December 31, 1998, and the results
of their operations, and the changes in their net assets for each of the
periods, indicated in the table of contents, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 18, 1999
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
($ and shares in whole amounts)
NET ASSETS
Investments in the American Century Variable Portfolios, Inc:
American Century VP Balanced, 5,605 shares (cost $43,424) $ 46,748
American Century VP International, 7,509 shares (cost $54,077) 57,217
Investments in the Morgan Stanley Dean Witter Variable Investment
Series Portfolios:
VIS Dividend Growth --
VIS European Growth --
VIS Quality Income Plus --
VIS Utilities --
Investments in the Dreyfus Variable Investment Fund Portfolios:
VIF Growth and Income, 7,943 shares (cost $167,726) 179,760
VIF Money Market, 310,087 shares (cost $310,087) 310,087
VIF Small Company Stock, 1,729 shares (cost $27,624) 26,086
Investment in the Dreyfus Socially Responsible Growth Fund, Inc. Portfolio
153 shares (cost $4,889) 4,759
Investment in the Dreyfus Stock Index Fund Portfolio --
Investments in the Fidelity Variable Insurance Products Fund Portfolios:
VIP Growth, 2,214 shares (cost $88,011) 99,341
VIP High Income, 9,955 shares (cost $120,290) 114,779
VIP Equity-Income, 1,907 shares (cost $44,280) 48,474
Investments in the Fidelity Variable Insurance Products Fund II Portfolio:
VIP II Contrafund, 5,988 shares (cost $126,485) 146,341
Investments in the MFS Variable Insurance Trust Portfolios:
MFS Emerging Growth Series, 2,461 shares (cost $42,384) 52,831
MFS Limited Maturity Series, 5,907 shares (cost $59,962) 60,011
Investments in the AIM Variable Insurance Funds, Inc. Portfolios:
Capital Appreciation, 706 shares (cost $15,133) 17,789
Diversified Income, 4,104 shares (cost $47,605) 44,902
Government Securities, 187 shares (cost $2,020) 2,085
Growth --
Growth and Income, 2,576 shares (cost $52,057) 61,190
International Equity, 881 share (cost $16,180) 17,290
Global Utilities --
Value, 2,622 shares (cost $69,015) 68,830
-----------
Total assets 1,358,520
LIABILITIES
Payable to Glenbrook Life and Annuity Company:
Accrued contract maintenance charges 449
-----------
Net assets $ 1,358,071
===========
See notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
($ in whole amounts)
American Century
Variable
Portfolios, Inc. Morgan Stanley Dean Witter
Portfolios Variable Investment Series Portfolios
-------------------- -----------------------------------------
For the Year Ended December 31, 1998
-----------------------------------------------------------------
American American VIS
Century Century VIS VIS Quality VIS
VP VP Inter- Dividend European Income Utili-
Balanced national Growth Growth Plus ties
-------- --------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 149 $ 611 $ -- $ -- $ -- $ --
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (211) (137) -- -- -- --
Administrative expense -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net investment income (loss) (62) 474 -- -- -- --
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains from sales of investments:
Proceeds from sales 50,170 2,116 -- -- -- --
Cost of investments sold 50,835 3,626 -- -- -- --
-------- -------- -------- -------- -------- --------
Net realized gains (losses) (665) (1,510) -- -- -- --
Change in unrealized gains (losses) 3,202 3,140 -- -- -- --
-------- -------- -------- -------- -------- --------
Net gains (losses) on investments 2,537 1,630 -- -- -- --
-------- -------- -------- -------- -------- --------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 2,475 $ 2,104 $ -- $ -- $ -- $ --
======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
($ in whole amounts)
Dreyfus
Socially
Responsible Dreyfus
Growth Stock Index
Dreyfus Variable Fund, Inc. Fund
Investment Fund Portfolios Portfolio Portfolio
-------------------------------------------- ------------ --------------
For the Period
July 23, 1998
to December
For the Year Ended December 31, 1998 31, 1998
------------------------------------------------------------ --------------
Dreyfus
Socially
VIF VIF VIF Small Responsible Dreyfus
Growth & Money Company Growth Stock Index
Income Market Stock Fund, Inc. Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1,606 $ 18,933 $ 57 $ 187 $ --
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (553) (1,563) (107) (2) (9)
Administrative expense -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net investment income (loss) 1,053 17,370 (50) 185 (9)
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains from sales of investments:
Proceeds from sales 49,644 383,015 1,023 2 9,660
Cost of investments sold 52,675 383,015 1,064 2 9,877
------------ ------------ ------------ ------------ ------------
Net realized gains (losses) (3,031) -- (41) -- (217)
Change in unrealized gains (losses) 11,616 -- (1,538) (130) (3)
------------ ------------ ------------ ------------ ------------
Net gains (losses) on investments 8,585 -- (1,579) (130) (220)
------------ ------------ ------------ ------------ ------------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 9,638 $ 17,370 $ (1,629) $ 55 $ (229)
============ ============ ============ ============ ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
($ in whole amounts)
Fidelity
Variable
Insurance
Products
Fidelity Variable Insurance Fund II MFS Variable Insurance
Products Fund Portfolios Portfolio Trust Portfolios
-------------------------------------- --------- ------------------------
For the Period
July 23, 1998
For the Year Ended to December
December 31, 1998 31, 1998 For the Year Ended December 31, 1998
---------------------- -------------- -------------------------------------
VIP VIP VIP II MFS Emerging MFS Limited
VIP High Equity- Contra- Growth Maturity
Growth Income Income fund Series Series
--------- --------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 2 $ 1 $ -- $ 174 $ 181 $ 1,545
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (236) (611) (89) (381) (147) (214)
Administrative expense -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net investment income (loss) (234) (610) (89) (207) 34 1,331
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains from sales of investments:
Proceeds from sales 51,708 13,115 10,305 6,364 3,421 50,220
Cost of investments sold 52,151 13,714 9,686 6,966 4,113 57,662
--------- --------- --------- --------- --------- ---------
Net realized gains (losses) (443) (599) 619 (602) (692) (7,442)
Change in unrealized gains (losses) 11,013 (5,511) 4,194 19,856 10,447 49
--------- --------- --------- --------- --------- ---------
Net gains (losses) on investments 10,570 (6,110) 4,813 19,254 9,755 (7,393)
--------- --------- --------- --------- --------- ---------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 10,336 $ (6,720) $ 4,724 $ 19,047 $ 9,789 $ (6,062)
========= ========= ========= ========= ========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
($ in whole amounts)
AIM Variable Insurance Funds, Inc. Portfolios
---------------------------------------------------------------------------
For the Period July 23, 1998 to December 31, 1998
---------------------------------------------------------------------------
Capital Diver- Government Growth Inter- Global
Appreci- sified Securi- and national Utili-
ation Income ties Growth Income Equity ties Value
------- ------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 475 $ 2,906 $ 53 $ -- $ 824 $ 137 $ -- $ 3,133
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (22) (119) (46) -- (89) (21) -- (96)
Administrative expense -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net investment income (loss) 453 2,787 7 -- 735 116 -- 3,037
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains from sales of investments:
Proceeds from sales 1,836 539 46,149 -- 1,159 1,549 -- 12,085
Cost of investments sold 2,682 563 44,965 -- 2,747 1,662 -- 3,054
------- ------- ------- ------- ------- ------- ------- -------
Net realized gains (losses) (846) (24) 1,184 -- (1,588) (113) -- 9,031
Change in unrealized gains (losses) 2,656 (2,679) 65 -- 9,133 1,110 -- (385)
------- ------- ------- ------- ------- ------- ------- -------
Net gains (losses) on investments 1,810 (2,703) 1,249 -- 7,545 997 -- 8,646
------- ------- ------- ------- ------- ------- ------- -------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 2,263 $ 84 $ 1,256 $ -- $ 8,280 $ 1,113 $ -- $11,683
======= ======= ======= ======= ======= ======= ======= =======
<FN>
See notes to financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 29, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
($ in whole amounts)
American Century
Variable
Portfolios, Inc. Dear Witter Variable Investment Dreyfus Variable
Portfolios Series Portfolios Investment Fund Portfolios
------------------- -------------------------------------- -----------------------------
American American VIS VIF
Century Century VIS VIS Quality VIS VIF VIF Small
VP VP Inter- Dividend European Income Utili- Growth & Money Company
Balanced national Growth Growth Plus ties Income Market Stock
-------- --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Charges from Glenbrook Life and
Annuity Company:
Mortality and expense risk (1) -- -- -- -- -- (1) -- --
Administrative expense -- -- -- -- -- -- -- -- --
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net investment income (loss) (1) -- -- -- -- -- (1) -- --
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales
of investments:
Proceeds from sales 1 -- -- -- -- -- 1 -- --
Cost of investments sold 1 -- -- -- -- -- 1 -- --
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net realized gains -- -- -- -- -- -- -- -- --
Change in unrealized gains 122 -- -- -- -- -- 418 -- --
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net gains on investments 122 -- -- -- -- -- 418 -- --
CHANGE IN NET ASSETS RESULTING $ 121 $ -- $ -- $ -- $ -- $ -- $ 417 $ -- $ --
FROM OPERATIONS ======== ======== ======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 29, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
($ in whole amounts)
Fidelity
Variable
Fidelity Variable Insurance Insurance
Products Fund Products Fund MFS Variable Insurance
The Dreyfus Portfolios II Portfolio Trust Portfolios
Socially --------------------------- ------------ --------------------------
Responsible VIP MFS Emerging MFS Limited
Growth Fund, VIP High VIP II Growth Maturity
Inc. Growth Income Contrafund Series Series
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ -- -- $ -- $ -- $ -- $ 3,220
Charges from Glenbrook Life and
Annuity Company:
Mortality and expense risk -- (1) -- -- -- (1)
Administrative expense -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net investment income (loss) -- (1) -- -- -- 3,219
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales
of investments:
Proceeds from sales -- 1 -- -- -- 1
Cost of investments sold -- 1 -- -- -- 1
------------ ------------ ------------ ------------ ------------ ------------
Net realized gains -- -- -- -- -- --
Change in unrealized gains -- 317 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net gains on investments -- 317 -- -- -- --
CHANGE IN NET ASSETS RESULTING $ -- $ 316 $ -- $ -- $ -- $ 3,219
FROM OPERATIONS ============ ============ ============ ============ ============ ============
<FN>
See notes to financial statements.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
($ in whole amounts)
American
Century Variable
Portfolios, Inc. Morgan Stanley Dean Witter
Portfolios Variable Investment Series Portfolios
-------------------- -----------------------------------------
For the Year Ended December 31, 1998
-----------------------------------------------------------------
American American VIS
Century Century VIS VIS Quality
VP VP Inter- Dividend European Income VIS
Balanced national Growth Growth Plus Utilities
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (62) $ 474 $ -- $ -- $ -- $ --
Net realized gains (losses) (665) (1,510) -- -- -- --
Change in unrealized gains (losses) 3,202 3,140 -- -- -- --
-------- -------- -------- -------- -------- ---------
Change in net assets resulting
from operations 2,475 2,104 -- -- -- --
FROM CAPITAL TRANSACTIONS
Deposits (50,288) -- -- -- -- --
Benefit payments -- -- -- -- -- --
Payments on termination -- -- -- -- -- --
Contract charges (383) (327) -- -- -- --
Transfers among the portfolios and with the
general account - net 44,444 55,416 -- -- -- --
-------- -------- -------- -------- -------- ---------
Change in net assets resulting from
capital transactions (6,227) 55,089 -- -- -- --
-------- -------- -------- -------- -------- ---------
(DECREASE)/INCREASE IN NET ASSETS (3,752) 57,193 -- -- -- --
NET ASSETS AT BEGINNING OF PERIOD 50,480 -- -- -- -- --
-------- -------- -------- -------- -------- ---------
NET ASSETS AT END OF PERIOD $ 46,728 $ 57,193 $ -- $ -- $ -- $ --
======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
($ in whole amounts)
Dreyfus
Socially
Responsible Dreyfus
Growth Stock Index
Dreyfus Variable Fund, Inc. Fund
Investment Fund Portfolios Portfolio Portfolio
-------------------------------------- ----------- --------------
For the Period
July 23, 1998
to December
For the Year Ended December 31, 1998 31, 1998
---------------------------------------------------- --------------
Dreyfus
Socially
VIF VIF VIF Small Responsible Dreyfus
Growth & Money Company Growth Stock Index
Income Market Stock Fund, Inc. Fund
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 1,053 $ 17,370 $ (50) $ 185 $ (9)
Net realized gains (losses) (3,031) -- (41) -- (217)
Change in unrealized gains (losses) 11,616 -- (1,538) (130) (3)
---------- ---------- ---------- ---------- ----------
Change in net assets resulting
from operations 9,638 17,370 (1,629) 55 (229)
FROM CAPITAL TRANSACTIONS
Deposits (50,411) 1,203,422 -- -- --
Benefit payments -- -- -- -- --
Payments on termination -- -- -- -- --
Contract charges (1,043) (3,492) (199) (8) --
Transfers among the portfolios and with the
general account - net 170,468 (982,780) 27,903 4,710 226
---------- ---------- ---------- ---------- ----------
Change in net assets resulting from
capital transactions 119,014 217,150 27,704 4,702 226
---------- ---------- ---------- ---------- ----------
(DECREASE)/INCREASE IN NET ASSETS 128,652 234,520 26,075 4,757 (3)
NET ASSETS AT BEGINNING OF PERIOD 51,034 75,440 -- -- --
---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 179,686 $ 309,960 $ 26,075 $ 4,757 $ (3)
========== ========== ========== ========== ==========
<FN>
See notes to financial statements.
</FN>
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
($ in whole amounts)
Fidelity
Variable
Insurance
Products
Fidelity Variable Insurance Fund II MFS Variable Insurance
Products Fund Portfolios Portfolio Trust Portfolios
-------------------------------------- --------- ------------------------
For the Period
July 23, 1998
For the Year Ended to December
December 31, 1998 31, 1998 For the Year Ended December 31, 1998
---------------------- ------------- -------------------------------------
VIP VIP VIP II MFS Emerging MFS Limited
VIP High Equity- Contra- Growth Maturity
Growth Income Income fund Series Series
--------- --------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (234) $ (610) $ (89) $ (207) $ 34 $ 1,331
Net realized gains (losses) (443) (599) 619 (602) (692) (7,442)
Change in unrealized gains (losses) 11,013 (5,511) 4,194 19,856 10,447 49
--------- --------- --------- --------- --------- ---------
Change in net assets resulting
from operations 10,336 (6,720) 4,724 19,047 9,789 (6,062)
FROM CAPITAL TRANSACTIONS
Deposits (50,886) -- -- -- -- (50,119)
Benefit payments -- -- -- -- -- --
Payments on termination -- -- -- -- -- --
Contract charges (481) (1,190) (174) (782) (274) (399)
Transfers among the portfolios and with the
general account - net 89,147 122,642 43,924 128,016 43,295 60,482
--------- --------- --------- --------- --------- ---------
Change in net assets resulting from
capital transactions 37,780 121,452 43,750 127,234 43,021 9,964
--------- --------- --------- --------- --------- ---------
(DECREASE)/INCREASE IN NET ASSETS 48,116 114,732 48,474 146,281 52,810 3,902
NET ASSETS AT BEGINNING OF PERIOD 51,184 -- -- -- -- 56,085
--------- --------- --------- --------- --------- ---------
NET ASSETS AT END OF PERIOD $ 99,300 $ 114,732 $ 48,474 $ 146,281 $ 52,810 $ 59,987
========= ========= ========= ========= ========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
($ in whole amounts)
AIM Variable Insurance Funds, Inc. Portfolios
----------------------------------------------------------------------------------
For the Period July 23, 1998 to December 31, 1998
----------------------------------------------------------------------------------
Capital Diver- Government Growth Inter- Global
Appreci- sified Securi- and national Utili-
ation Income ties Growth Income Equity ties Value
------- ------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 453 $ 2,787 $ 7 $ -- $ 735 $ 116 $ -- $ 3,037
Net realized gains (losses) (846) (24) 1,184 -- (1,588) (113) -- 9,031
Change in unrealized gains (losses) 2,656 (2,679) 65 -- 9,133 1,110 -- (385)
------- ------- ------- ------- ------- ------- ------- -------
Change in net assets resulting
from operations 2,263 84 1,256 -- 8,280 1,113 -- 11,683
FROM CAPITAL TRANSACTIONS
Deposits -- -- -- -- -- -- -- --
Benefit payments -- -- -- -- -- -- -- --
Payments on termination -- -- -- -- -- -- -- --
Contract charges (40) (107) (11) -- (185) (50) -- (198)
Transfers among the portfolios and with the
general account - net 15,566 44,924 842 -- 53,095 16,227 -- 57,345
------- ------- ------- ------- ------- ------- ------- -------
Change in net assets resulting from
capital transactions 15,526 44,817 831 -- 52,910 16,177 -- 57,151
------- ------- ------- ------- ------- ------- ------- -------
(DECREASE)/INCREASE IN NET ASSETS 17,789 44,901 2,087 -- 61,190 17,290 -- 68,834
NET ASSETS AT BEGINNING OF PERIOD -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD $17,789 $44,901 $ 2,087 $ -- $61,190 $17,290 $ -- $68,834
======= ======= ======= ======= ======= ======= ======= =======
<FN>
See notes to financial statements.
</FN>
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM DECEMBER 29, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------
($ and units in whole amounts, except value per unit)
American Century
Variable
Portfolios, Inc. Dean Witter Variable Investment Dreyfus Variable
Portfolios Series Portfolios Investment Fund Portfolios
------------------- -------------------------------------- -----------------------------
American American VIS VIF
Century Century VIS VIS Quality VIS VIF VIF Small
VP Bala- VP Inter- Dividend European Income Utili- Growth & Money Company
nced national Growth Growth Plus ties Income Market Stock
-------- --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (1) $ -- $ -- $ -- $ -- $ -- $ (1) $ -- $ --
Net realized gains -- -- -- -- -- -- -- -- --
Change in unrealized gains 122 -- -- -- -- -- 418 -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Change in net assets resulting
from operations 121 -- -- -- -- -- 417 -- --
FROM CAPITAL TRANSACTIONS
Deposits -- -- -- -- -- -- -- -- --
Benefit payments -- -- -- -- -- -- -- -- --
Payments on termination -- -- -- -- -- -- -- -- --
Contract charges (69) -- -- -- -- -- (69) (103) --
Transfers among the portfolios and
with the general account - net 50,428 -- -- -- -- -- 50,686 75,543 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Change in net assets resulting
from capital transactions 50,359 -- -- -- -- -- 50,617 75,440 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DECREASE)/INCREASE IN NET ASSETS 50,480 -- -- -- -- -- 51,034 75,440 --
NET ASSETS AT BEGINNING OF PERIOD -- -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 50,480 $ -- $ -- $ -- $ -- $ -- $ 51,034 $ 75,440 --
======== ======== ======== ======== ======== ======== ======== ======== ========
Net asset value per unit at end
of period $ 10.21 $ -- $ -- $ -- $ -- $ -- $ 10.35 $ 10.19 $ --
======== ======== ======== ======== ======== ======== ======== ======== ========
Units outstanding at end of period 4,945 -- -- -- -- -- 4,931 7,405 --
======== ======== ======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM DECEMBER 29, 1997 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------
($ and units in whole amounts, except value per unit)
Fidelity
Variable
Fidelity Variable Insurance
The Dreyfus Insurance Products Products Fund MFS Variable Insurance
Socially Fund Portfolios II Portfolio Trust Portfolios
Responsible --------------------------- ------------ ------------------------
Growth VIP MFS Emerging MFS Limited
Fund, Inc. VIP High VIP II Growth Maturity
Portfolio Growth Income Contrafund Series Series
------------ ----------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ -- $ (1) $ -- $ -- $ -- $ 3,219
Net realized gains -- -- -- -- -- --
Change in unrealized gains -- 317 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from operations -- 316 -- -- -- 3,219
FROM CAPITAL TRANSACTIONS
Deposits -- -- -- -- -- --
Benefit payments -- -- -- -- -- --
Payments on termination -- -- -- -- -- --
Contract charges -- (69) -- -- -- (69)
Transfers among the portfolios and
with the general account - net -- 50,937 -- -- -- 52,935
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from capital transactions -- 50,868 -- -- -- 52,866
----------- ----------- ----------- ----------- ----------- -----------
(DECREASE)/INCREASE IN NET ASSETS -- 51,184 -- -- -- 56,085
NET ASSETS AT BEGINNING OF PERIOD -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS AT END OF PERIOD $ -- $ 51,184 $ -- $ -- $ -- $ 56,085
=========== =========== =========== =========== =========== ===========
Net asset value per unit at
end of period $ -- $ 10.51 $ -- $ -- $ -- $ 11.51
=========== =========== =========== =========== =========== ===========
Units outstanding at end of period -- 4,868 -- -- -- 4,871
=========== =========== =========== =========== =========== ===========
<FN>
See notes to financial statements.
</FN>
</TABLE>
14
<PAGE>
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 wholly owned by 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 issues life insurance policies, the deposits of which are
invested at the direction of the policyholder in the sub-accounts
("portfolios" for the purposes of this report) that comprise the Account.
Policyholders bear all investment risk. The portfolios invest in the
American Century Variable Portfolios, Inc., Morgan Stanley Dean Witter
Variable Investment Series, Dreyfus Variable Investment Fund, The Dreyfus
Socially Responsible Growth Fund, Inc., Dreyfus Stock Index Fund, Fidelity
Variable Insurance Products Fund, Fidelity Variable Insurance Products Fund
II, MFS Variable Insurance Trust, and AIM Variable Insurance Funds, Inc.
(collectively the "Funds").
Glenbrook Life provides insurance and administrative 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 at December 31,
1998.
INVESTMENT INCOME - Investment income consists of dividends declared by the
Funds and is recognized on the date of record.
REALIZED GAINS AND LOSSES - Realized gains and losses represent the
difference between the proceeds from sales of portfolio shares by the
Account and the cost of such shares, which is determined on a weighted
average basis.
FEDERAL INCOME TAXES - The Account intends to qualify as a segregated asset
account as defined in the Internal Revenue Code ("Code"). As such, the
operations of the Account are included in the tax return of Glenbrook Life.
Glenbrook Life is taxed as a life insurance company under the Code. No
federal income taxes are payable by the Account in 1998 and 1997 as the
Account did not generate taxable income.
15
<PAGE>
3. 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 charges each policyholder monthly for cost of insurance and
administrative expense. The cost of insurance is based upon several
variables, including the policyholder's death benefit and the account
value. Glenbrook Life deducts a monthly administration fee equal to .25%
per annum of policy value.
If aggregate deposits are less than $50,000, the Account will deduct an
annual maintenance fee of $35 on each contract anniversary.
4. FINANCIAL INSTRUMENTS
The investments of the Account are carried at fair value, based on quoted
market prices. Accrued contract maintenance charges are of a short-term
nature. It is assumed that their carrying value approximates fair value.
16
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED (Units in whole amounts)
Unit activity during 1998:
--------------------------
Units Units Accumulation
Outstanding Outstanding Unit Value
December Units Units December December
31,1997 Issued Redeemed 31, 1998 31, 1998
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Investments in the American Century Variable
Portfolios Inc. Portfolios:
American Century VP Balanced 4,945 4,022 (4,977) $ 3,990 11.71
American Century VP International -- 5,929 (943) 4,986 11.47
Investments in the Morgan Stanley Dean Witter
Variable Investment Series Portfolios:
VIS Dividend Growth -- -- -- -- --
VIS European Growth -- -- -- -- --
VIS Quality Income Plus -- -- -- -- --
VIS Utilities -- -- -- -- --
Investments in the Dreyfus Variable Investment
Fund Portfolios:
VIF Growth and Income 4,931 18,567 (7,793) 15,705 11.44
VIF Money Market 7,405 23,847 (16,454) 14,798 20.95
VIF Small Company Stock -- 3,378 (778) 2,600 10.03
Investments in the Dreyfus Socially Responsible
Growth Fund, Inc. Portfolio -- 420 (1) 419 11.35
Investment in the Dreyfus Stock Index Fund Portfolio -- 1,093 (1,093) -- --
Investments in the Fidelity Variable Insurance
Products Fund Portfolios:
VIP Growth Fund 4,868 7,316 (5,352) 6,832 14.53
VIP High Income -- 12,561 (1,199) 11,362 10.10
VIP Equity-Income -- 6,032 (1,231) 4,801 10.10
Investments in the Fidelity Variable Insurance
Products Fund II Portfolios:
VIP II Contrafund -- 13,703 (3,011) 10,692 13.68
Investments in the MFS Variable Insurance Trust
Portfolios:
MFS Emerging Growth -- 5,806 (1,991) 3,815 13.84
MFS Limited Maturity 4,871 6,636 (2) 11,505 5.21
Investments in the AIM Variable Insurance Funds
Inc. Portfolios:
Capital Appreciation -- 2,707 (759) 1,948 9.13
Diversified Income -- 5,327 (4,647) 680 66.03
Government Securities -- 4,843 -- 4,843 0.43
Growth -- -- (2,761) (2,761) --
Growth and Income -- 8,378 (938) 7,440 8.22
International Equity -- 2,795 -- 2,795 6.19
Global Utilities -- -- (3,570) (3,570) --
Value -- 9,892 -- 9,892 6.96
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
17
<PAGE>
Part II - Other Information
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATIONS AS TO FEES AND CHARGES
Glenbrook Life and Annuity Company represents that the fees and charges
deducted under the Modified Single Premium Variable Life Insurance Contract
registered by this Registration Statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by the Company.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rules 6c-3 and 63-3(T) under the Investment
Company Act of 1940 ("Investment Company Act").
RULE 484 UNDERTAKING
The By-Laws of Glenbrook Life and Annuity Company ("Depositor") which are
incorporated herein by reference as Exhibit 1 (A)(6)(b), provide that it will
indemnify its officers and directors for certain damages and expenses that may
be incurred in the performance of their duty to Depositor. No indemnification
is provided, however, when such person is adjudged to be liable for negligence
or misconduct in the performance of his or her duty, unless indemnification is
deemed appropriate by the court upon application. Insofar as indemnification
for liability arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settle by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
<PAGE>
The following exhibits:
1. The following exhibits are required by Article IX, paragraph A of the Form
N-8B-2, and, unless otherwise noted, are filed herewith:
(1) Form of resolution of the Board of Directors of Glenbrook Life and
Annuity Company authorizing establishment of the Variable Life
Separate Account A.*
(2) Not applicable.
(3) (a) Form of Principal Underwriting Agreement.**
(b) Form of Selling Agreement.**
(c) See Exhibit 1(A)(3)(b).
(4) Not applicable.
(5) (a) Specimen Contract.**
(1) Modified Single Premium Variable Life Insurance Contract**
(2) Last Survivor Modified Single Premium Variable Life
Insurance Contract
(b) Riders**
(1) Amendatory Endorsement for Waiver of Charges (KLU100)
(2) Amendatory Endorsement (KLU101)**
(3) Accelerated Death Benefit Rider (KLU 105)**
(4) Amendatory Endorsement for Waiver of Charges (KLU106)
(5) Accelerated Death Benefit Summary and Disclosure Statement
(KLU74)**
(6) Accelerated Death Benefit Summary and Disclosure (KLU80)**
(7) Accelerated Death Benefit Effect on Contract (KLU99)**
(8) Accelerated Death Benefit Rider (KLU99)**
(6) (a) Amended and Restated Articles of Incorporation and
Article of Redomestication of Glenbrook Life and Annuity
Company***
(b) Amended and Restated By-laws of Glenbrook Life and
Annuity Company***
(7) Not applicable.
(8) Form of Participation Agreement.****
(9) Not Applicable.
(10) Form of Application for Contract.**
2. Opinion of Counsel
(a) Illinois**
(b) Arizona
3. Not Applicable
(1) Not applicable
(2) Not applicable
4. Not applicable.
5. Not applicable
6. Not applicable
7. Powers of Attorney
(a) Powers of Attorney for Louis G. Lower, II, Michael J. Velotta,
Peter H. Heckman, John R. Hunter, Kevin R. Slawin, G. Craig
Whitehead and Keith A. Hauschildt**
(b) Power of Attorney for Thomas J. Wilson, II
8. Consents:
(1) Freedman Levy Kroll & Simonds
(2) Deloitte & Touche LLP
9. Procedures Memorandum pursuant to Rule 6e-3(T)(b)(12)(3)(iii)**
10. Actuarial Opinion and Consent*****
11. Hypothetical Illustration*****
* Previously filed in the initial filing to this Registration Statement (File
No. 333-02581) dated April 16, 1996
** Previously filed in Pre-Effective Amendment No. 1 to this Registration
Statement (File No. 333-02581) dated September 20, 1996.
*** Incorporated herein by reference to Depositor's Form 10-K Annual Report
filed March 30, 1999.
**** Dean Witter Fund agreement previously filed in S-6, Pre-Effective Amendment
No. 1, Registration Statement No. 333-02581, dated Septmenber 20, 1996; AIM Fund
agreement incorporated by reference from Depositor's N-4 Registration Statement
No. 33-62203 dated November 21, 1995; Fidelity Fund Agreement incorporated by
reference from Depositor's N-4 Registration Statement No. 33-60882 dated June
11, 1993; Dreyfus Fund, MFS Fund and American Century Fund agreements are filed
herewith.
***** Previously filed in Post-Effective Amendment No. 3 to this Registration
Statement (File No. 333-02581) dated May 1, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the "Act"), the
registrant, Glenbrook Life Variable Life Separate Account A, certifies that it
meets all of the requirements for effectiveness of this amended Registration
Statement pursuant to Rule 485(b) under the Act and has duly caused this amended
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, and its seal to be hereunto affixed and attested, all in the
Village of Northfield, and State of Illinois, on the 27th day of April 1999.
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
(Registrant)
GLENBROOK LIFE AND ANNUITY COMPANY
(Depositor)
(SEAL)
Attest:/s/BRENDA D. SNEED By:/s/MICHAEL J. VELOTTA
-------------------- ---------------------
Brenda D. Sneed Michael J. Velotta
Assistant Secretary and Vice President, Secretary
Assistant General Counsel and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following Directors and
Officers of Glenbrook Life and Annuity Company on the 27th day of April, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
*/LOUIS G. LOWER, II Chairman of the Board and Chief Executive Officer
-------------------- (Principal Executive Office)
Louis G. Lower, II
/s/MICHAEL J. VELOTTA Vice President, Secretary, General Counsel and Director
---------------------
Michael J. Velotta
*/THOMAS J. WILSON Vice Chairman and Director
--------------------
Thomas J. Wilson, II
*/PETER H. HECKMAN President, Chief Operating Officer and Director
------------------
Peter H. Heckman
<PAGE>
*/JOHN R. HUNTER Assistant Vice President and Director
----------------
John R. Hunter
*/Kevin R. SLAWIN Vice President and Director
----------------- (Principal Financial Officer)
Kevin R. Slawin
*/G. CRAIG WHITEHEAD Senior Vice President and Director
--------------------
Craig Whitehead
*/KEITH A. HAUSCHILDT Assistant Vice President and Controller
--------------------- (Principal Account Officer)
Keith A. Hauschildt
</TABLE>
*/ By Michael J. Velotta, pursuant to Power of Attorney, previously filed.
<PAGE>
EXHIBIT LIST
The following exhibits are filed herewith:
Exhibit No. Description
- ------------- --------------
2 Opinion and Consent of Counsel
7(b) Power of Attorney for Thomas J. Wilson, II
8(1) Consent of Freedman, Levy, Kroll & Simonds
8(2) Independent Auditors' Consent
GLENBROOK LIFE AND ANNUITY COMPANY
LAW AND REGULATION DEPARTMENT
3100 Sanders Road, J5B
Northbrook, Illinois 60062
Direct Dial Number 847-402-2400
Facsimile 847-402-4371
Michael J. Velotta
Vice President, Secretary
and General Counsel
April 14, 1999
TO: GLENBROOK LIFE AND ANNUITY COMPANY
NORTHBROOK, ILLINOIS 60062
FROM: MICHAEL J. VELOTTA
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
RE: FORM S-6 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FILE NO. 333-02581
With reference to the Registration Statement on Form S-6 filed by
Glenbrook Life and Annuity Company (the "Company") with the Securities and
Exchange Commission covering the Modified Single Premium Variable Life Insurance
Contracts, I have examined such documents and such law as I have considered
necessary and appropriate, and on the basis of such examination, it is my
opinion that as of December 28, 1998:
1. The Company is duly organized and existing under the laws of the State
of Arizona and has been duly authorized to do business by the Director
of Insurance of the State of Arizona.
2. The securities registered by the above Registration Statement when
issued will be valid, legal and binding obligations of the Company.
I hereby consent to the filing of this opinion as an exhibit to the
above referenced Registration Statement and to the use of my name under the
caption "Legal Matters" in the Prospectus constituting a part of the
Registration Statement.
Sincerely,
/s/ Michael J. Velotta
- -------------------------
Michael J. Velotta
Vice President, Secretary and
General Counsel
POWER OF ATTORNEY
WITH RESPECT TO
GLENBROOK LIFE AND ANNUITY COMPANY
AND
GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT A
Know all men by these presents that Thomas J. Wilson, II, whose
signature appears below, constitutes and appoints Louis G. Lower, II and Michael
J. Velotta, each acting individually, his attorney-in-fact, with power of
substitution and in any and all capacities, to sign any registration statements
and amendments thereto for the Glenbrook Life and Annuity Company, Glenbrook
Life Variable Life Separate Account and related Contracts and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
April 23, 1999
Date
/s/Thomas J. Wilson, II
Thomas J. Wilson, II
Vice Chairman and Director
Freedman, Levy, Kroll & Simonds
CONSENT OF
FREEDMAN, LEVY, KROLL & SIMONDS
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the prospectus contained in Post-Effective Amendment No. 4 to the
Form S-6 Registration Statement of Glenbrook Life Variable Life Separate Account
A (File No. 333-02581).
/s/FREEDMAN, LEVY, KROLL & SIMONDS
Washington, D.C.
April 26, 1999
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 4 to Registration
Statement No. 333-02581 of Glenbrook Life Variable Life Separate Account A of
Glenbrook Life and Annuity Company on Form S-6 of our report dated February 19,
1999 relating to the financial statements and the related financial statement
schedule of Glenbrook Life and Annuity Company, and our report dated March 18,
1999 relating to the financial statements of Glenbrook Life Variable Life
Separate Account A appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Chicago Illinois
April 26, 1999
