GLENBROOK LIFE SCUDDER VARIABLE ACCOUNT (A)
OFFERED BY
GLENBROOK LIFE AND ANNUITY COMPANY
POST OFFICE BOX 94039
PALATINE, ILLINOIS 60094-4039
CUSTOMER SERVICE
8301 MARYLAND AVENUE
ST. LOUIS, MISSOURI 63105
1-(800)242-4402
INDIVIDUAL AND GROUP FLEXIBLE PREMIUM DEFERRED VARIABLE
ANNUITY CONTRACTS
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PROSPECTUS
October 5,1998
This prospectus describes the no sales load Flexible Premium Deferred
Variable Annuity Contract ("Contract") offered by Glenbrook Life and Annuity
Company ("Company"), a wholly owned subsidiary of Allstate Life Insurance
Company. The Contract is designed to aid you in accumulation of capital on a
tax-deferred basis for retirement or other long-term purposes. The Contract is
available to individuals, as well as to certain retirement plans and individual
retirement plans and individual retirement accounts that qualify for special
federal income tax treatment. The Contract may also be purchased for use as an
Individual Retirement Annuity that qualifies for special federal income tax
treatment applicable to ("IRA").
The Contract may be purchased for a minimum initial purchase payment of
$2,500 ($2,000 Qualified). No commission or sales charge is deducted from the
purchase payments or from amounts payable upon surrender of the Contract. The
Owner of a Contract ("Owner") may make additional purchase payments subject to
certain conditions and limitations. The Owner may allocate the purchase payments
for the Contracts to one or more Sub-accounts of the Glenbrook Life Scudder
Variable Account (A) ("Variable Account") and/or the Fixed Account option(s)
funded through the Company's general account.
Each Sub-account invests exclusively in a mutual fund portfolio of the
Scudder Variable Life Investment Fund, an investment company registered under
the Investment Company Act of 1940, as amended ("Fund"). The portfolios
currently available are: the Money Market Portfolio and Class A shares of the
Fund's Bond Portfolio, the Capital Growth Portfolio, the Balanced Portfolio, the
International Portfolio, the Growth and Income Portfolio, and the Global
Discovery Portfolio. A more complete description of the Portfolios is set forth
in the prospectus for the Fund. Scudder Kemper Investments, Inc. acts as sole
investment adviser to the Fund.
This prospectus presents information you should know before making a
decision to invest in the Contract and the available Investment Alternatives.
The Contract Value will vary daily as a function of the investment
performance of the Sub-accounts of the Variable Account to which you have
allocated premium(s) and any interest credited to the Fixed Account options, if
applicable. The Company does not guarantee any minimum Contract Value for
amounts allocated to the Variable Account. The Owner bears the complete
investment risk for all payments allocated to the Variable Account.
The Company has prepared and filed a Statement of Additional
Information dated the same date as this Prospectus with the U.S. Securities and
Exchange Commission. If you wish to receive the Statement of Additional
Information, you may obtain a free copy by calling or writing the Company at the
address above. For your convenience, an order form for the Statement of
Additional Information may be found on page A-2 of this prospectus. Before
ordering, you may wish to review the Table of Contents of the Statement of
Additional Information on page A-1 of this prospectus. The Statement of
Additional Information has been incorporated by reference into this prospectus.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS FOR THE SCUDDER VARIABLE LIFE INVESTMENT FUND.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE
The Contract may not be available in all states.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
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GLOSSARY....................................................... 1
HIGHLIGHTS..................................................... 3
SUMMARY OF VARIABLE ACCOUNT EXPENSES........................... 6
CONDENSED FINANCIAL INFORMATION................................ 9
YIELD AND TOTAL RETURN DISCLOSURE.............................. 9
GLENBROOK LIFE AND ANNUITY COMPANY AND THE VARIABLE ACCOUNT... 10
THE FUND....................................................... 12
THE FIXED ACCOUNT OPTIONS...................................... 14
Standard Fixed Account Option................................ 15
The Dollar Cost Averaging Fixed Account...................... 15
PURCHASE OF THE CONTRACTS...................................... 16
Purchase Payment Limits...................................... 16
Free-Look Period............................................. 16
Crediting of Initial Purchase Payment........................ 16
Allocation of Purchase Payments.............................. 16
Accumulation Units........................................... 17
Accumulation Unit Value...................................... 17
Transfers Among Investment Alternatives...................... 17
Dollar Cost Averaging........................................ 18
Automatic Portfolio Rebalancing.............................. 18
BENEFITS UNDER THE CONTRACT.................................... 19
Withdrawals.................................................. 19
Income Payments.............................................. 20
Payout Start Date for Income Payments..................... 20
Variable Amount Income Payments........................... 20
Fixed Amount Income Payments.............................. 21
Annuity Transfers......................................... 21
Income Plans.............................................. 21
DEATH BENEFITS................................................. 22
Distribution Upon Death Payment Provisions................... 22
Death Benefit Amount......................................... 23
Enhanced Death Benefit Rider................................. 24
CHARGES AND OTHER DEDUCTIONS................................... 24
Deductions from Purchase Payments............................ 24
Withdrawal Charge............................................ 25
Contract Maintenance Charge.................................. 25
Administrative Expense Charge................................ 25
Mortality and Expense Risk Charge............................ 25
Taxes........................................................ 26
Transfer Charges............................................. 26
Fund Expenses................................................ 26
GENERAL MATTERS................................................ 26
Owner........................................................ 26
Beneficiary.................................................. 26
Assignments.................................................. 27
Delay of Payments............................................ 27
Modification................................................. 27
Customer Inquiries........................................... 28
FEDERAL TAX MATTERS............................................ 28
Introduction................................................. 28
Taxation of Annuities in General............................. 28
Tax Deferral.............................................. 28
NonNatural Owners......................................... 28
Diversification Requirements.............................. 29
Ownership Treatment....................................... 29
Delayed Maturity Dates.................................... 30
Taxation of Partial and Full Withdrawals.................. 30
Taxation of Annuity Payments.............................. 30
Taxation of Annuity Death Benefits........................ 31
Penalty Tax on Premature Distributions.................... 31
Aggregation of Annuity Contracts.......................... 31
Tax Qualified Contracts................................... 31
Restrictions Under Section 403(b) Plans................... 32
Roth Individual Retirement Annuities...................... 32
Income Tax Withholding.................................... 32
DISTRIBUTION OF THE CONTRACTS.................................. 33
VOTING RIGHTS.................................................. 33
LEGAL PROCEEDINGS.............................................. 34
FINANCIAL STATEMENTS........................................... 34
LEGAL MATTERS.................................................. 34
YEAR 2000...................................................... 35
STATEMENT OF ADDITIONAL INFORMATION: TABLE OF CONTENTS......... A-1
ORDER FORM...................................................... A-2
<PAGE>
GLOSSARY
ACCUMULATION UNIT: A measure of your ownership interest in a Sub-account of the
Variable Account prior to the Payout Start Date.
ACCUMULATION UNIT VALUE: The value of each Accumulation Unit which is calculated
each Valuation Date. Each Sub-account of the Variable Account has its own
Accumulation Unit Value.
ANNUITANT(S): The person(s) whose life determines the latest Payout Start Date
and the amount and duration of any income payments for Income Plan options other
than Guaranteed Payments for a Specified Period. Joint annuitants are only
permitted on or after the Payout Start Date. Joint Annuitants may be permitted
only if a Join and Survivor Income Plan is selected.
BENEFICIARY(IES): The person(s) to whom any benefits are due when a death
benefit is payable and there is no surviving Owner.
COMPANY ("WE", "US"): Glenbrook Life and Annuity Company.
CONTRACT: The Glenbrook Life and Annuity Company Flexible Premium Deferred
Variable Annuity Contract, known as the "Scudder Horizon Advantage Variable
Annuity" is described in this prospectus. The Contracts are issued as individual
Contracts or as group Contracts. In states where the Contracts are available
only as group Contracts, a certificate is issued to you, as the certificate
holder, that summarizes the provisions of the group Contract. For convenience,
this prospectus refers to both Contracts and certificates as "Contracts."
CONTRACT ANNIVERSARY: An anniversary of the date that the Contract was issued.
CONTRACT VALUE: The value of all amounts accumulated under the Contract prior to
the Payout Start Date, which is equivalent to the Accumulation Units in each
Sub-account of the Variable Account multiplied by the respective Accumulation
Unit Value, plus the value in the Fixed Account options.
CONTRACT YEAR: A period of 12 months starting with the issue date or any
Contract Anniversary.
FIXED ACCOUNT: All of the assets of the Company that are not in separate
accounts. The Fixed Account options are the Dollar Cost Averaging Fixed Account
("DCA Account") and the Standard Fixed Account.
FUND: Scudder Variable Life Investment Fund.
INCOME PLAN: One of several ways in which a series of payments are made after
the Payout Start Date. Income payments are based on the Contract Value adjusted
by any applicable taxes on the Payout Start Date. Income payment amounts may
vary based on any Sub-account of the Variable Account and/or may be fixed for
the duration of the Income Plan.
INVESTMENT ALTERNATIVES: The Sub-accounts of the Variable Account, the Dollar
Cost Averaging Fixed Account and the Standard Fixed Account.
NON-QUALIFIED CONTRACTS: Contracts other than Qualified Contracts.
OWNER(S)("YOU"): The person(s) designated as the Owner in the Contract.
PAYOUT START DATE: The date on which income payments begin.
QUALIFIED CONTRACTS: Contracts issued under plans that qualify for special
federal income tax treatment under Sections 401(a), 403(a), 403(b), 403A and 408
and 408A of the Internal Revenue Code.
SUB-ACCOUNT: A portion of the Variable Account invested in shares of a
corresponding Portfolio. The investment performance of each Sub-account is
linked directly to the investment performance of its corresponding Portfolio.
VALUATION DATE: Each day that the New York Stock Exchange ("NYSE") is open for
trading, except for days in which there is insufficient trading in the Variable
Account's portfolio securities such that the value of Accumulation or Annuity
Units might not be materially affected by changes in the value of the portfolio
securities. The Valuation Date does not include such Federal and non-Federal
holidays as are observed by the NYSE.
VALUATION PERIOD: The period between successive Valuation Dates, commencing at
the close of regular trading on the NYSE (which is normally 4:00 pm Eastern
Time) and ending as of the close of regular trading on the next succeeding
Valuation Date.
VARIABLE ACCOUNT: Glenbrook Life Scudder Variable Account (A), a separate
investment account established by the Company to receive and invest purchase
payments paid under the Contracts.
<PAGE>
HIGHLIGHTS
THE CONTRACT
This Contract is designed for long-term financial planning and retirement
planning. Money can be allocated to any combination of Investment Alternatives.
You have access to your monies either through withdrawals of Contract Value or
through periodic income payments. You bear the entire investment risk for
Contract Values and income payments based upon the Variable Account, because
values will vary depending on the investment performance of the Sub-account(s)
you select. See "Accumulation Unit Value," page and "Income Plans," page .
FREE-LOOK
You may cancel the Contract any time within 20 days after receipt of the
Contract and receive a full refund of purchase payments allocated to the Fixed
Account. Purchase payments allocated to the Variable Account will be returned
after an adjustment to reflect investment gain or loss that occurred from the
date of allocation through the date of cancellation, unless a refund of purchase
payments is required by state or federal law. See "Free-Look Period," page .
HOW TO INVEST
Your first purchase payment must be at least $2,500 (for Qualified
Contracts, $2,000). Currently, there is no minimum additional Purchase Payment
amount nor is there a maximum number of additional Purchase Payments. The amount
of subsequent purchase payments is at the Company's discretion. See "Purchase
Payment Limits," page . At the time of your application, you will allocate your
purchase payment among the Investment Alternatives. See "Allocation of Purchase
Payments," page . All allocations must be in whole percents from 0% to 100%
(total allocation must equal 100%) or in whole dollars (total allocation must
equal entire dollar amount of purchase payment). Allocations may be changed by
notifying the Company in writing. See "Allocation of Purchase Payments," page .
INVESTMENT ALTERNATIVES
The Variable Account invests in shares of Scudder Variable Life Investment
Fund, Inc. (the "Fund"). The Fund has a total of seven Portfolios available
under the Contract: (1) Money Market; (2) Bond; (3) Capital Growth; (4)
Balanced; (5) International; (6) Growth and Income; and (7) Global Discovery.
The assets of each Portfolio are held separately from the other Portfolios and
each has distinct investment objectives and policies which are described in the
accompanying prospectus for the Fund. The investment adviser for all Portfolios
is Scudder Kemper Investments, Inc. In addition to the Variable Account, Owners
can also allocate all or part of their purchase payments to the DCA Account or
the Standard Fixed Account. See "Fixed Account," page .
TRANSFERS AMONG INVESTMENT ALTERNATIVES
Prior to the Payout Start Date, you may transfer amounts among the
Investment Alternatives, subject to some restrictions. Amounts may be
transferred among the Sub-accounts and from the Sub-accounts to the Standard
Fixed Account and from the Standard Fixed Account to the Sub-accounts at any
time. Transfers are not permitted to be made into the DCA Account. Currently, no
charge is being imposed for any transfers among Sub-accounts or between the
Sub-accounts and the Fixed Account options. The Company reserves the right to
assess a $10 charge on each transfer in excess of twelve per Contract Year. The
Company is presently waiving this charge. Certain Fixed Account transfers may be
restricted. See "Transfers Among Investment Alternatives," page . You may want
to enroll in a Dollar Cost Averaging Program or in an Automatic Portfolio
Rebalancing Program. See "Dollar Cost Averaging," page and "Automatic Portfolio
Rebalancing," page .
CHARGES AND DEDUCTIONS
The costs of the Contract include: a mortality and expense risk charge,
deducted daily, equal on an annual basis to no greater than .40% of the
Contract's daily net assets in the Variable Account, and an administrative
expense charge, deducted daily, equal on an annual basis to no greater than .30%
of the Contract's daily net assets in the Variable Account. If you select the
Enhanced Death Benefit Rider, a mortality and expense risk charge will be
deducted daily, equal on an annual basis to no greater than .50% of the
Contract's daily net assets in the Variable Account, and an administrative
expense charge of no greater than .30%. The Company reserves the right to assess
a transfer charge ($10 on each transfer in excess of twelve per Contract Year).
Additional deductions may be made for certain taxes. See "Administrative Expense
Charge," page , "Mortality and Expense Risk Charge," page , "Transfer Charges,"
page , and "Taxes," page .
WITHDRAWALS
There is no withdrawal charge under the Contract. You may withdraw all or
part of the Contract Value at any time on or before the Payout Start Date,
without a withdrawal charge. The minimum amount that can be withdrawn is $50. If
any withdrawal reduces the Contract Value to less than $1,000, we will treat the
request as a withdrawal of the entire Contract Value. If you withdraw the entire
Contract Value, the Contract will terminate. In addition, a withdrawal request
must contain explicit instructions as to the withdrawal amounts, including the
amount to be withdrawn from each of the selected Sub-accounts and/or the Fixed
Account. See "Withdrawals," page , "Withdrawals or Transfers," page , and
"Taxation of Annuities in General," page .
DEATH BENEFIT
The Company will pay a death benefit prior to the Payout Start Date on the
death of any Owner or, if the Owner is not a natural person, on the death of the
Annuitant. See "Death Benefit Amount," page .
INCOME PAYMENTS
You will receive periodic income payments beginning on the Payout Start
Date. You may choose among several Income Plans to fit your needs. Income
payments may be received for a specified period or for life (either single or
joint life), with or without a guaranteed number of payments. You can select
income payments that are fixed, variable or a combination of fixed and variable.
See "Income Payments," page .
SUMMARY OF VARIABLE ACCOUNT EXPENSES
The following table illustrates all expenses and fees that you will incur.
The expenses and fees set forth in the table are based on charges under the
Contracts, the expenses of the Variable Account and the underlying Fund for the
year ended December 31, 1997.
OWNER TRANSACTION EXPENSES (ALL SUB-ACCOUNTS)
Sales Load Imposed on Purchases....................................None
Contingent Deferred Sales Charge...................................None
Transfer Fee....................................................... *
Annual Contract Fee................................................None
Surrender Fee......................................................None
Variable Account Annual Expenses
(as a percentage of the Contract's average net assets in the Variable Account)
With the Enhanced Death Benefit
Mortality and Expense Risk Charge**................................0.50%
Administrative Expense Charge......................................0.30%
Total Variable Account Annual Expenses.............................0.80%
Without the Enhanced Death Benefit
Mortality and Expense Risk Charge**................................0.40%
Administrative Expense Charge......................................0.30%
Total Variable Account Annual Expenses.............................0.70%
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* Currently, the Company does not impose a transfer charge. The Company reserves
the right in the future to assess a $10 charge for each transfer in excess of
twelve in any Contract Year, excluding transfers due to dollar cost averaging
and automatic portfolio rebalancing.
**For amounts allocated to the Variable Account, the mortality and expense risk
charge is assessed during both the accumulation and the payout phases of the
Contract.
<PAGE>
FUND EXPENSES AS OF JUNE 30, 1998
(AS A PERCENTAGE OF FUND ASSETS)
MANAGEMENT OTHER TOTAL FUND
FUND PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- -------------- ---------- --------- ---------------
Money Market 0.37% 0.08% 0.45%
Bond 0.47% 0.12% 0.59%
Capital Growth 0.47% 0.04% 0.51%
Balanced 0.47% 0.10% 0.57%
International 0.86% 0.22% 1.08%
Growth and Income 0.47% 0.09% 0.56%
Global Discovery 0.83% 0.71% 1.54%
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EXAMPLE
You (the Owner) would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return if you terminate your Contract, if you
do not terminate your contract or if you annuitize your contract for a specified
period of less than 120 months at the end of the applicable time period:
(With the Enhanced Death Benefit*)
FUND PORTFOLIO 1 YEAR 3 YEARS
- ------------------------- ------ -------
Money Market $13 $40
Bond $14 $44
Capital Growth $13 $42
Balanced $14 $44
International $19 $60
Growth and Income $14 $43
Global Discovery $24 $74
(Without the Enhanced Death Benefit**)
FUND PORTFOLIO 1 YEAR 3 YEARS
- ------------------------- ------ -------
Money Market $12 $37
Bond $13 $41
Capital Growth $12 $39
Balanced $13 $41
International $18 $56
Growth and Income $13 $40
Global Discovery $23 $71
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the example is to assist you in understanding the various costs and expenses
that you will bear directly or indirectly. Premium taxes, which vary from 0 -
3.5% depending upon the state where the Contract is sold, may also be imposed
but are not reflected in the example.
- ---------------------
* Total Separate Account Expenses of .80%
**Total Separate Account Expenses of .70%
<PAGE>
CONDENSED FINANCIAL INFORMATION
Condensed financial information is not included herein because, as of the
date of this Prospectus, sales of the Contracts had not commenced. Accordingly,
no monies had been allocated to the Contracts as of the date of this Prospectus.
Therefore, accumulation unit values for these Contracts was not available.
YIELD AND TOTAL RETURN DISCLOSURE
From time to time the Variable Account may advertise the yield and total
return investment performance of one or more Sub-accounts. Yield and
standardized total return advertisements include all charges and expenses
attributable to the Contracts. Such fees and charges include the Mortality and
Expense Risk Charge (0.40% for Contracts with the standard Death Benefit and
0.50% for Contracts with the Enhanced Death Benefit) and an Administrative
Expense Charge of 0.30%. Thus, the standardized performance reflects not only
the actual investment performance of invested assets but also the effect of
contractual fees and charges.
When a Sub-account advertises its standardized total return it will usually
be calculated for one year, five years, and ten years or since inception if the
Sub-account has not been in existence for such periods. Total return is measured
by comparing the value of an investment in the Sub-account at the end of the
relevant period to the value of the investment at the beginning of the period.
Certain Sub-accounts may advertise yield in addition to total return.
Except in the case of the Scudder Money Market Sub-account, the yield will be
computed in the following manner: the net investment income per unit earned
during a recent one month period is divided by the unit value on the last day of
the period, and then annualized. This figure reflects the recurring charges at
the separate account level.
The Scudder Money Market Sub-account may advertise, in addition to the
total return, either yield or the effective yield. The yield in this case refers
to the income generated by an investment in that Sub-account over a seven-day
period net of recurring charges at the separate account level. The income is
then annualized (i.e., the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment). The effective yield is calculated
similarly but when annualized, the income earned by an investment in the Scudder
Money Market Sub-account is assumed to be reinvested at the end of each
seven-day period. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment during a 52-week
period.
In addition, the Company may present historic performance data for the
Portfolios since their inception reduced by all fees and charges under the
Contract, including the Mortality and Expense Risk Charge (0.40% for Contracts
with the standard Death Benefit and 0.50% for Contracts with the Enhanced Death
Benefit) and an Administrative Expense Charge of 0.30%. Such adjusted historic
portfolio performance data includes data that precedes the inception dates of
the Sub-accounts. This data is designed to show the performance that could have
resulted if the Contract had been in existence during that time. Such
non-standard performance data will only be disclosed if standard performance
data for the required periods is also disclosed.
Please refer to the Statement of Additional Information for a further
description of the method used to calculate a Sub-account's yield and total
return.
GLENBROOK LIFE AND ANNUITY COMPANY AND THE VARIABLE ACCOUNT
GLENBROOK LIFE AND ANNUITY COMPANY
The Company is the issuer of the Contract. The Company is a stock life
insurance company which was organized under the laws of Illinois in 1992. The
Company was originally organized under the laws of Indiana in 1965. From 1965 to
1983 the Company was known as "United Standard Life Assurance Company" and from
1983 to 1992 the Company was known as "William Penn Life Assurance Company of
America." The Company is licensed to operate in Puerto Rico, the District of
Columbia and all states except New York. The Company intends to market the
Contract in those jurisdictions in which it is licensed to operate. The
Company's home office is located at 3100 Sanders Road, Northbrook, Illinois
60062.
The Company is a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), a stock life insurance company incorporated under the laws of
Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance
Company ("Allstate"), a stock property-liability insurance company incorporated
under the laws of Illinois. All of the outstanding capital stock of Allstate is
owned by The Allstate Corporation ("Corporation"). On June 30, 1995, Sears
Roebuck and Co. ("Sears") distributed its 80.3% ownership in the Corporation to
Sears common shareholders through a tax-free dividend.
The Company and Allstate Life entered into a reinsurance agreement,
effective June 5, 1992. Under the reinsurance agreement, Fixed Account purchase
payments are automatically transferred to Allstate Life and become invested with
the assets of Allstate Life, and Allstate Life accepts 100% of the liability
under such contracts. However, the obligations of Allstate Life under the
reinsurance agreement are to the Company; the Company remains the sole obligor
under the Contract to the Owners.
The Company is engaged in a business that is highly competitive because of
the large number of stock and mutual life insurance companies and other entities
competing in the sale of insurance and annuities. There are approximately 1,700
stock, mutual and other types of insurers in business in the United States.
Several independent rating agencies regularly evaluate life insurer's
claims-paying ability, quality of investments and overall stability. A.M. Best
Company assigns A+r* for financial strength to Allstate Life which automatically
reinsures all net business of the Company. Standard & Poor's Insurance Rating
Services assigns AA+ (very strong) for financial strength rating to the Company
and Moody's assigns an Aa2 (Excellent) for financial strength rating to the
Company. These ratings do not relate to the investment performance of the
Variable Account.
THE VARIABLE ACCOUNT
Established on August 26, 1998, the Glenbrook Life Scudder Variable Account
(A) is a unit investment trust registered with the Securities and Exchange
Commission under the Investment Company Act of 1940. Such registration, however,
does not signify that the Commission supervises the management or investment
practices or policies of the Variable Account. The investment performance of the
Variable Account is independent of both the investment performance of the
Company's general account and the performance of any other separate account.
The Variable Account has been divided into seven Sub-accounts, each of
which invests solely in its corresponding Fund of Scudder Variable Life
Investment Fund. Additional Sub-accounts may be added at the discretion of the
Company. The Variable Account may also add other Sub-accounts that may be
available under other variable annuity contracts.
The assets of the Variable Account are held separately from the other
assets of the Company. The assets are not chargeable with liabilities incurred
in the Company's other business operations. Accordingly, the income, capital
gains and capital losses, realized or unrealized, incurred on the assets of the
Variable Account are credited to or charged against the assets of the Variable
Account, without regard to the income, capital gains or capital losses arising
out of any other business the Company may conduct. The Company's obligations
arising under the Contracts are general corporate obligations of the Company.
THE FUND
The Variable Account will invest in Class A shares of the Scudder Variable
Life Investment Fund (the "Fund"). The Fund is registered with the Securities
and Exchange Commission as an open-end, diversified management investment
company. Registration of the Fund does not involve supervision of its
management, investment practices or policies by the Securities and Exchange
Commission. The Fund is designed to provide an investment vehicle for variable
annuity contracts and variable life insurance policies. Therefore, shares of the
Fund are sold only to insurance company separate accounts, including the
Variable Account.
SCUDDER VARIABLE LIFE INVESTMENT FUND
The Fund currently consists of the following Portfolios: (1) the Scudder
Money Market Portfolio; (2) the Scudder Bond Portfolio; (3) the Scudder Capital
Growth Portfolio; (4) the Scudder Balanced Portfolio; (5) the Scudder
International Portfolio; (6) the Scudder Growth and Income Portfolio; and (7)
the Scudder Global Discover Portfolio. Each Portfolio represents, in effect, a
separate mutual fund with its own distinct investment objectives and policies.
The income or losses of one Portfolio generally have no effect on the investment
performance of any other Portfolio.
The investment objectives and policies of certain portfolios are similar to
the investment objective and policies of other portfolios that may be managed by
the same investment adviser or manager. The investment results of the
portfolios, however, may be higher or lower than the results of such other
portfolios. There can be no assurance, and no representation is made that the
investment results of any of the portfolios will be comparable to the investment
results of any other portfolio, even if the other portfolio has the same
investment adviser or manager.
The investment objectives and policies of the Portfolios available under
the Contracts are summarized below:
Money Market Portfolio: This Portfolio seeks to maintain stability of
capital, and consistent therewith, to maintain liquidity of capital and to
provide current income. This Portfolio seeks to maintain a constant net asset
value of $1.00 per share. It will invest in money market securities such as U.S.
Treasury obligations, commercial paper, and certificates of deposit and bankers'
acceptances of domestic and foreign banks, including foreign branches of
domestic banks, and will enter into repurchase agreements.
Bond Portfolio: This Portfolio pursues a policy of investing for a high
level of income consistent with a high quality portfolio of debt securities. It
primarily invests in U.S. Government, corporate, and other notes and bonds.
Capital Growth Portfolio: This Portfolio seeks long-term capital
appreciation and, consistent therewith, current income through a broad and
flexible investment program. The Portfolio seeks to achieve these objectives by
investing primarily in income-producing publicly traded equity securities,
including common stocks and securities convertible into common stocks.
Balanced Portfolio: This Portfolio seeks a balance of growth and income
from a diversified portfolio of equity and fixed income securities. The
Portfolio also seeks long-term preservation of capital through a
quality-oriented investment approach that is designed to reduce risk.
Growth and Income Portfolio: This Portfolio seeks long-term growth of
capital, current income and growth of income. It primarily invests in common
stocks, preferred stocks, and securities convertible into common stocks of
companies which offer the prospect for growth of earnings while paying higher
than average current dividends.
International Portfolio: This Portfolio seeks long-term growth of capital
primarily through diversified holdings of marketable foreign equity investments.
It invests in companies, wherever organized, which do business primarily outside
the United States. The Portfolio intends to diversify investments among several
countries and not to concentrate investments in any particular industry.
Global Discovery Portfolio: This Portfolio seeks above-average capital
appreciation over the long term. It primarily invests in equity securities of
small companies around the world.
There can be no assurance that any Portfolio will achieve its objective.
More detailed information, including a description of the risks involved in
investing in each of the Portfolios, is contained in the Scudder Variable Life
Investment Fund Prospectus. Information contained in the Fund's prospectus
should be read carefully before investing in a Contract.
INVESTMENT ADVISOR FOR THE FUNDS
Scudder Kemper Investments, Inc. (the "Adviser"), an investment adviser
registered with the U.S. Securities and Exchange Commission under the Investment
Advisers Act of 1940, as amended, manages daily investments and business affairs
of the Fund, subject to the policies established by the Trustees of the Fund.
For additional information, see the Fund's prospectus.
You will find more complete information about the portfolio, including the
risks associated with each portfolio, in the Fund's prospectus. You should read
the prospectus for the Fund in conjunction with this prospectus.
THE FUND PROSPECTUS SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR SUB-ACCOUNT.
THE FIXED ACCOUNT OPTIONS
Purchase payments allocated to and transfers made to the Fixed Account
options become part of the general account of the Company, which supports
insurance and annuity obligations. Because of exemptive and exclusionary
provisions, interests in the general account have not been registered under the
Securities Act of 1933 ("1933 act"), nor is the general account registered as an
investment company under the Investment Company Act of 1940 ("1940 act").
Accordingly, neither the general account nor any interests therein are generally
subject to the provisions of the 1933 or 1940 Acts and the Company has been
advised that the staff of the Securities and Exchange Commission has not
reviewed the disclosures in this Prospectus which relate to the Fixed Account.
Disclosures regarding the Fixed Account, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
GENERAL DESCRIPTION
Purchase payments and transfers made to the Fixed Account options become
part of the general account of the Company. The general account is made up of
all of the general assets of the Company, other than those in the Variable
Account and any other segregated asset account. Instead of the Owner bearing the
investment risk as is the case for amounts in the Variable Account, the Company
bears the full investment risk for all amounts contributed to the general
account. The Company has sole discretion to invest the assets of the general
account, subject to applicable law. The Company guarantees that the amounts
allocated to the Fixed Account options will be credited interest daily at a net
effective interest rate of at lease the minimum guaranteed rate found in the
Contract. (Amounts allocated to the Fixed Account do not get charged the
separate account asset based charges of either .70% or .80%.) Currently the
amount of interest credited in excess of the guaranteed rate will be determined
at the sole discretion of the Company. Any interest held in the general account
does not entitle an Owner to share in the investment experience of the general
account.
STANDARD FIXED ACCOUNT OPTION
Money deposited in the Standard Fixed Account earns interest for one year
at the current rate in effect at the time of allocation or transfer. After the
one year period expires, a renewal rate will be declared. Subsequent renewal
dates will be on yearly anniversaries of the first renewal date. On or about
each renewal date, the Company will notify the Owner of the interest rate(s).
The interest rate will be guaranteed by the Company for a full year and will not
be less than the guaranteed rate found in the Contract. The Company may declare
more than one interest rate for different monies based upon the date of
allocation or transfer to the Standard Fixed Account option.
You may allocate all or a portion of your premium payment(s) to the
Standard Fixed Account option. You may withdraw or transfer your money from the
Standard Fixed Account option at any time on a first-in, first-out basis. The
amount received by the Owner under a withdrawal request equals the amount
requested, minus any applicable premium taxes and withholding (if applicable).
THE DOLLAR COST AVERAGING FIXED ACCOUNT
You may also allocate purchase payments to the Dollar Cost Averaging Fixed
Account (the "DCA Account"). Each purchase payment allocated to the DCA Account
will earn interest for one year at the current rate in effect at the time you
make the allocation to the DCA Account. The rate will never be less than 3.5%.
All purchase payments and interest earned on those payments must be transferred
to other Investment Alternatives in equal monthly installments within one year.
You may not transfer funds from other Investment Alternatives into the DCA
Account.
When you make your purchase payment allocation to the DCA Account, you must
designate a percentage (whole percentages only, which must total 100%) of the
allocated amount that will be transferred to the Investment Alternative(s) you
select. An amount equal to the percentage you designated will be transferred
into the Investment Alternatives you designate in equal monthly installments
over the number of months you select. The number of monthly transfers selected
may not exceed 12. At the end of 12 months from the date of allocation to the
DCA Account, any remaining portion of the purchase payment and interest in the
DCA Account will be transferred to the Money Market Sub-account.
PURCHASE OF THE CONTRACTS
PURCHASE PAYMENT LIMITS
Your first purchase payment must be at least $2,500 unless the Contract is
a Qualified Contract, in which case the first purchase payment must be at least
$2,000. Currently, there is no minimum additional Purchase Payment amount nor is
there a maximum number of additional Purchase Payments. The amount of subsequent
Purchase Payments is at the Company's discretion. Subsequent purchase payments
may also be made automatically to your Contract through Automatic Additions.
We reserve the right to limit the amount of purchase payments we will
accept.
FREE-LOOK PERIOD
You may cancel the Contract any time within 20 days after receipt of the
Contract and receive a full refund of purchase payments allocated to the Fixed
Account. Purchase payments allocated to the Variable Account will be returned
after an adjustment to reflect investment gain or loss that occurred from the
date of allocation through the date of cancellation unless a refund of purchase
payments is required by state or federal law. Your state may require a different
free look period.
CREDITING OF INITIAL PURCHASE PAYMENT
The initial purchase payment accompanied by a duly completed application
will be credited to the Contract within two business days of receipt the
Company. If an application is not duly completed, we will credit the purchase
payments to the Contract within five business days or return it to you at that
time unless you specifically consent to us holding the purchase payment until
the application is complete. We reserve the right to reject any application.
Subsequent purchase payments will be credited to the Contract at the close of
the Valuation Period in which the purchase payment is received by the Company.
ALLOCATION OF PURCHASE PAYMENTS
On the application, you instruct us how to allocate the purchase payment
among the Investment Alternatives. Purchase payments may be allocated to any
Investment Alternative in whole percents, from 0% to 100% (total allocation must
equal 100%) or in whole dollars (total allocation must equal entire dollar
amount of purchase payments). Unless you notify us in writing otherwise,
subsequent purchase payments are allocated according to the allocation
instructions for the previous purchase payment. Any change in allocation
instructions will be effective at the time we receive the notice in good order.
ACCUMULATION UNITS
Each purchase payment allocated to the Variable Account will be credited to
the Contract as Accumulation Units. For example, if a $10,000 purchase payment
is credited to the Contract when the Accumulation Unit value equals $10, then
1,000 Accumulation Units would be credited to the Contract. The Variable
Account, in turn, purchases shares of the corresponding portfolio of the Fund.
ACCUMULATION UNIT VALUE
The Accumulation Units in each Sub-account are valued separately. The value
of Accumulation Units will change each Valuation Period according to the
investment performance of the shares held by each Sub-account and the deduction
of certain expenses and charges.
The value of an Accumulation Unit in a Sub-account for any Valuation Period
equals the value of the Accumulation Unit as of the immediately preceding
Valuation Period, multiplied by the Net Investment Factor for that Sub-account
for the current Valuation Period. The Net Investment Factor for a Valuation
Period is a number representing the change, since the last Valuation Date in the
value of Sub-account assets per Accumulation Unit due to investment income,
realized or unrealized capital gain or loss, deductions for taxes, if any, and
deductions for the mortality and expense risk charge and administrative expense
charge.
TRANSFERS AMONG INVESTMENT ALTERNATIVES
Amounts may be transferred among Investment Alternatives, subject to the
following restrictions. The Company reserves the right to assess a $10 charge on
each transfer in excess of twelve per Contract Year. The Company is presently
waiving this charge. The Company reserves the right to waive transfer
restrictions. Transfers to or from more than one Investment Alternative on the
same day are treated as one transfer. Transfers through Dollar Cost Averaging
and Automatic Portfolio Rebalancing do not count toward the twelve free
transfers per Contract Year.
Transfers among Investment Alternatives before the Payout Start Date may be
made at any time. Transfers are not permitted into the DCA Account. Transfers
from the Standard Fixed Account option are taken on a first-in, first-out basis.
After the Payout Start Date, transfers among Sub-accounts or from a variable
amount income payment to a fixed amount income payment may be made only once
every six months and may not be made during the first six months following the
Payout Start Date. After the Payout Start Date, transfers from a fixed amount
income payment are not permitted.
Telephone transfer requests will be accepted by the Company if received at
1(800)242-4402 by 3:00 p.m., Central Time. Telephone transfer requests received
at any other telephone number or after 3:00 p.m., Central Time will not be
accepted by the Company. Telephone transfer requests received before 3:00 p.m.,
Central Time are effected at the next computed value. In the event that the New
York Stock Exchange ("NYSE") closes early, i.e., before 3:00 p.m. Central Time,
or in the event that the NYSE closes early for a period of time but then reopens
for trading on the same day, telephone transfer requests will be processed by
the Company as of the close of the NYSE on that particular day.
The Company utilizes procedures which the Company believes will provide
reasonable assurance that telephone authorized transfers are genuine. Such
procedures include taping of telephone conversations with persons purporting to
authorize such transfers and requesting identifying information from such
persons. Accordingly, the Company disclaims any liability for losses resulting
from such transfers by reason of their allegedly not having been properly
authorized. However, if the Company does not take reasonable steps to help
ensure that such authorizations are valid, the Company may be liable for such
losses.
DOLLAR COST AVERAGING
Transfers may be made automatically through Dollar Cost Averaging prior to
the Payout Start Date. Dollar Cost Averaging permits the Owner to transfer a
specified amount in equal monthly installments from the one year DCA Account or
any Sub-account, to any of the Sub-accounts. Dollar Cost Averaging may not be
used to transfer amounts to the Fixed Account. In addition, such transfers are
not assessed a $10 charge and do not count toward the twelve free transfers per
Contract Year.
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.
AUTOMATIC PORTFOLIO REBALANCING
Transfers may be made automatically through Automatic Portfolio Rebalancing
prior to the Payout Start Date. By electing Automatic Portfolio Rebalancing, all
of the money allocated to the Sub-accounts will be rebalanced to the desired
allocation on a quarterly basis, determined from the first date you decide to
rebalance. Each quarter, money will be transferred among Sub-accounts to achieve
the desired reallocation.
The desired allocation will be the allocation initially selected, unless
subsequently changed. You may change the allocation at any time by giving us
written notice. The new allocation will be effective with the first rebalancing
that occurs after we receive the written request. We are not responsible for
rebalancing that occurs prior to receipt of the written request.
Transfers made though Automatic Portfolio Rebalancing are not counted
toward the twelve free transfers per Contract Year.
Any money allocated to the Fixed Account options will not be included in
the rebalancing.
BENEFITS UNDER THE CONTRACT
WITHDRAWALS
You may withdraw all or part of the Contract Value at any time prior to the
earlier of the death of the Owner (or the Annuitant if the Owner is not a
natural person) or the Payout Start Date. The amount available for withdrawal is
the Contract Value next computed after the Company receives the request for a
withdrawal, less any applicable federal withholding or premium taxes.
Withdrawals from the Variable Account will be paid within seven days of receipt
of the request, subject to postponement in certain circumstances.
Money can be withdrawn from the Variable Account or the Fixed Account. To
complete the partial withdrawal from the Variable Account, the Company will
redeem Accumulation Units in an amount equal to the withdrawal and any
applicable premium taxes. The Owner must name the Investment Alternatives from
which the withdrawal is to be made. If no Investment Alternative is named, then
the withdrawal request is incomplete and will not be honored.
If any portion of the surrender is to be withdrawn from the Standard Fixed
Account option, the amount requested will be deducted on a first-in, first-out
basis.
The minimum partial withdrawal is $50. If the Contract Value after a
partial withdrawal would be less than $1,000, then the Company will treat the
request as one for termination of the Contract and the entire Contract Value,
less any charges and premium taxes, will be paid out. The Company reserves the
right to waive these withdrawal restrictions.
Partial withdrawals may also be taken automatically through Systematic
Withdrawals on a monthly, quarterly, semi-annual or annual basis. Systematic
Withdrawals of $50 or more may be requested at any time prior to the Payout
Start Date. The Company reserves the right to prohibit the use of Systematic
Withdrawals in conjunction with Dollar Cost Averaging.
An Owner may make a partial withdrawal by sending a written request or by
telephone if a currently valid telephone transfer request form is on file with
us. The Contract Value payable to the Owner upon a withdrawal request will be
calculated at the price next computed after the Company receives a request for
withdrawal. The Company will pay the Owner any Contract Value owed with respect
to a withdrawal within seven days of receipt of the withdrawal request. If at
the time an Owner makes a withdrawal request, the Owner has not provided us with
a written election to not have federal income taxes withheld, the Company, by
law, must withhold such taxes from the taxable portion of any withdrawal.
Partial and full withdrawals may be subject to current income tax and a 10%
tax penalty. This tax and penalty are explained in "Federal Tax Matters," on
page .
After the Payout Start Date, withdrawals are only permitted when payments
from the Variable Account are being made for a specified number of payments only
(i.e. Income Plan 3). In that case, you may terminate the Variable Account
portion of the income payments at any time and receive a lump sum equal to the
commuted balance of the remaining variable payments due.
INCOME PAYMENTS
PAYOUT START DATE FOR INCOME PAYMENTS
The Payout Start Date is the day that income payments will start under the
Contract. You may change the Payout Start Date at any time by notifying the
Company in writing of the change at least 30 days before the scheduled Payout
Start Date. The Payout Start Date must be (a) at least one month after the issue
date; and (b) no later than the day the Annuitant reaches age 90, or the 10th
anniversary of the issue date, if later.
Income payments may be Variable Amount Income Payments, Fixed Amount Income
Payments, or both. The method of calculating the initial payment is different
for the two types of payments.
VARIABLE AMOUNT INCOME PAYMENTS
The amount of variable amount income payments depends upon the investment
experience of the Sub-accounts selected by the Owner and any premium taxes, the
age and sex of the Annuitant, and the Income Plan chosen. The Company guarantees
that the amount of the income payment will not be affected by (1) actual
mortality experience and (2) the amount of the Company's administration
expenses.
The Contracts offered by this prospectus contain income payment tables that
provide for different benefit payments to men and women of the same age (except
in states which require unisex annuity tables). Nevertheless, in accordance with
the U.S. Supreme Court's decision in Arizona Governing Committee v. Norris, in
certain employment-related situations, annuity tables that do not vary on the
basis of sex will be used.
The total income payments received may be more or less than the total
purchase payments made because (a) variable amount income payments vary with the
investment results of the underlying portfolios, and (b) Annuitants may live
longer than, or not as long as, expected.
The Income Plan option selected will affect the dollar amount of each
income payment. For example, if an Income Plan for a Life Income is chosen, the
income payments will be greater than income payments under an Income Plan for a
Life Income with Guaranteed Payments.
Income payments are determined based on an assumed investment rate and the
investment performance of the applicable Sub-accounts. If the actual net
investment experience of the applicable Sub-account(s) is less than the assumed
investment rate, then the dollar amount of the income payments will decrease.
The dollar amount of the income payments will stay level if the net investment
experience equals the assumed investment rate and the dollar amount of the
income payments will increase if the net investment experience exceeds the
assumed investment rate. For purposes of the variable amount income payments,
the assumed investment rate is 3 percent. For more detailed information as to
how variable amount income payments are determined, see the Statement of
Additional Information.
FIXED AMOUNT INCOME PAYMENTS
Income payment amounts derived from any monies allocated to the Fixed
Account during the accumulation phase are fixed for the duration of the Income
Plan. The fixed amount income payment amount is calculated by applying the
portion of the Contract Value in the Fixed Account on the Payout Start Date,
less any applicable premium tax, to the greater of the appropriate value from
the income payment table selected or such other value as we are offering at that
time.
ANNUITY TRANSFERS
After the Payout Start Date, no transfers may be made from the Fixed Amount
Income Payment. Transfers between Sub-accounts, or from the Variable Amount
Income Payment to the Fixed Amount Income Payment may not be made for six months
after the Payout Start Date. Transfers may be made once every six months
thereafter.
INCOME PLANS
The Income Plans include:
INCOME PLAN 1 -- LIFE INCOME WITH GUARANTEED PAYMENTS
The Company will make payments for as long as the Annuitant lives. If the
Annuitant dies before the selected number of guaranteed payments have been made,
the Company will continue to pay the remainder of the guaranteed payments.
INCOME PLAN 2 -- JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS
The Company will make payments for as long as either the Annuitant or Joint
Annuitant, named at the time of Income Plan selection, is living. If both the
Annuitant and the Joint Annuitant die before the selected number of guaranteed
payments have been made, the Company will continue to pay the remainder of the
guaranteed payments.
INCOME PLAN 3 -- GUARANTEED NUMBER OF PAYMENTS
The Company will make payments for a specified number of months beginning
on the Payout Start Date. These payments do not depend on the Annuitant's life.
The number of months guaranteed may be from 60 to 360. The mortality and expense
risk charge will be deducted from Variable Account assets supporting these
payments even though the Company does not bear any mortality risk.
The Owner may change the Income Plan until 30 days before the Payout Start
Date. If an Income Plan is chosen which depends on the Annuitant or Joint
Annuitant's life, proof of age will be required before income payments begin.
Applicable premium taxes will be assessed.
In the event that an Income Plan is not selected, the Company will make
income payments in accordance with Income Plan 1 Life Income with Guaranteed
Payments for 120 Months. At the Company's discretion, other Income Plans may be
available upon request. The Company currently uses sex-distinct annuity tables.
However, if legislation is passed by Congress or the states, the Company
reserves the right to use income payment tables which do not distinguish on the
basis of sex. Special rules and limitations may apply to certain Qualified
Contracts.
If the Contract Value to be applied to an Income Plan is less than $2,000,
or if the monthly payments determined under the Income Plan are less than $20,
the Company may pay the Contract Value less any applicable taxes in a lump sum
or change the payment frequency to an interval which results in income payments
of at least $20.
DEATH BENEFIT
DISTRIBUTION UPON DEATH PAYMENT PROVISIONS
A distribution upon death may be paid to the Owner determined immediately
after the death if, prior to the Payout Start Date:
- any Owner dies; or
- the Annuitant dies and the Owner is not a natural person.
If the Owner eligible to receive a distribution upon death is not a natural
person, then the Owner may elect to receive the distribution upon death in one
or more distributions. Otherwise, if the Owner is a natural person, the Owner
may elect to receive a distribution upon death in one or more distributions or
periodic payments through an Income Plan.
The entire distribution upon death must be distributed within five years
after the date of death unless an Income Plan is selected or a surviving spouse
continues the Contract in accordance with the following sections:
If an Income Plan is elected, payments from the Income Plan must begin
within one year of the date of death and must be payable throughout:
- the life of the Owner; or
- a period not to exceed the life expectancy of the Owner; or
- the life of the Owner with payments guaranteed for a period not to
exceed the life expectancy of the Owner.
If the surviving spouse of the deceased Owner is the new Owner, then the spouse
may elect one of the options listed above or may continue the Contract in the
accumulation phase as if the death had not occurred. The Company will only
permit the Contract to be continued once.
DEATH BENEFIT AMOUNT
Prior to the Payout Start Date, the death benefit is equal to the greatest
of:
(a) the Contract Value on the date the Company determines the death
benefit; or
(b) the sum of all purchase payments less any prior withdrawals and premium
taxes.
The Company will determine the value of the Death Benefit as of the end of
the Valuation Period during which the Company receives a complete request for
payment of the Death Benefit. A complete request includes due proof of death,
and such other documentation as the Company may require in its discretion. In
addition to the above alternatives, upon purchase of the Contract, if the Owner
is age 75 or younger, the Owner can select the Enhanced Death Benefit Rider.
ENHANCED DEATH BENEFIT RIDER
If the Owner of the Contract is a living individual, the enhanced death
benefit applies only for the death of the Owner. If the Owner is not a living
individual, the enhanced death benefit applies only for the death of the
Annuitant. If you select this rider, the Death Benefit will be the greater of
the Death Benefit Amount, as stated above, or the value of the Enhanced Death
Benefit.
On the Issue Date, the Enhanced Death Benefit is equal to the initial
Purchase Payment. After the Issue Date, the Enhanced Death Benefit is
recalculated when a purchase payment is made, a withdrawal is taken, or on the
Contract Anniversary as follows:
(1) For purchase payments, the Enhanced Death Benefit is equal to the most
recently calculated Enhanced Death Benefit plus the purchase payment.
(2) For withdrawals, the Enhanced Death Benefit is equal to the most
recently calculated Enhanced Death Benefit reduced by the amount of the
withdrawal.
(3) On each Contract Anniversary, the Enhanced Death Benefit is equal to
the greater of the Contract Value or the most recently calculated Enhanced
Death Benefit.
In the absence of any withdrawals or purchase payments, the Enhanced Death
Benefit will be the greatest of all Contract Anniversary Values on or prior to
the date we calculate the Death Benefit.
The Enhanced Death Benefit will be recalculated for purchase payments,
withdrawals and on Contract Anniversaries until the oldest Owner, or the
Annuitant if the Owner is not a living individual, attains age 80. After age 80,
the Enhanced Death Benefit will be recalculated only for purchase payments and
withdrawals.
The value of the death benefit will be determined at the end of the
Valuation Period during which the Company receives a complete request for
payment of the death benefit, which includes due proof of death. The Company
will not settle any death claim until it receives due proof of death.
CHARGES AND OTHER DEDUCTIONS
DEDUCTIONS FROM PURCHASE PAYMENTS
No deductions are made from purchase payments. Therefore, the full amount
of every purchase payment is invested in the Investment Alternative(s) you
select.
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE)
There are no withdrawal charges under the Contract. You may withdraw all or
part of the Contract Value at any time before the earlier of the Payout Start
Date or the death of any Owner (or, if the Owner is not a natural person, the
death of the Annuitant).
Federal and state income tax may be withheld from withdrawal amounts.
Certain terminations may also be subject to a federal tax penalty. See "Federal
Tax Matters," page .
CONTRACT MAINTENANCE CHARGE
There is no Contract maintenance charge under the Contract. The Company
will bear maintenance costs under the Contract. Maintenance costs include but
are not limited to expenses incurred in billing and collecting purchase
payments; keeping records; processing death claims, cash withdrawals, and policy
changes; calculating Accumulation Unit and Annuity Unit values; and issuing
reports to Owners and regulatory agencies.
ADMINISTRATIVE EXPENSE CHARGE
The Company will deduct an administrative expense charge which is equal, on
an annual basis, to .30% of the daily net assets you have allocated to the
Sub-accounts. This charge is designed to cover actual administrative expenses.
There is no necessary relationship between the amount of administrative charge
imposed on a given Contract and the amount of expenses that may be attributable
to that Contract.
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct a mortality and expense risk charge which is equal,
on an annual basis, to 0.40% of the Contracts daily net assets that you have
allocated to the Sub-accounts. The Company guarantees that the amount of this
charge will not increase over the life of the Contract.
The mortality risk arises from the Company's guarantee to cover all death
benefits and to make income payments in accordance with the Income Plan selected
and the Income Payment Tables.
The expense risk arises from the possibility that the contract maintenance
and administrative expense charges, both of which are guaranteed not to
increase, will be insufficient to cover actual administrative expenses.
If you select the Enhanced Death Benefit Rider, the Company will deduct an
additional mortality and expense risk charge equal, on an annual basis, to 0.10%
of the daily net assets you have allocated to the Sub-accounts of the Variable
Account, for a total charge of 0.50% of daily net assets in the Variable
Account.
The Company guarantees that the amount of this charge will not increase
over the life of Your Contract. For amounts allocated to the Variable Account,
the mortality and expense risk charge is deducted during the accumulation and
payout phases of the Contract.
TAXES
The Company will deduct applicable state premium taxes or other similar
policyholder taxes relative to the Contract (collectively referred to as
"premium taxes") either at the Payout Start Date, or when a total withdrawal
occurs. Current premium tax rates range from 0 to 3.5%. The Company reserves the
right in the future to deduct premium taxes from the purchase payments even
where the premium taxes are assessed at the Payout Start Date or upon total
withdrawal.
At the Payout Start Date, the charge for premium taxes will be deducted
from each Investment Alternative in the proportion that the Owner's value in the
Investment Alternative bears to the total Contract Value.
TRANSFER CHARGES
The Company reserves the right to assess a $10 charge on each transfer in
excess of twelve per Contract Year, excluding transfers through Dollar Cost
Averaging and Automatic Portfolio Rebalancing. The Company is presently waiving
this charge.
FUND EXPENSES
A complete description of the expenses and deductions from the portfolios
may be found in the prospectus for the Fund. This prospectus is accompanied by
the prospectus for the Fund.
GENERAL MATTERS
OWNER
The Owner has the sole right to exercise all rights and privileges under
the Contract, except as otherwise provided in the Contract. The Contract cannot
be jointly owned by both a nonnatural person and a natural person.
BENEFICIARY
Subject to the terms of any irrevocable Beneficiary designation, the Owner
may change the Beneficiary at any time by notifying the Company in writing. Any
change will be effective at the time it is signed by the Owner, whether or not
the Annuitant is living when the change is received by the Company. The Company
will not, however, be liable as to any payment or settlement made prior to the
Company receiving the written notice.
Unless otherwise provided in the Beneficiary designation, if a Beneficiary
predeceases the Owner and there are no other surviving beneficiaries, the new
Beneficiary will be: the Owner's spouse if living; otherwise, the Owner's
children, equally, if living; otherwise, the Owner's estate. Multiple
Beneficiaries may be named. Unless otherwise provided in the Beneficiary
designation, if more than one Beneficiary survives the Owner, the surviving
Beneficiaries will share equally in any amounts due.
ASSIGNMENTS
The Company will not honor an assignment of an interest in a Contract as
collateral or security for a loan. Otherwise, the Owner may assign benefits
under the Contract prior to the Payout Start Date. No Beneficiary may assign
benefits under the Contract until they are due. No assignment will bind the
Company unless it is signed by the Owner and filed with the Company. The Company
is not responsible for the validity of an assignment. Federal law prohibits or
restricts the assignment of benefits under many types of retirement plans and
the terms of such plans may themselves contain restrictions on assignments.
DELAY OF PAYMENTS
Payment of any amounts due from the Variable Account under the Contract
will occur within seven days, unless:
1. The New York Stock Exchange is closed for other than usual weekends
or holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the Securities and Exchange
Commission; or
3. The Securities and Exchange Commission permits delay for the
protection of the Owners.
Payments or transfers from the Fixed Account may be delayed for up to 6 months.
MODIFICATION
The Company may not modify the Contract without the consent of the Owner
except to make the Contract meet the requirements of the Investment Company Act
of 1940, or to make the Contract comply with any changes in the Internal Revenue
Code or to make any changes required by the Code or by any other applicable law.
CUSTOMER INQUIRIES
The Owner or any persons interested in the Contract may make inquiries
regarding the Contract by calling or writing your representative or the Company
at:
GLENBROOK LIFE AND ANNUITY COMPANY
CUSTOMER SERVICE
8301 MARYLAND AVENUE ST.
LOUIS, MISSOURI 63105
1(800)242-4402 FEDERAL TAX MATTERS
<PAGE>
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 receipt of
distributions under an annuity contract depend on the individual circumstances
of each person. If you are concerned about any tax consequences with regard to
your individual circumstances, you should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL
Generally, an annuity contract owner is not taxed on increases in the
Contract Value until a distribution occurs. This rule applies only where (1) the
owner is a "natural person" (see "NonNatural Owners" below for exception), (2)
the investments of the Variable Account are "adequately diversified" in
accordance with Treasury Department Regulations, and (3) the issuing insurance
company, instead of the annuity owner, is considered the owner for federal
income tax purposes of any separate account assets funding the contract.
NONNATURAL OWNERS
As a general rule, annuity contracts owned by nonnatural persons such as
corporations, trusts, or other entities are not treated as annuity contracts for
federal income tax purposes and the income on such contracts is taxed as
ordinary income received or accrued by the owner during the taxable year. There
are several exceptions to the general rule for contracts owned by nonnatural
persons which are discussed in the Statement of Additional Information.
DIVERSIFICATION REQUIREMENTS
For a Contract to be treated as an annuity for federal income 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 an annuity contract for federal income tax
purposes and the Owner will be taxed on the excess of the Contract Value over
the investment in the Contract. Although the Company does not have control over
the Funds or their investments, the Company expects the Funds to meet the
diversification requirements.
OWNERSHIP TREATMENT
In connection with the issuance of the regulations on the adequate
diversification standards, the Department of the Treasury announced that the
regulations do not provide guidance concerning the extent to which contract
owners may direct their investments among Sub-accounts of a variable account.
The Internal Revenue Service has previously stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the owner possesses incidents of ownership in those assets such as the
ability to exercise investment control over the assets. At the time the
diversification regulations were issued, Treasury 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.
<PAGE>
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 assets of
the Variable Account. In those circumstances, income and gains from the Variable
Account assets would be includible in the Contract Owners' 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'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 Owner from being considered the federal tax owner of a pro rata
share of the assets of the Variable Account. However, the Company makes no
guarantee that such modification to the contract will be successful.
DELAYED MATURITY DATES
If the contract's scheduled maturity date is at a time when the
annuitant has reached an advanced age, it is possible that the contract would
not be treated as an annuity. In that event, the income and gains under the
contract could be currently includible in the owner's income.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal under a non-qualified contract,
amounts received are taxable to the extent the contract value exceeds the
investment in the contract. The contract value is the sum of all account values.
No matter which account a withdrawal is made from, all account values are
combined and the total contract value is used to determine the amount of taxable
income. 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 the
owner's gross income. In the case of a partial withdrawal under a qualified
contract, the portion of the payment that bears the same ratio to the total
payment that the investment in the contract (i.e., nondeductible IRA
contributions, after tax contributions to qualified plans) bears to the contract
value, can be excluded from income. In the case of a full withdrawal under a
non-qualified contract or a qualified contract, the amount received will be
taxable only to the extent it exceeds the investment in the contract. If an
individual transfers an annuity contract without full and adequate consideration
to a person other than the individual's spouse (or to a former spouse incident
to a divorce), the owner will be taxed on the difference between the contract
value and the investment in the contract at the time of transfer. Other than in
the case of certain qualified contracts, any amount received as a loan under a
contract, and any assignment or pledge (or agreement to assign or pledge) of the
contract value is treated as a withdrawal of such amount or portion.
<PAGE>
TAXATION OF ANNUITY PAYMENTS
Generally, the rule for income taxation of payments received from an
annuity contract provides for the return of the owner's investment in the
contract in equal tax-free amounts over the payment period. The balance of each
payment received is taxable. In the case of variable annuity payments, the
amount excluded from taxable income is determined by dividing the investment in
the contract by the total number of expected payments. In the case of fixed
annuity payments, the amount excluded from income is determined by multiplying
the payment by the ratio of the investment in the contract (adjusted for any
refund feature or period certain) to the total expected value of annuity
payments for the term of the contract. Once the total amount of the investment
in the contract is excluded using these ratios, the annuity payments will be
fully taxable. If annuity payments cease because of the death of the annuitant
before the total amount of the investment in the contract is recovered, the
unrecovered amount generally will be allowed as a deduction to the annuitant for
his last taxable year.
TAXATION OF ANNUITY DEATH BENEFITS
Amounts may be distributed from an annuity contract because of the death of
an owner or annuitant. Generally, such amounts are includible in income as
follows: (1) if distributed in a lump sum, the amounts are taxed in the same
manner as a full withdrawal or (2) if distributed under an annuity option, the
amounts are taxed in the same manner as an annuity payment.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any premature
distribution from a non-qualified annuity contract. The penalty tax generally
applies to any distribution made prior to the date the owner attains age 591/2.
However, there should be no penalty tax on distributions to owners (1) made on
or after the date the owner attains age 591/2; (2) made as a result of an
owner's death or disability; (3) made in substantially equal periodic payments
over life or life expectancy; (4) made under an immediate annuity; or (5)
attributable to an investment in the contract before August 14, 1982. Similar
rules apply for distributions from certain qualified contracts. A competent tax
advisor should be consulted to determine if any other exceptions to the penalty
apply to your specific circumstances.
AGGREGATION OF ANNUITY CONTRACTS
All non-qualified deferred annuity contracts issued by the Company (or its
affiliates) to the same owner during any calendar year will be aggregated and
treated as one annuity contract for purposes of determining the taxable amount
of a distribution.
TAX QUALIFIED CONTRACTS
Annuity contracts may be used as investments with certain tax qualified
plans such as: (1) Individual Retirement Annuities under Section 408(b) of the
Code; (2) Roth Individual Retirement Annuities under Section 408A of the Code;
(3) Simplified Employee Pension Plans under Section 408(k) of the Code; (4)
Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section 408(p)
of the Code; (5) Tax Sheltered Annuities under Section 403(b) of the Code; (6)
Corporate and Self Employed Pension and Profit Sharing Plans; and (7) State and
Local Government and Tax-Exempt Organization Deferred Compensation Plans. In the
case of certain tax qualified plans, the terms of the plans may govern the right
to benefits, regardless of the terms of the contract.
RESTRICTIONS UNDER SECTION 403(b) PLANS
Section 403(b) of the Code provides for tax-deferred retirement savings
plans for employees of certain non-profit and educational organizations. In
accordance with the requirements of Section 403(b), any annuity contract used
for a 403(b) plan must provide that distributions attributable to salary
reduction contributions made after 12/31/88, and all earnings on salary
reduction contributions, may be made only after the employee attains age 591/2,
separates from service, dies, becomes disabled or on account of hardship
(earnings on salary reduction contributions may not be distributed on the
account of hardship). These limitations do not apply to withdrawals where the
Company is directed to transfer some or all of the contract value to another
Section 403(b) plan.
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth Individual
Retirement Annuity. Roth Individual Retirement Annuities are subject to
limitations on the amount that can be contributed and on the time when
distributions may commence. "Qualified distributions" from Roth Individual
Retirement Annuities are not includible in gross income. "Qualified
distributions" are any distributions made more than five taxable years after the
taxable year of the first contribution to the Roth Individual Retirement
Annuity, and which are made on or after the date the individual attains age 59
1/2, made to a beneficiary after the owner's death, attributable to the owner
being disabled or for a first time home purchase (first time home purchases are
subject to a lifetime limit of $10,000). "Nonqualified distributions" are
treated as made from contributions first and are includible in gross income to
the extent such distributions exceed the contributions made to the Roth
Individual Retirement Annuity. The taxable portion of a "nonqualified
distribution" may be subject to the 10% penalty tax on premature distributions.
Subject to certain limitations, a traditional Individual Retirement Account or
Annuity may be converted or "rolled over" to a Roth Individual Retirement
Annuity. The taxable portion of a conversion or rollover distribution is
includible in gross income, but is exempted from the 10% penalty tax on
premature distributions.
INCOME TAX WITHHOLDING
The Company is required to withhold federal income tax at a rate of 20% on
all "eligible rollover distributions" unless an individual elects to make a
"direct rollover" of such amounts to another qualified plan or Individual
Retirement Account or Annuity (IRA). Eligible rollover distributions generally
include all distributions from qualified contracts, excluding IRAs, with the
exception of (1) required minimum distributions, or (2) a series of
substantially equal periodic payments made over a period of at least 10 years,
or the life (joint lives) of the participant (and beneficiary). For any
distributions from non-qualified annuity contracts, or distributions from
qualified contracts which are not considered eligible rollover distributions,
the Company may be required to withhold federal and state income taxes unless
the recipient elects not to have taxes withheld and properly notifies the
Company of such election.
DISTRIBUTION OF THE CONTRACTS
Allstate Life Financial Services, Inc. ("ALFS"), 3100 Sanders Road,
Northbrook, Illinois, a wholly owned subsidiary of Allstate Life Insurance
Company, acts as the principal underwriter of the Contracts. ALFS is registered
as a broker-dealer under the Securities Exchange Act of 1934 and became a member
of the National Association of Securities Dealers, Inc. on June 30, 1993.
ALFS has contracted with Scudder Investors Services, Inc. ("Scudder") for
Scudder's services in connection with the distribution of the Contracts. Scudder
is registered with the SEC as a broker-dealer under the 1934 Act and is a member
of the National Association of Securities Dealers, Inc. Individuals directly
involved in the sale of the Contracts are registered representatives of Scudder
and licensed agents appointed by the Company. The principal address of Scudder
is Two International Place, Boston, Massachusetts 02110-4103.
The underwriting agreement with ALFS provides for indemnification of ALFS
by the Company for liability to Owners arising out of services rendered or
Contracts issued.
VOTING RIGHTS
The Owner or anyone with a voting interest in a Sub-account may instruct
the Company on how to vote at shareholder meetings of the Fund. The Company will
solicit and cast each vote according to the procedures set up by the Fund and to
the extent required by law. The Company reserves the right to vote the eligible
shares in its own right, if subsequently permitted by the Investment Company Act
of 1940, its regulations or interpretations thereof.
Fund shares as to which no timely instructions are received will be voted
in proportion to the voting instructions which are received with respect to all
Contracts participating in that Sub-account. Voting instructions to abstain on
any item to be voted upon will be applied on a pro-rata basis to reduce the
votes eligible to be cast.
Before the Payout Start Date, the Owner holds the voting interest in the
Sub-account. (The number of votes for the Owner will be determined by dividing
the Contract Value attributable to a Sub-account by the net asset value per
share of the applicable eligible Fund.)
After the Payout Start Date, the person receiving variable income payments
has the voting interest. After the Payout Start Date, the votes decrease as
income payments are made and as the reserves for the Contract decrease. That
person's number of votes will be determined by dividing the reserve for such
Contract allocated to the applicable Sub-account by the net asset value per
share of the corresponding eligible portfolio.
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.
FINANCIAL STATEMENTS
The financial statements for the Company are included in the Statement of
Additional Information ("SAI"). The financial statements for the Variable
Account are not included in the SAI because, as of the date of this prospectus,
the Variable Account had not yet commenced operations and had no assets,
liabilities or income. LEGAL MATTERS
Sutherland Asbill & Brennan LLP has provided advice on certain legal
matters relating to the federal securities laws applicable to the issue and sale
of the Contracts. All matters of Illinois law pertaining to the Contracts,
including the validity of the Contracts and the Company's right to issue such
Contracts under Illinois insurance law, have been passed upon by Michael J.
Velotta, General Counsel of the Company.
YEAR 2000
The Company is heavily dependent upon complex computer systems for all
phases of its operations, including customer service, and policy and contract
administration. Since many of the Company'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 software is not
reprogrammed, remediated or replaced, ("Year 2000 Issue"). The Company believes
that many of its counterparties and suppliers also have Year 2000 Issues which
could affect the Company. In 1995, Allstate 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 the Company actively working with its major external
counterparties and suppliers to assess their compliance efforts and the
Company's exposure to them. The Company 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.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
----
Additions, Deletions or Substitutions of Investments
Reinvestment
The Contract
Purchase of Contracts
Performance Data
Standardized Total Return
Adjusted Historical Portfolio Total Return
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers)
Premium Taxes
Tax Reserves
Income Payments
Calculation of Variable Annuity Unit Values
General Matters
Incontestability
Settlements
Safekeeping of the Variable Account's Assets
Federal Tax Matters
Introduction
Taxation of Glenbrook Life and Annuity Company
Exceptions to the NonNatural Owner Rule
IRS Required Distribution at Death Rules
Qualified Plans
Types of Qualified Plans
Glenbrook Life and Annuity Company Financial Statements
A-1
<PAGE>
ORDER FORM
|_| Please send me a copy of the most recent Statement of Additional Information
for the Glenbrook Life Scudder Variable Account (A).
(Date) (Name)
(Street Address)
(City) (State) (Zip Code)
Send to: Glenbrook Life and Annuity Company
PO Box 94039
Palatine, IL 60094-4039
Attn: Annuity Services
A-2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GLENBROOK LIFE SCUDDER VARIABLE ACCOUNT (A)
OFFERED BY
GLENBROOK LIFE AND ANNUITY COMPANY
POST OFFICE BOX 94039
PALATINE, IL 60094-4039
1 (800) 776 - 6978
INDIVIDUAL AND GROUP FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACTS
This Statement of Additional Information supplements the information in the
prospectus for the no sales load Individual and Group Flexible Premium Deferred
Variable Annuity Contract ("Contract") offered by Glenbrook Life and Annuity
Company ("Company"), a wholly owned subsidiary of Allstate Life Insurance
Company. The Contract is primarily designed to aid individuals in long-term
financial planning and it can be used for retirement planning regardless of
whether the plan qualifies for special federal income tax treatment. The
prospectus may be obtained from Glenbrook Life and Annuity Company by writing or
calling the address or telephone number listed above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
The prospectus, dated October 5, 1998, has been
filed with the United States Securities
and Exchange Commission
DATED October 5, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Additions, Deletions or Substitutions of Investments 3
Reinvestment 3
The Contract 4
Purchase of Contracts 4
Performance Data
Standardized Total Return 4
Adjusted Historical Portfolio Total Return 4
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers) 6
Premium Taxes 6
Tax Reserves 6
Income Payments 7
Calculation of Variable Annuity Unit Values 7
General Matters 7
Incontestability 7
Settlements 7
Safekeeping of the Variable Account's Assets 8
Federal Tax Matters 8
Introduction 8
Taxation of Glenbrook Life and Annuity Company 8
Exceptions to the NonNatural Owner Rule 9
IRS Required Distribution at Death Rules 9
Qualified Plans 10
Types of Qualified Plans 10
Glenbrook Life and Annuity Company Financial Statements F-1
<PAGE>
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make
additions to, deletions from or substitutions for the Fund shares held by any
Sub-account. The Company reserves the right to eliminate the shares of any of
the Funds and to substitute shares of another portfolio of the Fund, or of
another open-end, registered investment company, if the shares of the portfolio
are no longer available for investment, or if, in the Company's judgment,
investment in any portfolio would become inappropriate in view of the purposes
of the Variable Account. Substitutions of shares attributable to an Owner's
interest in a Sub-account will not be made until the Owner has been notified of
the change, and until the Securities and Exchange Commission has approved the
change, to the extent such notification and approval are required by the
Investment Company Act of 1940. Nothing contained in this Statement of
Additional Information shall prevent the Variable Account from purchasing other
securities for other series or classes of contracts, or from effecting a
conversion between series or classes of contracts on the basis of requests made
by Owners.
The Company may also establish additional Sub-accounts of the Variable
Account. Each additional Sub-account would purchase shares in a new portfolio of
the Fund or in another mutual fund. New Sub-accounts may be established when, in
the sole discretion of the Company, marketing needs or investment conditions
warrant. Any new Sub-accounts offered in conjunction with the Contract will be
made available to existing Owners as determined by the Company. The Company may
also eliminate one or more Sub-accounts if, in its sole discretion, marketing,
tax or investment conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contract as may be necessary
or appropriate to reflect such substitution or change. If deemed to be in the
best interests of persons having voting rights under the policies, the Variable
Account may be operated as a management company under the Investment Company Act
of 1940 or it may be deregistered under such Act in the event such registration
is no longer required.
REINVESTMENT
All dividends and capital gains distributions from the portfolios are
automatically reinvested in shares of the distributing portfolio at its net
asset value.
THE CONTRACT
PURCHASE OF CONTRACTS
The Contracts are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The Contracts are distributed
through the principal underwriter for the Variable Account, Allstate Life
Financial Services, Inc., an affiliate of Glenbrook Life and Annuity Company.
The offering of the Contracts is continuous and the Company does not anticipate
discontinuing the offering of the Contracts. However, the Company reserves the
right to discontinue the offering of the Contracts.
PERFORMANCE DATA
From time to time the Variable Account may publish advertisements
containing performance data relating to its Sub-accounts. The performance data
for the Sub-accounts (other than for the Scudder Money Market Sub-account) will
always be accompanied by total return quotations. Performance figures used by
the Variable Account are based on actual historical performance of its
Sub-accounts for specific periods, and the figures are not intended to indicate
future performance.
STANDARDIZED TOTAL RETURNS
A Sub-account's "average annual total return" represents an annualization
of the Sub-account's total return over a particular period and is computed by
finding the annual percentage rate which, when compounded annually, will
accumulate a hypothetical $1,000 purchase payment to the redeemable value at the
end of the one, five or ten year period, or for a period from the date of
commencement of the Sub-account's operations, if shorter than any of the
foregoing. The average annual total return is obtained by dividing the ending
redeemable value, by the initial hypothetical $1,000 purchase payment, taking
the "n"th root of the quotient (where "n" is the number of years in the period)
and subtracting 1 from the result. Standardized Total Return calculations are
reduced by all fees and charges under the Contract, including the Mortality and
Expense Risk Charge (0.40% for Contracts with the standard Death Benefit and
0.50% for Contracts with the Enhanced Death Benefit) and an Administrative
Expense Charge of 0.30%.
Standardized total returns for the year ended December 31, 1997 are not
provided herein because, as of that date, the Contracts registered in the
prospectus were not yet offered for sale.
ADJUSTED HISTORICAL PORTFOLIO TOTAL RETURNS
The Company may also disclose yield and total return for the portfolios for
periods prior to the date that the Variable Account commenced operations. For
periods prior to the date the Variable Account commenced operations, adjusted
historical portfolio performance information will be calculated based on the
performance of the underlying portfolios and the assumption that the
Sub-accounts were in existence for the same periods as those of the underlying
Funds, with some or all of the charges equal to those currently assessed against
the Sub-accounts.
In the tables below, average annual total returns for the Portfolios were
reduced by all fees and charges under the Contract, including the Mortality and
Expense Risk Charge (0.40% for Contracts without the Enhanced Death Benefit and
0.50% for Contracts with the Enhanced Death Benefit) and an Administrative
Expense Charge of 0.30%.
Without the Enhanced Death Benefit
<TABLE>
<CAPTION>
Ten Year or Portfolio
One Year Five Year since inception Inception Dates
-------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Money Market 4.52% 3.72% 4.76% 7/16/85
Bond 8.34% 6.49% 7.79% 7/16/85
Capital Growth 34.82% 7.22% 15.97% 7/16/85
Balanced 23.35% 2.34% 12.12% 7/16/85
International 8.30% 12.83% 10.88% 5/1/87
Growth and Income 29.56% N/A 23.17% 5/2/94
Global Discovery 11.60% N/A 9.98% 5/1/96
With the Enhanced Death Benefit
Ten Year or Portfolio
One Year Five Year since inception Inception Dates
-------- --------- --------------- ---------------
Money Market 4.41% 3.61% 4.66% 7/16/85
Bond 8.23% 6.39% 7.68% 7/16/85
Capital Growth 34.69% 17.10% 15.85% 7/16/85
Balanced 23.23% 12.23% 12.01% 7/16/85
International 8.19% 12.72% 10.77% 5/1/87
Growth and Income 29.43% N/A 23.05% 5/2/94
Global Discovery 11.49% N/A 9.87% 5/1/96
</TABLE>
The Variable Account may also advertise the performance of the Sub-accounts
relative to certain performance rankings and indices compiled by independent
organizations, such as: (a) Lipper Analytical Services, Inc.; (b) the Standard &
Poor's 500 Composite Stock Price Index ("S & P 500"); (c) A.M. Best Company; (d)
Bank Rate Monitor; and (e) Morningstar.
TAX-FREE EXCHANGES (1035 EXCHANGES, ROLLOVERS AND TRANSFERS)
The Company accepts purchase payments which are the proceeds of a contract
in a transaction qualifying for a tax-free exchange under Section 1035 of the
Internal Revenue Code. Except as required by federal law in calculating the
basis of the contract, the Company does not differentiate between Section 1035
purchase payments and non-Section 1035 purchase payments.
The Company also accepts "rollovers" and transfers from contracts
qualifying as tax-sheltered annuities ("TSAs"), individual retirement annuities
or accounts ("IRAs"), or any other Qualified Contract which is eligible to
"rollover" into an IRA. The Company differentiates among Non-Qualified
Contracts, TSAs, IRAs and other Qualified Contracts to the extent necessary to
comply with federal tax laws. For example, the Company restricts the assignment,
transfer or pledge of TSAs and IRAs so the contracts will continue to qualify
for special tax treatment. An Owner contemplating any such exchange, rollover or
transfer of a contract should contact a competent tax adviser with respect to
the potential effects of such a transaction.
PREMIUM TAXES
Applicable premium tax rates depend on the Owner's state of residency and
the insurance laws and status of the Company in those states where premium taxes
are incurred. Premium tax rates may be changed by legislation, administrative
interpretations or judicial acts.
TAX RESERVES
The Company does not establish capital gains tax reserves for the
Sub-account nor deduct charges for tax reserves because the Company believes
that capital gains attributable to the Variable Account will not be taxable.
However, the Company reserves the right to deduct charges to establish tax
reserves for potential taxes on realized or unrealized capital gains.
INCOME PAYMENTS
CALCULATION OF VARIABLE ANNUITY UNIT VALUES
The amount of the first Income Payment is calculated by applying the
Contract Value allocated to each Variable Sub-account less any applicable
premium tax charge deducted at this time, to the income payment tables in the
Contract. The first Variable Annuity Income Payment is divided by the
Sub-account's then current annuity unit value to determine the number of annuity
units upon which later Income Payments will be based. Unless transfers are made
among Sub-accounts, each Variable Annuity Income Payment after the first will be
equal to the sum of the number of annuity units determined in this manner for
each Sub-account times the then current annuity unit value for each respective
Sub-account.
Annuity units in each Sub-account are valued separately and annuity unit
values will depend upon the investment experience of the particular underlying
portfolio in which the Sub-account invests. The value of the annuity unit for
each Sub-account at the end of any Valuation Period is calculated by: (a)
multiplying the annuity unit value at the end of the immediately preceding
Valuation Period by the Sub-accounts Net Investment Factor during the period;
and then (b) dividing the product by the sum of 1.0 plus the assumed investment
rate for the period. The assumed investment rate adjusts for the interest rate
assumed in the Income Payment tables used to determine the dollar amount of the
first variable annuity Income Payment, and is at an effective annual rate which
is disclosed in the Contract.
The amount of the first Income Payment paid under an Income Plan is
determined using the interest rate and mortality table disclosed in the
Contract. Due to judicial or legislative developments regarding the use of
tables which do not differentiate on the basis of sex, different annuity tables
may be used.
GENERAL MATTERS
INCONTESTABILITY
The Contract will not be contested after it is issued.
SETTLEMENTS
Due proof of the Owner(s) death (or Annuitant's death if there is a
nonnatural Owner) must be received prior to settlement of a death claim.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
The Company holds title to the assets of the Variable Account. The assets
are kept physically segregated and held separate and apart from the Company's
general corporate assets. Records are maintained of all purchases and
redemptions of the portfolio shares held by each of the Sub-accounts.
The Fund does not issue certificates and, therefore, the Company holds the
Account's assets in open account in lieu of stock certificates. See the Fund's
prospectus for a more complete description of the custodian of the Fund.
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 receipt of distributions under an annuity contract
depend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
TAXATION OF GLENBROOK LIFE AND ANNUITY COMPANY
The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code. Since the Variable Account is not an entity
separate from the Company, and its operations form a part of the Company, it
will not be taxed separately as a "Regulated Investment Company" under
Subchapter M of the Code. Investment income and realized capital gains of the
Variable Account are automatically applied to increase reserves under the
contract. Under existing federal income tax law, the Company believes that the
Variable Account investment income and capital gains will not be taxed to the
extent that such income and gains are applied to increase the reserves under the
contract. Accordingly, the Company does not anticipate that it will incur any
federal income tax liability attributable to the Variable Account, and therefore
the Company does not intend to make provisions for any such taxes. If the
Company is taxed on investment income or capital gains of the Variable Account,
then the Company may impose a charge against the Variable Account in order to
make provision for such taxes.
EXCEPTIONS TO THE NONNATURAL OWNER RULE
There are several exceptions to the general rule that contracts held by a
nonnatural owner are not treated as annuity contracts for federal income tax
purposes. Contracts will generally be treated as held by a natural person if the
nominal owner is a trust or other entity which holds the contract as agent for a
natural person. However, this special exception will not apply in the case of an
employer who is the nominal owner of an annuity contract under a non-qualified
deferred compensation arrangement for its employees. Other exceptions to the
nonnatural owner rule are: (1) contracts acquired by an estate of a decedent by
reason of the death of the decedent; (2) certain qualified contracts; (3)
contracts purchased by employers upon the termination of certain qualified
plans; (4) certain contracts used in connection with structured settlement
agreements, and (5) contracts purchased with a single premium when the annuity
starting date is no later than a year from purchase of the annuity and
substantially equal periodic payments are made, not less frequently than
annually, during the annuity period.
IRS REQUIRED DISTRIBUTION AT DEATH RULES
In order to be considered an annuity contract for federal income tax
purposes, an annuity contract must provide: (1) if any owner dies on or after
the annuity start date but before the entire interest in the contract has been
distributed, the remaining portion of such interest must be distributed at least
as rapidly as under the method of distribution being used as of the date of the
owner's death; (2) if any owner dies prior to the annuity start date, the entire
interest in the contract will be distributed within five years after the date of
the owner's death. These requirements are satisfied if any portion of the
owner's interest which is payable to (or for the benefit of) a designated
beneficiary is distributed over the life of such beneficiary (or over a period
not extending beyond the life expectancy of the beneficiary) and the
distributions begin within one year of the owner's death. If the owner's
designated beneficiary is the surviving spouse of the owner, the contract may be
continued with the surviving spouse as the new owner. If the owner of the
contract is a nonnatural person, then the annuitant will be treated as the owner
for purposes of applying the distribution at death rules. In addition, a change
in the annuitant on a contract owned by a nonnatural person will be treated as
the death of the owner.
<PAGE>
QUALIFIED PLANS
This annuity contract may be used with several types of qualified plans.
The tax rules applicable to participants in such qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. Adverse tax
consequences may result from excess contributions, premature distributions,
distributions that do not conform to specified commencement and minimum
distribution rules, excess distributions and in other circumstances. Owners and
participants under the plan and annuitants and beneficiaries under the contract
may be subject to the terms and conditions of the plan regardless of the terms
of the contract.
TYPES OF QUALIFIED PLANS
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity (IRA).
Individual Retirement Annuities are subject to limitations on the amount that
can be contributed and on the time when distributions may commence. Certain
distributions from other types of qualified plans may be "rolled over" on a
tax-deferred basis into an Individual Retirement Annuity. An IRA generally may
not provide life insurance, but it may provide a death benefit that equals the
greater of the premiums paid and the contract's cash value. The contract
provides a death benefit that in certain circumstances may exceed the greater of
the payments and the contract value. It is possible that the Death Benefit could
be viewed as violating the prohibition on investment in life insurance contracts
with the result that the Contract would not be viewed as satisfying the
requirements of an IRA.
Roth Individual Retirement Annuities
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth Individual
Retirement Annuity. Roth Individual Retirement Annuities are subject to
limitations on the amount that can be contributed and on the time when
distributions may commence. "Qualified distributions" from Roth Individual
Retirement Annuities are not includible in gross income. "Qualified
distributions" are any distributions made more than five taxable years after the
taxable year of the first contribution to the Roth Individual Retirement
Annuity, and which are made on or after the date the individual attains age 59
1/2, made to a beneficiary after the owner's death, attributable to the owner
being disabled or for a first time home purchase (first time home purchases are
subject to a lifetime limit of $10,000). "Nonqualified distributions" are
treated as made from contributions first and are includible in gross income to
the extent such distributions exceed the contributions made to the Roth
Individual Retirement Annuity. The taxable portion of a "nonqualified
distribution" may be subject to the 10% penalty tax on premature distributions.
Subject to certain limitations, a traditional Individual Retirement Account or
Annuity may be converted or "rolled over" to a Roth Individual Retirement
Annuity. The taxable portion of a conversion or rollover distribution is
includible in gross income, but is exempted from the 10% penalty tax on
premature distributions.
Simplified Employee Pension Plans
Section 408(k) of the Code allows employers to establish simplified
employee pension plans for their employees using the employees' individual
retirement annuities if certain criteria are met. Under these plans the employer
may, within specified limits, make deductible contributions on behalf of the
employees to their individual retirement annuities. Employers intending to use
the contract in connection with such plans should seek competent advice. In
particular, employers should consider that an IRA generally may not provide life
insurance, but it may provide a death benefit that equals the greater of the
premiums paid and the contract's cash value. The contract provides a death
benefit that in certain circumstances may exceed the greater of the payments and
the contract value. It is possible that the Death Benefit could be viewed as
violating the prohibition on investment in life insurance contracts with the
result that the Contract would not be viewed as satisfying the requirements of
an IRA.
Savings Incentive Match Plans for Employees (SIMPLE Plans)
Sections 408(p) and 401(k) of the Code allow employers with 100 or fewer
employees to establish SIMPLE retirement plans for their employees. SIMPLE plans
may be structured as a SIMPLE retirement account using an employee's IRA to hold
the assets or as a Section 401(k) qualified cash or deferred arrangement. In
general, a SIMPLE plan consists of a salary deferral program for eligible
employees and matching or nonelective contributions made by employers. Employers
intending to use the contract in conjunction with SIMPLE plans should seek
competent tax and legal advice.
<PAGE>
Tax Sheltered Annuities
Section 403(b) of the Code permits public school employees and employees of
certain types of tax-exempt organizations (specified in Section 501(c)(3) of the
Code) to have their employers purchase annuity contracts for them, and subject
to certain limitations, to exclude the purchase payments from the employees'
gross income. An annuity contract used for a Section 403(b) plan must provide
that distributions attributable to salary reduction contributions made after
12/31/88, and all earnings on salary reduction contributions, may be made only
on or after the date the employee attains age 59 1/2, separates from service,
dies, becomes disabled or on the account of hardship (earnings on salary
reduction contributions may not be distributed for hardship). These limitations
do not apply to withdrawals where the Company is directed to transfer some or
all of the contract value to another 403(b) plan.
Corporate and Self-Employed Pension and Profit Sharing Plans
Sections 401(a) and 403(a) of the Code permit corporate employers to
establish various types of tax favored retirement plans for employees. The
Self-Employed Individuals Retirement Act of 1962, as amended, (commonly referred
to as "H.R. 10" or "Keogh") permits self-employed individuals to establish tax
favored retirement plans for themselves and their employees. Such retirement
plans may permit the purchase of annuity contracts in order to provide benefits
under the plans.
State and Local Government and Tax-Exempt Organization Deferred Compensation
Plans
Section 457 of the Code permits employees of state and local governments
and tax-exempt organizations to defer a portion of their compensation without
paying current taxes. The employees must be participants in an eligible deferred
compensation plan. To the extent the contracts are used in connection with an
eligible plan, employees are considered general creditors of the employer and
the employer as owner of the contract has the sole right to the proceeds of the
contract. Generally, under the nonnatural owner rules, such contracts are not
treated as annuity contracts for federal income tax purposes. Under these plans,
contributions made for the benefit of the employees will not be includible in
the employees' gross income until distributed from the plan. However, under a
457 plan all the compensation deferred under the plan must remain solely the
property of the employer, subject only to the claims of the employer's general
creditors, until such time as made available to the employee or a beneficiary.
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (the "Company") as of December 31, 1997 and 1996, and
the related Statements of Operations, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1997. Our audits also
included Schedule IV - Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 20, 1998
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
------------
($ in thousands) 1997 1996
---------- ---------
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $81,369 and $46,925) $ 86,243 $ 49,389
Short-term 4,231 1,287
--------------- ---------------
Total investments 90,474 50,676
Reinsurance recoverable from Allstate Life Insurance
Company 2,637,983 2,060,419
Net receivable from affiliates - 18,963
Other assets 2,549 2,049
Separate Accounts 620,535 272,420
--------------- ---------------
Total assets $ 3,351,541 $ 2,404,527
=============== ===============
LIABILITIES
Contractholder funds $ 2,637,983 $ 2,060,419
Income taxes payable 609 410
Deferred income taxes 1,772 1,528
Net payable to affiliates 2,698 -
Separate Accounts 620,535 260,290
--------------- ---------------
Total liabilities 3,263,597 2,322,647
=============== ===============
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 4,200 shares
authorized, issued, and outstanding 2,100 2,100
Additional capital paid-in 69,641 69,641
Unrealized net capital gains 3,168 2,790
Retained income 13,035 7,349
--------------- ---------------
Total shareholder's equity 87,944 81,880
--------------- ---------------
Total liabilities and shareholder's equity $ 3,351,541 $ 2,404,527
=============== ===============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
REVENUES
Net investment income $ 5,304 $ 3,774 $ 3,996
Realized capital gains and losses 3,460 - 459
---------------- --------------- ----------------
INCOME BEFORE INCOME TAX EXPENSE 8,764 3,774 4,455
INCOME TAX EXPENSE 3,078 1,339 1,576
---------------- --------------- ----------------
NET INCOME $ 5,686 $ 2,435 $ 2,879
================ =============== ================
</TABLE>
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
COMMON STOCK $ 2,100 $ 2,100 $ 2,100
--------------- --------------- ---------------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year 69,641 49,641 49,641
Capital contributions - 20,000 -
--------------- --------------- ---------------
Balance, end of year 69,641 69,641 49,641
--------------- --------------- ---------------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year 2,790 3,357 (1,118)
Net change 378 (567) 4,475
--------------- --------------- ---------------
Balance, end of year 3,168 2,790 3,357
--------------- --------------- ---------------
RETAINED INCOME
Balance, beginning of year 7,349 4,914 2,035
Net income 5,686 2,435 2,879
--------------- --------------- ---------------
Balance, end of year 13,035 7,349 4,914
--------------- --------------- ---------------
Total shareholder's equity $ 87,944 $ 81,880 $ 60,012
=============== =============== ===============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,686 $ 2,435 $ 2,879
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and other non-cash
items 29 - -
Realized capital gains and losses (3,460) - (459)
Change in deferred income taxes 41 4 (39)
Changes in other operating assets and liabilities 1,160 (510) 1,217
------------ ------------ ------------
Net cash provided by operating activities 3,456 1,929 3,598
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,405 - 7,836
Investment collections 14,217 2,891 1,568
Investment purchases (50,115) (5,667) (1,491)
Participation in Separate Accounts 13,981 (232) (10,069)
Change in short-term investments, net (2,944) 815 (1,178)
------------ ------------ ------------
Net cash used in investing activities (23,456) (2,193) (3,334)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 20,000 - -
------------ ------------ ------------
Net cash provided by financing activities 20,000 - -
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH - (264) 264
CASH AT BEGINNING OF YEAR - 264 -
------------ ------------ ------------
CASH AT END OF YEAR $ - $ - $ 264
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Noncash financing activity:
Capital contribution receivable from
Allstate Life Insurance Company $ - $ 20,000 $ -
============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. General
Basis of presentation
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). On June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed
its 80.3% ownership in the Corporation to Sears common shareholders through a
tax-free dividend (the "Distribution"). These financial statements have been
prepared in conformity with generally accepted accounting principles.
To conform with the 1997 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
Nature of operations
The Company markets life insurance and annuity products in the United States
through banks and broker-dealers. Life insurance includes both
interest-sensitive and variable life insurance products. Annuities include
deferred annuities, such as variable annuities and fixed rate flexible premium
annuities. The Company has entered into exclusive distribution arrangements with
management investment companies to market its variable annuity contracts.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary withdrawal or surrender by customers, subject to applicable
surrender charges. These policies and contracts are reinsured with ALIC (see
Note 3), which invests premiums and deposits to provide cash flows that will be
used to fund future benefits and expenses. In order to support competitive
crediting rates and limit interest rate risk, ALIC , as the Company's reinsurer,
adheres to a basic philosophy of matching assets with related liabilities while
maintaining adequate liquidity and a prudent and diversified level of credit
risk.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be new and proposed federal
and state regulation and legislation that would allow banks greater
participation in the securities and insurance businesses, which will present an
increased level of competition for sales of the Company's life and annuity
products. Furthermore, the market for deferred annuities and interest-sensitive
life insurance is enhanced by the tax incentives available under current law.
Any legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
Although the Company currently benefits from agreements with financial services
entities who market and distribute its products, consolidation within that
industry and specifically, a change in control of those entities with which the
Company partners, could affect the Company's sales.
Enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; (2) increasing competition in capital
markets; and (3) reopening stock/mutual company disagreements related to such
issues as taxation disparity between mutual and stock insurance companies.
The Company is authorized to sell life and annuity products in all states except
New York, as well as in the District of Columbia. The Company is also authorized
to sell variable annuities in Puerto Rico. The top geographic locations for
statutory premiums and deposits earned by the Company are Florida, Pennsylvania,
California, Texas and Michigan for the year ended December 31, 1997. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits. All
premiums and contract charges are ceded to ALIC under reinsurance agreements.
2. Summary of Significant Accounting Policies
Investments
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ( "available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost which approximates fair value.
F-6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on the estimated principal repayments. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
Reinsurance
The Company and ALIC entered into a reinsurance agreement effective June 5,
1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers.
Contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such cessions in the statements of
operations. The amounts shown in the Company's statements of operations relate
to the investment of those assets of the Company that are not transferred to
ALIC under the reinsurance agreements. Reinsurance recoverable and
contractholder funds are reported separately in the statements of financial
position. The Company continues to have primary liability as the direct insurer
for risks reinsured.
Recognition of premium revenue and contract charges
Revenues on interest-sensitive life insurance policies are comprised of contract
charges and fees, and are recognized when assessed against the policyholder
account balance. Revenues on annuities, which are considered investment
contracts, include contract charges and fees for contract administration and
surrenders. These revenues are recognized when levied against the contract
balance.
Income taxes
The income tax provision is calculated under the liability method. Deferred tax
assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted tax
rates, and reflect the impact of reinsurance agreements. Deferred income taxes
arise primarily from unrealized capital gains and losses on fixed income
securities carried at fair value.
Separate Accounts
The Company issues flexible premium deferred variable annuity contracts and
single premium variable life policies, the assets and liabilities of which are
legally segregated and reflected in the accompanying statements of financial
position as assets and liabilities of the Separate Accounts (Glenbrook Life and
Annuity Company Variable Annuity Account, Glenbrook Life and Annuity Company
Separate Account A, Glenbrook Life Multi-Manager Variable Account and Glenbrook
Life Variable Life Separate Account A, unit investment trusts registered with
the Securities and Exchange Commission).
Assets of the Separate Accounts, including the Company's ownership interest
("Participation"), are carried at fair value. Unrealized gains and losses on the
Company's Participation, net of deferred income taxes, are shown as a component
of shareholder's equity. Investment income and realized capital gains and losses
arising from the Participation are included in the Company's statements of
operations. The Company liquidated its Participation during 1997, resulting in a
realized capital gain of $3,515. At December 31, 1996, the Participation
amounted to $12,130.
Investment income and realized capital gains and losses of the Separate
Accounts, other than the portion related to the Participation, accrue directly
to the contractholders and, therefore, are not included in the Company's
statements of operations. Revenues to the Company from the Separate Accounts
consist of contract maintenance fees, administrative fees, mortality and expense
risk charges, cost of insurance charges and tax expense charges, all of which
are ceded to ALIC.
Contractholder funds
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most annuities and
universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the customer less withdrawals, mortality charges and
administrative expenses. During 1997, credited interest rates on contractholder
funds ranged from 3.55% to 7.45% for those contracts with fixed interest rates
and from 3.70% to 7.85% for those with flexible rates.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
3. Related Party Transactions
Reinsurance
Contract charges ceded to ALIC were $11,641, $4,254 and $1,523 in 1997, 1996 and
1995, respectively. Credited interest, policy benefits and expenses ceded to
ALIC amounted to $179,954, $113,703 and $71,905 in 1997, 1996 and 1995,
respectively. Investment income earned on the assets which support
contractholder funds is not included in the Company's financial statements as
those assets are owned and managed by ALIC under the terms of reinsurance
agreements.
Business operations
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. The
cost to the Company is determined by various allocation methods and is primarily
related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $5,959, $759 and $348 in 1997, 1996 and 1995, respectively. Of these costs,
the Company retains investment related expenses. All other costs are ceded to
ALIC under reinsurance agreements.
Laughlin Group
Laughlin Group, Inc. ("Laughlin") is an indirect wholly owned subsidiary of
ALIC. Laughlin markets certain of the Company's flexible premium deferred
variable annuity contracts and flexible premium deferred fixed annuity
contracts. Sales commissions paid to Laughlin, for which the related cost was
ceded to ALIC, were $945 and $8,623 during 1997 and 1996, respectively. The
Company had a receivable of $850 from Laughlin at December 31, 1996, which is
included in net receivable from affiliates in the statements of financial
position.
4. Investments
Fair values
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
----------------
Amortized Fair
Cost Gains Losses Value
--------- ----- ------ -----
<S> <C> <C> <C> <C>
At December 31, 1997
U.S. government and agencies $ 24,419 $ 2,961 $ - $ 27,380
Municipal 656 17 - 673
Corporate 25,476 840 - 26,316
Mortgage-backed securities 30,818 1,056 - 31,874
-------- ------- --------- --------
Total fixed income securities $ 81,369 $ 4,874 $ - $ 86,243
======== ======= ========= ========
At December 31, 1996
U.S. government and agencies $ 24,265 $ 1,722 $ (3) $ 25,984
Corporate 6,970 96 (15) 7,051
Mortgage-backed securities 15,690 664 - 16,354
-------- ------- --------- --------
Total fixed income securities $ 46,925 $ 2,482 $ (18) $ 49,389
======== ======= ========= ========
</TABLE>
F-8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Scheduled maturities
The scheduled maturities for fixed income securities are as follows at December
31, 1997:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
Due in one year or less $ 400 $ 400
Due after one year through five years 3,838 3,877
Due after five years through ten years 33,245 35,102
Due after ten years 13,068 14,990
----------- ------------
50,551 54,369
Mortgage-backed securities 30,818 31,874
----------- ------------
Total $ 81,369 $ 86,243
=========== ============
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
<TABLE>
<CAPTION>
Net investment income
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 5,014 $ 3,478 $ 3,850
Short-term investments 231 126 113
Participation in Separate Accounts 161 232 69
-------------- -------------- --------------
Investment income, before expense 5,406 3,836 4,032
Investment expense 102 62 36
-------------- -------------- --------------
Net investment income $ 5,304 $ 3,774 $ 3,996
============== ============== ==============
</TABLE>
Realized capital gains and losses
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ (61) $ - $ 459
Short-term investments 6 - -
Participation in Separate Accounts 3,515 - -
------------- ------------- -------------
Realized capital gains and losses 3,460 - 459
Income taxes (1,211) - (161)
------------- ------------- -------------
Realized capital gains and losses,
after tax $ 2,249 $ - $ 298
============= ============= =============
</TABLE>
Excluding calls and prepayments, gross losses of $61 and gross gains of $459
were realized on sales of fixed income securities during 1997 and 1995,
respectively.
F-9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Unrealized net capital gains
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Cost/ Unrealized
Amortized Fair Net
Cost Value Gains
--------- ----- -----------
<S> <C> <C> <C>
Fixed income securities $ 81,369 $ 86,243 $ 4,874
Deferred income taxes ======== ======== (1,706)
-------
Unrealized net capital gains $ 3,168
=======
</TABLE>
Change in unrealized net capital gains
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 2,410 $ (2,239) $ 6,423
Participation in Separate Accounts (1,829) 1,368 461
Deferred income taxes (203) 304 (2,409)
------------- ------------- -------------
Increase (decrease) in unrealized net capital gains $ 378 $ (567) $ 4,475
============= ============== =============
</TABLE>
Securities on deposit
At December 31, 1997, fixed income securities with a carrying value of
$10,108 were on deposit with regulatory authorities as required by law.
5. Financial Instruments
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable) and liabilities (including deferred income
taxes) are not considered financial instruments and are not carried at fair
value. Other assets and liabilities considered financial instruments, such as
accrued investment income, are generally of a short-term nature. It is assumed
that their carrying value approximates fair value.
F-10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Financial assets
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Fixed income securities $ 86,243 $ 86,243 $ 49,389 $ 49,389
Short-term investments 4,231 4,231 1,287 1,287
Separate Accounts 620,535 620,535 272,420 272,420
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying value approximates fair value.
Separate Accounts assets are carried in the statements of financial position at
fair value.
Financial liabilities
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $ 2,636,331 $ 2,492,095 $ 2,059,642 $ 1,949,329
Separate Accounts 620,535 620,535 260,290 260,290
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
F-11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
6. Income Taxes
For 1996 and 1995, the Company filed a separate federal income tax return. The
Company will join the Corporation and its other eligible domestic subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate Group")
for 1997 and is party to a federal income tax allocation agreement (the "Tax
Sharing Agreement"). Under the Tax Sharing Agreement, the Company paid to or
received from the Corporation the amount, if any, by which the Allstate Group's
federal income tax liability was affected by virtue of inclusion of the Company
in the consolidated federal income tax return. Effectively, this results in the
Company's annual income tax provision being computed, with adjustments, as if
the Company filed a separate return.
Prior to the Distribution, the Corporation and all of its eligible domestic
subsidiaries, including the Company, joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Sears Tax Sharing Agreement"). Under the Sears Tax
Sharing Agreement, the Company, through the Corporation, paid to or received
from the Sears Group the amount, if any, by which the Sears Tax Group's federal
income tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed as if the Allstate Group
filed a separate consolidated return, except that items such as net operating
losses, capital losses or similar items, which might not be recognized in a
separate return, were allocated according to the Sears Tax Sharing Agreement.
The Allstate Group and Sears Group have entered into an agreement which governs
their respective rights and obligations with respect to federal income taxes for
all periods prior to the Distribution ("Consolidated Tax Years"). The agreement
provides that all Consolidated Tax Years will continue to be governed by the
Sears Tax Sharing Agreement with respect to the Allstate Group's federal income
tax liability.
The components of the deferred income tax liability at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Unrealized net capital gains on fixed income securities $ 1,706 $ 1,503
Difference in tax bases of investments 66 25
------------- -------------
Total deferred liability $ 1,772 $ 1,528
============= =============
</TABLE>
F-12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 3,037 $ 1,335 $ 1,615
Deferred 41 4 (39)
------- ------- -------
Total income tax expense $ 3,078 $ 1,339 $ 1,576
======= ======= =======
</TABLE>
The Company paid income taxes of $2,839, $2,446 and $866 in 1997, 1996 and 1995,
respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other .1 .5 .4
---- ---- ----
Effective federal income tax rate 35.1% 35.5% 35.4%
==== ==== ====
</TABLE>
F-13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
7. Statutory Financial Information
The following tables reconcile net income for the year ended December 31, and
shareholder's equity at December 31, as reported herein in conformity with
generally accepted accounting principles with statutory net income and capital
and surplus, determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities:
<TABLE>
<CAPTION>
Net Income
----------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance per generally accepted accounting principles $ 5,686 $ 2,435 $ 2,879
Deferred income taxes 41 4 (39)
Unrealized gain on participation in
Separate Accounts (1,829) 1,368 -
Statutory investment reserves 93 35 (279)
Other (354) (85) 108
----------- ------------ ------------
Balance per statutory accounting practices $ 3,637 $ 3,757 $ 2,669
=========== ============ ============
Shareholder's Equity
--------------------
1997 1996
---- ----
Balance per generally accepted accounting principles $ 87,944 $ 81,880
Deferred income taxes 1,772 1,528
Unrealized gain/loss on fixed income securities (4,874) (2,464)
Non-admitted assets (86) (850)
Statutory investment reserves 958 (2,282)
Other (3,114) (2,118)
---------- ------------
Balance per statutory accounting practices $ 82,600 $ 75,694
========== ============
</TABLE>
Permitted statutory accounting practices
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Illinois
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a material effect on statutory surplus, statutory net income
or risk-based capital.
Final approval of the NAIC's proposed "Comprehensive Guide" on statutory
accounting principles is expected in early 1998. The requirements may be
effective as early as January 1, 1999, and are not expected to have a material
impact on statutory surplus of the Company.
Dividends
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by insurance companies without the prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1998 without prior approval of the Illinois Department of Insurance is
$8,050.
F-14
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ in thousands)
<TABLE>
<CAPTION>
Gross Net
Year Ended December 31, 1997 amount Ceded amount
- ---------------------------- --------- ------------ --------
<S> <C> <C> <C>
Life insurance in force $ 4,095 $ 4,095 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 11,641 $ 11,641 $ -
================== ================== ==================
Gross Net
Year Ended December 31, 1996 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 2,436 $ 2,436 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 4,254 $ 4,254 $ -
================== =================== ==================
Gross Net
Year Ended December 31, 1995 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 1,250 $ 1,250 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 6,571 $ 6,571 $ -
================== ================== ==================
</TABLE>
F-15
<PAGE>
