Scudder Horizon Advantage Variable Annuity
Prospectus dated May 2, 2000
Individual and Group Flexible Premium
Deferred Variable Annuity Contracts
offered by
Glenbrook Life and Annuity Company
through
Glenbrook Life Scudder Variable Account (A)
This Prospectus describes the Scudder Horizon Advantage Variable Annuity
Contract ("Contract"). The Contract has 11 investment alternatives: 2 fixed
account options -- standard and Dollar Cost Averaging (both pay a guaranteed
minimum rate of interest), and 9 sub-accounts of the Glenbrook Life Scudder
Variable Account (A). Money you direct to a sub-account is invested exclusively
in a single portfolio of the Scudder Variable Life Investment Fund. The 9
Scudder portfolios we offer through the sub-accounts under this Contract are:
Scudder Variable Life Investment Fund
o Balanced Portfolio
o Bond Portfolio
o Capital Growth Portfolio
o Global Discovery Portfolio
o Growth and Income Portfolio
o International Portfolio
o Large Company Growth Portfolio
o Money Market Portfolio
o 21st Century Growth Portfolio
Variable annuity contracts involve certain risks, including possible loss of
principal.
o The investment performance of the portfolios in which the sub-accounts
invest will vary.
o We do not guarantee how any of the portfolios will perform.
o The Contract is not a deposit or obligation of any bank, and no bank
endorses or guarantees the Contract.
o Neither the U.S. Government nor any federal agency insures your investment
in the Contract.
<PAGE>
Please read this Prospectus carefully before investing, and keep it for future
reference. It contains important information about the Scudder Horizon Advantage
Variable Annuity Contract.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Contract is designed to aid you in long-term financial planning. It is
available to individuals, as well as to certain group and individual retirement
plans. You may also purchase the Contract for use as an Individual Retirement
Annuity that qualifies for special federal income tax treatment ("IRA").
To learn more about the Contract, you may want to read the Statement of
Additional Information ("SAI"), dated May 2, 2000. For a free copy of the SAI,
contact us at:
Overnight Mailing Address:
Scudder Horizon Advantage Scudder Horizon Advantage
Customer Service Center Customer Service Center
P.O. Box 80469 2940 S. 84th Street
Lincoln, NE 68501-0469 Lincoln, NE 68506
(800) 242-4402 (Scudder Direct)
(800) 257-9576 (AARP Investment Program Members)
We have filed the SAI with the U.S. Securities and Exchange Commission ("SEC")
and have incorporated it by reference into this prospectus. The SAI's table of
contents appears at the end of this Prospectus.
The SEC maintains an Internet Web site (http://www.sec.gov) that contains the
SAI, material incorporated by reference, and other information. You may also
read and copy any of these documents at the SEC's public reference room in
Washington, D.C. Please call 1-800-SEC-0330 for further information on the
operation of the public reference room.
This Prospectus is valid only when accompanied by a current prospectus for the
Scudder Variable Life Investment Fund.
<PAGE>
iii
TABLE OF CONTENTS
GLOSSARY.......................................................................1
HIGHLIGHTS.....................................................................3
The Contract..............................................................3
Right to Cancel...........................................................4
How to Invest.............................................................4
Investment Alternatives...................................................4
Transfers Among Investment Alternatives...................................5
Fees and Expenses.........................................................6
Access to Your Money......................................................6
Death Benefit.............................................................7
Income Payments...........................................................7
Inquiries.................................................................8
EXPENSE TABLE..................................................................9
Examples.................................................................11
Condensed Financial Information..........................................11
CALCULATION OF YIELD AND TOTAL RETURNS........................................12
Yields and Standard Total Return.........................................12
Other Performance Data...................................................13
GLENBROOK LIFE AND THE VARIABLE ACCOUNT.......................................14
Glenbrook Life and Annuity Company.......................................14
The Variable Account.....................................................15
THE FUND......................................................................16
Scudder Variable Life Investment Fund....................................16
Investment Adviser for the Funds.........................................18
THE FIXED ACCOUNT OPTIONS.....................................................18
General Description......................................................18
Standard Fixed Account Option............................................19
The Dollar Cost Averaging Fixed Account Option...........................19
PURCHASING THE CONTRACT.......................................................20
Purchasing the Contract..................................................20
Right to Cancel..........................................................20
Crediting Your First Purchase Payment....................................20
Allocating Your Purchase Payments........................................21
Accumulation Units.......................................................21
Accumulation Unit Value..................................................21
TRANSFERS.....................................................................22
Telephone Transfers......................................................22
Dollar Cost Averaging....................................................23
Automatic Portfolio Rebalancing..........................................23
ACCESS TO YOUR MONEY..........................................................24
Withdrawals..............................................................24
ANNUITY INCOME PAYMENTS.......................................................25
Payout Start Date for Income Payments....................................25
Variable Income Payments.................................................25
Fixed Income Payments....................................................26
Annuity Transfers........................................................26
Income Plans.............................................................27
DEATH BENEFITS................................................................28
Death Benefit Payment Provisions.........................................28
Death Benefit Amount.....................................................29
Enhanced Death Benefit Rider.............................................29
EXPENSES......................................................................30
Deductions from Purchase Payments........................................30
Withdrawal Charge........................................................30
Contract Maintenance Charge..............................................30
Administrative Expense Charge............................................30
Mortality and Expense Risk Charge........................................31
Taxes....................................................................31
Transfer Charges.........................................................32
Fund Expenses............................................................32
FEDERAL TAX MATTERS...........................................................32
Introduction.............................................................32
Taxation of Annuities in General.........................................32
Tax Deferral.........................................................32
Non-natural Owners...................................................33
Diversification Requirements.........................................33
Ownership Treatment..................................................33
Taxation of Partial and Full Withdrawals.............................34
Taxation of Annuity Payments.........................................35
Taxation of Death Benefits...........................................35
Penalty Tax on Premature Distributions...............................35
Aggregation of Annuity Contracts.....................................36
Tax Qualified Contracts..............................................36
Restrictions Under Section 403(b) Plans..............................37
Income Tax Withholding...............................................37
GENERAL MATTERS...............................................................38
Owner....................................................................38
Beneficiary..............................................................38
Assignments..............................................................38
Delay of Payments........................................................38
Modification.............................................................39
Customer Inquiries.......................................................39
DISTRIBUTION OF THE CONTRACTS.................................................40
VOTING RIGHTS.................................................................40
GENERAL PROVISIONS............................................................41
Legal Proceedings........................................................41
Financial Statements.....................................................41
Legal Matters............................................................41
Year 2000................................................................41
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS..........................................................42
CONDENSED FINANCIAL INFORMATION...............................................43
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Glossary
For your convenience, we are providing a glossary of the special terms
we use in this Prospectus.
accumulation period: The period that begins when we issue your Contract and
ends when you receive annuity income payments. During the accumulation period,
earnings accumulate on a tax-deferred basis.
accumulation unit: The measurement we use to calculate the value of each
sub-account at the end of each Valuation Period.
accumulation unit value: The value of each accumulation unit that is
calculated on each Valuation Date. Each sub-account of the Variable Account has
its own accumulation unit value.
annuitant: The person(s) you identify whose life we use to determine the
amount and duration of annuity income payments. You may name joint annuitants at
the time you select an income plan.
beneficiary: The person(s) you select to receive the benefits of the
Contract if no Owner is living.
Contract Anniversary: Each anniversary of the issue date.
Contract Value: The total value of your Contract. It is equal to the value
you have accumulated under the Contract in the sub-accounts of the Variable
Account plus your value in the fixed account options.
Contract Year: A period of 12 months that starts on the issue date of your
Contract or on any 12 month anniversary of that date.
fixed account options: Two options to which you can direct your money under
the Contract that provide a guarantee of principal and minimum interest. The
fixed account options are the Dollar Cost Averaging fixed account option ("DCA
Account") and the standard fixed account option. Fixed account assets are our
general account assets.
Fund:The Scudder Variable Life Investment Fund, an open-end diversified
management investment company composed of portfolios in which the sub-accounts
invest.
income period: The period that begins on the Payout Start Date during which
you will receive income payments under the income plan you choose.
income plan: The plan you choose under which we will pay annuity income
payments to you after the Payout Start Date based on the money you accumulate in
the Contract. You can choose whether the dollar amount of the payments you
receive will be fixed, or will vary with the investment results of the
sub-accounts in which you are invested at that time, or whether you receive a
combination of fixed and variable payments.
investment alternatives: The sub-accounts of the Variable Account and the
two fixed account options -- standard and Dollar Cost Averaging.
issuedate: The date we issue your Contract. We measure Contract Years and
Contract Anniversaries from the issue date.
Payout Start Date: The date on which we apply your money to provide annuity
income payments.
portfolio: A separate investment portfolio of the Fund in which a
sub-account of the Variable Account invests.
Qualified Contracts: Contracts issued under plans that qualify for special
federal income tax treatment under Sections 401(a), 403(a), 403(b), 403A, 408
and 408A of the Internal Revenue Code.
sub-account: A subdivision of the Variable Account that invests exclusively
in shares of a single portfolio of the Fund. The investment performance of each
sub-account is linked directly to the investment performance of the portfolio in
which it invests.
Valuation Date: Each day on which we value the assets in the sub-accounts.
This is each day that the New York Stock Exchange ("NYSE") is open for trading.
We are open for business on each day the NYSE is open.
Valuation Period: The period between Valuation Dates that begins as of the
close of regular trading on the NYSE (usually 4:00 p.m. Eastern Time) on one
Valuation Date and ends as of the close of regular trading on the next Valuation
Date.
Variable Account: Glenbrook Life Scudder Variable Account (A), a separate
investment account composed of sub-accounts that we established to receive and
invest purchase payments paid under the Contract.
we, us, our, Glenbrook Life, the Company: Glenbrook Life and Annuity
Company.
you, your, the Owner: The person having the privileges of ownership stated
in the Contract.
<PAGE>
HIGHLIGHTS
These highlights provide only a brief overview of the more important
features of the Contract. More detailed information about the Contract appears
later in this Prospectus. Please read this Prospectus carefully.
THE CONTRACT
The Contract provides a way for you to invest on a "tax-deferred" basis
in the fixed account options and in the Scudder portfolios through the
sub-accounts of the Variable Account. "Tax-deferred" means that the earnings and
appreciation on the money in your Contract are not taxed until either you take
money out by a full or partial cash withdrawal or by annuitizing the Contract,
or until we pay the death benefit.
The Contract is designed for people seeking long-term tax-deferred
accumulation of assets, generally for retirement. The tax-deferral feature is
most attractive to people in high federal and state tax brackets. You should not
buy this Contract if you are looking for a short-term investment or if you
cannot take the risk of getting back less money than you put in.
You can use the Contract with or without a qualified plan. A qualified
plan is a personal retirement savings plan, such as an IRA or tax-sheltered
annuity, that meets the requirements of the Internal Revenue code. Qualified
plans may limit or modify your rights and privileges under the contract. We use
the term "Qualified Contract" to refer to a Contract issued with a qualified
plan. See "Qualified Plans" on page 36.
Like all deferred annuity contracts, the Contract has two phases: the
"accumulation period" and the "income period." During the accumulation period,
you can allocate money to any combination of investment alternatives; any
earnings are tax-deferred. The income period begins on the Payout Start Date.
The money you can accumulate during the accumulation period, as well as the
annuity income option you choose, will determine the dollar amount of any income
payments you receive.
The Contract is a "variable" annuity because the value of your Contract
will go up or down depending on the investment performance of the sub-accounts
in which you invest. If you select a variable income plan, the amount of your
annuity payments in the variable plan will depend on the investment performance
of the sub-accounts in which you invest. You bear the entire investment risk for
your investments in the sub-accounts.
You can also direct money to the fixed account options. We guarantee
interest, as well as principal, on money placed in the fixed account options.
RIGHT TO CANCEL
You may return your Contract for a refund within 20 days or such longer
period as your state requires after you receive it. As permitted by applicable
federal or state law, the amount of the refund will be the total purchase
payments you paid, plus or minus any gains or losses on the amounts you invested
in the sub-accounts. We determine the value of the refund as of the date the
Contract is returned to us. We will pay the refund within 7 days after we
receive the Contract. The Contract will then be deemed void. In some states you
may have more than 20 days, or receive a refund of the amount of your purchase
payments.
HOW TO INVEST
You can purchase a Contract for $2,500 or more ($2,000 for Qualified
Contracts). You may make additional payments at any time during the accumulation
period. Send your payments to:
OVERNIGHT MAILING ADDRESS:
Scudder Horizon Advantage Scudder Horizon Advantage
Customer Service Center Customer Service Center
PO Box 80469 2940 S. 84th Street
Lincoln, NE 68501-0469 Lincoln, NE 68506
INVESTMENT ALTERNATIVES
You can invest your money in any of the following portfolios of the
Scudder Variable Life Investment Fund by directing your payments or transfers
into the corresponding sub-accounts:
Balanced
Bond
Capital Growth
Global Discovery
Growth and Income
International
Large Company Growth
Money Market
21st Century Growth*
* Prior to May 1, 2000, the 21st Century Growth Sub-account was named Small
Company Growth Sub-account.
4
<PAGE>
Each sub-account invests exclusively in shares of one portfolio of the
Fund. Each portfolio's assets are held separately from the other portfolios and
each portfolio has separate investment objectives and policies. The attached
prospectus for the Fund more fully describes the portfolios. Scudder Kemper
Investments, Inc. is the investment adviser for the portfolios.
The value of your investment in the sub-accounts will fluctuate daily
based on the investment results of the portfolios in which you invest, and on
the fees and charges deducted. You bear investment risk on amounts you invest.
You may also direct all or a portion of your money to two fixed account
options: the standard fixed account option and/or the Dollar Cost Averaging
fixed account option ("DCA Account") and receive a guaranteed rate of return.
Money you place in the standard fixed account will earn interest for one year
periods at a fixed rate that is guaranteed by us never to be less than 3.5%
Purchase payments you place in the DCA Account will earn interest at an
annual rate of at least 3.5%. The payments, plus interest, will be transferred
out of the DCA Account within a year in equal monthly installments and placed in
the sub-accounts and standard fixed account in the percentages you designate.
You may not transfer money into the DCA Account from another investment
alternative.
TRANSFERS AMONG INVESTMENT ALTERNATIVES
You have the flexibility to transfer assets within your Contract. At
any time during the accumulation period, you may transfer amounts among the
sub-accounts and between the standard fixed account option and any sub-account.
Transfers cannot be made into the DCA Account.
We currently do not impose a charge for any transfers. In the future,
we may impose a $10 charge after the twelfth transfer in a Contract Year. We may
restrict fixed account transfers. You may want to enroll in the Dollar Cost
Averaging program or in the Automatic Portfolio Rebalancing program.
5
<PAGE>
FEES AND EXPENSES
We do not take any deductions from purchase payments at the time you
buy the Contract. You invest the full amount of each purchase payment in one or
more of the investment alternatives.
We deduct two charges daily: a mortality and expense risk charge, equal
on an annual basis to no more than 0.40% of the money you have invested in the
sub-accounts, and an administrative expense charge, equal on an annual basis to
no more than 0.30% of the money you have invested in the sub-accounts. If you
select the Enhanced Death Benefit Rider, the daily mortality and expense risk
charge is equal on an annual basis to no more than 0.50% of the money you have
invested in the sub-accounts.
We will deduct state premium taxes, which currently range from 0% to
3.5%, if you fully withdraw all of your Contract's value, if we pay out death
benefit proceeds, or when you begin to receive annuity payments. We only charge
you premium taxes in those states that require us to pay premium taxes.
The portfolios deduct daily investment charges from the amounts you
have invested in the portfolios. These charges currently range from 0.43% to
1.63% annually, depending on the portfolio. See the Expense Table in this
Prospectus and the prospectus for the Fund.
ACCESS TO YOUR MONEY
You may withdraw all or part of your Contract Value at any time during
the accumulation period. The minimum amount you can withdraw is $50. Full or
partial withdrawals are available under limited circumstances on or after the
Payout Start Date. If your Contract's balance after a partial withdrawal would
be less than $1,000, we will treat the withdrawal as a full withdrawal.
We do not deduct any withdrawal charges. For Qualified Contracts issued
under Internal Revenue Code ("Code") Section 403(b), certain restrictions apply.
You may also have to pay federal income taxes and a penalty tax on any money you
take out of the Contract.
6
<PAGE>
DEATH BENEFIT
We will pay a death benefit before the Payout Start Date on any Owner's
death or, if the Owner is not a natural person, on the annuitant's death.
The death benefit amount will be the greater of:
o The total value of your Contract on the date we determine the death
benefit; and
o The total purchase payments you made to the Contract, less any prior
withdrawals and premium taxes.
If you select the enhanced death benefit rider, then the death benefit
will be the greater of:
o The death benefit amount, as stated above, or
o The value of the Enhanced Death Benefit, described later in this
Prospectus.
If you do not take any withdrawals or make any purchase payments, the
Enhanced Death Benefit will be the greatest value of your Contract on any
Contract Anniversary.
INCOME PAYMENTS
The Contract allows you to choose when to begin receiving periodic
income payments. You may choose among several income plans to fit your needs.
You may receive income payments for a specific period of time or for life
(either single or joint life), with or without a guaranteed number of payments.
You may choose to have income payments come from the fixed account, one
or more of the sub-accounts, or both. If you choose to have any part of the
payments come from the sub-accounts, the dollar amount of the income payments
you receive may go up or down, depending on the investment performance of the
portfolios you invest in at that time.
<PAGE>
INQUIRIES
If you need additional information, please contact us at:
Scudder Horizon Advantage
Customer Service Center
P.O. Box 80469
Lincoln, NE 68501-0469
(800) 242-4402 (Scudder Direct)
(800) 257-9576 (AARP Investment Program Members)
OVERNIGHT MAILING ADDRESS:
Scudder Horizon Advantage
Customer Service Center
2940 S. 84th Street
Lincoln, NE 68506
8
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EXPENSE TABLE
The Expense Table illustrates the current expenses and fees under the
Contract, as well as the Portfolios' fees and expenses for the 1999 calendar
year. The purpose of this table is to help you understand the various costs and
expenses that you will pay directly and indirectly. The Fund has provided the
information on the Fund's expenses.
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge None
Surrender Fee None
Transfer Fee (1)
ANNUAL CONTRACT FEE None
Variable Account Annual Expenses
(as a percentage of your average daily net assets in the Variable Account)
With the Enhanced Death Benefit
-------------------------------
Mortality and Expense Risk Charge (2) 0.50%
Administrative Expense Charge 0.30%
-----
Total Variable Account Annual Expenses 0.80%
Without the Enhanced Death Benefit
----------------------------------
Mortality and Expense Risk Charge (2) 0.40%
Administrative Expense Charge 0.30%
-----
Total Variable Account Annual Expenses 0.70%
[FN]
(1) We do not impose a transfer charge. We may in the future assess a $10
charge after the 12th transfer in a Contract Year. We do not count
transfers due to Dollar Cost Averaging and Automatic Portfolio Rebalancing
as transfers.
(2) If you receive variable periodic income payments, we will assess the
mortality and expense risk charge during the payout phase of the Contract.
</FN>
9
<PAGE>
Scudder Variable Life Investment Fund Annual Expenses (as a percentage of
average daily net assets for the 1999 calendar year)
Total
<TABLE>
<CAPTION>
Portfolio Management Fees Other Expenses Expenses
--------- -------------- -------------- --------
<S> <C> <C> <C>
Balanced 0.47% 0.08% 0.55%
Bond 0.47% 0.09% 0.56%
Capital Growth 0.46% 0.03% 0.49%
Global Discovery* 0.98% 0.65% 1.63%
Growth and Income 0.48% 0.08% 0.56%
International 0.85% 0.18% 1.03%
Large Company Growth** 0.00% 1.25% 1.25%***
Money Market 0.37% 0.06% 0.43%
21st Century Growth** 0.00% .50% 1.50%
</TABLE>
* Beginning May 1, 2000, the Portfolio's advisor has agreed to waive a
portion of its fees to the extent necessary to limit the expenses of the
Global Discovery Portfolio to 1.25% of average daily net assets. This
expense limit will remain in effect until April 30, 2001.
** Until April 30, 2001, the Portfolio's advisor has agreed to waive a portion
of its fees to the extent necessary to limit the expenses of the Large
Company Growth Portfolio and 21st Century Growth Portfolio to 1.25% and
1.50% respectively. As a result, actual 1999 expenses without giving effect
to the expense limitation, the total expenses for the Large Company Growth
Portfolio and 21st Century Growth Portfolio were 3.47% and 2.90%
respectively.
*** Actual 1999 total expenses for the Large Company Growth Portfolio reflects
a .355% reimbursement of fees from the Portfolio's advisor to the
Portfolio.
10
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EXAMPLES
The following examples illustrate the expenses you would pay on a $1,000
investment, assuming a 5% annual return, if you continued the Contract,
surrendered or annuitized at the end of each period.
(WITH THE ENHANCED DEATH BENEFIT (1))
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced $14 $43 $74 $163
Bond $14 $43 $75 $164
Capital Growth $13 $41 $71 $156
Global Discovery $25 $77 $131 $279
Growth and Income $14 $43 $75 $164
International $19 $58 $100 $216
Large Company Growth $21 $65 $111 $240
Money Market $13 $39 $68 $150
21st Century Growth $24 $73 $124 $266
</TABLE>
[FN]
(1) Total Variable Account Annual Expenses of 0.80%
</FN>
You should not consider the examples above to represent past or future
expenses, performance or return. The assumed 5% return is hypothetical. Actual
expenses and returns may be greater or less than those shown. Neither the fee
table nor the examples reflects the deduction of any premium taxes. The example
assumes that any fund expense waivers or reimbursement arrangements described in
the footnotes above are in effect for the time periods presented.
CONDENSED FINANCIAL INFORMATION
Condensed financial information for the sub-accounts is included at the
end of this Prospectus.
11
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CALCULATION OF YIELD AND TOTAL RETURNS
YIELDS AND STANDARD TOTAL RETURN
We may advertise the yields and standard average annual total returns
for the sub-accounts. These figures will be based on historical earnings and are
not intended to indicate future performance.
Yields and standard total returns include all charges and expenses you
would pay under the Contract -- the mortality and expense risk charge (0.40% for
Contracts with the standard death benefit; 0.50% for Contracts with the Enhanced
Death Benefit) and an administrative expense charge of 0.30%.
The yield of the Money Market sub-account refers to the annualized
investment income that an investment in the sub-account generates over a
specified seven-day period. The effective yield of the Money Market sub-account
is calculated in a similar way but, when annualized, we assume that the income
earned by the investment has been reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of the assumed
reinvestment.
The yield of a sub-account (except the Money Market sub-account) refers
to the annualized income that an investment in the sub-account generates over a
specified thirty-day period.
The average annual total return of a sub-account assumes that an
investment has been held in the sub-account for certain periods of time
including the period measured from the date the sub-account began operations. We
will provide the average annual total return for each sub-account that has been
in operation for 1, 5, and 10 years, or the period since inception if less. The
total return quotations will represent the average annual compounded rates of
return that an initial investment of $1,000 would earn as of the last day of the
1, 5 and 10 year periods or the period since inception.
The yield and total return calculations are not reduced by any premium
taxes. Applying premium taxes will reduce the yield and total return of a
Contract.
For additional information regarding yield and total return
calculations, please refer to the SAI.
12
<PAGE>
OTHER PERFORMANCE DATA
We may disclose average annual total return in non-standard formats and
cumulative total return. This means that the data may be presented for different
time periods and different dollar amounts.
We may also present historic performance data for the portfolios since
their inception reduced by all fees and charges you would pay under the Contract
- -- the mortality and expense risk charge (0.40% for Contracts with the standard
death benefit; 0.50% for Contracts with the Enhanced Death Benefit) and an
administrative expense charge of 0.30%.
Such adjusted historic performance includes data that precedes the
inception dates of the sub-accounts, but is designed to show the performance
that would have resulted if the Contract had been available during that time.
We will only disclose non-standard performance data if we also disclose
the standard performance data. For additional information regarding the
calculation of other performance data, please refer to the SAI.
Advertising, sales literature, and other communications may compare the
expense and performance data for the Contract and each sub-account with other
variable annuities tracked by independent services such as Lipper Analytical
Services, Inc., Morningstar and the Variable Annuity Research Data Service.
These services monitor and rank the performance and expenses of variable annuity
issuers on an industry-wide basis. We may also make comparisons using other
indices that measure performance, such as Standard & Poor's 500 Composite or the
Dow Jones Industrial Average. Unmanaged indices may assume reinvestment of
dividends but do not deduct administrative and management costs and expenses.
We may report other information including the effect of tax-deferred
compounding on a sub-account's returns, illustrated by tables, graphs, or
charts. Tax-deferred compounding can lead to substantial long-term accumulation
of assets, if the portfolio's investment experience is positive. Sales
literature, advertisements or other reports may refer to A.M. Best's, Moody's
and Standard & Poor's ratings of Glenbrook Life as an insurance company.
13
<PAGE>
GLENBROOK LIFE AND THE VARIABLE ACCOUNT
GLENBROOK LIFE AND ANNUITY COMPANY
Glenbrook Life and Annuity Company (we, us, Glenbrook Life) issues the
Contract. We are a stock life insurance company that was organized under the
laws of the State of Illinois in 1992 and redomesticated as a corporation under
the laws of Arizona on December 28, 1998. We were originally organized under the
laws of Indiana in 1965. From 1965 to 1983 we were known as "United Standard
Life Assurance Company" and from 1983 to 1992 we were known as "William Penn
Life Assurance Company of America." We are licensed to operate in Puerto Rico,
the District of Columbia and all states except New York. We intend to market the
Contract in those jurisdictions in which we are licensed to operate. Our main
headquarters is located at 3100 Sanders Road, Northbrook, Illinois 60062.
We are a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), a stock life insurance company incorporated under the laws of
the State of Illinois. Allstate Life is a wholly owned subsidiary of Allstate
Insurance Company ("Allstate"), a stock property-liability insurance company
incorporated under the laws of Illinois. The Allstate Corporation owns all of
the outstanding capital stock of Allstate.
We entered into a reinsurance agreement with Allstate Life, 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. Allstate Life accepts 100% of the liability under such
contracts. However, the obligations of Allstate Life under the reinsurance
agreement are to us. We remain the sole obligor under the Contract to the
Owners.
We are 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 an A+r to us and an A+ for financial strength to Allstate Life
which automatically reinsures all our net business. Standard & Poor's Insurance
Rating Services assigns us an AA+ (very strong) for financial strength rating
and Moody's assigns us an Aa2 (Excellent) for financial strength rating. These
ratings do not relate to the investment performance of the Variable Account.
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THE VARIABLE ACCOUNT
We established the Glenbrook Life Scudder Variable Account (A) as a
separate investment account on August 26, 1998 under Illinois law. The Variable
Account became subject to Arizona law when we redomesticated on December 28,
1998. The Variable Account receives and invests purchase payments made under the
Contracts. We may offer other variable annuities for which the Variable Account
may receive and invest payments.
Under Arizona law, the assets of the Variable Account are held
separately from our other assets. That portion of the assets of the Variable
Account equal to the reserves and other Contract liabilities with respect to the
Variable Account is not chargeable with liabilities arising out of any other
business Glenbrook Life may conduct. The income, gains and losses, realized or
unrealized, from assets allocated to the Variable Account are credited to or
charged against the Variable Account, without regard to other income, gains or
losses of Glenbrook Life. The obligations under the Contracts are obligations of
Glenbrook Life.
The Variable Account is divided into sub-accounts. Each sub-account
invests exclusively in shares of one of the portfolios of the Scudder Variable
Life Investment Fund. We may add additional sub-accounts in the future, some of
which may be available under other variable annuity contracts. We also reserve
the right to discontinue sub-accounts in the future.
The Variable Account is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company Act
of 1940, as amended, (the "1940 Act") and meets the definition of a "separate
account" under the federal securities laws. Registration with the SEC does not
involve supervision of the management or investment practices or policies of the
Variable Account, the Fund, or Glenbrook Life by the SEC.
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THE FUND
The Variable Account invests exclusively in shares of the Scudder
Variable Life Investment Fund (the "Fund"). The Fund is registered with the SEC
under the 1940 Act as an open-end, diversified management investment company.
The Fund is designed to provide an investment vehicle for variable
annuity contracts and variable life insurance policies.
The general public may not purchase shares of the portfolios in which
the sub-accounts invest ("underlying portfolios"). The investment objectives and
policies of the underlying portfolios may be similar to those of other
portfolios and mutual funds managed by the same investment adviser that are sold
directly to the public. You should not expect that the investment results of
other portfolios would be similar to those of the underlying portfolios.
SCUDDER VARIABLE LIFE INVESTMENT FUND
The sub-accounts invest exclusively in Class A shares of the following
portfolios of the Fund:
Balanced
Bond
Capital Growth
Global Discovery
Growth and Income
International
Large Company Growth
Money Market
21st Century Growth
Each portfolio represents, in effect, a separate mutual fund with its
own distinct investment objectives and policies. The gains or losses of one
portfolio have no effect on another portfolio's investment performance.
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The investment objectives and policies of the portfolios available
under the Contract are summarized below:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
- --------- --------------------
<S> <C>
Balanced This portfolio pursues 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.
Bond This portfolio pursues a policy of investing for a high
level of income consistent with a high quality portfolio of
debt securities.
Capital This portfolio seeks to maximize long-term capital growth
Growth through a broad and flexible investment program.
Global This portfolio pursues above-average capital
Discovery appreciation over the long term by investing primarily in
the equity securities of small companies throughout the
world.
Growth and Income This portfolio seeks long-term growth of capital,
current income and growth of income.
International This portfolio seeks long-term growth of capital principally
from a diversified portfolio of foreign equity securities.
Large Company This portfolio seeks long-term growth of capital through
Growth investment primarily in the equity securities of seasoned,
financially strong U.S. growth companies.
Money This portfolio seeks to maintain the stability of capital
Market and, consistent therewith, to maintain the liquidity of
capital and to provide current income. The Portfolio seeks
to maintain a net asset value of $1.00 per share.
21st Century This portfolio pursues long-term growth of capital by
Growth investing primarily in the common stocks of emerging growth
companies that are poised to be leaders in the new century.
</TABLE>
THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS
OBJECTIVE.
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The Scudder Variable Life Investment Fund prospectus contains more
complete information about the portfolios, including a description of the risks
involved in investing in each portfolio. A COPY OF THE FUND'S PROSPECTUS IS
ATTACHED TO THIS PROSPECTUS. YOU SHOULD READ THE FUND'S PROSPECTUS CAREFULLY
BEFORE YOU INVEST.
INVESTMENT ADVISER FOR THE FUNDS
Scudder Kemper Investments, Inc. (the "Adviser") is an investment
adviser registered with the SEC under the Investment Advisers Act of 1940, as
amended. The Adviser manages daily investments and business affairs of the Fund,
subject to the policies established by the Trustees of the Fund.
THE FIXED ACCOUNT OPTIONS
Amounts you allocate or transfer to the fixed account options become
part of our general account. Because of exemptive and exclusionary provisions,
we have not registered interests in the general account under either the
Securities Act of 1933 ("1933 Act") or the 1940 Act. Neither the general account
nor any interests in it are generally subject to the provisions of the 1933 or
1940 Acts, and, as a result, the staff of the SEC has not reviewed the
disclosures in this prospectus relating to the fixed account. However,
disclosures regarding the fixed account may be subject to the provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses.
The general account includes all of our general assets, except those
assets segregated in separate accounts such as the Variable Account. Unlike the
Variable Account, all assets in the general account are subject to the general
liabilities of our business operations. We bear the full investment risk for all
amounts contributed to the general account. We have the sole discretion to
invest the general account's assets, subject to applicable law. Amounts you
direct into the fixed account options do not share in the investment experience
of our general account.
GENERAL DESCRIPTION
We guarantee that we will credit daily interest to the money you direct
to the fixed account. The daily interest will equal or exceed the minimum
guaranteed rate of 3.5%. We may declare higher or lower interest rates in the
future. We determine interest rates at our sole discretion. We have no specific
formula for determining fixed account interest rates. Amounts allocated to the
fixed account options are not charged the Variable Account asset based charges
of 0.70% (0.80% if you elect the Enhanced Death Benefit Rider).
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STANDARD FIXED ACCOUNT OPTION
Money you direct to the standard fixed account option earns interest at
a declared rate for one year. The declared rate is the current rate in effect at
the time of your allocation or transfer. Once declared, the rate is guaranteed
for 12 months. As each one year period expires, we will declare a renewal rate.
On or about the end of each one year period, we will notify you of the new
interest rate(s). It will not be less than the 3.5% guaranteed rate found in the
Contract. We may declare more than one interest rate for different monies you
have in the standard fixed account option based upon the date of your allocation
or transfer into the standard fixed account.
You may allocate all or a portion of your premium payment 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. If you
withdraw money from the standard fixed account, you will receive the amount you
requested, minus any applicable premium taxes and tax withholding.
THE DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
You may allocate all or a portion of your purchase payments to the
Dollar Cost Averaging fixed account option (the "DCA Account"). Each purchase
payment you place in the DCA Account will earn interest for up to one year at a
declared rate of interest. The declared rate will be the current rate in effect
at the time you direct your purchase payment into the DCA Account. The rate will
never be less than 3.5%.
Each purchase payment you direct into the DCA Account, and interest
earned on that payment, will be transferred out of the DCA Account in equal
monthly installments within one year. You can select fewer than 12 monthly
transfers, but you may not select more than 12. At the end of 12 months from the
date of your allocation to the DCA Account, we will transfer any remaining
portion of the purchase payment and interest in the DCA Account to the Money
Market sub-account.
You must specify the investment alternatives that will receive the
monthly installments. You must also specify the percentage (whole percentages
only, totaling 100%) of each monthly installment that each investment
alternative should receive.
You can only put money into the DCA Account when you make purchase
payments. You may not transfer funds into the DCA Account from other investment
alternatives.
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PURCHASING THE CONTRACT
PURCHASING THE CONTRACT
You may purchase the Contract with a first purchase payment of $2,500
or more ($2,000 for a Qualified Contract). We will issue the Contract if the
annuitant and contract owner are age 90 or younger. The first payment is the
only payment we require you to make under the Contract. There are no
requirements on how much to pay or how many payments to make. You decide the
amount of each payment. You may add money to your Contract automatically through
Automatic Additions. We may limit the dollar amount of purchase payments we will
accept in the future.
RIGHT TO CANCEL
You may return your Contract to us for a refund within 20 days after
you receive it, or such longer period as your state requires. As permitted by
applicable federal or state law, the amount of the refund will be the total
purchase payments you paid, plus or minus any investment gains or losses on the
amounts you invested in the sub-accounts from the date of the allocation through
the date we determine the refund. You will receive a full refund of the amounts
you allocated to the fixed account options. We determine the value of the refund
as of the date we receive the refunded Contract. We will pay the refund within 7
days after we receive the Contract. The Contract will then be deemed void. In
some states you may have more than 20 days. If your state requires us to refund
premium payments, your refund will equal the entire amount of the premium
payments you paid.
CREDITING YOUR FIRST PURCHASE PAYMENT
When we receive a properly completed application with your first
payment, we will credit that payment to the Contract within two business days of
receiving the payment. If we receive an incomplete application, then we will
credit the payment within two business days of receiving the completed
application. If, for any reason, we do not credit the payment to your account
within five business days, then we will immediately return the payment to you.
You may, after receiving notice of our delay, specifically request that we do
not return the payment. We reserve the right to reject any application.
We will credit all additional payments to your Contract at the close of
the Valuation Period in which we receive the payment.
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<PAGE>
ALLOCATING YOUR PURCHASE PAYMENTS
On the application, you instruct us how to allocate your purchase
payments among the investment alternatives. You must allocate your payments to
the investment alternative either in whole percentages (from 0% to 100% totaling
100%) or in whole dollars (totaling the entire dollar amount of your payment).
Unless you send us written notice of a change, we will allocate each additional
payment you make according to the 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 you allocate to the sub-accounts will be credited
to the Contract as accumulation units. For example, if you make a $10,000
purchase payment to the Money Market Sub-Account when its accumulation unit
value equals $10, then we will credit 1,000 accumulation units for the Money
Market Sub-Account to your Contract. The Variable Account, in turn, will
purchase $10,000 worth of shares of the Money Market Portfolio of the Fund.
ACCUMULATION UNIT VALUE
Each sub-account values its accumulation units separately. The value of
accumulation units will change for each Valuation Period according to the
investment performance of the shares of the portfolio 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.
YOU SHOULD EXPECT THE VALUE OF YOUR CONTRACT TO CHANGE DAILY TO REFLECT
THE INVESTMENT EXPERIENCE OF THE PORTFOLIOS IN WHICH YOU ARE INVESTED THROUGH
THE SUB-ACCOUNTS, ANY INTEREST EARNED ON THE FIXED ACCOUNT OPTIONS, AND THE
DEDUCTION OF CERTAIN EXPENSES AND CHARGES.
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<PAGE>
TRANSFERS
You may transfer your Contract's value among investment alternatives
before the Payout Start Date, subject to the following restrictions. You may
make transfers among all the investment alternatives at any time, except you may
not make transfers into the DCA Account. Transfers from the standard fixed
account option are taken out on a first-in, first-out basis.
We reserve the right to assess a $10 charge on each transfer after the
twelfth transfer in a Contract Year. We presently waive this charge. We reserve
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
as transfers.
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 out of a fixed
amount income payment are not permitted.
TELEPHONE TRANSFERS
We accept telephone transfer requests at (800) 242-4402 (Scudder
Direct) or (800) 257-9576 (AARP Investment Program Members) if we receive them
by 3:00 p.m., Central Time. We will not accept telephone transfer requests
received at any other telephone number or after 3:00 p.m., Central Time.
Telephone transfer requests received before 3:00 p.m., Central Time are
effected at the next computed accumulation unit value for the sub-accounts
involved. If the NYSE closes early (i.e. before 3:00 p.m. Central Time), or if
it closes for a period of time, but then reopens for trading on the same day, we
will process telephone transfer requests at the close of the NYSE on that
particular day.
We use procedures that we believe provide reasonable assurance that
telephone transfers are authorized by the proper persons. We may tape telephone
conversations with persons who claim to authorize the transfer and we may
request identifying information from such persons. We disclaim any liability for
losses resulting from telephone transfers if the claim is that the transfer was
not properly authorized. However, if we do not take reasonable steps to help
ensure that such authorizations are valid, then we may be liable for such
losses.
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DOLLAR COST AVERAGING
Before the Payout Start Date, you may make transfers automatically
through Dollar Cost Averaging (DCA). DCA permits you to transfer a specified
amount in equal monthly installments from the one year fixed DCA Account or any
sub-account to any of the sub-accounts. DCA may also be used to transfer amounts
from a sub-account to the standard fixed account. There is no charge for
participating in the DCA program. DCA transfers do not count towards the twelve
free transfers allowed during each Contract Year.
By transferring a set amount on a regular schedule, instead of
transferring the total amount at one particular time, you may reduce the risk of
investing in the underlying portfolio only when the price is high. Participating
in the DCA program does not guarantee a profit and it does not protect against a
loss if market prices decline.
AUTOMATIC PORTFOLIO REBALANCING
Transfers may be made automatically through Automatic Portfolio
Rebalancing before the Payout Start Date. If you elect Automatic Portfolio
Rebalancing, then we will rebalance all of your money allocated to the
sub-accounts to your desired allocations on a quarterly basis. Each quarter,
money will be transferred among sub-accounts to achieve the desired allocation.
Unless you send us written notice of a change, the desired allocation
will be the allocation you first selected. 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 before our receipt of your
written request.
Transfers made though Automatic Portfolio Rebalancing are not counted
toward the twelve free transfers permitted per Contract Year. Any money you have
allocated to the fixed account options will not be included in the rebalancing.
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<PAGE>
ACCESS TO YOUR MONEY
WITHDRAWALS
You may withdraw all or part of your Contract Value at any time before
the Payout Start Date and before the Owner's death (or the annuitant's death if
the Owner is not a natural person). Full or partial withdrawals are available
under limited circumstances on or after the Payout Start Date.
The amount you may withdraw is the full Contract Value next computed
after we receive the request for a withdrawal, minus any applicable federal
withholding or premium taxes. We do not deduct any withdrawal charges from a
full or partial withdrawal.
We will pay withdrawals from the Variable Account within seven days of
receiving the request, unless we delay payments for reasons specified below in
"Delay of Payments."
To complete a partial withdrawal from the Variable Account, we will
redeem accumulation units in an amount equal to the withdrawal and any
applicable premium taxes. You must name the investment alternatives from which
you want to make the withdrawal. If you do not name an investment alternative,
we will not honor the incomplete withdrawal request.
If any portion of the withdrawal is to be taken from the standard fixed
account option, then the amount requested will be deducted on a first-in,
first-out basis.
The minimum amount you may withdraw is $50. If your Contract Value
after a partial withdrawal would be less than $1,000, then we will treat the
request as a request for a full withdrawal and we will pay out the entire
Contract Value, minus any applicable federal withholding and premium taxes. We
may waive these withdrawal restrictions.
You may take partial withdrawals automatically through Systematic
Withdrawals on a monthly, quarterly, semi-annual or annual basis. You may
request Systematic Withdrawals of $50 or more at any time before the Payout
Start Date. We may prohibit Systematic Withdrawals if you also elect Dollar Cost
Averaging.
If you have a valid telephone transfer request form on file with us,
then you may make a partial withdrawal by telephone. We calculate the Contract
Value we will pay you at the price next computed after we receive your
withdrawal request. We will pay you the amount you request within seven days of
when we receive your request. Unless you elect in writing not to have federal
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<PAGE>
income taxes withheld, we, by law, must withhold taxes from the taxable portion
of the withdrawal.
Partial and full withdrawals may be subject to federal income tax and a
10% tax penalty. This tax and penalty are explained in "Federal Tax Matters" on
page 36.
Generally, you may not make withdrawals after the Payout Start Date.
One exception to this rule applies if you are receiving variable income payments
that do not depend on the life of the Annuitant (such as under Income Plan 3
described below). In that case you may terminate all or part of the Variable
Account portion of the income payments at any time and receive a lump sum equal
to the present value of the remaining variable payments associated with the
amount withdrawn. To determine the present value of any remaining variable
income payments being withdrawn, we use a discount rate equal to the assumed
annual investment rate that we use to compute such variable income payments. The
minimum amount you may withdraw under this feature is $1,000. A withdrawal
charge may apply.
ANNUITY INCOME PAYMENTS
PAYOUT START DATE FOR INCOME PAYMENTS
The Payout Start Date is the day that we apply your money to an income
plan under the Contract. You may change the Payout Start Date at any time by
sending us written notice at least 30 days before the scheduled Payout Start
Date. The Payout Start Date must be:
o at least one month after the issue date; and
o no later than the day the annuitant reaches age 90, or the 10th anniversary
of the issue date, if later.
The dollar amount of the income payments may be variable, fixed, or
both. The method of calculating the first annuity payment is different for the
two types of payments.
VARIABLE INCOME PAYMENTS
The dollar amount of variable income payments depends upon:
o the investment experience of the sub-accounts you select,
o any premium taxes due,
o the age and sex of the annuitant, and
o the income plan you chose.
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<PAGE>
We guarantee that the amount of the income payment will not be affected
by actual mortality experience and the amount of our administration expenses.
Your Contract contains 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 we will pay to you may be more or less than
the total of the purchase payments you paid to us because:
o variable income payments will vary with the investment results of the
underlying portfolios, and o annuitants may live longer than, or not as long as,
expected.
The income plan option selected will affect the dollar amount of each
annuity payment.
Income payments are determined based on an assumed investment rate, the
investment performance of the portfolios in which the sub-accounts you select
invest, and the deduction of certain fees and charges. If the actual net
investment experience of the sub-accounts is less than the assumed investment
rate, then the dollar amount of the income payments will decrease. If the net
investment experience equals the assumed investment rate, then the dollar amount
of the income payments will stay level. If the net investment experience exceeds
the assumed investment rate, then the dollar amount of the income payments will
increase. The assumed investment rate under the Contract is 3%. For more
information on how variable income payments are determined, see the SAI.
FIXED INCOME PAYMENTS
If you choose to have any portion of your annuity income payments come
from the fixed account, the payment amount will be fixed for the duration of the
income plan and guaranteed by us. We calculate the dollar amount of the fixed
income payment by applying the portion of the Contract Value in the fixed
account on the Payout Start Date minus any applicable premium tax, to the value
from the income payment table in your Contract. We will pay you a higher amount
if we are offering it at that time.
ANNUITY TRANSFERS
After the Payout Start Date, you may not make any transfer from the
fixed account. You may transfer amounts between sub-accounts, or from the
variable income payment to the fixed income payment starting six months after
the Payout Start Date. Transfers may be made once every six months thereafter.
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<PAGE>
INCOME PLANS
The income plans offered under the Contract include:
INCOME PLAN 1-- LIFE INCOME WITH GUARANTEED PAYMENTS:
We will make payments for as long as the annuitant lives. If the
annuitant dies before the selected number of guaranteed payments have been made,
then we will continue to pay the remainder of the guaranteed payments to the
beneficiary.
INCOME PLAN 2 -- JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS:
We will make payments for as long as either the annuitant or joint
annuitant, named at the time of income plan selection, lives. If both the
annuitant and the joint annuitant die before the selected number of guaranteed
payments have been made, then we will continue to pay the remainder of the
guaranteed payments to the beneficiary.
INCOME PLAN 3 -- GUARANTEED NUMBER OF PAYMENTS:
We 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
guaranteed number of months may range from 60 to 360. The mortality and expense
risk charge will be deducted from Variable Account assets supporting these
payments even though we do not bear any mortality risk.
You may change the income plan until 30 days before the Payout Start
Date. If you chose an income plan which depends on the annuitant or joint
annuitant's life, then we will require proof of age before income payments
begin. Applicable premium taxes will be deducted.
If you do not select an income plan, then we will make income payments
in accordance with Income Plan 1, Life Income with Guaranteed Payments, for 120
months. Other income plans may be available upon request at our discretion. We
currently use sex-distinct annuity tables. However, if Congress or the states
pass legislation, then we reserve the right to use income payment tables that 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 the monthly payments determined under the income plan are less than
$20, then we may pay the Contract Value, minus any applicable taxes, in a lump
sum or we may change the payment frequency to an interval that results in income
payments of at least $20.
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DEATH BENEFITS
DEATH BENEFIT PAYMENT PROVISIONS
A death benefit may be paid to the new Owner determined immediately
after the death if, before the Payout Start Date:
o any Owner dies; or
o the annuitant dies and an Owner is not a natural person.
If the new Owner eligible to receive the death benefit is not a natural
person, then the new Owner may elect to receive the death benefit in one or more
payments. Otherwise, if the new Owner is a natural person, then the new Owner
may elect to receive the death benefit in one or more payments or in periodic
payments through an annuity income plan.
The entire death benefit must be paid 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:
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:
o the new Owner's life; or
o a period not to exceed the new Owner's life expectancy; or
o the new Owner's life with payments guaranteed for a period not to exceed
the new Owner's life expectancy.
If the deceased owner's surviving spouse 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. We will only permit the
Contract to be continued once. On the day the Contract is continued, we will set
the Contract Value equal to the death benefit or Enhanced Death Benefit, as
appropriate, calculated as of the date on which we receive all the information
we need to process your spouse's request to continue the Contract after your
death.
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DEATH BENEFIT AMOUNT
Before the Payout Start Date, the death benefit is equal to the greater
of:
o the Contract Value on the date we determine the death benefit, or
o the sum of all purchase payments, minus any prior withdrawals and premium
taxes.
We will determine the value of the death benefit at the end of the
Valuation Period during which we receive a complete request for payment of the
death benefit. A complete request includes proof of death, and such other
documentation as we may require in our discretion. In addition to the above
alternatives, upon purchase of the Contract, if the oldest Owner is age 75 or
younger, then the oldest Owner can select the Enhanced Death Benefit Rider.
ENHANCED DEATH BENEFIT RIDER
If the Owner is a living individual and that Owner dies, then the
Enhanced Death Benefit applies only for the death of such Owner. If an Owner is
not a living individual, then the Enhanced Death Benefit applies only for the
annuitant's death.
If you select this Rider, then the death benefit will be the greater of :
o the death benefit amount, as stated above, or
o the value of the Enhanced Death Benefit.
On the issue date, the Enhanced Death Benefit is the initial purchase
payment. After the issue date, the Enhanced Death Benefit is recalculated
whenever you make a purchase payment, take a withdrawal, or on the Contract
Anniversary as follows:
o For purchase payments, the Enhanced Death Benefit equals the most recently
calculated Enhanced Death Benefit plus the purchase payment.
o For withdrawals, the Enhanced Death Benefit equals the most recently
calculated Enhanced Death Benefit reduced by the amount of the withdrawal.
o On each Contract Anniversary, the Enhanced Death Benefit equals the greater
of the Contract Value or the most recently calculated Enhanced Death
Benefit.
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If you do not take any withdrawals or make any purchase payments, the
Enhanced Death Benefit will be the greatest value of your Contract on any
Contract Anniversary on or before the date we calculate the death benefit.
We will recalculate the Enhanced Death Benefit for purchase payments,
withdrawals and on Contract anniversaries until the oldest Owner, or the
annuitant if the Owner is not a living individual, reaches age 80. After age 80,
the Enhanced Death Benefit will be recalculated only for purchase payments and
withdrawals.
We will determine the value of the death benefit at the end of the
Valuation Period during which we receive a complete request for payment,
including proof of death. We will not settle any death claim until we receive
proof of death satisfactory to us.
EXPENSES
DEDUCTIONS FROM PURCHASE PAYMENTS
We do not take any deductions from your purchase payments. Therefore,
the full amount of every purchase payment is invested in the investment
alternatives you select.
WITHDRAWAL CHARGE
There are no withdrawal charges under the Contract. We do not take
withdrawal charges when you request a full or partial withdrawal. You may
withdraw all or part of your Contract Value at any time before the earlier of
the Payout Start Date or an Owner's death (if the Owner is not a natural person,
the annuitant's death).
We may withhold federal and state income tax from withdrawal amounts.
Certain terminations may also be subject to a federal tax penalty.
CONTRACT MAINTENANCE CHARGE
There is no Contract maintenance charge. We bear the maintenance costs.
Maintenance costs include, but are not limited to, expenses incurred in
collecting purchase payments; keeping records; processing death claims, cash
withdrawals, and Contract changes; calculating accumulation unit and annuity
unit values; and issuing reports to Owners and regulatory agencies.
ADMINISTRATIVE EXPENSE CHARGE
We deduct a daily administrative expense charge that equals, on an
annual basis, 0.30% of the daily net assets you have allocated to the
sub-accounts. This charge is designed to cover actual administrative expenses.
The administrative charge does not necessarily equal the expenses we incur.
30
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily mortality and expense risk charge that equals, on an
annual basis, 0.40% of the average daily net assets you have allocated to the
sub-accounts. We guarantee that the 0.40% rate will not increase over the
Contract's life.
The mortality risk arises from our guarantee to cover all death
benefits and to make income payments in accordance with the income plan you
select. The expense risk arises from the possibility that the administrative
expense charge, which is guaranteed not to increase, will not be enough to cover
actual administrative expenses.
If you select the Enhanced Death Benefit Rider, then we 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. This results in
a total annual mortality and expense risk charge of 0.50% of daily net assets in
the sub-accounts.
We guarantee that the 0.50% rate for the Enhanced Death Benefit Rider
will not increase over your Contract's life. For amounts allocated to the
Variable Account, we deduct the mortality and expense risk charge during the
accumulation and income periods of the Contract.
TAXES
We deduct applicable state premium taxes or other taxes relative to the
Contract (collectively referred to as "premium taxes") at the Payout Start Date
or when a total withdrawal occurs. Current premium tax rates range from 0 to
3.5%. We reserve the right 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, we will deduct the charge for premium taxes
from each investment alternative in the proportion that your value in that
investment alternative bears to your total Contract Value.
31
<PAGE>
TRANSFER CHARGES
We do not deduct transfer charges. However, in the future, we may
assess a $10 charge on each transfer after the twelfth transfer in a Contract
Year. This excludes transfers through Dollar Cost Averaging and Automatic
Portfolio Rebalancing. We presently waive this charge.
FUND EXPENSES
The portfolios deduct investment charges from the amounts you have invested
in the portfolios. A complete description of the expenses and deductions from
the portfolios may be found in the Fund's prospectus. The Fund's prospectus
accompanies this Prospectus.
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
WE MAKE 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 your individual
circumstances. If you are concerned about any tax consequences with regard to
your individual circumstances, then you should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
Tax Deferral
Generally, you are not taxed on increases in the Contract Value until a
distribution occurs. This rule applies only where:
1. the owner is a "natural person,"
2. the investments of the Variable Account are "adequately diversified" in
accordance with Treasury Department Regulations, and
3. Glenbrook Life is considered the owner of the Variable Account assets for
federal income tax purposes.
32
<PAGE>
Non-natural Owners
As a general rule, annuity contracts owned by non-natural persons such
as corporations, trusts, or other entities are not treated as annuity contracts
for federal income tax purposes. The income on such contract is taxed as
ordinary income received or accrued by the owner during the taxable year. Please
see the SAI for a discussion of several exceptions to the general rule for
contracts owned by non-natural persons.
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" consistent with standards under Treasury Department regulations. If
the investments in the Variable Account are not adequately diversified, the
Contract will not be treated as an annuity contract for federal income tax
purposes. As a result, the income on the Contract will be taxed as ordinary
income received or accrued by the owner during the taxable year. Although
Glenbrook Life does not have control over the portfolios or their investments,
we expect the portfolios to meet the diversification requirements.
Ownership Treatment
The IRS has stated that you will be considered the owner of Variable
Account assets if you possess incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. At the time the
diversification regulations were issued, the Treasury Department announced that
the regulations do not provide guidance concerning circumstances in which
investor control of the Variable Account investments may cause an investor to be
treated as the owner of the Variable Account. The Treasury Department also
stated that future Guidance would be issued regarding the extent that owners
could direct sub-account investments without being treated as owners of the
underlying assets of the Variable Account.
Your rights under this Contract are different from those described by
the IRS in rulings in which it found that contract owners were not owners of
Variable Account assets. For example, you have the choice to allocate premiums
and contract values among more investment options. Also you may be able to
transfer among investment options more frequently than in such rulings. These
differences could result in you being treated as the owner of the Variable
Account. If this occurs, income and gain from the Variable Account assets would
be included in your gross income. Glenbrook Life does not know what standards
will be set forth in any regulations or rulings which the Treasury Department
may issue. It is possible that future standards announced by the Treasury
Department could adversely affect the tax treatment of your Contract. We reserve
the right to modify the Contract as necessary to attempt to prevent you from
being considered the federal tax owner of the assets of the Variable Account.
However, we make no guarantee that such modification to the Contract will be
successful.
33
<PAGE>
Taxation of Partial and Full Withdrawals
If you make 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 investment in the Contract is the gross premiums
paid for the Contract minus any amounts previously received from the contract if
such amounts were properly excluded from your gross income. If you make a
partial withdrawal under a qualified contract, the portion of the payment that
bears the same ratio to the total payment as the investment in the contract
(i.e., nondeductible IRA contributions, after tax contributions to qualified
plans) bears to the Contract Value, is excluded from your income. If you make 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.
"Non-qualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions. "Qualified distributions" from Roth IRAs are
not included in gross income. "Qualified distributions" are any distributions
made more than five taxable years after the taxable year of the first
contribution to any Roth IRA and which are:
o made on or after the date the individual attains age 59 1/2,
o made to a beneficiary after the owner's death,
o attributable to the owner being disabled, or
o for a first time home purchase (first time home purchases are subject to a
lifetime limit of $10,000).
If you transfer a non-qualified Contract without full and adequate
consideration to a person other than your spouse (or to a former spouse incident
to a divorce), you will be taxed on the difference between the Contract Value
and the investment in the contract at the time of transfer. Except for certain
qualified Contracts, any amount you receive 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.
34
<PAGE>
Taxation of Annuity Payments
Generally, the rule for income taxation of payments received from a
nonqualified Contract provides for the return of your investment in the Contract
in equal tax-free amounts over the payment period. The balance of each payment
received is taxable. For 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. If you elect
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. The annuity payments will be fully taxable after the total amount of
the investment in the Contract is excluded using these ratios. If you die and
annuity payments cease before the total amount of the investment in the Contract
is recovered, the unrecovered amount will be allowed as a deduction for your
last taxable year.
Taxation of Death Benefits
Death of an owner, or death of the annuitant if the Contract is owned
by a non-natural person, will cause a distribution of Death Benefits from a
Contract. Generally, such amounts are included 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.
Please see the SAI for more detail on distribution at death requirements.
Penalty Tax on Premature Distributions
A 10% penalty tax applies to the taxable amount of any premature
distribution from a nonqualified Contract. The penalty tax generally applies to
any distribution made before the date you attain age 59 1/2. However, no penalty
tax is incurred on distributions:
1. made on or after the date the owner attains age 59 1/2,
2. made as a result of an owner's death or disability,
3. made in substantially equal periodic payments over the owner's life or life
expectancy,
4. made under an immediate annuity, or
5. attributable to an investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine if any other
exceptions to the penalty apply to your situation. Similar exceptions may apply
to distributions from qualified Contracts.
35
<PAGE>
Aggregation of Annuity Contracts
All non-qualified deferred annuity contracts issued by Glenbrook Life
(or our 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
The Contract may be used as investments with certain Qualified Plans
such as:
o Individual Retirement Annuities or Accounts (IRAs) under Section 408(b) of
the Code;
o Roth IRAs under Section 408A of the Code;
o Simplified Employee Pension Plans under Section 408(k) of the Code;
o Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section
408(p) of the Code;
o Tax Sheltered Annuities under Section 403(b) of the Code;
o Corporate and Self Employed Pension and Profit Sharing Plans; and
o State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans.
The income on qualified plan and IRA investments is tax deferred and
variable annuities held by such plans do not receive any additional tax
deferral. You should review the annuity features, including all benefits and
expenses, prior to purchasing a variable annuity in a qualified plan or IRA.
Glenbrook Life reserves the right to limit the availability of the Contract for
use with any of the Qualified Plans listed below.
In the case of certain Qualified Plans, the terms of the plans may
govern the right to benefits, regardless of the terms of the Contract.
36
<PAGE>
Restrictions Under Section 403(b) Plans
Section 403(b) of the Code provides tax-deferred retirement savings
plans for employees of certain non-profit and educational organizations. Under
Section 403(b), any 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
on or after the date the employee:
o attains age 59 1/2,
o separates from service,
o dies,
o becomes disabled, or
o on account of hardship (earnings on salary reduction contributions may
not be distributed on account of hardship).
These limitations do not apply to withdrawals where Glenbrook Life is
directed to transfer some or all of the Contract Value to another Section 403(b)
plan.
Income Tax Withholding
We are required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless you elect to make a "direct rollover"
of such amounts to an IRA or eligible retirement plan. 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
3. over the life (joint lives) of the participant (and beneficiary).
Glenbrook Life may be required to withhold federal and state income taxes
on any distributions from nonqualified Contracts, or qualified Contracts that
are not eligible rollover distributions, unless you notify us of your election
not to have taxes withheld.
37
<PAGE>
GENERAL MATTERS
OWNER
The Owner ("you") has the sole right to exercise all rights and
privileges under the Contract, except as otherwise provided in the Contract.
Both a nonnatural and natural person cannot jointly own the Contract.
BENEFICIARY
Subject to the terms of any irrevocable beneficiary designation, you
may change the beneficiary at any time by sending us written notice. Any change
will be effective at the time you sign the notice, whether or not the annuitant
is living when we receive the change. We will not be liable for any payment or
settlement made before we receive the written notice.
Unless otherwise provided in the beneficiary designation, if a
beneficiary predeceases the Owner and there are no other surviving
beneficiaries, then the new beneficiary will be the Owner's spouse. If the
spouse predeceases the Owner then, the Owner's living children (in equal
shares). If all are deceased, then the Owner's estate.
Multiple beneficiaries may be named. Unless otherwise provided in the
beneficiary designation, if more than one beneficiary survives the Owner, then
the surviving beneficiaries will share equally in any amounts due.
ASSIGNMENTS
We will not honor an assignment of an interest in a Contract as
collateral or security for a loan. The Owner may assign annuity income payments
under the Contract before the Payout Start Date. No beneficiary may assign
benefits under the Contract until they are due. We will not be bound by an
assignment unless it is signed by the assignor and filed with us. We are 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 be made within seven days, unless:
o The NYSE is closed for other than usual weekends or holidays, or trading on
the NYSE is otherwise restricted;
o An emergency exists as defined by the SEC; or
o The SEC permits delay for the protection of the Owners.
38
<PAGE>
Payments or transfers from the fixed account may be delayed for up to 6
months.
MODIFICATION
We cannot modify the Contract without your consent, except:
o to make the Contract meet the requirements of the 1940 Act;
o to make the Contract comply with any changes in the Code; or
o to make any changes required by the Code or by any other applicable law.
CUSTOMER INQUIRIES
If you would like additional information, please contract a
representative of Glenbrook Life or call us at:
Scudder Horizon Advantage
Customer Service Center
P.O. Box 80469
Lincoln, NE 68501-0469
(800) 242-4402 (Scudder Direct)
(800) 257-9576 (AARP Investment Program Members)
OVERNIGHT MAILING ADDRESS:
Scudder Horizon Advantage
Customer Service Center
2940 S. 84th Street
Lincoln, NE 65806
39
<PAGE>
DISTRIBUTION OF THE CONTRACTS
ALFS, 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 with the SEC as a broker-dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. ("NASD").
ALFS has contracted with Scudder Investors Services, Inc. ("Scudder")
for Scudder's services in connection with the distribution of the Contract.
Scudder is registered with the SEC as a broker-dealer under the 1934 Act and is
a member of the NASD. Individuals directly involved in the sale of the Contract
are registered representatives of Scudder and appointed licensed agents of
Glenbrook Life. The principal address of Scudder is Two International Place,
Boston, Massachusetts 02110-4103.
The underwriting agreement with ALFS provides for indemnification of ALFS
by us 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 us on how to vote at the Fund's shareholder meetings. We will solicit
and cast each vote according to the procedures set up by the Fund and to the
extent required by law. We reserve the right to vote the eligible shares in our
own right, if subsequently permitted by the 1940 Act, its regulations or
interpretations thereof.
We will vote Fund shares for which no timely instructions were received
in proportion to the voting instructions which we receive with respect to all
Contracts participating in that sub-account. We will apply voting instructions
to abstain on a pro-rata basis to reduce the votes eligible to be cast.
Before the Payout Start Date, you hold the voting interest in the
sub-account. We will determine the number of your votes by dividing your
Contract's value in the sub-account by the net asset value per share of the
applicable portfolio.
After the Payout Start Date, the person receiving variable income
payments has the voting interest and the votes decrease as income payments are
made and 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.
40
<PAGE>
GENERAL PROVISIONS
LEGAL PROCEEDINGS
From time to time we are involved in pending and threatened litigation
in the normal course of our 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 our financial condition.
FINANCIAL STATEMENTS
Our financial statements and the financial statements of the Variable
Account are included in the SAI.
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds has provided advice on certain federal
securities law matters. Michael J. Velotta, General Counsel of Glenbrook Life,
has passed upon all matters of state law pertaining to the Contracts, including
the validity of the Contracts and our right to issue such Contracts under state
insurance law.
YEAR 2000
Glenbrook Life is heavily dependent upon complex computer systems for
all phases of its operations, including customer service, and policy and
contract administration. Since many of Glenbrook Life's older computer software
programs recognize only the last two digits of the year in any date, some
software may have failed to operate properly in or after the year 1999, if the
software was not reprogrammed or replaced ("Year 2000 Issue"). Glenbrook Life
believes that many of its counterparties and suppliers also had potential Year
2000 Issues which could affect Glenbrook Life. In 1995, Allstate Insurance
Company commenced a four phase plan intended to mitigate and/or prevent the
adverse effects of Year 2000 Issues. These strategies included normal
development and enhancement of new and existing systems, upgrades to operating
systems already covered by maintenance agreements, and modifications to existing
systems to make them Year 2000 compliant. The plan also included Glenbrook Life
actively working with its major external counterparties and suppliers to assess
their compliance efforts and Glenbrook Life's exposure to them. Because of the
accuracy of this plan, and its timely completion, Glenbrook Life has experienced
no material impacts on its results of operations, liquidity or financial
position due to the Year 2000 issue. Year 2000 costs are expensed as incurred.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS...........................1
REINVESTMENT...................................................................1
THE CONTRACT...................................................................1
PURCHASE OF CONTRACTS..........................................................1
PERFORMANCE DATA...............................................................2
Money Market Sub-Account Yields..........................................2
Other Sub-Account Yields.................................................3
STANDARDIZED TOTAL RETURNS.....................................................4
OTHER PERFORMANCE DATA.........................................................5
Cumulative Total Returns.................................................5
Adjusted Historical Portfolio Total Returns..............................5
Without the Enhanced Death Benefit.......................................6
With the Enhanced Death Benefit..........................................6
Tax-Free Exchanges (1035 Exchanges, Rollovers and Transfers).............7
PREMIUM TAXES..................................................................7
TAX RESERVES...................................................................7
INCOME PAYMENTS................................................................7
Calculation of Variable Annuity Unit Values..............................7
GENERAL MATTERS................................................................8
Incontestability.........................................................8
Settlements..............................................................8
Safekeeping of the Variable Account's Assets.............................8
FEDERAL TAX MATTERS............................................................9
Introduction.............................................................9
Taxation of Glenbrook Life and Annuity Company...........................9
Exceptions to the Non-natural Owner Rule.................................9
IRS Require Distribution at Death Rules.................................10
Qualified Plans.........................................................10
Types of Qualified Plans................................................10
IRAs...............................................................11
Roth IRAs..........................................................11
Simplified Employee Pension Plans..................................11
Savings Incentive Match Plans for Employees
(SIMPLE Plans).....................................................12
Tax Sheltered Annuities............................................12
Corporate and Self-Employed Pension and Profit
Sharing Plans......................................................12
State and Local Government and Tax-Exempt
Organization ......................................................13
Deferred Compensation Plans........................................13
LEGAL MATTERS.................................................................13
EXPERTS.......................................................................13
FINANCIAL STATEMENTS..........................................................13
</TABLE>
<PAGE>
Condensed Financial Information
The following condensed financial information shows accumulation
unit values for each sub-account for each year since the sub-account started
operation. Accumulation unit value is the unit we use to calculate the value of
your interest in a sub-account. Accumulation unit value does not reflect the
deduction of certain charges that we subtract from your Contract Value. The data
is obtained from the audited financial statement of the Variable Account that
can be found in the SAI.
BASE POLICY*
<TABLE>
<CAPTION>
BALANCED SUB-ACCOUNT
- -------------- ------------------ ------------------ ----------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at the
beginning of year the end of the end of the year
year
- -------------- ------------------ ------------------ ----------------------------
- -------------- ------------------ ------------------ ----------------------------
<S> <C> <C> <C>
1998** $10.000 $10.622 1,848
- -------------- ------------------ ------------------ ----------------------------
- -------------- ------------------ ------------------ ----------------------------
1999 $10.622 $12.164 176,670
- -------------- ------------------ ------------------ ----------------------------
Bond Sub-Account
- -------------- ------------------ ------------------ ----------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at the
beginning of year the end of the end of the year
year
- -------------- ------------------ ------------------ ----------------------------
- -------------- ------------------ ------------------ ----------------------------
1998** $10.000 $9.994 806
- -------------- ------------------ ------------------ ----------------------------
- -------------- ------------------ ------------------ ----------------------------
1999 $9.994 $9.830 33,053
- -------------- ------------------ ------------------ ----------------------------
Capital Growth Sub-Account
- -------------- ------------------ ------------------ ----------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at the
beginning of year the end of the end of the year
year
- -------------- ------------------ ------------------ ----------------------------
- -------------- ------------------ ------------------ ----------------------------
1998** $10.000 $10.709 752
- -------------- ------------------ ------------------ ----------------------------
- -------------- ------------------ ------------------ ----------------------------
1999 $10.709 $14.381 116,096
- -------------- ------------------ ------------------ ----------------------------
43
<PAGE>
Global Discovery Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $10.858 --
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $10.858 $17.887 22,009
- -------------- ------------------ ------------------ ------------------------
Growth and Income Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $10.047 803
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $10.047 $10.584 96,973
- -------------- ------------------ ------------------ ------------------------
International Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $10.378 --
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $10.378 $15.924 61,817
- -------------- ------------------ ------------------ ------------------------
Large Company Growth Sub-Account
- --------------- ------------------ ------------------- ----------------------
Accumulation Accumulation unit Number of
unit value at value at the end accumulation units
beginning of year of the year outstanding at the
end of the year
- --------------- ------------------ ------------------- ----------------------
- --------------- ------------------ ------------------- ----------------------
1998 -- -- --
- --------------- ------------------ ------------------- ----------------------
- --------------- ------------------ ------------------- ----------------------
1999*** $10.000 $13.536 23,676
- --------------- ------------------ ------------------- ----------------------
44
<PAGE>
Money Market Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $10.035 3,111
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $10.035 $10.464 89,890
- -------------- ------------------ ------------------ ------------------------
21st Century Growth Sub-Account****
- --------------- ------------------ -------------------- ---------------------
Accumulation Accumulation unit Number of
unit value at value at the end accumulation units
beginning of year of the year outstanding at the
end of the year
- --------------- ------------------ -------------------- ---------------------
- --------------- ------------------ -------------------- ---------------------
1998 -- -- --
- --------------- ------------------ -------------------- ---------------------
- --------------- ------------------ -------------------- ---------------------
1999*** $10.000 $17.584 9,838
- --------------- ------------------ -------------------- ---------------------
* The accumulation unit values in the tables reflect a mortality and
expense risk charge of 0.40% and an administrative expense charge of
0.30%.
** From commencement of the sub-account on November 30, 1999.
*** From commencement of the sub-account on May 3, 1999.
**** Prior to May 1, 2000, the 21st Century Growth Sub-Account
was named the Small Company Growth Sub-Account.
45
<PAGE>
Base Policy with Enhanced Death Benefit*
Balanced Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $10.621 --
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $10.621 $12.150 39,727
- -------------- ------------------ ------------------ ------------------------
Bond Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $9.993 --
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $9.993 $9.819 3,220
- -------------- ------------------ ------------------ ------------------------
Capital Growth Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $10.708 --
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $10.708 $14.366 52,287
- -------------- ------------------ ------------------ ------------------------
Global Discovery Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $10.857 --
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $10.857 $17.867 8,007
- -------------- ------------------ ------------------ ------------------------
46
<PAGE>
Growth and Income Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $10.046 --
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $10.046 $10.572 34,057
- -------------- ------------------ ------------------ ------------------------
International Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $10.378 --
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $10.378 $15.907 18,247
- -------------- ------------------ ------------------ ------------------------
Large Company Growth Sub-Account
- --------------- ------------------ ------------------- ----------------------
Accumulation Accumulation unit Number of
unit value at value at the end accumulation units
beginning of year of the year outstanding at the
end of the year
- --------------- ------------------ ------------------- ----------------------
- --------------- ------------------ ------------------- ----------------------
1998 -- -- --
- --------------- ------------------ ------------------- ----------------------
- --------------- ------------------ ------------------- ----------------------
1999*** $10.000 $13.527 6,372
- --------------- ------------------ ------------------- ----------------------
Money Market Sub-Account
- -------------- ------------------ ------------------ ------------------------
Accumulation Accumulation Number of accumulation
unit value at unit value at units outstanding at
beginning of year the end of the the end of the year
year
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1998** $10.000 $10.035 --
- -------------- ------------------ ------------------ ------------------------
- -------------- ------------------ ------------------ ------------------------
1999 $10.035 $10.452 14,201
- -------------- ------------------ ------------------ ------------------------
47
<PAGE>
21st Century Growth Sub-Account****
- --------------- ------------------ ------------------- ----------------------
Accumulation Accumulation unit Number of
unit value at value at the end accumulation units
beginning of year of the year outstanding at the
end of the year
- --------------- ------------------ ------------------- ----------------------
- --------------- ------------------ ------------------- ----------------------
1998 -- -- --
- --------------- ------------------ ------------------- ----------------------
- --------------- ------------------ ------------------- ----------------------
1999*** $10.000 $17.573 4,785
- --------------- ------------------ ------------------- ----------------------
* The accumulation unit values in the tables reflect a mortality and
expense risk charge of 0.50% and an administrative expense charge of
0.30%.
** From commencement of the sub-account on November 30, 1999.
*** From commencement of the sub-account on May 3, 1999.
**** Prior to May 1, 2000, the 21st Century Growth Sub-Account
was named the Small Company Growth Sub-Account.
</TABLE>
48
<PAGE>
Statement of Additional Information
For the
Scudder Horizon Advantage Variable Annuity
Individual and Group Flexible Premium Variable Deferred Annuity Contracts
Issued Through
Glenbrook Life Scudder Variable Account (A)
Offered by
Glenbrook Life and Annuity Company
Customer Service Center
PO Box 80469
Lincoln, NE 68501-0469
Overnight Address
2940 S. 84th Street
Lincoln, NE 68506
(800) 242-7702 (Scudder Direct)
(800) 257-9576 (AARP Investment Program Members)
-----------
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Scudder Horizon Advantage, a flexible premium
variable deferred annuity (the "Contract") offered by Glenbrook Life and Annuity
Company ("Company", "we," "us"). We are a wholly owned subsidiary of Allstate
Life Insurance Company.
You may obtain a copy of the Prospectus dated May 1, 2000, by calling
1-800-242-4402 or writing to us at the address listed above.
This Statement of Additional Information is not a prospectus and should
be read only in conjunction with the Prospectus for the Contract.
Dated May 1, 2000
<PAGE>
Statement of Additional Information Table of Contents
Additions, Deletions or Substitutions of Investments..............1
Reinvestment......................................................1
The Contract......................................................1
Purchase of Contracts.............................................1
Performance Data..................................................2
Money Market Sub-account Yields..........................2
Other Sub-accountYields..................................3
Standardized Total Returns........................................4
Other Performance Data............................................5
Cumulative Total Returns.................................5
Adjusted Historical Portfolio Total Returns..............5
Without the Enhanced Death Benefit.......................6
With the Enhanced Death Benefit..........................6
Tax-Free Exchanges (1035 Exchanges,
Rollovers and Transfers)..................7
Premium Taxes.....................................................7
Tax Reserves......................................................7
Income Payments...................................................7
Calculation of Variable Annuity Unit Values..............7
General Matters...................................................8
Incontestability.........................................8
Settlements..............................................8
Safekeeping of the Variable Account's Assets.............8
Federal Tax Matters...............................................9
Introduction.............................................9
Taxation of Glenbrook Life and Annuity Company...........9
Exceptions to the Non-natural Owner Rule.................9
IRS Require Distribution at Death Rules.................10
Qualified Plans.........................................10
Types of Qulified Plans.................................10
IRAs...........................................11
Roth IRAs......................................11
Simplified Employee Pension Plans..............11
Savings Incentive Match Plans for Employees (SIMPLE Plans).12
Tax Sheltered Annuities........................12
Corporate and Self-Employed Pension and Profit Sharing Plans12
State and Local Government and Tax-Exempt Organization .. 13
Deferred Compensation Plans....................13
Experts..........................................................13
Financial Statements.............................................13
Additions, Deletions or Substitutions of Investments
We retain the right, subject to any applicable law, to make additions to,
deletions from or substitutions for the Fund shares held by any sub-account. We
also reserve 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 our judgment, investment in any portfolio
would become inappropriate in view of the purposes of the Variable Account.
Substitutions of shares in a sub-account will not be made until you have
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 (the "Act"). 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.
We 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 our sole
discretion, 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. We 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, we 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 Act or it may be
deregistered under the Act in the event 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.
<PAGE>
The Contract
Purchase of Contracts
We offer the Contracts 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, ALFS, Inc., an
affiliate of Glenbrook Life. The offering of the Contracts is continuous and we
do not anticipate discontinuing the offering of the Contracts. However, we
reserve 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.
Money Market Sub-account Yields
The Current Yield is computed by determining the net change (exclusive of
realized gains and losses on the sale of securities and unrealized appreciation
and depreciation) at the end of the seven-day period in the value of a
hypothetical account under a Contract having a balance of 1 unit of the Money
Market sub-account at the beginning of the period, dividing such net change in
account value by the value of the account at the beginning of the period to
determine the base period return, and annualizing this quotient on a 365-day
basis. The net change in account value reflects (i) net income from the
Portfolio attributable to the hypothetical account and (ii) charges and
deductions imposed under the Contract that are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for 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%.
Current Yield is calculated according to the following formula:
Current Yield = ((NCS - ES) / W) x (365 / 7)
We may also disclose the Effective Yield of the Money Market sub-account
for the same seven-day period, determined on a compounded basis. The seven-day
Effective Yield is calculated by compounding the unannualized base period return
according to the following formula:
Effective Yield = (1 + ((NCS - ES)/UV))(365 / 7) -1
Where, for both formulas:
NCS = The net change in the value of the Portfolio (exclusive of
realized gains and losses on the sale of securities and unrealized
appreciation and depreciation and exclusive of income other than
investment income) for the seven-day period attributable to a
hypothetical account having a balance of one sub-account unit under
a Contract.
ES = Per unit expenses of the sub-account for the Contracts for the
seven-day period.
UV = The unit value for a Contract on the first day of the seven-day
period.
The Current and Effective Yield on amounts held in the Money Market
sub-account normally will fluctuate on a daily basis. Therefore, the disclosed
yield for any given past period is not an indication or representation of future
yields or rates of return. The Money Market sub-account's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity, the types and quality of portfolio securities held, and the
operating expenses.
Other Sub-account Yields
The 30-Day Yield refers to income generated by the Bond sub-account over a
specific 30-day period. Because the yield is annualized, the yield generated
during the 30-day period is assumed to be generated each 30-day period over a
12-month period. The yield is computed by: (i) dividing the net investment
income of the Portfolio attributable to the Sub-account units less sub-account
expenses attributable to the Contracts for the period, by (ii) the maximum
offering price per unit on the last day of the period times the daily average
number of units outstanding for the period, by (iii) compounding that yield for
a 6-month period, and by (iv) multiplying that result by 2. Expenses
attributable to the Bond sub-account for the Contracts 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 eharge of 0.30%.
<PAGE>
The 30-Day Yield is calculated according to the following formula:
30-Day Yield = 2 x (((NI-ES) / (U x UV)) + 1)(to the power of 6)- 1)
Where:
NI = Net income of the portfolio for the 30-day period attributable to the
Sub-account's units.
ES = Expenses of the Sub-account for the Contracts for the 30-day period.
U = The average daily number of units outstanding attributable to the
Contracts.
UV = The unit value for a Contract at the close (highest) of the last day in
the 30-day period.
The 30-Day Yield on amounts held in the Bond Sub-account normally will
fluctuate over time. Therefore, the disclosed yield for any given past period is
not an indication or representation of future yields or rates of return. The
Bond Sub-account's actual yield is affected by the types and quality of
portfolio securities held by the Portfolio, and its operating expenses.
Standardized Total Returns
We may disclose Total Returns for one or more of the sub-accounts for
various periods of time. One of the periods of time will include the period
measured from the date the sub-account commenced operations. When a sub-account
has been in operation for 1, 5 and 10 years, respectively, the Total Return for
these periods will be provided. Total Returns for other periods of time may,
from time to time, also be disclosed.
Total Returns for a Contract represent the average annual compounded rates
of return that would equate a single investment of $1,000 to the redemption
value of that investment as of the last day of each of the periods. The ending
date for each period for which Total Return quotations are provided will be for
the most recent month end practicable, considering the type and media of the
communication, and will be stated in the communication.
Total Returns will be calculated using Sub-account Unit Values which
Glenbrook calculates on each Valuation Date based on the performance of the
Sub-account's underlying Portfolio, and are reduced by all fees and charges
under the Contract, including the mortality and mxpense 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%.
The Total Return is calculated according to the following formula:
TR = (ERV / P)(to the power of 1/N) - 1
Where:
TR = The average annual total return net of Sub-account recurring charges for
the Contracts.
ERV = The ending redeemable value of the hypothetical account at the end of the
period.
P = A hypothetical single payment of $1,000.
N = The number of years in the period.
Without the Enhanced Death Benefit
<TABLE>
<S> <C> <C> <C> <C>
One Year Five Years 10 Years or Since Inception
Fund
Money Market 4.27% 4.49% 4.27%
Bond -1.64% 6.20% -1.57%
Balanced 14.51% 19.28% 19.80%
Capital Growth 34.29% 27.80% 39.82%
International 53.43% 19.83% 53.60%
Growth and Income 5.34% 18.12% 5.38%
Global Discovery 64.73% N/A 70.97%
Large Company Growth N/A N/A 57.94%
21st Century Growth N/A N/A 134.42%
With the Enhanced Death Benefit
One Year Five Years 10 Years or Since Inception
Fund
Money Market 4.16% 4.39% 4.17%
Bond -1.74% 6.09% -.167%
Balanced 14.40% 19.16% 19.68%
Capital Growth 34.15% 27.67% 39.68%
International 53.28% 19.71% 5.34%
Growth and Income 5.23% 18.00% 5.27%
Global Discovery 64.56% N/A 70.80%
Large Company Growth N/A N/A 57.78%
21st Century Growth N/A N/A 134.18%
</TABLE>
Other Performance Data
Cumulative Total Returns
We may disclose Cumulative Total Returns in conjunction with the standard
format described above. The Cumulative Total Returns will be calculated using
the following formula:
CTR = (ERV / P) - 1
Where:
CTR = The Cumulative Total Return net of Sub-account recurring charges for the
period.
ERV = The ending redeemable value of the hypothetical investment at the end of
the period.
P = A hypothetical single payment of $1,000.
Without the Enhanced Death Benefit
<TABLE>
<S> <C> <C> <C> <C>
One Year Five Years 10 Years or Since Inception
Fund
Money Market 4.27% 4.49% 4.27%
Bond -1.64% 6.20% -1.57%
Balanced 14.51% 19.28% 19.80%
Capital Growth 34.29% 27.80% 39.82%
International 53.43% 19.83% 53.60%
Growth and Income 5.34% 18.12% 5.38%
Global Discovery 64.73% N/A 70.97%
Large Company Growth N/A N/A 57.94%
21st Century Growth N/A N/A 134.42%
With the Enhanced Death Benefit
One Year Five Years 10 Years or Since Inception
Fund
Money Market 4.16% 4.39% 4.17%
Bond -1.74% 6.09% -.167%
Balanced 14.40% 19.16% 19.68%
Capital Growth 34.15% 27.67% 39.68%
International 53.28% 19.71% 5.344%
Growth and Income 5.23% 18.00% 5.27%
Global Discovery 64.56% N/A 70.80%
Large Company Growth N/A N/A 57.78%
21st Century Growth N/A N/A 134.18%
</TABLE>
Adjusted Historical Portfolio Total Returns
We may also disclose yield and total return for the Fund's portfolios,
including periods before the date that the Variable Account began 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 Sub-accounts 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>
<S> <C> <C> <C> <C> <C>
One Year Five Year Ten Years Portfolio
or Since Portfolio Inception
Sub-Accounts Inception Dates
Money Market 4.27% 4.49% 4.20% 7/16/85
Bond -1.64% 6.20% 6.20% 7/16/85
Capital Growth 34.29% 27.80% 17.20% 7/16/85
Balanced 14.51% 19.28% 12.57% 7/16/85
International 53.43% 19.83% 12.43% 5/1/87
Growth and Income 5.34% 18.12% 16.72% 5/2/94
Global Discovery 64.73% N/A 24.49% 5/1/96
Large Company Growth N/A N/A 57.94% 5/1/99
21st Century Growth N/A N/A 134.42% 5/1/99
With the Enhanced Death Benefit
One Year Five Years Ten Years Portfolio
or Since Inception
Portfolio Inception Dates
Money Market 4.16% 4.39% 4.09% 7/16/85
Bond -1.74% 6.09% 6.51% 7/16/85
Capital Growth 34.15% 27.67% 17.08% 7/16/85
Balanced 14.40% 19.16% 12.46% 7/16/85
International 53.28% 19.71% 12.32% 5/01/87
Growth and Income 5.23% 18.00% 16.60% 5/02/94
Global Discovery 64.56% N/A 24.36% 5/1/96
Large Company Growth N/A N/A 57.78% 5/1/99
21st Century Growth N/A N/A 134.18% 5/1/99
</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)
We accept purchase payments that 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, we do not differentiate between Section 1035 purchase
payments and non-Section 1035 purchase payments.
We also accept "rollovers" and transfers from contracts qualifying as
tax-sheltered annuities ("TSAs"), individual retirement annuities or accounts
("IRAs"), or any other Qualified Contract that is eligible to "rollover" into an
IRA. We differentiate among Non-Qualified Contracts, TSAs, IRAs and other
Qualified Contracts to the extent necessary to comply with federal tax laws. For
example, we restrict the assignment, transfer or pledge of TSAs and IRAs so the
contracts will continue to qualify for special tax treatment. If contemplating
any such exchange, rollover or transfer of a contract you should contact a
competent tax adviser with respect to the potential effects of such a
transaction.
Premium Taxes
Applicable premium tax rates depend on your 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
We do not establish capital gains tax reserves for the sub-accounts or deduct
charges for tax reserves because we believe that capital gains attributable to
the Variable Account will not be taxable. However, we reserve 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
We calculate the amount of the first income payment by applying your
Contract Value allocated to each 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 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-account's 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.
We determine the amount of the first Income Payment paid under an income
plan using the interest rate and mortality table disclosed in the Contract. Due
to judicial or legislative developments regarding the use of tables that do not
differentiate on the basis of sex, different annuity tables may be used.
General Matters
Incontestability
We will not contest the Contract after it is issued.
Settlements
Due proof of your death (or Annuitant's death if there is a non-natural
Owner) must be received prior to settlement of a death claim.
Safekeeping of the Variable Account's Assets
We hold title to the assets of the Variable Account. The assets are kept
physically segregated and held separate and apart from our 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, we hold the Variable
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.
Glenbrook Life 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
We are taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code. The Variable Account is not an entity separate from
the Company, and its operations form a part of the Company. As a consequence,
the Variable Account 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, Glenbrook Life
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. Generally, reserves are amounts that Glenbrook Life
is legally required to accumulate and maintain in order to meet future
obligations under the Contracts. Glenbrook Life does not anticipate that it will
incur any federal income tax liability attributable to the Variable Account.
Therefore we do not intend to make provisions for any such taxes. If we are
taxed on investment income or capital gains of the Variable Account, then we may
impose a charge against the Variable Account in order to make provision for such
taxes.
Exceptions to the Non-natural Owner Rule
Generally, Contracts held by a non-natural owner are not treated as annuity
contracts for federal income tax purposes, unless one of several exceptions
apply. Contracts will generally be treated as held by a natural person if the
nominal owner is a trust or other entity that holds the Contract for the benefit
of a natural person. However, this special exception will not apply in the case
of an employer who is the nominal owner of a Contract under a non-qualified
deferred compensation arrangement for employees. Other exceptions to the
non-natural 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
To qualified as an annuity contract for federal income tax purposes, a
nonqualifed 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 your 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 your death.
The five year requirement is satisfied if:
(1) any portion of the owner's interest which is payable to 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
(2) the distributions begin within one year of the owner's death.
If the owner's designated beneficiary is the surviving spouse of you, the
Contract may be continued with the surviving spouse as the new owner. If the
owner of the Contract is a non-natural person, the annuitant is 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 non-natural person will be
treated as the death of the owner.
Qualified Plans
This annuity contract may be used with several types of Qualified Plans.
The income on qualified plan and IRA investments is tax deferred and variable
annuities held by such plans do not receive any additional tax deferral. You
should review the annuity features, including all benefits and expenses, prior
to purchasing a variable annuity in a qualified plan or IRA. Glenbrook Life
reserves the right to limit the availability of the Contract for use with any of
the Qualified Plans listed below.
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. Qualified Plan
participants, and owners, 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
IRAs
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an IRA. IRAs 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 IRA. An IRA generally may not
provide life insurance, but it may provide a Death Benefit that equals the
greater of the premiums paid or the Contract Value. The Contract provides a
Death Benefit that in certain circumstances may exceed the greater of the
payments or the Contract Value. If the IRS treats the Death Benefit as violating
the prohibition on investment in life insurance contracts, the Contract would
not qualify as an IRA.
Roth IRAs
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth IRA. Roth IRAs
are subject to limitations on the amount that can be contributed. In certain
instances, distributions from Roth IRAs are excluded from gross income. Subject
to certain limits, a traditional Individual Retirement Account or Annuity may be
converted or "rolled over" to a Roth IRA. The taxable portion of a conversion or
rollover distribution is included 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' IRAs if certain
criteria are met. Under these plans the employer may, within 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.
Savings Incentive Match Plans for Employees (SIMPLE Plans)
Sections 408(p) and 401(k) of the Tax 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.
Tax Sheltered Annuities
Section 403(b) of the Tax 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 Contracts for them.
Subject to certain limitations, a Section 403(b) plan allows an employer to
exclude the purchase payments from the employees' gross income. A 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: (1) the date the employee
attains age 59 1/2; (2) separates from service; (3)dies; (4) becomes disabled;
or (5) on the account of hardship (earnings on salary reduction contributions
may not be distributed for hardship).
These limitations do not apply to withdrawals where Glenbrook Life 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 Tax Code permit corporate employers to
establish various types of tax favored retirement plans for employees. The Tax
Code permits self-employed individuals to establish tax favored retirement plans
for themselves and their employees. Such retirement plans may permit the
purchase of Contracts in order to provide benefits under the plans.
State and Local Government and Tax-Exempt Organization Deferred Compensation
Plans
Section 457 of the Tax 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. Employees with Contracts under the plan
are considered general creditors of the employer. The employer, as owner of the
Contract, has the sole right to the proceeds of the Contract. Generally, under
the non-natural 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 included in the employees' gross income
until distributed from the plan. However, all the compensation deferred under a
457 plan must remain the sole property of the employer. As property of the
employer, the assets of the plan are subject to the claims of the employer's
general creditors, until such time as the assets are made available to the
employee or a beneficiary.
Experts
The financial statements of Glenbrook as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 and related
financial statement schedule that appear in this Statement of Additional
Information have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of the Variable Account as of December 31, 1999 and for
each of the periods in the two years then ended that appear in this Statement of
Additional Information have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
Financial Statements
The financial statements of the Variable Account as of December 31, 1999 and for
each of the periods in the two years then ended, the financial statements of the
Glenbrook as of December 31, 1999 and 1998 and for each of the three years in
the period ended December 31, 1999 and related financial statement schedule and
the accompanying Independent Auditors' Reports appear in the pages that follow.
The financial statements and schedule of Glenbrook included herein should be
considered only as bearing upon the ability of Glenbrook to meet its obligations
under the Contracts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (the "Company", an affiliate of The Allstate
Corporation) as of December 31, 1999 and 1998, and the related Statements of
Operations and Comprehensive Income, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1999. Our audits also
included Schedule IV - Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 25, 2000
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
---------- ------------
($ in thousands, except par value data)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $94,173 and $87,415 ) $ 92,937 $ 94,313
Short-term 53,063 4,663
----------- -----------
Total investments 146,000 98,976
Cash 9 --
Reinsurance recoverable from
Allstate Life Insurance Company 4,144,165 3,113,278
Deferred income taxes 293 --
Other assets 2,706 2,590
Separate Accounts 1,541,756 993,622
----------- -----------
TOTAL ASSETS $ 5,834,929 $ 4,208,466
=========== ===========
LIABILITIES
Reserve for life-contingent contract benefits $ 800 $ --
Contractholder funds 4,143,365 3,113,278
Current income taxes payable 2,360 2,181
Deferred income taxes -- 2,499
Payable to affiliates, net 4,122 3,583
Separate Accounts 1,541,756 993,622
----------- -----------
TOTAL LIABILITIES 5,692,403 4,115,163
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 11)
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 10,000 and
4,200 shares authorized, 5,000 and
4,200 shares issued
and outstanding 2,500 2,100
Additional capital paid-in 119,241 69,641
Retained income 21,588 17,079
Accumulated other comprehensive (loss) income:
Unrealized net capital (losses) gains (803) 4,483
----------- -----------
TOTAL ACCUMULATED OTHER COMPREHENSIVE
(LOSS) INCOME (803) 4,483
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 142,526 93,303
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 5,834,929 $ 4,208,466
=========== ===========
</TABLE>
See notes to financial statements.
2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
($ in thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
REVENUES
Net investment income $ 6,579 $ 6,231 $ 5,304
Realized capital gains and losses 312 (5) 3,460
------- ------- -------
INCOME FROM OPERATIONS
BEFORE INCOME TAX EXPENSE 6,891 6,226 8,764
Income tax expense 2,382 2,182 3,078
------- ------- -------
NET INCOME 4,509 4,044 5,686
------- ------- -------
OTHER COMPREHENSIVE (LOSS) INCOME, AFTER-TAX
Change in unrealized net capital gains and losses (5,286) 1,315 378
------- ------- -------
COMPREHENSIVE (LOSS) INCOME $ (777) $ 5,359 $ 6,064
======= ======= =======
</TABLE>
See notes to financial statements.
3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998 1997
--------- --------- ---------
($ in thousands)
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning of year $ 2,100 $ 2,100 $ 2,100
Issuance of new shares of stock 400 -- --
--------- --------- ---------
Balance, end of year 2,500 2,100 2,100
--------- --------- ---------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year $ 69,641 $ 69,641 $ 69,641
Capital contribution 49,600 -- --
--------- --------- ---------
Balance, end of year 119,241 69,641 69,641
--------- --------- ---------
RETAINED INCOME
Balance, beginning of year $ 17,079 $ 13,035 $ 7,349
Net income 4,509 4,044 5,686
--------- --------- ---------
Balance, end of year 21,588 17,079 13,035
--------- --------- ---------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance, beginning of year $ 4,483 $ 3,168 $ 2,790
Change in unrealized net capital gains
and losses (5,286) 1,315 378
--------- --------- ---------
Balance, end of year (803) 4,483 3,168
--------- --------- ---------
TOTAL SHAREHOLDER'S EQUITY $ 142,526 $ 93,303 $ 87,944
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
($ in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,509 $ 4,044 $ 5,686
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and other non-cash items (65) (24) 29
Realized capital gains and losses (312) 5 (3,460)
Changes in:
Income taxes payable 235 1,590 240
Other operating assets and liabilities 264 915 961
-------- -------- --------
Net cash provided by operating activities 4,631 6,530 3,456
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 9,049 1,966 1,405
Investment collections 4,945 7,123 14,217
Investment purchases (20,328) (15,250) (50,115)
Participation in Separate accounts -- -- 13,981
Change in short-term investments, net (48,288) (369) (2,944)
-------- -------- --------
Net cash used in investing activities (54,622) (6,530) (23,456)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 400 -- --
Capital contribution 49,600 -- 20,000
-------- -------- --------
Net cash provided by financing activities 50,000 -- 20,000
-------- -------- --------
NET INCREASE IN CASH 9 -- --
CASH AT THE BEGINNING OF YEAR -- -- --
-------- -------- --------
CASH AT END OF YEAR $ 9 $ -- $ --
======== ======== ========
</TABLE>
See notes to financial statements.
5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). These financial statements have been prepared in conformity with
generally accepted accounting principles.
NATURE OF OPERATIONS
The Company markets savings and life insurance products through banks and
securities firms. Savings products include deferred annuities and immediate
annuities without life contingencies. Deferred annuities include fixed rate,
market value adjusted, indexed and variable annuities. Life insurance consists
of interest-sensitive life and variable life insurance. In 1999, substantially
all of the Company's statutory premiums and deposits were from annuities.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrender or withdrawal by customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have the
potential to impact its business. Recently enacted federal legislation will
allow for banks and other financial organizations to have greater participation
in the securities and insurance businesses. This legislation may present an
increased level of competition for sales of the Company's products. Furthermore,
the market for deferred annuities and interest-sensitive life insurance is
enhanced by the tax incentives available under current law. Any legislative
changes which lessen these incentives are likely to negatively impact the demand
for these products.
Additionally, traditional demutualizations of mutual insurance companies and
enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; and (2) increasing competition in the
capital markets.
Although the Company currently benefits from agreements with financial services
entities who market and distribute its products, change in control of these
non-affiliated entities with which the Company has alliances could negatively
impact the Company's sales.
The Company is authorized to sell life and savings products in all states except
New York, as well as in the District of Columbia. The top geographic locations
for statutory premiums and deposits for the Company were Florida, California,
Pennsylvania, Michigan, Texas, Illinois and New Jersey for the year ended
December 31, 1999. No other jurisdiction accounted for more than 5% of statutory
premiums and deposits. Substantially all premiums and deposits are ceded to ALIC
under reinsurance agreements.
6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All
fixed income securities are carried at fair value and may be sold prior to
their contractual maturity ("available for sale"). The difference between
amortized cost and fair value, net of deferred income taxes, is reflected as
a component of shareholder's equity. Provisions are recognized for declines
in the value of fixed income securities that are other than temporary. Such
writedowns are included in realized capital gains and losses. Short-term
investments are carried at cost or amortized cost, which approximates fair
value.
Investment income consists primarily of interest and short-term investment
dividends. Interest is recognized on an accrual basis and dividends are recorded
at the ex-dividend date. Interest income on mortgage-backed securities is
determined on the effective yield method, based on the estimated principal
repayments. Accrual of income is suspended for fixed income securities that are
in default or when the receipt of interest payments is in doubt. Realized
capital gains and losses are determined on a specific identification basis.
REINSURANCE RECOVERABLE
The Company has reinsurance agreements whereby substantially all contract
charges, credited interest, policy benefits and certain expenses are ceded to
ALIC. Such amounts are reflected net of such reinsurance in the statements of
operations and comprehensive income. Investment income earned on the assets
which support contractholder funds and the reserve for life-contingent contract
benefits is not included in the Company's financial statements as those assets
are owned and managed under terms of reinsurance agreements. Reinsurance
recoverable and the related reserve for life-contingent contract benefits and
contractholder funds are reported separately in the statements of financial
position. The Company continues to have primary liability as the direct insurer
for risks reinsured.
RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS AND INTEREST CREDITED
Interest-sensitive life contracts are insurance contracts whose terms are not
fixed and guaranteed. The terms that may be changed include premiums paid by the
contractholder, interest credited to the contractholder account balance and one
or more amounts assessed against the contractholder. Premiums from these
contracts are reported as deposits to contractholder funds. Contract charge
revenue consists of fees assessed against the contractholder account balance for
cost of insurance (mortality risk), contract administration and surrender
charges. Contract benefits include interest credited to contracts and claims
incurred in excess of the related contractholder account balance.
Contracts that do not subject the Company to significant risk arising from
mortality or morbidity are referred to as investment contracts. Fixed rate
annuities, market value adjusted annuities, indexed annuities and immediate
annuities without life contingencies are considered investment contracts.
Deposits received for such contracts are reported as deposits to contractholder
funds. Contract charge revenue for investment contracts consists of charges
assessed against the contractholder account balance for contract administration
and surrenders. Contract benefits include interest credited and claims incurred
in excess of the related contractholder account balance.
7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Crediting rates for fixed rate and interest-sensitive life contracts are
adjusted periodically by the Company to reflect current market conditions.
Crediting rates for indexed annuities are based on an interest rate index, such
as LIBOR or an equity index, such as the S&P 500.
Investment contracts include variable annuity and variable life contracts which
are sold as Separate Accounts products. The assets supporting these products are
legally segregated and available only to settle Separate Accounts contract
obligations. Deposits received are reported as Separate Accounts liabilities.
The Company's contract charge revenue for these contracts consists of charges
assessed against the Separate Accounts fund balances for contract maintenance,
administration, mortality, expense and surrenders.
All contract charges, contract benefits and interest credited are reinsured.
INCOME TAXES
The income tax provision is calculated under the liability method and presented
net of reinsurance. Deferred tax assets and liabilities are recorded based on
the difference between the financial statement and tax bases of assets and
liabilities at the enacted tax rates. Deferred income taxes arise primarily from
unrealized capital gains and losses on fixed income securities carried at fair
value and differences in the tax bases of investments.
SEPARATE ACCOUNTS
The Company issues deferred variable annuity and variable life contracts, the
assets and liabilities of which are legally segregated and recorded as assets
and liabilities of the Separate Accounts. Absent any contract provisions wherein
the Company contractually guarantees either a minimum return or account value to
the beneficiaries of the contractholders in the form of a death benefit, the
contractholders bear the investment risk that the Separate Accounts' funds may
not meet their stated objectives.
The assets of the Separate Accounts are carried at fair value. Separate
Accounts liabilities represent the contractholders' claim to the related
assets and are carried at the fair value of the assets. In the event that the
asset value of certain contractholder accounts are projected to be below the
value guaranteed by the Company, a liability is established through a charge
to earnings. Investment income and realized capital gains and losses of the
Separate Accounts accrue directly to the contractholders and therefore, are
not included in the Company's statements of operations and comprehensive
income. Revenues to the Company from the Separate Accounts consist of
contract maintenance and administration fees, and mortality, surrender and
expense charges.
Prior to 1998, the Company had an ownership interest ("Participation") in the
Separate Accounts. The Company's Participation was carried at fair value and
unrealized gains and losses, net of deferred income taxes, were shown as a
component of shareholder's equity. Investment income and realized capital gains
and losses which arose from the Participation were included in the Company's
statements of operations and comprehensive income. The Company liquidated its
Participation during 1997, which resulted in a pretax realized capital gain of
$3.5 million.
8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to certain
variable annuity contract guarantees, is computed on the basis of assumptions as
to mortality, future investment yields, terminations and expenses at the time
the policy is issued. These assumptions include provisions for adverse deviation
and generally vary by such characteristics as type of coverage, year of issue
and policy duration. Detailed reserve assumptions and reserve interest rates are
outlined in Note 6.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of interest-sensitive life and
certain investment contracts. Deposits received are recorded as
interest-bearing liabilities. Contractholder funds are equal to deposits
received, net of commissions, and interest credited to the benefit of the
contractholder less withdrawals, mortality charges, and administrative
expenses. Detailed information on crediting rates and surrender and
withdrawal protection on contractholder funds are outlined in Note 6.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
In 1999, the Company adopted Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." The SOP
provides guidance concerning when to recognize a liability for insurance-related
assessments and how those liabilities should be measured. Specifically,
insurance-related assessments should be recognized as liabilities when all of
the following criteria have been met: 1) an assessment has been imposed or it is
probable that an assessment will be imposed, 2) the event obligating an entity
to pay an assessment has occurred and 3) the amount of the assessment can be
reasonably estimated. Adoption of this statement was not material to the
Company's results of operations or financial position.
9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
3. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company has reinsurance agreements whereby substantially all contract
charges, credited interest, policy benefits and certain expenses are ceded to
ALIC and reflected net of such reinsurance in the statements of operations and
comprehensive income. Reinsurance recoverable and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the statements of financial position. The Company continues to
have primary liability as the direct insurer for risks reinsured.
Investment income earned on the assets which support contractholder funds and
the reserve for life-contingent contract benefits is not included in the
Company's financial statements as those assets are owned and managed under terms
of reinsurance agreements. The following amounts were ceded to ALIC under
reinsurance agreements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Contract charges $ 27,175 $ 19,009 $ 11,641
Credited interest, policy benefits,
and certain expenses 253,945 218,008 179,954
</TABLE>
BUSINESS OPERATIONS
The Company utilizes services performed by AIC and ALIC and business facilities
owned or leased, and operated by AIC in conducting its business activities. The
Company reimburses AIC and ALIC for the operating expenses incurred on behalf of
the Company. The Company is charged for the cost of these operating expenses
based on the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $26,555, $15,949, and $19,243 in 1999, 1998 and 1997, respectively. Of
these costs, the Company retains investment related expenses. All other costs
are ceded to ALIC under reinsurance agreements.
10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
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, 1999
U.S. government and agencies $24,274 $ 1,260 $ - $25,534
Municipal 1,656 - (112) 1,544
Corporate 49,255 9 (2,022) 47,242
Mortgage-backed securities 18,988 96 (467) 18,617
------- ------- ------- -------
Total fixed income securities $94,173 $ 1,365 $(2,601) $92,937
======= ======= ======= =======
AT DECEMBER 31, 1998
U.S. government and agencies $24,350 $ 4,308 $ - $28,658
Municipal 656 24 - 680
Corporate 33,009 1,575 (39) 34,545
Mortgage-backed securities 29,400 1,047 (17) 30,430
------- ------- ------- -------
Total fixed income securities $87,415 $ 6,954 $ (56) $94,313
======= ======= ======= =======
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at December
31, 1999:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ----------
<S> <C> <C>
Due after one year through five years $ 30,974 $ 31,085
Due after five years through ten years 32,583 30,911
Due after ten years 11,628 12,324
--------- ----------
75,185 74,320
Mortgage-backed securities 18,988 18,617
--------- -----------
Total $ 94,173 $ 92,937
========= ===========
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Fixed income securities $6,458 $6,151 $5,014
Short-term investments 230 183 231
Participation in Separate Accounts -- -- 161
------ ------ ------
Investment income, before expense 6,688 6,334 5,406
Investment expense 109 103 102
------ ------ ------
Net investment income $6,579 $6,231 $5,304
====== ====== ======
</TABLE>
11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Fixed income securities $ 312 $ (5) $ (61)
Short-term investments -- -- 6
Participation in Separate Accounts -- -- 3,515
--------- --------- --------
Realized capital gains and losses 312 (5) 3,460
Income taxes (109) 2 (1,211)
--------- --------- --------
Realized capital gains and
losses, after tax $ 203 $ (3) $ 2,249
========= ========= =======
</TABLE>
Excluding calls and prepayments, gross gains of $370 were realized on sales of
fixed income securities during 1999, and gross losses of $58, $5 and $61 were
realized on sales of fixed income securities during 1999, 1998 and 1997,
respectively. There were no gross gains realized on sales of fixed income
securities during 1998 and 1997.
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital losses on fixed income securities included in
shareholder's equity at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
COST/ FAIR GROSS UNREALIZED UNREALIZED
AMORTIZED COST VALUE GAINS LOSSES NET LOSSES
-------------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 94,173 $ 92,937 $ 1,365 $(2,601) $(1,236)
========= ======== ======= =======
Deferred income taxes 433
-------
Unrealized net capital losses $ (803)
=======
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Fixed income securities $(8,134) $ 2,024 $ 2,410
Participation in Separate Accounts -- -- (1,829)
Deferred income taxes 2,848 (709) (203)
------- ------- -------
(Decrease) increase in unrealized net
capital gains $(5,286) $ 1,315 $ 378
======= ======= =======
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1999, fixed income securities with a carrying value of $10,346
were on deposit with regulatory authorities as required by law.
12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable and deferred income taxes) and liabilities
(including interest-sensitive life insurance reserves) are not considered
financial instruments and are not carried at fair value. Other assets and
liabilities considered financial instruments, such as accrued investment income
and cash, are generally of a short-term nature. Their carrying values are
assumed to approximate fair value.
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Fixed income securities $ 92,937 $ 92,937 $ 94,313 $ 94,313
Short-term investments 53,063 53,063 4,663 4,663
Separate Accounts 1,541,756 1,541,756 993,622 993,622
</TABLE>
Fair values for fixed income securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. Short-term investments are highly
liquid investments with maturities of less than one year whose carrying value
are deemed to approximate fair value. Separate Accounts assets are carried in
the statements of financial position at fair value based on quoted market
prices.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $ 4,156,964 $ 3,924,117 $ 3,130,228 $ 2,967,101
Separate Accounts 1,541,756 1,541,756 993,622 993,622
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
6. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS
At December 31, 1999 the reserve for life-contingent contract benefits consisted
of reserves for immediate annuities. The assumptions for mortality generally
utilized in calculating immediate annuity reserves is the 1983 group annuity
mortality table. Interest rate assumptions for immediate annuities vary from
3.5% to 7.2%. Other estimation methods used for immediate annuities include the
present value of contractually fixed benefits.
At December 31, contractholder funds consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Interest-sensitive life $ 9,503 $ 3,335
Fixed annuities:
Immediate annuities 17,856 12,643
Deferred annuities 4,116,006 3,097,300
----------- -----------
Total contractholder funds $ 4,143,365 $ 3,113,278
=========== ===========
</TABLE>
Contractholder funds are equal to deposits received, net of commissions, and
interest credited to the benefit of the contractholder less withdrawals,
mortality charges and administrative expenses. Interest rates credited range
from 4.0% to 7.2% for interest-sensitive life contracts; 3.5% to 7.2% for
immediate annuities and 4.3% to 6.7% for deferred annuities. Withdrawal and
surrender charge protection includes: i) for interest-sensitive life, either a
percentage of account balance or dollar amount grading off generally over 20
years; and, ii) for deferred annuities not subject to a market value adjustment,
either a declining or a level percentage charge generally over nine years or
less. Approximately 1% of deferred annuities are subject to a market value
adjustment.
7. CORPORATION RESTRUCTURING
On November 10, 1999 the Corporation announced a series of strategic initiatives
to aggressively expand its selling and service capabilities. The Corporation
also announced that it is implementing a program to reduce expenses by
approximately $600 million. The reduction will result in the elimination of
approximately 4,000 current non-agent positions, across all employment grades
and categories by the end of 2000, or approximately 10% of the Corporation's
non-agent work force. The impact of the reduction in employee positions is not
expected to materially impact the results of operations of the Company.
These cost reductions are part of a larger initiative to redeploy the cost
savings to finance new initiatives including investments in direct access and
internet channels for new sales and service capabilities, new competitive
pricing and underwriting techniques, new agent and claim technology and enhanced
marketing and advertising. As a result of the cost reduction program, the
Corporation recorded restructuring and related charges of $81 million pretax
during the fourth quarter of 1999. The Corporation anticipates that additional
pretax restructuring related charges of approximately $100 million will be
expensed as incurred throughout 2000. The
14
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Company's allocable share of these expenses were immaterial in 1999 and are
expected to be immaterial in 2000.
8. INCOME TAXES
For 1996, the Company filed a separate federal income tax return. Beginning in
1997, the Company joined the Corporation and its other eligible domestic
subsidiaries (the "Allstate Group") in the filing of a consolidated federal
income tax return and is party to a federal income tax allocation agreement (the
"Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the
Company pays to or receives from the Corporation the amount, if any, by which
the Allstate Group's federal income tax liability is affected by virtue of
inclusion of the Company in the consolidated federal income tax return.
Effectively, this results in the Company's annual income tax provision being
computed, with adjustments, as if the Company filed a separate return.
Prior to June 30, 1995, the Corporation was a subsidiary of Sears Roebuck & Co.
("Sears") and was, with its eligible domestic subsidiaries, included in the
Sears consolidated federal income tax return and federal income tax allocation
agreement. Effective June 30, 1995, the Corporation and Sears entered into a new
tax sharing agreement, which governs their respective rights and obligations
with respect to federal income taxes for all periods during which the
Corporation was a subsidiary of Sears, including the treatment of audits of tax
returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's federal income tax returns through the 1993 tax year. Any adjustment
that may result from IRS examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or results of operations of
the Company.
The components of the deferred income tax assets and liabilities at December 31,
are as follows:
<TABLE>
<CAPTION>
1999 1998
------ -------
<S> <C> <C>
DEFERRED ASSETS
Unrealized net capital losses $ 433 $ -
----- -------
Total deferred assets 433 -
DEFERRED LIABILITIES
Difference in tax bases of investments (140) (84)
Unrealized net capital gains -- (2,415)
----- -------
Total deferred liabilities (140) (2,499)
----- -------
Net deferred asset (liability) $ 293 $(2,499)
===== =======
</TABLE>
Although realization is not assured, management believes it is more likely than
not that the deferred tax asset will be realized based on the assumptions that
certain levels of income will be achieved.
15
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current $2,326 $2,164 $3,037
Deferred 56 18 41
------ ------ ------
Total income tax expense $2,382 $2,182 $3,078
====== ====== ======
</TABLE>
The Company paid income taxes of $2,148, $592 and $2,839 in 1999, 1998 and 1997,
respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other (.4) - .1
------ ------ ------
Effective income tax rate 34.6% 35.0% 35.1%
====== ====== ======
</TABLE>
9. STATUTORY FINANCIAL INFORMATION
The Company's statutory capital and surplus was $141,362 and $84,865 at December
31, 1999 and 1998, respectively. The Company's statutory net income was $4,179,
$4,698 and $3,636 for the years ended December 31, 1999, 1998 and 1997,
respectively.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting practices prescribed or permitted by the Arizona Department of
Insurance. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed. The Company does not follow any permitted statutory accounting
practices that have a significant impact on statutory surplus or statutory net
income.
The NAIC's codification initiative has produced a comprehensive guide of
statutory accounting principles, which the Company will implement in January
2001. The Company's state of domicile, Arizona, has passed legislation revising
various statutory accounting requirements to conform to codification. These
requirements are not expected to have a material impact on the statutory surplus
of the Company.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by the Company without the prior approval of the state
insurance regulator is limited to formula amounts based on net income and
capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve
16
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
months. The maximum amount of dividends that the Company can distribute during
2000 without prior approval of the Arizona Department of Insurance is $4,179.
RISK-BASED CAPITAL
The NAIC has a standard for assessing the solvency of insurance companies, which
is referred to as risk-based capital ("RBC"). The requirement consists of a
formula for determining each insurer's RBC and a model law specifying regulatory
actions if an insurer's RBC falls below specified levels. The RBC formula for
life insurance companies establishes capital requirements relating to insurance,
business, asset and interest rate risks. At December, 31 1999, RBC for the
Company was significantly above levels that would require regulatory action.
10. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ------------------------------- ---------------------------
After- After- After-
Pretax Tax Tax Pretax Tax Tax Pretax Tax Tax
--------- -------- ------- -------- ------- -------- -------- -------- -------
UNREALIZED CAPITAL GAINS
AND LOSSES:
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized holding (losses)
gains arising during
the period $(7,822) $ 2,739 $(5,083) $2,019 $ (707) $ 1,312 $ 4,034 $(1,412) $ 2,622
Less: reclassification
adjustments 312 (109) 203 (5) 2 (3) 3,453 (1,209) 2,244
--------- -------- ------- -------- ------- -------- -------- -------- -------
Unrealized net capital
(losses) gains (8,134) 2,848 (5,286) 2,024 (709) 1,315 581 (203) 378
--------- -------- ------- -------- ------- -------- -------- -------- -------
Other comprehensive
(loss) income $(8,134) $ 2,848 $(5,286) $2,024 $ (709) $ 1,315 $ 581 $ (203) $ 378
======= ======= ======= ======== ======== ======= ===== ======== =======
</TABLE>
11. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing banks
from engaging in the securities and insurance business, tax law changes
affecting the taxation of insurance companies, the tax treatment of insurance
products and its impact on the relative desirability of various personal
investment vehicles, and proposed legislation to prohibit the use of gender in
determining insurance rates and benefits. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
17
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
GUARANTY FUNDS
Under state insurance guaranty fund laws, insurers doing business
in a state can be assessed, up to prescribed limits, for certain obligations of
insolvent insurance companies to policyholders and claimants. The Company's
expenses related to these funds have been immaterial. These expenses are ceded
to ALIC under reinsurance agreements.
MARKETING AND COMPLIANCE ISSUES
Companies operating in the insurance and financial services markets have come
under the scrutiny of regulators with respect to market conduct and compliance
issues. Under certain circumstances, companies have been held responsible for
providing incomplete or misleading sales materials and for replacing existing
policies with policies that were less advantageous to the policyholder. The
Company monitors its sales materials and enforces compliance procedures to
mitigate any exposure to potential litigation. The Company is a member of the
Insurance Marketplace Standards Association, an organization which advocates
ethical market conduct.
18
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1999 AMOUNT CEDED AMOUNT
- ---------------------------- --------- ------------ ----------
<S> <C> <C> <C>
Life insurance in force $ 23,586 $ 23,586 $ --
========== ========== ==========
Premiums and contract charges:
Life and annuities $ 27,175 $ 27,175 $ --
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
- ---------------------------- --------- ------------ ----------
<S> <C> <C> <C>
Life insurance in force $ 12,056 $ 12,056 $ --
========== ========== ==========
Premiums and contract charges:
Life and annuities $ 19,009 $ 19,009 $ --
========== ========== ==========
</TABLE>
<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 $ --
========== ========== ==========
</TABLE>
19
<PAGE>
----------------------------------------------------
GLENBROOK LIFE SCUDDER
VARIABLE ACCOUNT (A)
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND
FOR THE PERIODS ENDED DECEMBER 31, 1999 AND
DECEMBER 31, 1998, AND INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Glenbrook Life and Annuity Company:
We have audited the accompanying statement of net assets of Glenbrook Life
Scudder Variable Account (A) as of December 31, 1999 (including the assets of
each of the individual sub-accounts which comprise the Account as disclosed in
Note 1), and the related statements of operations for the period then ended and
the statements of changes in net assets for each of the periods in the two year
period then ended for each of the individual sub-accounts which comprise the
Account. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1999 by correspondence with the
account custodians. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Glenbrook Life Scudder Variable Account (A)
as of December 31, 1999 (including the assets of each of the individual
sub-accounts which comprise the Account), and the results of operations for each
of the individual sub-accounts for the period then ended and the changes in
their net assets for each of the periods in the two year period then ended in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 27, 2000
<PAGE>
GLENBROOK LIFE SCUDDER VARIABLE ACCOUNT (A)
STATEMENT OF NET ASSETS
December 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ASSETS
Allocation to Sub-Accounts investing in the Scudder Variable Life Investment Fund:
<S> <C>
Money Market, 1,089,058 shares (cost $1,089,058) $ 1,089,058
Bond, 54,936 shares (cost $359,548) 356,532
Capital Growth, 83,104 shares (cost $1,995,298) 2,420,829
Balanced, 163,361 shares (cost $2,428,153) 2,631,745
International, 62,668 shares (cost $1,132,585) 1,274,665
Growth and Income, 126,501 shares (cost $1,399,661) 1,386,444
Global Discovery, 40,723 shares (cost $426,806) 536,726
Large Company Growth, 49,841 shares (cost $355,908) 406,705
Small Company Growth, 24,256 shares (cost $206,145) 257,112
-------------
Net Assets $10,359,816
=============
</TABLE>
See notes to financial statements.
2
<PAGE>
GLENBROOK LIFE SCUDDER VARIABLE ACCOUNT (A)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund Sub-Accounts
-------------------------------------------------------------------------
For the Year Ended December 31, 1999
-------------------------------------------------------------------------
Money Capital
Market Bond Growth Balanced International
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 29,158 $ 3,975 $ 59,949 $ 54,332 $ 32,655
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (2,408) (804) (5,202) (6,094) (2,293)
Administrative expense (1,734) (579) (3,562) (4,361) (1,604)
----------- ----------- ----------- ----------- -------------
Net investment income (loss) 25,016 2,592 51,185 43,877 28,758
----------- ----------- ----------- ----------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 7,153,061 172,794 223,759 593,100 6,443,699
Cost of investments sold 7,153,061 175,734 210,514 592,201 6,232,829
----------- ----------- ----------- ----------- -------------
Net realized gains (losses) - (2,940) 13,245 899 210,870
----------- ----------- ----------- ----------- -------------
Change in unrealized gains (losses) - (3,004) 425,521 203,528 142,080
----------- ----------- ----------- ----------- -------------
Net gains (losses) on investments - (5,944) 438,766 204,427 352,950
----------- ----------- ----------- ----------- -------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 25,016 $ (3,352) $ 489,951 $ 248,304 $ 381,708
=========== =========== =========== =========== =============
</TABLE>
See notes to financial statements.
3
<PAGE>
GLENBROOK LIFE SCUDDER VARIABLE ACCOUNT (A)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund Sub-Accounts
----------------------------------------------------------------
For the Year Ended December 31, 1999
----------------------------------------------------------------
Growth Global Large Company Small Company
and Income Discovery Growth (a) Growth (a)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 34,684 $ 1,264 $ - $ -
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (3,348) (965) (309) (217)
Administrative expense (2,324) (675) (220) (156)
------------- ------------- ------------- -------------
Net investment income (loss) 29,012 (376) (529) (373)
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 689,695 536,262 42,366 188,810
Cost of investments sold 719,260 458,474 40,220 173,767
------------- ------------- ------------- -------------
Net realized gains (losses) (29,565) 77,788 2,146 15,043
------------- ------------- ------------- -------------
Change in unrealized gains (losses) (13,239) 109,919 50,797 50,968
------------- ------------- ------------- -------------
Net gains (losses) on investments (42,804) 187,707 52,943 66,011
------------- ------------- ------------- -------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ (13,792) $ 187,331 $ 52,414 $ 65,638
============= ============= ============= =============
</TABLE>
(a) For the Period Beginning May 3, 1999 and Ended December 31, 1999.
See notes to financial statements.
4
<PAGE>
GLENBROOK LIFE SCUDDER VARIABLE ACCOUNT (A)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund Sub-Accounts
-----------------------------------------------------------------------------------
Money Market Bond Capital Growth
-------------------------- -------------------------- ------------------------
1999 1998 (b) 1999 1998 (b) 1999 1998 (b)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 25,016 $ 4 $ 2,592 $ - $ 51,185 $ -
Net realized gains (losses) - - (2,940) - 13,245 -
Change in unrealized gains (losses) - - (3,004) (12) 425,521 10
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting from operations 25,016 4 (3,352) (12) 489,951 10
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Deposits 1,600,718 31,211 460,332 8,000 1,770,991 8,000
Benefit payments - - - - - -
Payments on termination (156,768) - (51,408) - (38,273) -
Contract maintenance charges - - - - - -
Transfers among the sub-accounts
and with the Fixed Account - net (411,130) 7 (57,097) 69 190,104 46
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from capital transactions 1,032,820 31,218 351,827 8,069 1,922,822 8,046
----------- ----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS 1,057,836 31,222 348,475 8,057 2,412,773 8,056
NET ASSETS AT BEGINNING OF PERIOD 31,222 - 8,057 - 8,056 -
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS AT END OF PERIOD $ 1,089,058 $ 31,222 $ 356,532 $ 8,057 $ 2,420,829 $ 8,056
=========== =========== =========== =========== =========== ===========
</TABLE>
(b) For the Period Beginning November 30, 1998 and Ended December 31, 1998
See notes to financial statements.
5
<PAGE>
GLENBROOK LIFE SCUDDER VARIABLE ACCOUNT (A)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund Sub-Accounts
-----------------------------------------------------------------------------------
Balanced International Growth and Income
-------------------------- ------------------------- --------------------------
1999 1998 (b) 1999 1998 (b) 1999 1998 (b)
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 43,877 $ - $ 28,758 $ - $ 29,012 $ -
Net realized gains (losses) 899 - 210,870 - (29,565) -
Change in unrealized gains (losses) 203,528 66 142,080 - (13,239) 22
----------- ----------- ----------- ---------- ----------- -----------
Change in net assets resulting from operations 248,304 66 381,708 - (13,792) 22
----------- ----------- ----------- ---------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Deposits 2,656,494 19,425 661,899 - 1,596,440 8,000
Benefit payments - - - - - -
Payments on termination (417,067) - (22,583) - (337,476) -
Contract maintenance charges - - - - - -
Transfers among the sub-accounts
and with the Fixed Account - net 124,378 145 253,641 - 133,208 42
----------- ----------- ----------- ---------- ----------- -----------
Change in net assets resulting
from capital transactions 2,363,805 19,570 892,957 - 1,392,172 8,042
----------- ----------- ----------- ---------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS 2,612,109 19,636 1,274,665 - 1,378,380 8,064
NET ASSETS AT BEGINNING OF PERIOD 19,636 - - - 8,064 -
----------- ----------- ----------- ---------- ----------- -----------
NET ASSETS AT END OF PERIOD $ 2,631,745 $ 19,636 $ 1,274,665 $ - $ 1,386,444 $ 8,064
=========== =========== =========== ========== =========== ===========
</TABLE>
(b) For the Period Beginning November 30, 1998 and Ended December 31, 1998
See notes to financial statements.
6
<PAGE>
GLENBROOK LIFE SCUDDER VARIABLE ACCOUNT (A)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended December 31,
- ----------------------------------------------------------------------------------------------------
Scudder Variable Life Investment Fund Sub-Accounts
---------------------------------------------------
Large Small
Company Company
Global Discovery Growth Growth
------------------------ ---------- ----------
1999 1998 (b) 1999 (a) 1999 (a)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (376) $ - $ (529) $ (373)
Net realized gains (losses) 77,788 - 2,146 15,043
Change in unrealized gains (losses) 109,919 - 50,797 50,968
---------- ---------- ---------- ----------
Change in net assets resulting from operations 187,331 - 52,414 65,638
---------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Deposits 374,041 - 265,375 83,760
Benefit payments - - - -
Payments on termination (32,240) - - -
Contract maintenance charges - - - -
Transfers among the sub-accounts
and with the Fixed Account - net 7,594 - 88,916 107,714
---------- ---------- ---------- ----------
Change in net assets resulting
from capital transactions 349,395 - 354,291 191,474
---------- ---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS 536,726 - 406,705 257,112
NET ASSETS AT BEGINNING OF PERIOD - - - -
---------- ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 536,726 $ - $ 406,705 $ 257,112
========== ========== ========== ==========
</TABLE>
(a) For the Period Beginning May 3, 1999 and Ended December 31, 1999
(b) For the Period Beginning November 30, 1998 and Ended December 31, 1998
See notes to financial statements.
7
<PAGE>
GLENBROOK LIFE SCUDDER VARIABLE ACCOUNT (A)
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ORGANIZATION
Glenbrook Life Scudder Variable Account (A) (the "Account"), a unit
investment trust registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, is a Separate Account of
Glenbrook Life and Annuity Company ("Glenbrook Life"). The assets of the
Account are legally segregated from those of Glenbrook Life. Glenbrook Life
is wholly owned by Allstate Life Insurance Company, a wholly owned
subsidiary of Allstate Insurance Company, which is wholly owned by The
Allstate Corporation.
Glenbrook Life issues the Scudder Horizon Advantage variable annuity
contract, the deposits of which are invested at the direction of the
contractholders in the sub-accounts that comprise the Account. Absent any
contract provisions wherein Glenbrook Life contractually guarantees either
a minimum return or account value to the beneficiaries of the
contractholders in the form of a death benefit, the contractholders bear
the investment risk that the sub-accounts may not meet their stated
objectives. The sub-accounts invest in the following underlying mutual fund
portfolios of the Scudder Variable Life Investment Fund (the "Funds"):
Money Market Growth and Income
Bond Global Discovery
Capital Growth Large Company Growth
Balanced Small Company Growth
International
Glenbrook Life provides insurance and administrative services to the
contractholders for a fee. Glenbrook Life also maintains a fixed account
("Fixed Account"), to which contractholders may direct their deposits and
receive a fixed rate of return. Glenbrook Life has sole discretion to
invest the assets of the Fixed Account, subject to applicable law.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS - Investments consist of shares of the Fund and
are stated at fair value based on quoted market prices at December 31,
1999.
INVESTMENT INCOME - Investment income consists of dividends declared by the
Fund and is recognized on the ex-dividend date.
REALIZED GAINS AND LOSSES - Realized gains and losses represent the
difference between the proceeds from sales of portfolio shares by the
Account and the cost of such shares, which is determined on a weighted
average basis.
FEDERAL INCOME TAXES - The Account intends to qualify as a segregated asset
account as defined in the Internal Revenue Code ("Code"). As such, the
operations of the Account are included in the tax return of Glenbrook Life.
Glenbrook Life is taxed as a life insurance company under the Code. No
federal income taxes are allocable to the Account as the Account did not
generate taxable income.
8
<PAGE>
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.
3. EXPENSES
ADMINISTRATIVE EXPENSE CHARGE - Glenbrook Life deducts administrative
expense charges daily at a rate equal to .30% per annum of the daily net
assets of the Account.
MORTALITY AND EXPENSE RISK CHARGE - Glenbrook Life assumes mortality and
expense risks related to the operations of the Account and deducts charges
daily at a rate equal to .40% per annum of the daily net assets of the
Account. The mortality and expense risk charge covers insurance benefits
available with the contract and certain expenses of the contract. It also
covers the risk that the current charges will not be sufficient in the
future to cover the cost of administering the contract. Glenbrook Life
guarantees that the amount of these charges will not increase over the life
of the contract. At the contractholder's discretion, additional options,
primarily death benefits, may be purchased for an additional charge.
9
<PAGE>
4. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
<TABLE>
<CAPTION>
Scudder Horizon Advantage
--------------------------------------------------------------------------------
Unit activity during 1999:
----------------------------------------
Units Units Accumulated
Outstanding Units Units Outstanding Unit Value
December 31, 1998 Issued Redeemed December 31, 1998 December 31, 1998
----------------- -------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Investments in the Scudder Variable Life
Investment Fund Sub-Accounts:
Money Market 3,111 766,014 (679,235) 89,890 $ 10.46
Bond 806 42,084 (9,837) 33,053 9.83
Capital Growth 752 132,398 (17,054) 116,096 14.38
Balanced 1,848 188,461 (13,639) 176,670 12.16
International - 560,843 (499,026) 61,817 15.92
Growth and Income 803 131,839 (35,669) 96,973 10.58
Global Discovery - 55,670 (33,661) 22,009 17.89
Large Company Growth - 27,745 (4,069) 23,676 13.54
Small Company Growth - 24,416 (14,578) 9,838 17.58
</TABLE>
10
<PAGE>
4. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
<TABLE>
<CAPTION>
Scudder Horizon Advantage with Enhanced Death Benefit
----------------------------------------------------------------------
Unit activity during 1999:
------------------------------------
Units Units Accumulated
Outstanding Units Units Outstanding Unit Value
December 31, 1998 Issued Redeemed December 31, 1998 December 31, 1998
----------------- -------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Investments in the Scudder Variable Life
Investment Fund Sub-Accounts:
Money Market - 39,544 (25,343) 14,201 $ 10.45
Bond - 8,229 (5,009) 3,220 9.82
Capital Growth - 54,806 (2,519) 52,287 14.37
Balanced - 76,329 (36,602) 39,727 12.15
International - 19,496 (1,249) 18,247 15.91
Growth and Income - 60,474 (26,417) 34,057 10.57
Global Discovery - 8,717 (710) 8,007 17.87
Large Company Growth - 6,372 - 6,372 13.53
Small Company Growth - 5,255 (470) 4,785 17.57
</TABLE>
11
