AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1998
FILE NO. 33-91914
811-7632
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 7 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 13 /X/
GLENBROOK LIFE AND ANNUITY COMPANY
VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
GLENBROOK LIFE AND ANNUITY COMPANY
(Name of Depositor)
MICHAEL J. VELOTTA
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
GLENBROOK LIFE AND ANNUITY COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
847/402-5000
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
RICHARD T. CHOI, ESQUIRE TERRY R. YOUNG, ESQUIRE
FREEDMAN, LEVY, KROLL & SIMONDS ALLSTATE LIFE FINANCIAL
1050 CONNECTICUT AVENUE, N.W. SERVICES, INC.
SUITE 825 3100 SANDERS ROAD
WASHINGTON, D.C. 20036-5366 NORTHBROOK, IL 60062
Approximate date of proposed public offering: Continuous
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on December 23, 1998 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on (date) pursuant to paragraph (a)(i) of Rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Units of interest in the Glenbrook Life
and Annuity Company Variable Annuity Account under deferred variable annuity
contracts.
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
OFFERED BY
GLENBROOK LIFE AND ANNUITY COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
1-800/453-6038
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
This prospectus describes the STI Classic Variable Annuity, an Individual
Flexible Premium Deferred Variable Annuity Contract ("Contract") designed to aid
you in long-term financial planning and which can be used for retirement
planning.
The Contracts offer sixteen Investment Alternatives, including thirteen Variable
Sub-Account and three Fixed Account Options. The Variable Sub-Accounts invest
in, and enable you to participate in the investment experience of, the following
portfolios of AIM Variable Insurance Funds, Inc., Federated Insurance Series,
Oppenheimer Variable Account Funds, STI Classic Variable Trust, and the
Templeton Variable Products Series Fund (collectively, the "Funds"):
<TABLE>
<CAPTION>
<S> <C> <C>
STI Classic Variable Trust Templeton Variable Products Series Fund
- -------------------------- ---------------------------------------
STI Capital Growth Fund Templeton Bond Fund - Class 2
STI International Equity Fund Templeton Bond Fund - Class 2
STI Investment Grade Bond Fund
STI Mid-Cap Equity Fund (previously known as the
Aggressive Growth portfolio) Oppenheimer Variable Account Funds
STI Small Cap Equity Fund ----------------------------------
STI Value Income Stock Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Strategic Bond Fund
AIM Variable Insurance Funds, Inc. Federated Insurance Series
- ----------------------------------- --------------------------------------
AIM V.I. Capital Appreciation Fund Federated Prime Money Fund II
AIM V.I. High Yield Fund (previously known as the Prime Money Fund)
</TABLE>
The Fixed Account Options include a Standard Fixed Account, Dollar Cost
Averaging Fixed Account and a Guaranteed Maturity Amount Fixed Account.
This prospectus presents information you should know before deciding to invest
in the Contract and the available Investment Alternatives.
THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE RELATIONSHIPS
WITH BANKS OR OTHER FINANCIAL INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS.
HOWEVER, THE CONTRACTS AND THE INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS, OR
OBLIGATIONS OF, OR GUARANTEED BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY
AGENCY. INVESTMENT IN THE CONTRACTS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
THESE CONTRACTS ARE NOT FDIC INSURED
The Company has prepared and filed a Statement of Additional Information, dated
December 23, 1998, with the U.S. Securities and Exchange Commission ("SEC"). You
may obtain a free copy of the Statement of Additional Information by calling or
writing the Company at the address above. For your convenience, an order form
for the Statement of Additional Information appears on page B-2 of this
prospectus. Before ordering, you may wish to review the Table of Contents of the
Statement of Additional Information on page B-1 of this prospectus. The
Statement of Additional Information has been incorporated by reference into this
prospectus.
This Prospectus is valid only when accompanied or preceded by current
prospectuses for the Funds.
The SEC has not approved or disapproved of the securities described in this
prospectus or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE
THE DATE OF THIS PROSPECTUS IS DECEMBER 23, 1998.
The Contract is not available in all states.
At least once each Contract Year, we will send you detailed information
pertinent to your Contract. We file annual and quarterly reports and other
information with the SEC. You may read and copy any reports, statements or other
information we file at the SEC's public reference room in Washington, D.C. You
can obtain copies of these documents by writing to the SEC and paying a copying
fee. Please call the SEC at 1-800-SEC-0330 for more information. Our SEC filings
are also available to the public on the SEC Internet site (http://www.sec.gov).
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE
YOU WITH INFORMATION THAT DIFFERS FROM THIS PROSPECTUS, AND YOU SHOULD NOT RELY
ON ANY SUCH INFORMATION.
<PAGE>
TABLE OF CONTENTS
PAGE
Glossary
Highlights
Summary of Variable Account Expenses
Condensed Financial Information
Yield and Total Return Disclosure
Financial Statements
Glenbrook Life and Annuity Company and the Variable Account
Glenbrook Life and Annuity Company
The Variable Account
The Funds
AIM Variable Insurance Funds, Inc.
Federated Insurance Series
Oppenheimer Variable Account Funds
STI Classic Variable Trust
Templeton Variable Products Series Fund
Investment Advisors for the Portfolios
Fixed Account Options
The Standard Fixed Account and the
Dollar Cost Averaging Fixed Account
The Guaranteed Maturity Amount Fixed Account
Example of Interest Crediting During the Guarantee Period
Withdrawals or Transfers
Market Value Adjustment
Purchase of the Contracts
Purchase Payment Limits
Free-Look Period
Crediting of Purchase Payments
Allocation of Purchase Payments
Accumulation Units
Accumulation Unit Value
Transfers Among Investment Alternatives
Dollar Cost Averaging
Automatic Portfolio Rebalancing
Benefits Under the Contract
Withdrawals
Payout Start Date for Income Payments
Amount of Variable Account Income Payments
Amount of Fixed Account Income Payments
Income Plans
Death Benefit Payable
Death Benefit Amount
Death Benefit Payment Provisions
Charges and Other Deductions
Deductions from Purchase Payments
Withdrawal Charge (Contingent Deferred Sales Charge)
Contract Maintenance Charge
Administrative Expense Charge
Mortality and Expense Risk Charge
Premium Taxes
Transfer Charges
Fund Expenses
General Matters
Owner
Annuitant
Beneficiary
Assignments
Delay of Payments
Modification
Customer Inquiries
Federal Tax Matters
Introduction
Taxation of Annuities in General
Tax Deferral
Non-Natural Owners
Diversification Requirements
Ownership Treatment
Delayed Maturity Dates
Taxation of Partial and Full Withdrawals
Taxation of Annuity Payments
Taxation of Annuity Death Benefits
Penalty Tax on Premature Distributions
Aggregation of Annuity Contracts
Tax Qualified Contracts
Restrictions Under Section 403(b) Plans
Roth Individual Retirement Annuities
Income Tax Withholding
Distribution of the Contracts
Voting Rights
Selected Financial Data
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Competition
Employees
Properties
State and Federal Regulation
Executive Officers and Directors of the Company
Executive Compensation
Legal Proceedings
Experts
Legal Matters
Financial Statements F-1
Appendix A A-1
Statement of Additional Information: Table of Contents B-1
Order Form B-2
<PAGE>
GLOSSARY
ACCUMULATION UNIT -- A measure of your ownership interest in a Sub-Account of
the Variable Account prior to the Payout Start Date. Analogous, though not
identical, to a share owned in a mutual fund.
ACCUMULATION UNIT VALUE -- The value of each Accumulation Unit which is
calculated each Valuation Date. Each Sub-Account of the Variable Account has its
own distinct Accumulation Unit Value. Analogous, though not identical, to the
share price (net asset value) of a mutual fund.
ANNUITANT(S) -- The person or persons whose life determines the latest Payout
Start Date and the amount and duration of any income payments for Income Plan
options other than guaranteed payments for a specified period. Joint Annuitants
are only permitted on or after the Payout Start Date.
BENEFICIARY(IES) -- The person(s) to whom any benefits are due when a death
benefit is payable and there is no surviving Owner.
COMPANY("WE," "US") -- Glenbrook Life and Annuity Company.
CONTRACT -- The Glenbrook Life and Annuity Company Flexible Premium Deferred
Variable Annuity Contract, known as the "STI Classic Variable Annuity," that is
described in this prospectus.
CONTRACT ANNIVERSARY -- An anniversary of the date that the Contract was issued.
CONTRACT VALUE -- The value of all amounts accumulated under the Contract prior
to the Payout Start Date, equivalent to the Accumulation Units in each
Sub-Account of the Variable Account multiplied by the respective Accumulation
Unit Value, plus the value in the Fixed Account Options.
CONTRACT YEAR -- A period of 12 months starting with the issue date or any
Contract Anniversary.
DEATH BENEFIT ANNIVERSARY -- Every seventh Contract Anniversary beginning on the
date that the Contract was issued. For example, the issue date, 7th and 14th
Contract Anniversaries are the first three Death Benefit Anniversaries.
ENHANCED DEATH BENEFIT -- An additional death benefit option which can be
selected at the time the Contract is purchased.
FIXED ACCOUNT OPTIONS -- The Standard Fixed Account, Dollar Cost Averaging Fixed
Account and the Guaranteed Maturity Amount Fixed Account.
GUARANTEE PERIOD -- A period of years for which a specified effective annual
interest rate is guaranteed by the Company.
GUARANTEED MATURITY AMOUNT FIXED SUB-ACCOUNTS -- These Sub-Accounts are
distinguished by Guarantee Period(s) and the dates the period(s) begin. The
Guaranteed Maturity Amount Fixed Sub-Accounts are established when purchase
payments are made, when previous Sub-Accounts expire and a new Guarantee Period
is selected, and when transfers are made to a Guaranteed Maturity Amount Fixed
Sub-Account.
<PAGE>
INCOME PLAN -- One of several ways in which a series of payments are made after
the Payout Start Date. Income payments are based on the Contract Value adjusted
by any applicable Market Value Adjustment and any applicable taxes on the Payout
Start Date. Under a Fixed Account option, the dollar amount of each income
payment does not change over time. Under a Variable Account option, the dollar
amount of each income payment may change over time, depending on the investment
experience of the Sub-Account or Sub-Accounts you choose.
INVESTMENT ALTERNATIVES -- The thirteen Sub-Accounts of the Variable Account and
the three Fixed Account Options constitute the sixteen Investment Alternatives.
MARKET VALUE ADJUSTMENT -- The Market Value Adjustment is the adjustment made to
the money distributed from a Sub-Account of the Guaranteed Maturity Amount Fixed
Account prior to the end of the Guarantee Period under the Contract to reflect
the impact of changes in interest rates between the time the Sub-Account of the
Guaranteed Maturity Amount Fixed Account was established and the time of
distribution.
OWNER(S)("YOU") -- The person or persons designated as the Owner in the
Contract.
PAYOUT START DATE -- The date money is applied to an Income Plan.
SETTLEMENT VALUE -- The amount payable in the event of a full withdrawal of the
Contract Value.
VALUATION DATE -- Each day that the New York Stock Exchange is open for
business. The Valuation Date does not include such Federal and non-Federal
holidays as are observed by the New York Stock Exchange.
VALUATION PERIOD -- The period between successive Valuation Dates, commencing at
the close of regular trading on the New York Stock Exchange (which is currently
3:00pm Central Time) and ending as of the close of regular trading on the New
York Stock Exchange on the next succeeding Valuation Date.
VARIABLE ACCOUNT -- Glenbrook Life and Annuity Company Variable Annuity Account,
a separate investment account established by the Company to receive and invest
purchase payments paid under the Contracts.
VARIABLE SUB-ACCOUNT -- A portion of the Variable Account invested in shares of
a Fund's portfolios. The investment performance of each Variable Sub-Account is
linked directly to the investment performance of the portfolios.
<PAGE>
HIGHLIGHTS
THE CONTRACT
You can use this Contract for long-term financial and retirement planning. You
can allocate money to any combination of the Variable Sub-Accounts and/or Fixed
Account Options. You have access to your money through withdrawals of Contract
Value. You also can apply your Contract Value to one of several income payment
plans.
You bear the entire investment risk for Contract Values and income payments
based upon the Variable Account, because values will vary depending on the
investment performance of the portfolio(s) underlying the Variable Sub-Accounts
you select. See "Accumulation Unit Value," page __ and "Amount of Variable
Account Income Payments," page __.
You will also bear the investment risk of adverse changes in interest rates in
the event amounts are prematurely withdrawn or transferred from Sub-Accounts of
the Guaranteed Maturity Amount Fixed Account. See "The Guaranteed Maturity
Amount Fixed Account," page __.
FREE-LOOK
You may cancel the Contract any time within 20 days, or longer if required by
state law, after receipt of the Contract and receive a full refund of purchase
payments allocated to the Fixed Account Options. Unless a refund of purchase
payments is required by state or federal law, purchase payments allocated to the
Variable Account will be returned after an adjustment to reflect investment gain
or loss that occurred from the date of allocation through the date of
cancellation. See "Free-Look Period," page __.
HOW TO INVEST
Your first purchase payment must be at least $3,000 (for qualified contracts,
$2,000). Subsequent purchase payments must be at least $50, See "Purchase
Payment Limits," page __.
At the time of your application, you will allocate your purchase payment among
the Investment Alternatives. The allocation you specify on the application will
be effective immediately. All allocations must be in whole percents from 0% to
100% (total allocation equals 100%) or in whole dollars. Allocations may be
changed by notifying the Company in writing. See "Allocation of Purchase
Payments," page __.
INVESTMENT ALTERNATIVES
The Variable Account invests in shares of the STI Classic Variable Trust, AIM
Variable Insurance Funds, Inc., Templeton Variable Products Series Fund,
Oppenheimer Variable Account Funds, and the Federated Insurance Series. The
Variable Sub-Accounts invest in shares of six portfolios of the STI Classic
Variable Trust, two portfolios of AIM Variable Insurance Funds, Inc., two
portfolios of the Templeton Variable Products Series Fund, two portfolios of
Oppenheimer Variable Account Funds, and one portfolio of the Federated Insurance
Series, as follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
STI Classic Variable Trust Templeton Variable Products Series Fund
- -------------------------- ---------------------------------------
STI Capital Growth Fund Templeton Bond Fund - Class 2
STI International Equity Fund Templeton Bond Fund - Class 2
STI Investment Grade Bond Fund
STI Mid-Cap Equity Fund (previously known as the
Aggressive Growth portfolio) Oppenheimer Variable Account Funds
STI Small Cap Equity Fund ----------------------------------
STI Value Income Stock Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Strategic Bond Fund
AIM Variable Insurance Funds, Inc. Federated Insurance Series
- ----------------------------------- --------------------------------------
AIM V.I. Capital Appreciation Fund Federated Prime Money Fund II
AIM V.I. High Yield Fund (previously known as the Prime Money Fund)
</TABLE>
The assets of each portfolio are held separately from the assets of the others
and each has distinct investment objectives and policies that are described in
the accompanying prospectuses for the Funds. In addition to the Variable
Account, you can also allocate all or part of your purchase payments among three
Fixed Account Options. See "Fixed Account Options," on page __.
TRANSFERS AMONG INVESTMENT ALTERNATIVES
Prior to the Payout Start Date, you may transfer amounts among the Investment
Alternatives. The Company reserves the right to assess a $10 charge on each
transfer in excess of 12 per Contract Year. The Company is presently waiving
this charge. Certain Fixed Account transfers may be restricted. See "Transfers
Among Portfolios," page __.
You may want to enroll in a Dollar Cost Averaging Program or an Automatic
Portfolio Rebalancing Program. See "Dollar Cost Averaging," page __, and
"Automatic Portfolio Rebalancing," page __.
CHARGES AND DEDUCTIONS
The charges under the Contract include: a contract maintenance charge ($30
annually), a mortality and expense risk charge (deducted daily, equal on an
annual basis to 1.25% of the Contract's daily net assets in the Variable
Account), and an administrative expense charge (deducted daily, equal on an
annual basis to .10% of the Contract's daily net assets in the Variable
Account). For Contracts with the Enhanced Death Benefit provision, the mortality
and expense risk charge will be deducted daily, at a rate equal on an annual
basis, to 1.35% of the daily net assets in the Variable Account. The assessment
of the additional .10% for the Enhanced Death Benefit is attributed to the
assumption of additional mortality risks. As noted above, the Company reserves
the right to assess a transfer charge ($10 on each transfer in excess of 12 per
Contract Year). Additional deductions may be made for certain taxes. See
"Contract
Maintenance Charge," page __, "Mortality and Expense Risk Charge," page __,
"Administrative Expense Charge," page __, "Transfer Charges," page __, and
"Taxes," page __.
<PAGE>
WITHDRAWALS
You may withdraw all or part of the Contract Value before the earlier of the
Payout Start Date or death of any Owner (the Annuitant if the Owner is not a
natural person). No withdrawal charges will be deducted on amounts withdrawn up
to 10% of the Contract Value on the date of the first withdrawal in a Contract
Year. Amounts withdrawn in excess of the 10% may be subject to a withdrawal
charge of 0% to 7% depending on how long the purchase payments have been
invested in the Contract. Amounts withdrawn from a Sub-Account of the Guaranteed
Maturity Amount Fixed Account, except during the 30 day period after the
Guarantee Period expires, will be subject to a Market Value Adjustment.
Withdrawals may be subject to income tax and a 10% tax penalty. See
"Withdrawals," page __, "Withdrawals or Transfers," page __, and "Taxation of
Annuities in General," page __.
DEATH BENEFIT
The Company will pay a death benefit prior to the Payout Start Date on the death
of any Owner or, if the Owner is not a natural person, the death of the
Annuitant. See "Death Benefit Amount," page __.
INCOME PAYMENTS
You will receive periodic income payments beginning on the Payout Start Date.
You may choose among several Income Plans to fit your needs. Income payments may
be received for a specified period or for life (either single or joint life),
with or without a guaranteed number of payments. You can select income payments
that are fixed, variable or a combination of fixed and variable. See "Income
Plans," page __.
SUMMARY OF VARIABLE ACCOUNT EXPENSES
The following table illustrates all expenses and fees that you will incur. The
expenses and fees set forth in the table are based on charges under the
Contracts and on the expenses of the Variable Account and the Funds.
OWNER TRANSACTION EXPENSES (ALL SUB-ACCOUNTS)
Sales Load Imposed on Purchases (as a percentage of purchase payments) . . .None
Contingent Deferred Sales Charge (as a percentage of purchase payments). . . *
Applicable Sales
Number of Complete Years Since Purchase Charge as
Payment Being Withdrawn was made a Percentage
- -------------------------------- ------------
0 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7%
1 year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%
2 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%
4 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%
5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
6 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
7 years or more . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
Transfer Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . **
Annual Contract Fee . . . . . . . . . . . . . . . . . . . . . . . . $30***
<PAGE>
VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Without Optional With Optional
Enhanced Death Enhanced Death
Benefit Provision Benefit Provision
----------------- -----------------
Mortality and Expense Risk Charge 1.25% 1.35%
Administrative Expense Charge .10% .10%
Total Variable Account Annual Expenses 1.35% 1.45%
* Each Contract Year up to 10% of the Contract Value on the date of the first
withdrawal that year may be withdrawn without a contingent deferred sales
charge. However, any applicable Market Value Adjustment determined as of the
date of withdrawal will apply.
** No charges will be imposed on the first 12 transfers in any Contract Year.
The Company reserves the right to assess a $10 charge for each transfer in
excess of 12 in any Contract Year, excluding transfers due to dollar cost
averaging and automatic portfolio rebalancing.
*** The annual Contract fee will be waived if total purchase payments as of a
Contract Anniversary or upon full withdrawal equal $25,000 or more, or if all
purchase payments are allocated to the Fixed Account Options.
PORTFOLIO EXPENSES (NET OF VOLUNTARY REDUCTIONS AND REIMBURSEMENTS)
(AS A PERCENTAGE OF FUND ASSETS) (1)
<TABLE>
<CAPTION>
Advisory Rule 12b-1 Other Total Annual Fund
Portfolio Fee Fees Expenses Expenses
- --------- --- ---------- -------- --------
<S> <C> <C> <C> <C>
STI Capital Growth Fund 0.00% -- 1.15% 1.15%
STI International Equity Fund 0.00% -- 1.60% 1.60%
STI Investment Grade Bond Fund 0.00% -- 0.75% 0.75%
STI Mid-Cap Equity Fund 0.53% -- 0.62% 1.15%
STI Small Cap Equity Fund (3) 0.00% -- 1.20% 1.20%
STI Value Income Stock Fund 0.52% -- 0.43% 0.95%
AIM V.I. Capital Appreciation Fund(2) 0.63% -- 0.05% 0.68%
AIM V.I. High Yield Fund (2), (3) 0.63% -- 0.48% 1.11%
Templeton Bond Fund - Class 2(4) 0.50% 0.15% 0.18% 0.83%
Templeton Stock Fund - Class 2 (5) 0.69% 0.25% 0.19% 1.13%
Oppenheimer Multiple Strategies Fund 0.72% -- 0.03% 0.75%
Oppenheimer Strategic Bond Fund 0.75% -- 0.08% 0.83%
Federated Prime Money Fund II 0.30% -- 0.50% 0.80%
</TABLE>
(1) Absent voluntary reductions and reimbursements for certain portfolios,
advisory fees, other expenses and total operating expenses expressed as a
percentage of average net assets of the portfolios would have been as
follows: Federated Prime Money Fund II -- 0.50%, 0.50% and 1.00%; STI
Capital Growth Fund -- 1.15%, 0.45%, and 1.60%; STI International Equity
Fund -- 1.25%, 1.68% and 2.93%; STI Investment Grade Bond Fund -- 0.74%,
0.84% and 1.58%; STI Mid-Cap Equity Fund -- 1.15%, 0.62%, and 1.77%; STI
Small Cap Equity Fund--1.15%, 1.24%, 2.39%; and STI Value Income Stock Fund
-- 0.80%, 0.43%, and 1.23%.
(2) A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its respective fees. Effective May 1, 1998, the Funds reimburse AIM
in an amount up to 0.25% of the average net asset value of each Fund, for
expenses incurred in providing, or assuring that participating insurance
companies provide, certain administrative services. Currently, the fee only
applies to the average net asset value of each Fund in excess of the net
asset value of each Fund as calculated on April 30, 1998.
(3) Fees and/or expenses are based on estimated amounts for the current year.
(4) Class 2 of the Fund has a distribution plan or "Rule 12b-1 plan" as
described in the Fund prospectus. Because Class 2 shares were not offered
until May 1, 1998, figures (other than "12b-1 Fees") are estimates for 1998
based on the historical expenses of the Fund's Class 1 shares for the
fiscal year ended December 31, 1997.
(5) Class 2 of the Fund has a distribution plan or "Rule 12b-1 plan" as
described in the Fund prospectus. Because Class 2 shares were not offered
until May 1, 1997, figures (other than "12b-1 Fees") are estimates for 1998
based on the historical expenses of the Fund's Class 1 shares for the
fiscal year ended December 31, 1997. Management Fees and Total Operating
Expenses have been restated to reflect the management fee schedule approved
by shareholders and effective May 1, 1997. Actual Management Fees and Total
Fund Operating Expenses before May 1, 1997 were lower. See the accompanying
Fund prospectus for details.
<PAGE>
EXAMPLES
You (the Owner) would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return under the following circumstances:
If you terminate your Contract at the end of the applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
STI Capital Growth $81 $120 $161 $302
STI International Equity $86 $133 $183 $346
STI Investment Grade Bond $77 $107 $140 $262
STI Mid-Cap Equity $81 $120 $161 $302
STI Small Cap Equity (2) $82 $121 $163 $307
STI Value Income Stock $79 $113 $150 $282
AIM V.I. Capital Appreciation $76 $105 $137 $254
AIM V.I. High Yield $81 $118 $159 $298
Templeton Bond $78 $110 $144 $270
Templeton Stock $81 $119 $160 $300
Oppenheimer Multiple Strategies $77 $107 $140 $262
Oppenheimer Strategic Bond $78 $110 $144 $270
Federated Prime Money Fund II $78 $109 $143 $267
</TABLE>
If you do not terminate your Contract at the end of the applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
STI Capital Growth $27 $84 $143 $302
STI International Equity $32 $98 $166 $346
STI Investment Grade Bond $23 $72 $122 $262
STI Mid-Cap Equity $27 $84 $143 $302
STI Small Cap Equity (2) $28 $85 $145 $307
STI Value Income Stock $25 $78 $133 $282
AIM V.I. Capital Appreciation $23 $69 $119 $254
AIM V.I. High Yield $27 $83 $141 $298
Templeton Bond $24 $74 $127 $270
Templeton Stock $27 $83 $142 $300
Oppenheimer Multiple Strategies $23 $72 $122 $262
Oppenheimer Strategic Bond $24 $74 $127 $270
Federated Prime Money Fund II $24 $73 $125 $267
</TABLE>
THE ABOVE EXAMPLES ARE NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of the examples is
to assist you in understanding the various costs and expenses that you will bear
directly or indirectly. Premium taxes are not reflected in the example but may
be applicable. The above examples assume the election of the enhanced death
benefit option. If that option were not elected, the expense figures show above
would be slightly lower.
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUE AND NUMBER
OF ACCUMULATION UNITS OUTSTANDING FOR
EACH SUB-ACCOUNT SINCE INCEPTION
FOR THE
YEARS BEGINNING
JANUARY 1 AND
ENDING DECEMBER 31
1995 1996 1997
---- ---- ----
FEDERATED PRIME MONEY FUND II SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.$ 10.000 $ 10.052 $ 10.429
Accumulation Unit Value, End of Period. . . $ 10.052 $ 10.429 $ 10.796
Number of Units Outstanding, End of Period. 132,650 488,506 343,302
STI CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.$ 10.000 $ 10.661 $ 13.105
Accumulation Unit Value, End of Period. . . $ 10.661 $ 13.015 $ 17.533
Number of Units Outstanding, End of Period. . 103,697 1,680,419 2,788,987
STI INVESTMENT GRADE BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.$ 10.000 $ 10.336 $ 10.429
Accumulation Unit Value, End of Period. . . .$ 10.336 $ 10.429 $ 11.201
Number of Units Outstanding, End of Period. 40,503 506,887 686,193
STI INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. -- $ 10.000 $ 10.150
Accumulation Unit Value, End of Period. . -- $ 10.150 $ 11.699
Number of Units Outstanding, End of Period. -- 97,975 734,936
STI MID-CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.$ 10.000 $ 10.285 $ 11.775
Accumulation Unit Value, End of Period. . . $ 10.285 $ 11.775 $ 14.200
Number of Units Outstanding, End of Period. 80,549 959,682 1,354,516
STI SMALL CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. -- -- $ 10.000
Accumulation Unit Value, End of Period. . -- -- $ 9.769
Number of Units Outstanding, End of Period. -- -- 111,722
STI VALUE INCOME STOCK SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.$ 10.000 $ 10.696 $ 12.518
Accumulation Unit Value, End of Period. . . .$ 10.696 $ 12.518 $ 15.663
Number of Units Outstanding, End of Period. 124,596 2,238,993 3,720,163
The following Sub-Accounts commenced operations on October 6, 1995: STI Mid-Cap
Equity, STI Capital Growth, STI Value Income Stock, STI Investment Grade Bond,
and Federated Prime Money Fund II. The STI International Equity Sub-Account
commenced operations on November 7, 1996. The STI Small Cap Equity Sub-Account
commenced operations on October 20, 1997. No Accumulation unit data is shown for
the AIM V.I. Capital Appreciation, AIM V.I. High Yield, Oppenheimer Strategic
Bond, Oppenheimer Multiple Strategies, Templeton Bond, and Templeton Stock
Sub-Accounts (collectively the "New Sub-Accounts"), which commenced operations
as of the date of this Prospectus. The Accumulation Unit Values in this table
reflect a Mortality and Expense Risk Charge of 1.25% and an Administrative
Expense Charge of 0.10%.
<PAGE>
ACCUMULATION UNIT VALUE AND NUMBER
OF ACCUMULATION UNITS OUTSTANDING FOR
EACH SUB-ACCOUNT SINCE INCEPTION
WITH ENHANCED DEATH BENEFIT
FOR THE
YEARS BEGINNING
JANUARY 1 AND
ENDING DECEMBER 31
1997
------------------
FEDERATED PRIME MONEY FUND II SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.432
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 10.789
Number of Units Outstanding, End of Period. . . . . . . . . . . . 240,439
STI CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 13.019
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 17.521
Number of Units Outstanding, End of Period. . . . . . . . . . . . 740,401
STI INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.153
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 11.692
Number of Units Outstanding, End of Period. . . . . . . . . . . . 449,359
STI INVESTMENT GRADE BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.432
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 11.193
Number of Units Outstanding, End of Period. . . . . . . . . . . . 187,787
STI MID-CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 11.779
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 14.190
Number of Units Outstanding, End of Period. . . . . . . . . . . . 329,187
STI SMALL CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.000
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 9.768
Number of Units Outstanding, End of Period. . . . . . . . . . . . 161,316
STI VALUE INCOME STOCK SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 12.522
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 15.652
Number of Units Outstanding, End of Period. . . . . . . . . . . . 924,002
The enhanced death benefit option was made available for the Federated Prime
Money Fund II, STI Capital Growth, STI International Equity, STI Investment
Grade Bond, STI Mid-Cap Equity, and STI Value Income Stock Sub-Accounts on May
1, 1997, and for the STI Small Cap Equity Sub-Account on October 20, 1997. The
Accumulation Unit Values in this table reflect a Mortality and Expense Risk
Charge of 1.35% and an Administrative Expense Charge of .10%. No Accumulation
unit data is shown for the New Sub-Accounts for which the enhanced death benefit
option was made available as of the date of this Prospectus.
YIELD AND TOTAL RETURN DISCLOSURE
From time to time the Variable Account may advertise the yield and total return
investment performance of one or more of the Variable Sub-Accounts. Yield and
standardized total return advertisements include charges and expenses
attributable to the Contracts. Including these fees has the effect of decreasing
the advertised performance of a Sub-Account, so that a Sub-Account's investment
performance will not be directly comparable to that of an ordinary mutual fund.
<PAGE>
When a Variable Sub-Account advertises its standardized total return it will be
calculated for one year, five years, and ten years or since inception if the
Sub-Account has not been in existence for such periods. Total return is measured
by comparing the value of an investment in the Variable Sub-Account at the end
of the relevant period to its value at the beginning of the period.
In addition to standardized total return, the Sub-Account may advertise a
non-standardized total return. This figure will usually be calculated for one
year, five years, and ten years or other periods. Non-standardized total return
is measured in the same manner as the standardized total return described above,
except that the withdrawal charges under the Contract are not deducted.
Therefore, a non-standardized total return for a Sub-Account can be higher than
a standardized total return for a Sub-Account.
Certain Sub-Accounts may advertise yield in addition to total return. The yield
will be computed in the following manner: the net investment income per unit
earned during a recent one month period is divided by the unit value on the last
day of the period, and then annualized. This figure reflects the recurring
charges at the Variable Account level.
The money market Sub-Account (the Federated Prime Money Fund II) may advertise
its total return, yield or effective yield. Total return represents the change,
over a specified period of time, in the value of an investment in that
Sub-Account after reinvesting all income distributions. The yield refers to the
income generated by an investment in that Sub-Account over a seven-day period.
The income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized, the income earned by an investment in
the money market Sub-Account (the Federated Prime Money Fund II) is assumed to
be reinvested at the end of each seven-day period. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment during a 52-week period.
The Variable Account may also disclose yield and total return for periods prior
to the date that the Variable Account commenced operations. For periods prior to
the date the Variable Account commenced operations, performance information for
the Sub-Accounts will be calculated based on the performance of the
corresponding portfolios and the assumption that the Sub-Accounts were in
existence for the same periods as those of the underlying portfolios, with a
level of charges equal to those currently assessed against the Sub-Accounts.
Please refer to the Statement of Additional Information for a further
description of the method used to calculate a Sub-Account's yield and total
return.
FINANCIAL STATEMENTS
The financial statements of Glenbrook Life and Annuity Company begin on page F-1
of the prospectus. The financial statements of Glenbrook Life and Annuity
Company Variable Annuity Account appear in the Statement of Additional
Information, which is incorporated by reference into this prospectus and which
is available upon request. (See order form on page B-2)
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY AND THE VARIABLE ACCOUNT
GLENBROOK LIFE AND ANNUITY COMPANY
The Company is the issuer of the Contract. The Company is a stock life insurance
company which was organized under the insurance laws of the State of Illinois in
1992. The Company was originally organized under the laws of the State of
Indiana in 1965. From 1965 to 1983 the Company was known as "United Standard
Life Assurance Company" and from 1983 to 1992 the Company was known as "William
Penn Life Assurance Company of America." The Company is currently licensed to
operate in the District of Columbia and all states except New York. The Company
intends to market the Contract in those jurisdictions in which it is licensed to
operate and in which SunTrust Banks, Inc., through its banking subsidiaries,
conducts business. The Company's home office is located at 3100 Sanders Road,
Northbrook, Illinois, 60062.
The Company is a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), a stock life insurance company incorporated under the laws of
the State of Illinois. Allstate Life is a wholly owned subsidiary of Allstate
Insurance Company ("Allstate"), a stock property-liability insurance company
incorporated under the laws of Illinois. All of the outstanding capital stock of
Allstate is owned by The Allstate Corporation ("Corporation"). On June 30, 1995,
Sears, Roebuck and Co. ("Sears") distributed its 80.3% ownership in the
Corporation to Sears common shareholders through a tax-free dividend.
The Company and Allstate Life entered into a reinsurance agreement, effective
June 5, 1992, under which the Company reinsures substantially all of its
business with Allstate Life. Under the reinsurance agreement, Fixed Account
purchase payments are automatically transferred to Allstate Life and become
invested with the assets of Allstate Life and Allstate Life accepts 100% of the
liability under such contracts. However, the obligations of Allstate Life under
the reinsurance agreement are to the Company; the Company remains the sole
obligor under the Contract to the Owners.
THE VARIABLE ACCOUNT
Established on December 15, 1992, the Glenbrook Life and Annuity Company
Variable Annuity Account is a unit investment trust registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
However, such registration does not signify that the Commission supervises the
management or investment practices or policies of the Variable Account. The
investment performance of the Variable Account is entirely independent of both
the investment performance of the Company's general account and the performance
of any other separate account.
The Variable Account has been divided into thirteen Sub-Accounts, each of which
invests solely in a corresponding portfolio. We may add new Variable
Sub-Accounts or eliminate one or more Sub-Accounts if, in our sole discretion,
marketing, tax or investment conditions so warrant.
We hold the assets of the Variable Account separately from our other assets.
They are not chargeable with liabilities incurred in our other business
operations. Accordingly, the income, capital gains and capital losses, realized
or unrealized, incurred on the assets of the Variable Account are credited to or
charged against the assets of the Variable Account, without regard to the
income, capital gains or capital losses arising out of any other business we may
conduct.
Our obligations arising under the Contracts are general corporate obligations.
<PAGE>
THE FUNDS
The Variable Account currently invests in shares of the Funds, each of which has
its own investment objective(s) and policies. The Funds are registered with the
Securities and Exchange Commission as open-end, diversified management
investment companies. Registration of the Funds does not involve supervision of
their management, investment practices or policies by the Securities and
Exchange Commission. The Funds are designed to provide investment vehicles for
variable insurance contracts of various insurance companies, in addition to the
Contracts.
Shares of the portfolios of the Funds are not deposits, or obligations of, or
guaranteed or endorsed by any bank and the shares are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency.
STI CLASSIC VARIABLE TRUST
Six portfolios of the STI Classic Variable Trust are available for use under the
Contract: the STI Investment Grade Bond portfolio, the STI Capital Growth
portfolio, the STI Value Income Stock portfolio, the STI Mid-Cap Equity
portfolio, the STI International Equity portfolio and the STI Small Cap Equity
portfolio.
The STI Capital Growth portfolio seeks to provide capital appreciation by
investing primarily in a portfolio of common stocks, warrants and securities
convertible into common stock which in the advisor's opinion are undervalued in
the marketplace at the time of purchase.
The STI International Equity portfolio seeks to provide long term capital
appreciation by investing primarily in a diversified portfolio of equity
securities of foreign issuers.
The STI Investment Grade Bond portfolio seeks to provide as high a level of
total return through current income and capital appreciation as is consistent
with the preservation of capital primarily through investment in investment
grade fixed income securities.
The STI Mid-Cap Equity portfolio seeks to provide capital appreciation by
investing primarily in a diversified portfolio of common stocks, preferred
stocks and securities convertible into common stock of small to mid-sized
companies with above-average growth of earnings. Current income will not be an
important criterion of investment selection and any such income should be
considered incidental.
The STI Small Cap Equity portfolio seeks to provide capital appreciation with a
secondary goal of achieving current income by investing primarily in equity
securities of smaller companies (i.e., companies with market capitalizations of
less than $1 billion) which, in the advisor's opinion, are undervalued for
above-average capital growth.
The STI Value Income Stock portfolio seeks to provide current income with the
secondary goal of achieving capital appreciation by investing primarily in
equity securities.
AIM VARIABLE INSURANCE FUNDS, INC.
Two portfolios of AIM Variable Insurance Funds, Inc. are available for use under
the Contract: The AIM V.I. Capital Appreciation Fund and the AIM V.I. High Yield
Fund.
AIM V.I. Capital Appreciation Fund is a diversified portfolio which seeks to
provide capital appreciation through investments in common stocks, with emphasis
on medium-sized and smaller emerging growth companies.
AIM V.I. High Yield Fund is a diversified portfolio which seeks to achieve a
high level of current income by investing primarily in publicly traded debt
securities of less than investment grade.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Two portfolios of the Templeton Variable Products Series Fund are available for
use under the Contract: the Templeton Bond Fund and the Templeton Stock Fund.
The Templeton Bond Fund's investment objective is high current income.
Consistent with this objective, the Fund may also consider the potential for
capital appreciation due to changes in interest rates, currency exchange rates
and credit quality when purchasing securities. The Fund seeks to achieve its
investment objective through a flexible policy of investing primarily in debt
securities of companies, governments and government agencies of various nations
throughout the world, and in debt securities which are convertible into common
stock of such companies.
The Templeton Stock Fund portfolio seeks capital growth. It will invest
primarily in common and preferred stocks issued by companies large and small in
various nations throughout the world. The Templeton Stock Fund will invest
predominantly in equity securities issued by large-cap and mid-cap companies,
but may invest to a lesser degree in small capitalization companies.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Two portfolios of the Oppenheimer Variable Account Funds are available for use
under the Contract: the Oppenheimer Strategic Bond Fund and the Oppenheimer
Multiple Strategies Fund.
The Oppenheimer Strategic Bond Fund seeks a high level of current income
principally derived from interest on debt securities and seeks to enhance such
income by writing covered call options on debt securities. The Fund intends to
invest principally in: (i) foreign government and corporate debt securities,
(ii) securities of the U.S. Government and its agencies and instrumentalities,
and (iii) lower-rated high yield domestic debt securities, commonly known as
"junk bonds", which are subject to a greater risk of loss of principal and
nonpayment of interest than higher-rated securities. Capital appreciation is not
an objective.
<PAGE>
The Oppenheimer Multiple Strategies Fund seeks a total investment return (which
includes current income and capital appreciation in the value of its shares)
from investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
FEDERATED INSURANCE SERIES
One portfolio of Federated Insurance Series is available for use under the
Contract: the Federated Prime Money Fund II.
The investment objective of the Federated Prime Money Fund II is to provide
current income consistent with the stability of principal and liquidity.
Federated Prime Money Fund II pursues this objective by investing exclusively in
a portfolio of money market instruments maturing in 397 days or less.
The Federated Prime Money Fund II attempts to maintain a stable net asset value
of $1.00 per share; however, an investment in the Fund is neither insured nor
guaranteed by the U.S. government, and there can be no assurance that the
portfolio will maintain a stable $1.00 per share price.
INVESTMENT ADVISORS FOR THE PORTFOLIOS
A I M Advisors, Inc. ("AIM") serves as the investment advisor to the AIM V.I.
Capital Appreciation Fund and the AIM V.I. High Yield Fund. AIM was organized in
1976, and, together with its subsidiaries, manages or advises approximately 90
investment company portfolios encompassing a broad range of investment
objectives. AIM charges the Funds an investment management fee. The fees are
part of the Funds' operating expenses. See the attached prospectus for AIM
Variable Insurance Funds, Inc. for a discussion of the Funds' expenses.
Federated Advisers is the investment advisor for the Federated Prime Money Fund
II. Federated Advisers is a subsidiary of Federated Investors, which services
assets of over $120 billion as of December 31, 1997. See the attached prospectus
for the Federated Prime Money Fund II for a discussion of the Fund's expenses.
OppenheimerFunds, Inc. serves as the investment advisor to the Oppenheimer
Strategic Bond Fund and the Oppenheimer Multiple Strategies Fund.
OppenheimerFunds, Inc., together with its subsidiaries, advises investment
company portfolios having over $85 billion in assets as of March 31, 1998.
OppenheimerFunds, Inc. charges the Funds an investment management fee. The fees
are part of the Funds' operating expenses. See the attached prospectus for
Oppenheimer Variable Account Funds for a discussion of the Funds' expenses.
STI Capital Management, N.A. ("STI Capital") serves as advisor to the STI
Investment Grade Bond, STI Capital Growth, STI Value Income Stock, STI Mid-Cap
Equity, STI International Equity and STI Small Cap Equity portfolios. STI
Capital is an indirect wholly owned subsidiary of SunTrust Banks, Inc.
("SunTrust"), a southeastern regional bank holding company with assets of $67.4
billion as of December 31, 1997.
STI Capital, as advisor, makes the investment decisions for the assets of the
portfolios it advises and continuously reviews, supervises and administers the
respective Fund's investment program. STI Capital charges the Funds an
investment management fee. These fees are part of the Funds' operating expenses.
See the attached prospectus for the STI Classic Variable Trust for a discussion
of the Funds' expenses.
Templeton Investment Counsel, Inc. ("TICI") is the investment manager for the
Templeton Bond Fund and the Templeton Stock Fund. TICI is wholly owned by
Franklin Resources, Inc., a publicly owned company engaged in the financial
services industry through its subsidiaries. TICI and its affiliates currently
manage over $208 billion in assets. TICI charges the Funds an investment
management fee. The fees are part of the Funds' operating expenses. See the
attached prospectus for the Templeton Variable Products Series Fund for a
discussion of the Funds' expenses.
<PAGE>
There is no assurance that the Funds will attain their stated objectives.
Additional information concerning the investment objectives and policies of the
Funds can be found in the current prospectus for each Fund accompanying this
prospectus.
You will find more complete information about each portfolio, including the
risks associated with each portfolio, in the accompanying Fund prospectuses. You
should read the prospectus for each Fund in conjunction with this prospectus.
THE PROSPECTUS OF EACH FUND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR VARIABLE
SUB-ACCOUNT.
FIXED ACCOUNT OPTIONS
THE STANDARD FIXED ACCOUNT AND DOLLAR COST AVERAGING FIXED ACCOUNT
Monies allocated to the Standard Fixed Account and the Dollar Cost Averaging
("DCA") Fixed Account become part of the general account of the Company, which
supports insurance and annuity obligations. The general account consists of the
general assets of the Company other than those in segregated asset accounts.
Instead of you bearing the investment risk, as is the case for amounts in the
Variable Account or in other segregated asset accounts of the Company, we bear
the investment risk for all amounts in the Standard Fixed Account and the DCA
Fixed Account. We have sole discretion to invest the assets of the Standard
Fixed Account and DCA Fixed Account, subject to applicable law. We guarantee
that the amounts allocated to the Standard Fixed Account and DCA Fixed Account
will be credited interest at a net effective annual interest rate at least equal
to the minimum guaranteed rate found in the Contract. Currently, the amount of
interest credited in excess of the guaranteed rate will vary periodically at the
sole discretion of the Company. Any interest held in the Standard Fixed Account
and DCA Fixed Account does not entitle an Owner to share in the investment
experience of the general account.
Purchase payments and transfers allocated to the Standard Fixed Account earns
interest for a one year period at the current rate in effect at the time of
allocation. After the one year period, a renewal rate will be declared.
Subsequent renewal dates will be every twelve months for each payment or
transfer. The renewal interest rate will be guaranteed by us for a full year and
will not be less than the minimum guaranteed rate found in the Contract.
Purchase payments may be allocated to the DCA Fixed Account for the purpose of
establishing a DCA Program. Money allocated to the DCA Fixed Account earns
interest for up to a one year period at the current annual rate in effect at the
time of allocation. For each purchase payment, the minimum amount that may be
allocated to the DCA Fixed Account is $5,000. The Company reserves the right to
reduce the minimum allocation amount. Each purchase payment and all its earnings
must be transferred out of the DCA Fixed Account via Dollar Cost Averaging
within the selected program period. The number of monthly installments must be
no less than 3 or more than 12. If You discontinue the DCA program before the
end of the transfer period, the remaining balance in the DCA Fixed Account will
be transferred to the Standard Fixed Account. The DCA Fixed Account may not be
available in all states.
<PAGE>
We may declare more than one interest rate for different monies based upon the
date of allocation to the Standard Fixed Account and the DCA Fixed Account. For
current interest rate information, please contact your sales representative or
the Company's customer support unit at 1-800/453-6038.
Amounts may be transferred from the Sub-Accounts of the Variable Account to the
Standard Fixed Account, and prior to the Payout Start Date, amounts may also be
transferred from the Standard Fixed Account to any other Investment Alternative.
The maximum amount in any Contract Year which may be transferred from the
Standard Fixed Account to any other Investment Alternative is limited to the
greater of (1) 25% of the value in the Standard Fixed Account as of the most
recent Contract Anniversary; if 25% of the value as of the most recent Contract
Anniversary is less than $1,000, then up to $1,000 may be transferred; or (2)
25% of the sum of all purchase payments and transfers to the Standard Fixed
Account as of the most recent Contract Anniversary.
After the Payout Start Date no transfers may be made from the Fixed Account
Options. Transfers from the Variable Account to the Standard Fixed Account may
not be made for six months after the Payout Start Date and may be made
thereafter only once every six months.
Full and partial withdrawals from the Standard Fixed Account and DCA Fixed
Account may be delayed for up to six months.
THE GUARANTEED MATURITY AMOUNT FIXED ACCOUNT
Purchase payments and transfers allocated to one or more of the Sub-Accounts of
the Guaranteed Maturity Amount Fixed Account become part of the general account
of the Company. Each Sub-Account offers a separate interest rate Guarantee
Period. Guarantee Periods will be offered at the Company's discretion and may
range from one to ten years. Presently, the Company offers Guarantee Periods of
three, five, seven and ten years. The Owner must select the Sub-Account(s) in
which to allocate each purchase payment and transfer. No less than $50 may be
allocated to any one Sub-Account. The Company reserves the right to limit the
number of additional purchase payments.
Interest is credited daily to each Sub-Account at a rate which compounds to the
effective annual interest rate declared for each Sub-Account's Guarantee Period
that has been selected. The effective annual interest rate will never be less
than the minimum guaranteed rate, as found in the Contract.
The following example illustrates how the Sub-Account value for a Sub-Account of
the Guaranteed Maturity Amount Fixed Account would grow given an assumed
purchase payment, Guarantee Period, and effective annual interest rate:
EXAMPLE OF INTEREST CREDITING DURING THE GUARANTEE PERIOD
Purchase Payment:. . . . . . . . . . . . . . . . . . . . . . $10,000.00
Guarantee Period:. . . . . . . . . . . . . . . . . . . . . . 5 years
Effective Annual Rate: . . . . . . . . . . . . . . . . . . . 4.50%
<PAGE>
<TABLE>
<CAPTION>
END OF CONTRACT YEAR:
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Beginning Sub-Account Value $10,000.00
X (1 + Effective Annual Rate) 1.0450
------
$10,450.00
Sub-Account Value at
end of Contract year 1 $10,450.00
X (1 + Effective Annual Rate) 1.0450
------
$10,920.25
Sub-Account Value at end of Contract year 2 $10,920.25
X (1 + Effective Annual Rate) 1.0450
------
$11,411.66
Sub-Account Value at end of Contract year 3 $11,411.66
X (1 + Effective Annual Rate) 1.0450
------
$11,925.19
Sub-Account Value at end of Contract year 4 $11,925.19
X (1 + Effective Annual Rate) 1.0450
------
Sub-Account Value at end of Guarantee Period: $12,461.82
----------
</TABLE>
TOTAL INTEREST CREDITED IN GUARANTEE PERIOD: $2,461.82 ($12,461.82 - $10,000.00)
NOTE: The above illustration assumes no withdrawals of any amount during the
entire five year period. A Market Value Adjustment would apply to any such
interim withdrawal. A withdrawal charge may apply to any amount withdrawn in
excess of 10% of the Contract Value on the date of the first withdrawal in a
Contract Year. The hypothetical interest rate is for illustrative purposes only
and is not intended to predict future interest rates to be declared under the
Contract. Actual interest rates declared for any given Guarantee Period may be
more or less than shown above but will never be less than the guaranteed minimum
rate as found in the Contract.
The Company has no specific formula for determining the rate of interest that it
will declare initially or in the future. Such interest rates will be reflective
of investment returns available at the time of the determination. In addition,
the management of the Company may also consider various other factors in
determining interest rates, including regulatory and tax requirements, sales
commissions and administrative expenses borne by the Company, general economic
trends, and competitive factors. For current interest rate information, please
contact your sales representative or the Company's customer support unit at
1-800/453-6038.
THE MANAGEMENT OF THE COMPANY WILL MAKE THE FINAL DETERMINATION AS TO THE
INTEREST RATES TO BE DECLARED. THE COMPANY CAN NEITHER PREDICT NOR GUARANTEE
FUTURE INTEREST RATES TO BE DECLARED.
<PAGE>
At the end of a Guarantee Period, a notice will be mailed to the Owner outlining
the options available at the end of a Guarantee Period. During the 30 day period
after a Guarantee Period expires the Owner may:
- take no action and the Company will automatically renew the
Sub-Account value to a Guarantee Period of the same duration to be
established on the day the previous Guaranteed Period expired; or
- notify the Company to apply the Sub-Account value to a new Guarantee
Period or periods to be established on the day the previous Guarantee
Period expired; or
- notify the Company to apply the Sub-Account value to the Standard
Fixed Account to be established on the day the Guarantee Period
expired; or
- notify the Company to apply the Sub-Account value to any Sub-Accounts
of the Variable Account on the day we receive the notification; or
- receive a portion of the Sub-Account value or the entire Sub-Account
value through a partial or full withdrawal that is not subject to a
Market Value Adjustment. In this case, the Sub-Account will be deemed
to have been renewed for the same Guarantee Period as the one that
just expired with current interest credited from the date the
Guarantee Period expired.
The Automatic Laddering Program allows the Owner to choose, in advance, one
renewal Guarantee Period for all renewing Sub-Accounts. The Owner can select the
Automatic Laddering Program at any time during the accumulation phase, including
on the issue date. The Automatic Laddering Program will continue until the Owner
gives written notice to the Company. The Company reserves the right to
discontinue this program. For additional information on the Automatic Laddering
Program, please call the Company's Customer Service unit at 1-800/453-6038.
WITHDRAWALS OR TRANSFERS
All withdrawals and transfers, from a Sub-Account of the Guaranteed Maturity
Amount Fixed Account other than during the 30 day period after a Guarantee
Period expires are subject to a Market Value Adjustment.
The main component in determining the amount received by the Owner is the amount
which was requested; however, there may be adjustments to the requested amount.
A withdrawal charge may reduce the amount received. A Market Value Adjustment
may apply which would reduce or increase the amount received. Premium taxes and
federal income tax withholding and penalties may also apply, which would reduce
the amount received.
The amount received by the Owner under a withdrawal request equals the amount
requested, adjusted by any Market Value Adjustment, less any applicable
withdrawal charge (based upon the amount requested prior to any Market Value
Adjustment), less premium taxes and withholding (if applicable).
Amounts may be transferred from the Sub-Accounts of the Variable Account to the
Guaranteed Maturity Amount Fixed Account, and prior to the Payout Start Date,
amounts may also be transferred from the Guaranteed Maturity Amount Fixed
Account to any other Investment Alternative.
After the Payout Start Date no transfers may be made from the Fixed Account
Options. Transfers from the Variable Account to the Guaranteed Maturity Amount
Fixed Account may not be made for six months after the Payout Start Date and may
be made thereafter only once every six months.
<PAGE>
Full and partial withdrawals from the Guaranteed Maturity Amount Fixed Account
may be delayed for up to six months.
MARKET VALUE ADJUSTMENT
The Market Value Adjustment reflects the relationship between (1) the current
effective annual interest rate for the time remaining in the Guarantee Period at
the time of the request for withdrawal or transfer, or when money is applied to
an Income Plan, and (2) the effective annual interest rate guaranteed for that
Sub-Account. Since current interest rates are based, in part, upon investment
yields available at the time, the effect of the Market Value Adjustment will be
closely related to the levels of such yields. As such, the Owner bears some
investment risk under the Contract.
It is possible, therefore, that should investment yields increase significantly
from the time the purchase payment was made, the Market Value Adjustment,
withdrawal charge, premium taxes and withholding (if applicable), would reduce
the amount received by the Owner upon full withdrawal of the Contract Value to
an amount that is less than the purchase payment plus interest at the minimum
guaranteed interest rate under the Contract.
Generally, if the effective annual interest rate for the Guarantee Period is
lower than the applicable current effective annual interest rate (interest rate
for a period equal to the time remaining in the Sub-Account), then the Market
Value Adjustment will result in a lower amount payable to the Owner. Similarly,
if the effective annual interest rate for the Guarantee Period is higher than
the applicable current effective annual interest rate, then the Market Value
Adjustment will result in a higher amount payable to the Owner.
For example, assume the Owner purchases a Contract and selects an initial
Guarantee Period of five years and the Company's effective annual rate for that
duration is 4.50%. Assume that at the end of 3 years, the Owner makes a partial
withdrawal. If, at that later time, the current interest rate for a 2 year
Guarantee Period is 4.00%, then the Market Value Adjustment will be positive,
which will result in an increase in the amount payable to the Owner. Similarly,
if the current interest rate for the 2 year Guarantee Period is 5.00%, then the
Market Value Adjustment will be negative, which will result in a decrease in the
amount payable to the Owner.
The formula for calculating the Market Value Adjustment is set forth in Appendix
A to this prospectus, which also contains additional illustrations of the
application of the Market Value Adjustment.
PURCHASE OF THE CONTRACTS
PURCHASE PAYMENT LIMITS
Your first purchase payment must be at least $3,000 unless the Contract is a
qualified Contract, in which case the first purchase payment must be at least
$2,000. All subsequent purchase payments must be $50 or more and may be made at
any time prior to the earlier of the Payout Start Date or your 86th birthday.
Subsequent purchase payments may also be made from your bank account by
automatic transfer.
We reserve the right to limit the amount of purchase payments we will accept.
<PAGE>
FREE-LOOK PERIOD
You may cancel the Contract any time within 20 days after receipt of the
Contract, or longer if required by state law, and receive a full refund of
purchase payments allocated to any Fixed Account Option. Unless a refund of
purchase payments is required by state or federal law, purchase payments
allocated to the Variable Account will be returned after an adjustment to
reflect investment gain or loss that occurred from the date of allocation
through the date of cancellation.
CREDITING OF PURCHASE PAYMENTS
The initial purchase payment accompanied by a duly completed application will be
credited to the Contract within two business days of receipt by us at our home
office. If an application is not duly completed, we will credit the purchase
payments to the Contract within five business days or return it at that time
unless you specifically consent to us holding the purchase payment until the
application is complete. We reserve the right to reject any application.
Subsequent purchase payments will be credited to the Contract at the close of
the Valuation Period in which the purchase payment is received by the Company at
its home office.
ALLOCATION OF PURCHASE PAYMENTS
On the application, you instruct us how to allocate your purchase payments among
the Investment Alternatives. You may allocate purchase payments in whole
percents, from 0% to 100% (total allocation equals 100%) or in exact dollar
amounts, to any Investment Alternative. Unless you notify us in writing
otherwise, we will allocate subsequent purchase payments according to the
allocation for the previous purchase payment. Any change in allocation
instructions will be effective at the time we receive the notice in good order.
ACCUMULATION UNITS
Each purchase payment allocated to the Variable Account will be credited to the
Contract as Accumulation Units. For example, if a $10,000 purchase payment is
credited to the Contract when the Accumulation Unit value equals $10, then 1,000
Accumulation Units would be credited to the Contract. The Variable Account, in
turn, purchases shares of the corresponding portfolio.
For a brief summary of how purchase payments allocated to the Fixed Account are
credited to the Contract, see "Fixed Account Options" on page __.
ACCUMULATION UNIT VALUE
The Accumulation Units of the various Sub-Accounts of the Variable Account are
valued separately. The value of Accumulation Units will change each Valuation
Period according to the investment performance of the shares purchased by each
Variable Sub-Account and the deduction of certain expenses and charges.
The value of an Accumulation Unit in a Variable 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.
<PAGE>
TRANSFERS AMONG INVESTMENT ALTERNATIVES
Prior to the Payout Start Date, you may transfer amounts among Investment
Alternatives. The Company reserves the right to assess a $10 charge on each
transfer in excess of 12 per Contract Year. Transfers to or from more than one
fund on the same day are treated as one transfer. The Company is presently
waiving this charge. Transfers among Variable Sub-Accounts before the Payout
Start Date may be made at any time. See "Withdrawals or Transfers," page __ for
the requirements on transfers from the Fixed Account.
After the Payout Start Date, transfers among Sub-Accounts of the Variable
Account, or from the Variable Account to a Fixed Account option may be made only
once every six months and may not be made during the first six months following
the Payout Start Date. After the Payout Start Date, transfers from the Fixed
Account Options are not allowed.
Transfers may be made pursuant to telephone instructions if the Owner completes
the telephone authorization form on the application or another form provided by
the Company. Telephone transfer requests will be accepted by the Company if
received at 1-800/453-6038 by 3:00 p.m., Central Time. Telephone transfer
requests received before 3:00 p.m., Central Time are effected at the Contract
Value next computed after receipt of the request. If telephone transfers are not
authorized, transfer requests must be in writing, on a form provided by the
Company. In the event that the New York Stock Exchange ("NYSE") closes early,
I.E., before 3:00 p.m. Central Time, or in the event that the NYSE closes early
for a period of time but then reopens for trading on the same day, telephone
transfer requests will be processed by the Company as of the close of the NYSE
on that particular day. Telephone requests received at any telephone number
other than the number that appears in this paragraph or received after the close
of trading on the NYSE will not be accepted by the Company.
The Company utilizes procedures which the Company believes will provide
reasonable assurance that telephone authorized transfers are genuine. Such
procedures include taping of telephone conversations with persons purporting to
authorize such transfers and requesting identifying information from such
persons. Accordingly, the Company disclaims any liability for losses resulting
from such transfers by reason of their allegedly not having been properly
authorized. However, if the Company does not take reasonable steps to help
ensure that such authorizations are valid, the Company may be liable for such
losses.
The Company reserves the right to waive the transfer restrictions.
DOLLAR COST AVERAGING
Transfers may be made automatically through Dollar Cost Averaging prior to the
Payout Start Date. Dollar Cost Averaging permits the Owner to transfer a
specified amount every month from any Sub-Account of the Variable Account, the
Standard Fixed Account or the DCA Fixed Account, to any other Sub-Account of the
Variable Account. Dollar Cost Averaging cannot be used to transfer amounts to a
Fixed Account option. Transfers made through Dollar Cost Averaging are not
assessed a $10 charge and are not counted towards the 12 free transfers per
Contract Year.
<PAGE>
The theory of Dollar Cost Averaging is that, if purchases of equal dollar
amounts are made at fluctuating prices, the aggregate average cost per unit will
be less than the average of the unit prices on the same purchase dates. However,
participation in the Dollar Cost Averaging program does not assure you of a
greater profit from your purchases under the program; nor will it prevent or
alleviate losses in a declining market.
AUTOMATIC PORTFOLIO REBALANCING
Transfers may be made automatically through Automatic Portfolio Rebalancing
prior to the Payout Start Date. By electing Automatic Portfolio Rebalancing, all
of the money allocated to Sub-Accounts of the Variable Account will be
rebalanced to the desired allocation on a quarterly basis, determined from the
first date that you decide to rebalance. Each quarter, money will be transferred
among Sub-Accounts of the Variable Account to achieve the desired allocation.
The desired allocation will be the allocation initially selected, unless
subsequently changed. You may change the allocation at any time by giving us
written notice. The new allocation will be effective with the first rebalancing
that occurs after we receive the written request. We are not responsible for
rebalancing that occurs prior to receipt of the written request.
Transfers made through Automatic Portfolio Rebalancing are not assessed a $10
charge and are not counted towards the 12 free transfers per Contract Year.
Any money allocated to a Fixed Account Option will not be included in the
Automatic Portfolio Rebalancing.
BENEFITS UNDER THE CONTRACT
WITHDRAWALS
You may withdraw all or part of the Contract Value at any time prior to the
earlier of the death of the Owner (the Annuitant if the Owner is not a natural
person) or the Payout Start Date. The amount payable for withdrawal is the
Contract Value next computed after the Company receives the request for a
withdrawal at its home office, adjusted by any Market Value Adjustment, less any
withdrawal charges, contract maintenance charges, income tax withholding,
penalty tax, and any premium taxes. Withdrawals from the Variable Account will
be paid within seven days of receipt of the request, subject to postponement in
certain circumstances. Full and partial withdrawals from the Fixed Account
options may be delayed for up to six months. See "Delay of Payments," page __.
Money can be withdrawn from the Variable Account or the Fixed Account Options.
To complete the partial withdrawal from the Variable Account, the Company will
cancel Accumulation Units in an amount equal to the withdrawal and any
applicable withdrawal charge and premium taxes. The Owner must name the
Investment Alternative from which the withdrawal is to be made. If none is
named, then the withdrawal request is incomplete and cannot be honored.
The minimum partial withdrawal is $50. If the Contract Value after a partial
withdrawal would be less than $2,000, then the Company will treat the request as
one for a termination of the Contract and the entire Contract Value, adjusted by
any Market Value Adjustment, less any charges and premium taxes, will be paid
out. The Company will, however, require confirmation of the withdrawal request
before terminating the Contract.
<PAGE>
Partial withdrawals may also be taken automatically through Systematic
Withdrawals on a monthly, quarterly, semi-annual or annual basis. Systematic
Withdrawals of $50 or more may be requested at any time prior to the Payout
Start Date. At the Company's discretion, Systematic Withdrawals may not be
offered in conjunction with Dollar Cost Averaging or Automatic Portfolio
Rebalancing.
Withdrawals and surrenders may be subject to income tax and a 10% tax penalty,
which are explained in "Federal Tax Matters," on page __.
After the Payout Start Date, withdrawals are only permitted when payments from
the Variable Account are being made that do not involve life contingencies. In
that case, you may terminate the Variable Account portion of the income payments
at any time and receive a lump sum equal to the commuted balance of the
remaining variable payments due, less any applicable withdrawal charge.
PAYOUT START DATE FOR INCOME PAYMENTS
The Payout Start Date is the day that money is applied to an Income Plan. You
may change the Payout Start Date at any time by notifying the Company in writing
of the change at least 30 days before the scheduled Payout Start Date. The
Payout Start Date must be (a) at least one month after the Issue Date; and (b)
no later than the day the Annuitant reaches age 90, or the 10th Contract
Anniversary, if later.
AMOUNT OF VARIABLE ACCOUNT INCOME PAYMENTS
The amount of Variable Account income payments depends upon the investment
experience of the Sub-Accounts selected by the Owner and any premium taxes, the
age and sex of the Annuitant, and the Income Plan chosen. The Company guarantees
that the amount of the income payment will not be affected by (1) actual
mortality experience and (2) the amount of the Company's administration
expenses.
The total income payments received may be more or less than the total purchase
payments made because (a) Variable Account income payments vary with the
investment results of the underlying portfolios, and (b) Annuitants may not live
as long as, or may live longer than, expected.
If the actual net investment experience of the Variable Account is less than the
assumed investment rate, then the dollar amount of the income payments will
decrease. The dollar amount of the income payments will stay level if the net
investment experience equals the assumed investment rate and the dollar amount
of the income payments will increase if the net investment experience exceeds
the assumed investment rate. For purposes of the Variable Account income
payments, the assumed investment rate is 3 percent.
AMOUNT OF FIXED ACCOUNT INCOME PAYMENTS
Income payment amounts derived from any Fixed Account Option are guaranteed for
the duration of the Income Plan. The income payment based upon any Fixed Account
Option is calculated by applying the portion of the Contract Value in any Fixed
Account Option on the Payout Start Date, adjusted by any Market Value Adjustment
and less any applicable premium tax, to the greater of the appropriate value
from the income payment table selected or such other value as we are offering at
that time.
<PAGE>
INCOME PLANS
The Contracts offered by this prospectus contain income payment tables that
provide for different benefit payments to men and women of the same age (except
in states which require unisex annuity tables). Nevertheless, in accordance with
the U.S. Supreme Court's decision in ARIZONA GOVERNING COMMITTEE V. NORRIS, in
certain employment-related situations, annuity tables that do not vary on the
basis of sex may be used. Accordingly, if the Contract is to be used in
connection with an employment-related retirement or benefit plan, consideration
should be given, in consultation with legal counsel, to the impact of NORRIS on
any such plan before making any contributions under these Contracts.
The Income Plan option selected will affect the dollar amount of each income
payment. For example, if an Income Plan Guaranteed for Life is chosen, the
income payments will be greater than income payments under an Income Plan for a
Minimum Specified Period and guaranteed thereafter for life.
You may elect income payments based on any Fixed Account Option and/or the
Variable Account. The Owner may change the Income Plan until 30 days before the
Payout Start Date. If an Income Plan is chosen which depends on the Annuitant or
Joint Annuitant's life, proof of age will be required before income payments
begin. Applicable premium taxes will be assessed. The Income Plans include:
INCOME PLAN 1 -- LIFE INCOME WITH GUARANTEED PAYMENTS
The Company will make payments for as long as the Annuitant lives. If the
Annuitant dies before the selected number of guaranteed payments have been
made, the Company will continue to pay the remainder of the guaranteed
payments.
INCOME PLAN 2 -- JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS
The Company will make payments for as long as either the Annuitant or Joint
Annuitant, named at the time of Income Plan selection, is living. If both
the Annuitant and the Joint Annuitant die before the selected number of
guaranteed payments have been made, the Company will continue to pay the
remainder of the guaranteed payments.
INCOME PLAN 3 -- GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD
The Company will make payments for a specified period beginning on the
Payout Start Date. These payments do not depend on the Annuitant's life.
The number of months guaranteed may be from 60 to 360. The mortality and expense
risk charge will be deducted from Variable Account payments even though the
Company does not bear any mortality risk under the Income Plan chosen. If Income
Plan 3 is chosen and the proceeds are derived from the Variable Account, you may
terminate the Contract at any time by notifying the Company in writing and you
will receive the Contract Value within seven days; however, a withdrawal charge
may apply if this occurs.
In the event that an Income Plan is not selected, the Company will make income
payments in accordance with Income Plan 1 with Guaranteed Payments for 120
Months. At the Company's discretion, other Income Plans may be available upon
request. The Company currently uses sex-distinct annuity tables. However, if
legislation is passed by Congress or the states, the Company reserves the right
to use income payment tables which do not distinguish on the basis of sex.
Special rules and limitations may apply to certain qualified contracts.
If the Contract Value to be applied to an Income Plan is less than $2,000, or if
the monthly payments determined under the Income Plan are less than $20, the
Company may pay the Contract Value adjusted by any Market Value Adjustment less
any applicable taxes in a lump sum or change the payment frequency to an
interval which results in income payments of at least $20.
<PAGE>
DEATH BENEFIT PAYABLE
We will pay a death benefit prior to the Payout Start Date on the death of any
Owner or, if the Owner is not a natural person, the death of the Annuitant. The
death benefit is paid to the Owner as determined immediately after the death.
This would be a surviving joint Owner or, if none, the Beneficiary.
If the Annuitant and Joint Annuitant, if applicable, die after the Payout Start
Date, the Company will continue to pay the remainder of any guaranteed payments
to the Owner.
DEATH BENEFIT AMOUNT
THE FOLLOWING INFORMATION IS APPLICABLE TO CONTRACTS ISSUED PRIOR TO MAY 1,
1997:
Prior to the Payout Start Date, the death benefit before any Market Value
Adjustment is equal to the greater of:
(a) the Contract Value as of the date the Company receives a complete request
for payment of the death benefit, or
(b) for each previous Death Benefit Anniversary, the Contract Value at that
anniversary; plus any purchase payments made since that anniversary; minus any
amounts the Company paid the Owner (including income tax we withheld from you)
since that anniversary.
A Death Benefit Anniversary is every seventh Contract Anniversary beginning with
the issue date. For example, the issue date, 7th and 14th Contract Anniversaries
are the first three Death Benefit Anniversaries.
The death benefit will be adjusted by any applicable Market Value Adjustment as
of the date the Company determines the death benefit. The death benefit will
never be less than the sum of all purchase payments less any amounts previously
paid to the Owner (including income tax withholding).
THE FOLLOWING INFORMATION IS APPLICABLE TO CONTRACTS ISSUED ON OR AFTER MAY 1,
1997
Prior to the Payout Start Date, the death benefit is equal to the greatest of:
(a) the Contract Value as of the date the Company receives a complete
request for payment of the death benefit, or
(b) the Settlement Value on the date the Company receives a complete
request for payment of the death benefit, or
(c) the Contract Value on each Death Benefit Anniversary prior to the date
the Company receives a complete request for payment of the death benefit,
increased by purchase payments made since that Death Benefit Anniversary
and reduced by an adjustment for any partial withdrawals since that Death
Benefit Anniversary.
The adjustment is equal to (a) divided by (b) and the result multiplied by (c)
where:
(a) is the withdrawal amount
(b) is the Contract Value immediately prior to the withdrawal, and
(c) is the Contract Value on the Death Benefit Anniversary adjusted by any
prior purchase payments or withdrawals made since that Anniversary.
<PAGE>
A Death Benefit Anniversary is every seventh Contract Anniversary beginning with
the issue date. For example, the issue date, 7th and 14th Contract Anniversaries
are the first three Death Benefit Anniversaries. Death Benefit Anniversary
values will be calculated until the oldest Owner, or the Annuitant if the Owner
is not a natural person, attains age 80.
For Contracts with the Enhanced Death Benefit option, the death benefit will be
the greatest of (a) through (c) above, or
(d) the Enhanced Death Benefit.
The Enhanced Death Benefit option is:
The greatest of the Anniversary Values as of the date we determine the
death benefit. The Anniversary Value is equal to the Contract Value on a
Contract Anniversary, increased by purchase payments made since that
anniversary and reduced by an adjustment for any partial withdrawals since
that anniversary.
The adjustment is equal to (a) divided by (b), and the result is multiplied
by (c) where:
(a) is the withdrawal amount.
(b) is the Contract Value immediately prior to the withdrawal.
(c) is the Contract Value on that Contract Anniversary adjusted by any
prior purchase payments and withdrawals since that Contract Anniversary.
Anniversary values will be calculated for each Contract Anniversary prior
to the oldest Owner's or the Annuitant's, if the Owner is not a natural
person, 80th birthday. The Enhanced Death Benefit Option will never be
greater than the maximum death benefit allowed by any non-forfeiture laws
which govern the Contract.
DEATH BENEFIT PAYMENT PROVISIONS
THE FOLLOWING INFORMATION IS APPLICABLE TO CONTRACTS ISSUED PRIOR TO MAY 1,
1997:
The Owner eligible to receive death benefits has the following options:
1. If the Owner eligible to receive the death benefit is not a natural person,
then the Owner must receive the death benefit in a lump sum within five years of
the Date of Death.
2. Otherwise, within 60 days of the date when the death benefit is calculated,
the Owner may elect to receive the death benefit under an Income Plan or in a
lump sum.
Payments from the Income Plan must begin within one-year of the Date of Death
and must be payable throughout:
-the life of the Owner; or
-a period not to exceed the life expectancy of the Owner; or
-the life of the Owner with payments guaranteed for a period not to exceed
the life expectancy of the Owner.
<PAGE>
Any death benefit payable in a lump sum must be paid within five years of the
date of death. If no election is made, funds will be distributed at the end of
the five year period.
3. If the surviving spouse of the deceased Owner is the new Owner, then the
spouse may elect one of the options listed above or may continue the Contract in
the accumulation phase as if the death had not occurred. If the Contract is
continued in the accumulation phase, the surviving spouse may make a single
withdrawal of any amount within one year of the date of death without incurring
a withdrawal charge. However, any applicable Market Value Adjustment, determined
as of the date of the withdrawal, will apply.
THE FOLLOWING INFORMATION IS APPLICABLE TO CONTRACTS ISSUED ON OR AFTER MAY 1,
1997:
A death benefit will be paid: 1) if the Owner elects to receive the death
benefit distributed in a single payment within 180 days of the date of death,
and 2) if the death benefit is paid as of the day the value of the death benefit
is determined. Otherwise, the Settlement Value will be paid. The Company is
currently waiving the 180 day limit. The Company reserves the right to enforce
the limitation in the future. In any event, the entire value of the Contract
must be distributed within five (5) years after the date of death unless an
Income Plan is elected or a surviving spouse continues the Contract in
accordance with the following provisions.
If the Owner eligible to receive the distribution upon death is not a natural
person, the Owner may elect to receive the distribution upon death in one or
more distributions.
If the Owner is a natural person, the Owner may elect to receive the
distribution upon death either in one or more distributions or by periodic
payments through an Income Plan. Payments from the Income Plan must begin within
one year of the date of death and must be payable throughout:
- the life of the Owner; or
- a period not to exceed the life expectancy of the Owner; or
- the life of the Owner with payments guaranteed to a period not to
exceed the life expectancy of the Owner.
If the surviving spouse of the deceased Owner is the new Owner, then the spouse
may elect one of the options listed above or may continue the Contract in the
Accumulation Phase as if the death had not occurred. If the Contract is
continued in the Accumulation Phase, the surviving spouse may make a single
withdrawal of any amount within one year of the date of death without incurring
a withdrawal charge. However, any applicable Market Value Adjustment, determined
as of the date of the withdrawal, will apply.
CHARGES AND OTHER DEDUCTIONS
DEDUCTIONS FROM PURCHASE PAYMENTS
No deductions are made from purchase payments. Therefore, the full amount of
every purchase payment is invested in the Investment Alternative(s).
<PAGE>
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE)
You may withdraw all or part of the Contract Value at any time prior to the
earlier of the death of the Owner (the Annuitant if the Owner is not a natural
person) or the Payout Start Date.
There are no withdrawal charges on amounts withdrawn up to 10% of the Contract
Value on the date of the first withdrawal in a Contract Year. Amounts withdrawn
in excess of this may be subject to a withdrawal charge. Amounts not subject to
a withdrawal charge and not withdrawn in a Contract Year are not carried over to
later Contract Years. Withdrawal charges, if applicable, will be deducted from
the amount paid.
Free withdrawals and other partial withdrawals will be allocated on a first in,
first out basis to purchase payments. For purposes of calculating the amount of
the withdrawal charge, withdrawals are assumed to come from purchase payments
first, beginning with the oldest payment. Withdrawals made after all purchase
payments have been withdrawn will not be subject to a withdrawal charge. For
partial withdrawals, the amount of payment received by the Owner less any market
value adjustment, any withdrawal charge, and any applicable taxes, will be
deducted from the Contract Value.
Withdrawal charges will be applied to amounts withdrawn in excess of 10% of the
Contract Value as set forth below:
COMPLETE YEARS SINCE APPLICABLE
PURCHASE PAYMENT BEING WITHDRAWAL
WITHDRAWN WAS MADE CHARGE PERCENTAGE
- ------------------ -----------------
0 years . . . . . . . . . . . . . . . . . . . . . . . . 7%
1 year. . . . . . . . . . . . . . . . . . . . . . . . . 6%
2 years . . . . . . . . . . . . . . . . . . . . . . . . 5%
3 years . . . . . . . . . . . . . . . . . . . . . . . . 4%
4 years . . . . . . . . . . . . . . . . . . . . . . . . 3%
5 years . . . . . . . . . . . . . . . . . . . . . . . . 2%
6 years . . . . . . . . . . . . . . . . . . . . . . . . 1%
7 Years or more . . . . . . . . . . . . . . . . . . . . 0%
Withdrawal charges will be used to pay sales commissions and other promotional
or distribution expenses associated with the marketing of the Contracts.
In addition, federal and state income tax may be withheld from withdrawal
amounts. Certain terminations may also be subject to a federal tax penalty. See
"Federal Tax Matters," page __.
The Company will waive any withdrawal charge prior to the Payout Start Date if
at least 30 days after the Contract Date any Owner (or Annuitant if the Owner is
not a natural person) 1) is first confined to a long term care facility or
hospital for at least 90 consecutive days, confinement is prescribed by a
physician and is medically necessary, and the request for a withdrawal and
adequate written proof of confinement are received by the Company no later than
90 days after discharge; or, 2) is first diagnosed by a physician as having a
terminal illness and a request for a withdrawal and adequate proof of diagnosis
are received by the Company. In addition, the withdrawal charge will be waived
on withdrawals taken to satisfy IRS Required Minimum Distribution Rules for this
Contract.
<PAGE>
You may also request a one time waiver of withdrawal charges on a partial or
full withdrawal if (a) You become unemployed at least one year past the issue
date of the Contract; (b) You receive unemployment compensation for at least 30
straight days as a result of that unemployment; and (c) this benefit is
exercised within 180 days of Your initial receipt of unemployment compensation.
Please see Your Contract for additional details. This benefit may not be
available in all states.
CONTRACT MAINTENANCE CHARGE
A contract maintenance charge is deducted annually from the Contract Value to
reimburse the Company for its actual costs in maintaining each Contract and the
Variable Account. The Company guarantees that the amount of this charge will not
exceed $30 per Contract Year over the life of the Contract. This charge will be
waived if the total purchase payments are $25,000 or more or if all money is
allocated to the Fixed Account Options on the Contract Anniversary.
Maintenance costs include but are not limited to expenses incurred in billing
and collecting purchase payments; keeping records; processing death claims, cash
withdrawals, and policy changes; proxy statements; calculating Accumulation Unit
and Annuity Unit values; and issuing reports to Owners and regulatory agencies.
The contract maintenance charge will be deducted from the Contract Value
invested in each Sub-Account of the Variable Account on each Contract
Anniversary prior to the Payout Start Date. The contract maintenance charge will
not be deducted from the Fixed Account options. The amount deducted for the
contract maintenance charge will be in the same proportion that the Owner's
value in each bears to the total value in all Sub-Accounts of the Variable
Account. After the Payout Start Date, a pro rata share of the annual contract
maintenance charge will be deducted from each income payment. For example, 1/12
of the $30, or $2.50, will be deducted if there are twelve income payments
during the Contract Year. The portion of the contract maintenance charge
proportional to the part of the Contract Year elapsed will be deducted from the
amount paid upon termination of the Contract.
ADMINISTRATIVE EXPENSE CHARGE
The Company will deduct an administrative expense charge which is equal, on an
annual basis, to .10% of the daily net assets you have allocated to the
Sub-Accounts of the Variable Account. This charge is designed to cover actual
administrative expenses which exceed the revenues from the contract maintenance
charge. There is no necessary relationship between the amount of administrative
charge imposed on a given Contract and the amount of expenses that may be
attributable to that Contract.
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct a mortality and expense risk charge which is equal, on
an annual basis, to 1.25% of the daily net assets you have allocated to the
Sub-Accounts of the Variable Account. The Company estimates that .85% is
attributable to the assumption of mortality risks and .40% is attributable to
the assumption of expense risks. For Contracts with the Enhanced Death Benefit
provision, the mortality and expense risk charge will be deducted daily, at a
rate equal on an annual basis, to 1.35% of the daily net assets in the Variable
Account. The assessment of the additional .10% for the Enhanced Death Benefit is
attributed to the assumption of additional mortality risks. The Company
guarantees that the percentage for this charge will not increase over the life
of the Contract.
The mortality risk arises from the Company's guarantee to cover all death
benefits and to make income payments in accordance with the Income Plan selected
and the Income Payment Tables.
The expense risk arises from the possibility that the contract maintenance and
administrative expense charge, both of which are guaranteed not to increase,
will be insufficient to cover actual administrative expenses.
PREMIUM TAXES
The Company will deduct applicable state premium taxes or other similar
policyholder taxes relative to the Contract (collectively referred to as
"premium taxes") either at the Payout Start Date, or when a total withdrawal
occurs. Current premium tax rates range from 0 to 3.5%. The Company reserves the
right to deduct premium taxes from the purchase payments.
At the Payout Start Date, the charge for premium taxes will be deducted from
each Investment Alternative in the proportion that the Owner's value in the
Investment Alternative bears to the total Contract Value.
TRANSFER CHARGES
The Company reserves the right to assess a $10 charge on each transfer in excess
of 12 per Contract Year, excluding transfers through Dollar Cost Averaging and
Automatic Portfolio Rebalancing. The Company is presently waiving this charge.
FUND EXPENSES
A complete description of the expenses and deductions from the portfolios in
each Fund is found in the prospectus for each Fund, which accompanies this
prospectus.
<PAGE>
GENERAL MATTERS
OWNER
The Owner has the sole right to exercise all rights and privileges under the
Contract, except as otherwise provided in the Contract. The Contract cannot be
jointly owned by both a non-natural person and a natural person.
ANNUITANT
If the Owner is a natural person, the Owner may change the Annuitant prior to
the Payout Start Date. The Annuitant must be a natural person. If the Annuitant
dies prior to the Payout Start Date, the new Annuitant will be: a) the youngest
Owner, otherwise (b) the youngest Beneficiary.
BENEFICIARY
Subject to the terms of any irrevocable Beneficiary designation, the Owner may
change the Beneficiary at any time by notifying the Company in writing. Any
change will be effective at the time it is signed by the Owner, whether or not
the Annuitant is living when the change is received by the Company. The Company
will not, however, be liable as to any payment or settlement made prior to
receiving the written notice.
Unless otherwise provided in the Beneficiary designation, if any Beneficiary
predeceases the Owner, the new Beneficiary will be: the Owner's spouse if
living; otherwise, the Owner's children, equally, if living; otherwise, the
Owner's estate. Multiple Beneficiaries may be named. Unless otherwise provided
in the Beneficiary designation, if more than one Beneficiary survives the Owner,
the surviving Beneficiaries will share equally in any amounts due.
ASSIGNMENTS
The Company will not honor an assignment of an interest in a Contract as
collateral or security for a loan. Otherwise, the Owner may assign periodic
income payments under the Contract prior to the Payout Start Date. No
Beneficiary may assign benefits under the Contract until they are due. No
assignment will bind the Company unless it is signed by the Owner and filed with
the Company. The Company is not responsible for the validity of an assignment.
Federal law prohibits or restricts the assignment of benefits under many types
of retirement plans and the terms of such plans may themselves contain
restrictions on assignments.
DELAY OF PAYMENTS
Payment of any amounts due from the Variable Account under the Contract will
occur within seven days, unless:
1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the Securities and Exchange Commission; or
3. The Securities and Exchange Commission permits delay for the protection of
the Owners.
Payments or transfers from the Fixed Account Options may be delayed for up to 6
months. If payment or transfer is delayed for 30 days or more, the Company will
pay interest as required by applicable law.
<PAGE>
MODIFICATION
The Company may not modify the Contract without the consent of the Owner except
to make the Contract meet the requirements of the Investment Company Act of
1940, or to make the Contract comply with any changes in the Internal Revenue
Code or any changes required by the Code or by any other applicable law.
CUSTOMER INQUIRIES
The Owner or any persons interested in the Contract may make inquiries regarding
the Contract by calling or writing your representative or:
GLENBROOK LIFE AND ANNUITY COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
1-800/453-6038
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or receipt of distributions under an annuity contract
depend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL
Generally, an annuity contract owner is not taxed on increases in the Contract
Value until a distribution occurs. This rule applies only where (1) the owner is
a natural person, (2) the investments of the Variable Account are "adequately
diversified" in accordance with Treasury Department regulations, and (3) the
issuing insurance company, instead of the annuity owner, is considered the owner
for federal income tax purposes of any separate account assets funding the
contract.
NON-NATURAL OWNERS
As a general rule, annuity contracts owned by non-natural persons are not
treated as annuity contracts for federal income tax purposes and the income on
such contracts is taxed as ordinary income received or accrued by the owner
during the taxable year. There are several exceptions to the general rule for
contracts owned by non-natural persons which are discussed in the Statement of
Additional Information.
DIVERSIFICATION REQUIREMENTS
For a Contract to be treated as an annuity for federal income tax purposes, the
investments in the Variable Account must be "adequately diversified" in
accordance with the standards provided in the Treasury regulations. If the
investments in the Variable Account are not adequately diversified, then the
Contract will not be treated as an annuity contract for federal income tax
purposes and the Owner will be taxed on the excess of the Contract Value over
the investment in the Contract. Although the Company does not have control over
the Funds or their investments, the Company expects the Funds to meet the
diversification requirements.
<PAGE>
OWNERSHIP TREATMENT
In connection with the issuance of the regulations on the adequate
diversification standards, the Department of the Treasury announced that the
regulations do not provide guidance concerning the extent to which contract
owners may direct their investments among Sub-Accounts of a variable account.
The Internal Revenue Service has previously stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the owner possesses incidents of ownership in those assets such as the
ability to exercise investment control over the assets. At the time the
diversification regulations were issued, Treasury announced that guidance would
be issued in the future regarding the extent that owners could direct their
investments among Sub-Accounts without being treated as owners of the underlying
assets of the Variable Account.
The ownership rights under this contract are similar to, but different in
certain respects from, those described by the Service in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of this contract has the choice of more investment options to
which to allocate premiums and contract values, and may be able to transfer
among investment options more frequently than in such rulings. These differences
could result in the contract owner being treated as the owner of the assets of
the Variable Account. In those circumstances, income and gains from the Variable
Account assets would be includible in the Contract Owners' gross income. In
addition, the Company does not know what standards will be set forth in the
regulations or rulings which the Treasury Department has state it expects to
issue. It is possible that Treasury's position, when announced, may adversely
affect the tax treatment of existing contracts. The Company, therefore, reserves
the right to modify the Contract as necessary to attempt to prevent the Owner
from being considered the federal tax owner of the assets of the Variable
Account. However, the Company makes no guarantee that such modification to the
contract will be successful.
DELAYED MATURITY DATES
If the Contract's scheduled maturity date is at a time when the annuitant has
reached an advanced age, e.g., past age 85, it is possible that the contract
would not be treated as an annuity. In that event, the income and gains under
the contract could be currently includible in the owner's income.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal under a non-qualified contract, amounts
received are taxable to the extent the contract value, without regard to any
surrender charge, before the withdrawal exceeds the investment in the contract.
The investment in the contract is the gross premium or other consideration paid
for the contract reduced by any amounts previously received from the contract to
the extent such amounts were properly excluded from the owner's gross income. In
the case of a partial withdrawal under a qualified contract, the portion of the
payment that bears the same ratio to the total payment that the investment in
the contract (i.e., nondeductible IRA contributions, after tax contributions to
qualified plans) bears to the contract value, can be excluded from income. In
the case of a full withdrawal under a non-qualified contract or a qualified
contract, the amount received will be taxable only to the extent it exceeds the
investment in the contract. If an individual transfers an annuity contract
without full and adequate consideration to a person other than the individual's
spouse (or to a former spouse incident to a divorce), the owner will be taxed on
the difference between the contract value and the investment in the contract at
the time of transfer. Other than in the case of certain qualified contracts, any
amount received as a loan under a contract, and any assignment or pledge (or
agreement to assign or pledge) of the contract value is treated as a withdrawal
of such amount or portion.
<PAGE>
TAXATION OF ANNUITY PAYMENTS
Generally, the rule for income taxation of payments received from an annuity
contract provides for the return of the owner's investment in the contract in
equal tax-free amounts over the payment period. The balance of each payment
received is taxable. In the case of variable annuity payments, the amount
excluded from taxable income is determined by dividing the investment in the
contract by the total number of expected payments. In the case of fixed annuity
payments, the amount excluded from income is determined by multiplying the
payment by the ratio of the investment in the contract (adjusted for any refund
feature or period certain) to the total expected value of annuity payments for
the term of the contract. Once the total amount of the investment in the
contract is excluded using these ratios, the annuity payments will be fully
taxable. If annuity payments cease because of the death of the annuitant before
the total amount of the investment in the contract is recovered, the unrecovered
amount will be allowed as a deduction to the annuitant for his last taxable
year.
TAXATION OF ANNUITY DEATH BENEFITS
Amounts may be distributed from an annuity contract because of the death of an
owner or annuitant. Generally, such amounts are includible in income as follows:
(1) if distributed in a lump sum, the amounts are taxed in the same manner as a
full withdrawal or (2) if distributed under an annuity option, the amounts are
taxed in the same manner as an annuity payment.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any premature distribution
from a non-qualified annuity contract. The penalty tax generally applies to any
distribution made prior to the date the owner attains age 59 1/2. However, there
should be no penalty tax on distributions to owners (1) made on or after the
date the owner attains age 59 1/2; (2) made as a result of the owner's death or
disability; (3) made in substantially equal periodic payments over life or
distributions over life or life expectancy; (4) made under an immediate annuity;
or (5) attributable to an investment in the contract before August 14, 1982.
Similar rules apply for distributions from qualified contracts. Consult a
competent tax advisor for other possible exceptions to the penalty tax.
AGGREGATION OF ANNUITY CONTRACTS
All non-qualified deferred annuity contracts issued by the Company (or its
affiliates) to the same owner during any calendar year will be aggregated and
treated as one annuity contract for purposes of determining the taxable amount
of a distribution.
TAX QUALIFIED CONTRACTS
Annuity contracts may be used as investments with certain tax qualified plans
such as: (1) Individual Retirement Annuities under Section 408(b) of the Code;
(2) Roth Individual Retirement Annuities under Section 408A of the Code; (3)
Simplified Employee Pension Plans under Section 408(k) of the Code; (4) Savings
Incentive Match Plans for Employees (SIMPLE) Plans under Section 408(p) of the
Code;(5) Tax Sheltered Annuities under Section 403(b) of the Code; (6) Corporate
and Self Employed Pension and Profit Sharing Plans; and (7) State and Local
Government and Tax-Exempt Organization Deferred Compensation Plans. In the case
of certain tax qualified plans, the terms of the plans may govern the right to
benefits, regardless of the terms of the contract.
<PAGE>
RESTRICTIONS UNDER SECTION 403(B) PLANS
Section 403(b) of the Code provides for tax-deferred retirement savings plans
for employees of certain non-profit and educational organizations. In accordance
with the requirements of Section 403(b), any annuity contract used for a 403(b)
plan must provide that distributions attributable to salary reduction
contributions made after 12/31/88, and all earnings on salary reduction
contributions, may be made only on or after the date the employee attains age 59
1/2, separates from service, dies, becomes disabled or on the account of
hardship (earnings on salary reduction contributions may not be distributed on
the account of hardship).
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth Individual
Retirement Annuity. Roth Individual Retirement Annuities are subject to
limitations on the amount that can be contributed and on the time when
distributions may commence. "Qualified distributions" from Roth Individual
Retirement Annuities are not includible in gross income. "Qualified
distributions" are any distributions made more than five taxable years after the
taxable year of the first contribution to the Roth Individual Retirement
Annuity, and which are made on or after the date the individual attains age 59
1/2 , made to a beneficiary after the owner's death, attributable to the owner
being disabled or for a first time home purchase (first time home purchases are
subject to a lifetime limit of $10,000). "Nonqualified distributions" are
treated as made from contributions first and are includible in gross income to
the extent such distributions exceed the contributions made to the Roth
Individual Retirement Annuity. The taxable portion of a "nonqualified
distribution" may be subject to the 10% penalty tax on premature distributions.
Subject to certain limitations, a traditional Individual Retirement Account or
Annuity may be converted or "rolled over" to a Roth Individual Retirement
Annuity. The taxable portion of a conversion or rollover distribution is
includible in gross income, but is exempted from the 10% penalty tax on
premature distributions.
INCOME TAX WITHHOLDING
The Company is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless an individual elects to make a "direct
rollover" of such amounts to another qualified plan or Individual Retirement
Account or Annuity (IRA). Eligible rollover distributions generally include all
distributions from qualified contracts, excluding IRAs, with the exception of
(1) required minimum distributions, or (2) a series of substantially equal
periodic payments made over a period of at least 10 years, or the life (joint
lives) of the participant (and beneficiary). For any distributions from
non-qualified annuity contracts, or distributions from qualified contracts which
are not considered eligible rollover distributions, the Company may be required
to withhold federal and state income taxes unless the recipient elects not to
have taxes withheld and properly notifies the Company of such election.
DISTRIBUTION OF THE CONTRACTS
Allstate Life Financial Services, Inc. ("ALFS"), 3100 Sanders Road, Northbrook
Illinois, a wholly owned subsidiary of Allstate Life, acts as the principal
underwriter of the Contracts. ALFS is registered as a broker-dealer under the
Securities Exchange Act of 1934 and became a member of the National Association
of Securities Dealers, Inc. on June 30, 1993. Contracts are sold by registered
representatives of unaffiliated broker-dealers or bank employees who are
licensed insurance agents appointed by the Company, either individually or
through an incorporated insurance agency and who have entered into a selling
agreement with ALFS and the Company to sell the Contract. In some states,
Contracts may be sold by representatives or employees of banks which may be
acting as broker-dealers without separate registration under the Securities
Exchange Act of 1934, pursuant to legal and regulatory exceptions.
Commissions paid may vary, but in aggregate are not anticipated to exceed 6% of
any purchase payment. In addition, under certain circumstances, certain sellers
of the Contracts may be paid persistency bonuses which will take into account,
among other things, the length of time purchase payments have been held under a
Contract, and Contract Values. A persistency bonus is not expected to exceed
0.25%, on an annual basis, of the Contract Values considered in connection with
the bonus. These commissions are intended to cover distribution expenses.
The underwriting agreement with ALFS provides for indemnification of ALFS by the
Company for liability to Owners arising out of services rendered or Contracts
issued.
<PAGE>
VOTING RIGHTS
The Owner or anyone with a voting interest in the Sub-Account of the Variable
Account may instruct the Company on how to vote at shareholder meetings of the
Funds. The Company will solicit and cast each vote according to the procedures
set up by the Funds and to the extent required by law. Fund shares as to which
no timely instructions are received will be voted in proportion to the voting
instructions which are received with respect to all Contracts participating in
that Sub-Account. Voting instructions to abstain on any item to be voted upon
will be applied on a pro-rata basis to reduce the votes eligible to be cast. The
Company reserves the right to vote Fund shares in its own right, to the extent
permitted by the Investment Company Act of 1940, its regulations or
interpretations thereof.
Before the Payout Start Date, the Owner holds the voting interest in the
Sub-Account of the Variable Account (the number of votes for the Owner will be
determined by dividing the Contract Value attributable to a Sub-Account by the
net asset value per share of the applicable eligible portfolio).
After the Payout Start Date, the person receiving income payments has the voting
interest. After the Payout Start Date, the votes decrease as income payments are
made and as the reserves for the Contract decrease. That person's number of
votes will be determined by dividing the reserve for such Contract allocated to
the applicable Sub-Account by the net asset value per share of the corresponding
eligible portfolio.
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the financial statements and notes thereto included in this
prospectus beginning on page F-1.
GLENBROOK LIFE AND ANNUITY COMPANY
SELECTED FINANCIAL DATA
(IN THOUSANDS)
YEAR-END FINANCIAL DATA 1997 1996 1995 1994 1993
- ----------------------- ---- ---- ---- ---- ----
For The Years Ended December 31:
Income Before Income
Tax Expense. . $ 8,764 $ 3,774 $ 4,455 $ 2,017 $ 836
Net Income............... 5,686 2,435 2,879 1,294 529
As of December 31:
Total Assets............. 3,351,541 2,404,527 1,409,705 750,245 169,361
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion highlights significant factors influencing results
of operations and changes in financial position of Glenbrook Life and Annuity
Company (the "Company"). It should be read in conjunction with the financial
statements and related notes.
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, markets life insurance and annuity
products through banks and broker-dealers.
The Company issues flexible premium deferred variable annuity contracts and
variable life policies, the assets and liabilities of which are legally
segregated and reflected as Separate Account assets and liabilities. Separate
Account assets and liabilities are carried at fair value in the statements of
financial position. Certain of the Separate Account investment portfolios were
initially funded with a $10.0 million seed money contribution from the Company
in 1995. During 1997, the Company liquidated its funding in the Separate Account
investment portfolios. Investment income and realized gains and losses of the
Separate Accounts, other than the portion related to the Company's
participation, accrue directly to the contractholders (net of fees) and,
therefore, are not included in the Company's statements of operations.
Results of Operations
- ---------------------
($ in thousands)
1997 1996 1995
---- ---- ----
Net investment income $ 5,304 $ 3,774 $ 3,996
======= ======= =======
Realized capital gains and losses,
after-tax $ 2,249 $ - $ 298
======= ======= =======
Net income $ 5,686 $ 2,435 $ 2,879
======= ======= =======
Investments $90,474 $50,676 $50,917
======= ======= =======
The Company and ALIC entered into a reinsurance agreement effective June 5,
1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers. The
Company's results of operations include only investment income and realized
capital gains and losses earned on the assets of the Company that are not
transferred to ALIC under the reinsurance agreement.
<PAGE>
Net income increased $3.3 million in 1997 due to realized capital gains
arising primarily from the withdrawal of the seed money from the Separate
Account and the increase in net investment income. The $444 thousand decrease in
net income in 1996 reflects the decrease in net investment income and realized
capital gains.
Pretax net investment income in 1997 increased 40.5%, or $1.5 million, to
$5.3 million compared to $3.8 million in 1996. This higher net investment income
was caused by a significant increase in the level of investments primarily
arising from a $20.0 million capital contribution received from ALIC in January
1997 and the liquidation of the Company's seed money investment in the Separate
Account, partially offset by an increase in investment expenses. Net investment
income decreased $222 thousand in 1996 due to the impact of the Company's $10.0
million original investment in the variable funds of the Separate Account, whose
assets are invested predominantly in equity securities. The dividend yield on
the variable funds is significantly below the level of interest earned on fixed
income securities in which the $10.0 million was invested prior to the fourth
quarter of 1995. This decrease in income was partially offset by additional
investment income earned on the higher investment balances arising from positive
cash flows from operating activities in 1996.
Realized capital gains after tax of $2.2 million in 1997 were associated
primarily with the withdrawal of the investment in Separate Account portfolios.
Realized capital gains after tax of $298 thousand in 1995 were the result of
sales of investments to fund the Company's participation in the Separate
Accounts.
Financial Position
- ------------------
($ in thousands)
1997 1996
------------ -----------
Fixed income securities (1) $ 86,243 $ 49,389
Short-term investments 4,231 1,287
------------ -----------
Total investments $ 90,474 $ 50,676
============ ===========
Reinsurance recoverable from ALIC $ 2,637,983 $ 2,060,419
============ ===========
Separate Account assets $ 620,535 $ 272,420
============ ===========
Contractholder funds $ 2,637,983 $ 2,060,419
============ ===========
Separate Account liabilities $ 620,535 $ 260,290
============ ===========
(1) Fixed income securities are carried at fair value. Amortized
cost for these securities was $81,369 and $46,925 at December
31, 1997 and 1996, respectively.
<PAGE>
The Company's fixed income securities portfolio consists of mortgage-backed
securities, U.S. government bonds, publicly traded corporate bonds and
tax-exempt municipal bonds. The Company generally holds its fixed income
securities for the long term, but has classified all of these securities
available for sale to allow maximum flexibility in portfolio management.
Investments grew $39.8 million, or 78.5%, during 1997. The increase in
investments is primarily due to the receipt of a $20.0 million capital
contribution from ALIC in January 1997 and liquidation of the seed money from
the Separate Account during 1997. In addition, at December 31, 1997, unrealized
net capital gains on the fixed income securities portfolio were $4.9 million
compared to $2.5 million as of December 31, 1996, primarily attributable to the
increase in the Company's fixed income securities portfolio during 1997.
At the end of 1997, all of the Company's fixed income securities portfolio
is rated investment grade, with a National Association of Insurance
Commissioners ("NAIC") rating of 1 or a Moody's rating of Aaa, Aa or A.
At December 31, 1997 and 1996, $31.9 million and $16.4 million,
respectively, of the fixed income securities portfolio were invested in
mortgage-backed securities ("MBS"). At December 31, 1997, all of the MBS had
underlying collateral that is guaranteed by U.S. government entities, thus
credit risk was minimal.
MBS, however, are subject to interest rate risk as the duration and
ultimate realized yield are affected by the rate of repayment of the underlying
mortgages. The Company attempts to limit interest rate risk by purchasing MBS
whose cost does not significantly exceed par value, and with repayment
protection to provide a more certain cash flow to the Company. At December 31,
1997, the amortized cost of the MBS portfolio was below par value by $417
thousand and over 31% of the MBS portfolio was invested in planned amortization
class bonds. This type of MBS is purchased to provide additional protection
against rising interest rates.
The Company closely monitors its fixed income securities portfolio for
declines in value that are other than temporary. Securities are placed on
non-accrual status when they are in default or when the receipt of interest
payments is in doubt.
The Company's short-term investment portfolio was $4.2 million and $1.3
million at December 31, 1997 and 1996, respectively. The Company invests
available cash balances primarily in taxable short-term securities having a
final maturity date or redemption date of one year or less.
During 1997, contractholder funds and amounts recoverable from ALIC under
the reinsurance agreement increased by $577.6 million. The increases resulted
from sales of the Company's single and flexible premium deferred annuities,
interest credited to contractholders, partially offset by surrenders,
withdrawals and benefits paid. Reinsurance recoverable from ALIC relates to
contract benefit obligations ceded to ALIC.
Separate Account assets increased by $348.1 million and Separate Account
liabilities increased by $360.2 million as compared with December 31, 1996. The
increases were primarily attributable to increased sales of flexible premium
deferred variable annuity contracts and the favorable investment performance of
the Separate Account investment portfolios, partially offset by variable annuity
surrenders and withdrawals. Additionally, the Separate Account asset was reduced
by the Company's liquidation of its seed money investment during 1997.
<PAGE>
Market Risk
- -----------
Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. The Company's primary market risk exposure
is to changes in interest rates. Interest rate risk is the risk that the Company
will incur economic losses due to adverse changes in interest rates, as the
Company invests substantial funds in interest-sensitive assets.
One way to quantify this exposure is duration. Duration measures the
sensitivity of the fair value of assets to changes in interest rates. For
example, if interest rates increase 1%, the fair value of an asset with a
duration of 5 years is expected to decrease in value by approximately 5%. At
December 31, 1997, the Company's asset duration was approximately 5.3 years.
To calculate duration, the Company projects asset cash flows, and discounts
them to a net present value basis using a risk-free market rate adjusted for
credit quality, sector attributes, liquidity and other specific risks. Duration
is calculated by revaluing these cash flows at an alternative level of interest
rates, and determining the percentage change in fair value from the base case.
The projections include assumptions (based upon historical market and Company
specific experience) reflecting the impact of changing interest rates on the
prepayment and/or option features of instruments, where applicable. Such
assumptions relate primarily to mortgage-backed securities, collateralized
mortgage obligations, and municipal and corporate obligations.
Based upon the information and assumptions the Company uses in its duration
calculation and in effect at December 31, 1997, management estimates that a 100
basis point immediate, parallel increase in interest rates ("rate shock") would
decrease the net fair value of its total investments by approximately $4.5
million. The selection of a 100 basis point immediate rate shock should not be
construed as a prediction by the Company's management of future market events;
but rather, to illustrate the potential impact of such an event.
To the extent that actual results differ from the assumptions utilized, the
Company's duration and rate shock measures could be significantly impacted.
Additionally, the Company's calculation assumes that the current relationship
between short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result, these calculations may not
fully capture the impact of non-parallel changes in the term structure of
interest rates and/or large changes in interest rates.
In formulating and implementing policies for investing new and existing
funds, AIC, as parent company of ALIC, administers and oversees investment risk
management processes primarily through three oversight bodies: the Boards of
Directors and Investment Committees of its operating subsidiaries, and the
Credit and Risk Management Committee ("CRMC"). The Boards of Directors and
Investment Committees provide executive oversight of investment activities. The
CRMC is a senior management committee consisting of the Chief Investment
Officer, the Investment Risk Manager, and other investment officers who are
responsible for the day-to-day management of market risk. The CRMC meets at
least monthly to provide detailed oversight of investment risk, including market
risk.
AIC has investment guidelines that define the overall framework for
managing market and other investment risks, including the accountabilities and
controls over these activities. In addition, AIC has specific investment
policies for each of its affiliates, including the Company, that delineate the
investment limits and strategies that are appropriate for the Company's
liquidity, surplus, product and regulatory requirements.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
In January 1997, a $20.0 million capital contribution that was accrued at
December 31, 1996 was received from ALIC.
Under the terms of reinsurance agreements, premiums and deposits on
universal life policies and investment contracts, excluding those relating to
Separate Accounts, are transferred to ALIC, which maintains the investment
portfolios supporting the Company's products. The Company continues to have
primary liability as a direct insurer for risks reinsured.
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, 1997, RBC
for the Company was significantly above a level that would require regulatory
action.
Year 2000
- ---------
The Company is heavily dependent upon complex computer systems for all
phases of its operations, including customer service, and policy and contract
administration. Since many of the Company's older computer software programs
recognize only the last two digits of the year in any date, some software may
fail to operate properly in or after the year 1999, if the software is not
reprogrammed or replaced, ("Year 2000 Issue"). The Company believes that many of
its counterparties and suppliers also have Year 2000 Issues which could affect
the Company. In 1995, AIC commenced a plan intended to mitigate and/or prevent
the adverse effects of Year 2000 Issues. These strategies include normal
development and enhancement of new and existing systems, upgrades to operating
systems already covered by maintenance agreements and modifications to existing
systems to make them Year 2000 compliant. The plan also includes the Company
actively working with its major external counterparties and suppliers to assess
their compliance efforts and the Company's exposure to them. The Company
presently believes that it will resolve the Year 2000 Issue in a timely manner,
and the financial impact will not materially affect its results of operations,
liquidity or financial position. Year 2000 costs are and will be expensed as
incurred.
Pending Accounting Standards
- ----------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 130 requires the presentation of comprehensive income in
the financial statements. Comprehensive income is a measurement of all changes
in equity that result from transactions and other economic events other than
transactions with stockholders. The requirements of this statement will be
adopted effective January 1, 1998.
SFAS No. 131 redefines how segments are determined and requires additional
segment disclosures for both annual and quarterly reporting. Under this
statement, segments are determined using the "management approach" for financial
statement reporting. The management approach is based on the way an enterprise
makes operating decisions and assesses performance of its businesses. The
Company is currently reviewing the requirements of the SFAS and has yet to
determine its impact on its current reporting segments. The requirements of this
statement will be adopted effective December 31, 1998.
<PAGE>
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP 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: a) an assessment has been imposed or it is probable that an assessment will
be imposed, b) the event obligating an entity to pay an assessment has occurred
and c) the amount of the assessment can be reasonably estimated. The
requirements of this standard will be adopted in 1999 and are not expected to
have a material impact on the results of operations, cash flows or financial
position of the Company. The SOP is expected to be adopted in 1999.
In March 1998, the Accounting Standards Executive Committee of the
AICPA issued SOP 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." The SOP provides guidance on accounting for the
costs of computer software developed or obtained for internal use. Specifically,
certain external, payroll and payroll related costs should be capitalized during
the application development state of a project and depreciated over the computer
software's useful life. The Company currently expenses these costs as incurred
and is evaluating the effects of this SOP on its accounting for internally
developed software. The SOP is expected to be adopted in 1998.
Forward-Looking Statements
- --------------------------
The statements contained in this Management's Discussion and Analysis
that are not historical information are forward-looking statements that are
based on management's estimates, assumptions and projections. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor under The
Securities Act of 1933 and The Securities Exchange Act of 1934 for
forward-looking statements.
COMPETITION
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
competing in the sale of insurance and annuities. There are approximately 1,700
stock, mutual and other types of insurers in business in the United States.
Several independent rating agencies regularly evaluate life insurers'
claims-paying ability, quality of investments, and overall stability. A.M. Best
Company assigns A+ (Superior) to Allstate Life which automatically reinsures all
net business of the Company. A.M. Best Company also assigns the Company the
rating of A+(r) because the Company automatically reinsures all net business
with Allstate Life. Standard & Poor's Insurance Rating Services assigns AA+
(Excellent) to the Company's claims-paying ability and Moody's assigns an Aa2
(Excellent) financial strength rating to the Company. The Company shares the
same ratings of its parent, Allstate Life Insurance Company. These ratings do
not relate to the investment performance of the Variable Account.
EMPLOYEES
As of December 31, 1997, Glenbrook Life and Annuity Company had approximately
125 employees at its home office in Northbrook, Illinois.
<PAGE>
PROPERTIES
The Company occupies office space provided by Allstate Insurance Company in
Northbrook, Illinois. Expenses associated with these offices are allocated on a
direct and indirect basis to the Company.
STATE AND FEDERAL REGULATION
The insurance business of the Company is subject to comprehensive and detailed
regulation and supervision throughout the United States. The laws of the various
jurisdictions establish supervisory agencies with broad administrative powers
with respect to licensing to transact business, overseeing trade practices,
licensing agents, approving policy forms, establishing reserve requirements,
fixing maximum interest rates on life insurance policy loans and minimum rates
for accumulation of surrender values, prescribing the form and content of
required financial statements and regulating the type and amounts of investments
permitted. Each insurance company is required to file detailed annual reports
with supervisory agencies in each of the jurisdictions in which it does business
and its operations and accounts are subject to examination by such agencies at
regular intervals.
Under insurance guaranty fund law, in most states, insurers doing business
therein can be assessed up to prescribed limits for contract owner losses
incurred as a result of company insolvencies. The amount of any future
assessments on the Company under these laws cannot be reasonably estimated. Most
of these laws do provide, however, that an assessment may be excused or deferred
if it would threaten an insurer's own financial strength.
In addition, several states, including Illinois, regulate affiliated groups of
insurers, such as the Company and its affiliates, under insurance holding
company legislation. Under such laws, intercompany transfers of assets and
dividend payments from insurance subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in relation to
the financial positions of the companies.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
controls on medical care costs, 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 and
pension rates and benefits.
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers are listed below, together with information
as to their ages, dates of election and principal business occupations during
the last five years (if other than their present business occupations).
LOUIS G. LOWER, II, 52, Chief Executive Officer and Chairman of the Board
(1995)*
Also Director (1986-Present) and Senior Vice President (1995-Present) of
Allstate Insurance Company; Director (1991-Present) of Allstate Life Financial
Services, Inc.; Director (1986-Present) and President (1990-Present) Allstate
Life Insurance Company; Director (1983-Present) and Chairman of the Board
(1990-Present) of Allstate Life Insurance Company of New York; Director
(1990-1997), Chairman of the Board of Directors and Chief Executive Officer
(1995-1997), Chairman of the Board of Directors and President (1990-1995) of
Glenbrook Life Insurance Company; Director and Chairman of the Board
(1995-Present) of Laughlin Group Holdings, Inc.; Director and Chairman of the
Board of Directors and Chief Executive Officer (1989-Present) Lincoln Benefit
Life Company; Director (1986-Present), Chairman of the Board of Directors and
Chief Executive Officer (1995-Present) of Northbrook Life Insurance Company; and
Chairman of the Board of Directors and Chief Executive Officer (1995-Present)
Surety Life Insurance Company.
PETER H. HECKMAN, 52, President, Chief Operating Officer and Director (1996)*
Also Director and Vice President (1988-Present) of Allstate Life Insurance
Company; Director (1990-1996), Vice President (1989-Present), Allstate Life
Insurance Company of New York; Director (1990-1997), President and Chief
Operating Officer (1996-1997), and Vice President (1990-1996), Glenbrook Life
Insurance Company; Director (1995-Present) and Vice Chairman of the Board
(1996-Present) Laughlin Group Holdings, Inc.; Director (1990-Present) and Vice
Chairman of the Board (1996-Present) Lincoln Benefit Life Company; Director
(1988-Present) President and Chief Operating Officer (1996-Present), and was
Vice President (1989-1996), Northbrook Life Insurance Company; and Director
(1995-Present) and Vice Chairman of the Board (1996-Present) Surety Life
Insurance Company.
MICHAEL J. VELOTTA, 52, Vice President, Secretary, General Counsel, and Director
(1992)*
Also Director and Secretary (1993-Present) of Allstate Life Financial Services,
Inc.; Director (1992-Present) Vice President, Secretary and General Counsel
(1993-Present) Allstate Life Insurance Company; Director (1992-Present) Vice
President, Secretary and General Counsel (1993-Present) Allstate Life Insurance
Company of New York; Director (1992-1997) Vice President, Secretary and General
Counsel (1993-1997) Glenbrook Life Insurance Company; Director and Secretary
(1995-Present) Laughlin Group Holdings, Inc.; Director (1992-Present) and
Assistant Secretary (1995-Present) Lincoln Benefit Life Company; Director
(1992-Present) Vice President, Secretary and General Counsel (1993-Present)
Northbrook Life Insurance Company; and Director and Assistant Secretary
(1995-Present) Surety Life Insurance Company.
JOHN R. HUNTER, 43, Director (1996)*
Also Assistant Vice President (1990-Present) Allstate Life Insurance Company;
Assistant Vice President (1996-Present) Allstate Life Insurance Company of New
York; President and Chief Operating Officer (1998-Present) Allstate Life
Financial Services Inc.; Director (1996-1997) Glenbrook Life Insurance Company;
and Director (1994-Present) and Assistant Vice President (1990-Present)
Northbrook Life Insurance Company.
<PAGE>
G. CRAIG WHITEHEAD, 51, Senior Vice President and Director (1995)*
Also Assistant Vice President (1991-Present) Allstate Life Insurance Company;
Director (1994-1997) Assistant Vice President (1991-1997) Glenbrook Life
Insurance Company; Assistant Vice President (1992-Present) Secretary (1995)
Glenbrook Life and Annuity Company; Director (1995-Present) Laughlin Group
Holdings, Inc.
MARLA G. FRIEDMAN, 44, Vice President (1996)*
Also Director (1991-Present) and Vice President (1988-Present) Allstate Life
Insurance Company; Director (1993-1996) Allstate Life Financial Services, Inc.;
Director (1997-Present) and Assistant Vice President (1996-Present) Allstate
Life Insurance Company of New York; Director (1991-1996), President and Chief
Operating Officer (1995-1996) and Vice President (1990-1995) and (1996-1997)
Glenbrook Life Insurance Company; Director and Vice Chairman of the Board
(1995-1996) Laughlin Group Holdings, Inc.; and Director (1989-1996), President
and Chief Operating Officer (1995-1996) and Vice President (1996-Present)
Northbrook Life Insurance Company.
KEVIN R. SLAWIN, 40, Vice President (1996)*
Also Assistant Vice President and Assistant Treasurer (1995-1996) Allstate
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Allstate Life Financial Services, Inc.; Director and Vice President
(1996-Present) and Assistant Treasurer (1995-1996) Allstate Life Insurance
Company; Director and Vice President (1996-Present) and Assistant Treasurer
(1995-1996) Allstate Life Insurance Company of New York; Director and Vice
President (1996-1997) and Assistant Treasurer (1995-1996) Glenbrook Life
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Laughlin Group Holdings, Inc.; Director (1996-Present) Lincoln Benefit Life
Company; Director and Vice President (1996-Present) and Assistant Treasurer
(1995-1996) Northbrook Life Insurance Company; Director (1996-Present) Surety
Life Insurance Company; and Assistant Treasurer and Director (1994-1995) Sears
Roebuck and Co.; and Treasurer and First Vice President (1986-1994) Sears
Mortgage Corporation.
CASEY J. SYLLA, 54, Chief Investment Officer (1995)*
Also Director (1995-Present ) Senior Vice President and Chief Investment Officer
(1995-Present) Allstate Insurance Company; Director (1995-Present) Chief
Investment Officer (1995-Present) Allstate Life Insurance Company; Chief
Investment Officer (1995-Present) Allstate Life Insurance Company of New York;
Chief Investment Officer (1995-1997) Glenbrook Life Insurance Company; and
Director and Chief Investment Officer (1995-Present) Northbrook Life Insurance
Company. Prior to 1995 he was Senior Vice President and Executive
Officer-Investments (1992-1995) of Northwestern Mutual Life Insurance Company.
JAMES P. ZILS, 47, Treasurer (1995)*
Also Vice President and Treasurer (1995-Present) Allstate Insurance Company;
Treasurer (1995-Present) Allstate Life Financial Services, Inc.; Treasurer
(1995-Present) Allstate Life Insurance Company; Treasurer (1995-Present)
Allstate Life Insurance Company of New York; Treasurer (1995-1997) Glenbrook
Life Insurance Company; Treasurer (1995-Present) Laughlin Group Holdings, Inc.;
and Treasurer (1995-Present) Northbrook Life Insurance Company. From 1993 to
1995, he was Vice President of Allstate Life Insurance Company.
* Date elected to current office.
<PAGE>
EXECUTIVE COMPENSATION
Executive officers of the Company also serve as officers of Allstate Life and
receive no compensation directly from the Company. Some of the officers also
serve as officers of other companies affiliated with the Company. Allocations
have been made as to each individual's time devoted to his or her duties as an
executive officer of the Company. However, no officer's compensation allocated
to the Company exceeded $100,000 in 1997. The allocated cash compensation of all
officers of the Company as a group for services rendered in all capacities to
the Company during 1997 totaled $214,774.75. Directors of the Company receive no
compensation in addition to their compensation as employees of the Company.
Shares of the Company and Allstate Life are not directly owned by any director
or officer of the Company. The percentage of shares of The Allstate Corporation
beneficially owned by any director, and by all directors and officers of the
Company as a group, does not exceed one percent of the class outstanding.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
(Allstate Life Insurance Company)
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Restricted Underlying LTIP All Other
Name and Principal Salary Bonus Other Annual Stock Options/SARS Payouts Compensation
Position Year ($) ($) Compensation $Award(s) (#) ($) ($)
-------- ---- --- --- ------------ --------- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis G. Lower, II......... 1997 $ 453,225 $ 500,000 $27,768 $280,589 $25,914 $ 570,068 $ 8,000(1)
Chief Executive Officer 1996 $ 436,800 $ 246,781 $10,246 $ 0 $18,258 $ 0 $ 5,250(1)
and Chairman of the 1995 $ 416,000 $ 286,650 $17,044 $ 0 $89,359 $ 411,122 $ 5,250(1)
Board of Directors
- ------------------
(1)Amount received by Mr. Lower which represents the value allocated to his
account from employer contributions under The Savings and Profit Sharing Fund
of Allstate Employees and prior to 1996, The Profit Sharing Fund and to its
predecessor, The Savings and Profit Sharing Fund of Sears employees.
</TABLE>
LEGAL PROCEEDINGS
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. Management, after consultation with legal counsel, does not anticipate
the ultimate liability arising from such pending or threatened litigation to
have a material effect on the financial condition of the Company.
EXPERTS
The financial statements of the Variable Account incorporated by reference in
this prospectus, and the financial statements and financial statement schedule
of the Company included in this prospectus, have been audited by Deloitte &
Touche LLP, Two Prudential Plaza, 180 North Stetson Avenue, Chicago, Illinois
60601-6779, independent auditors, as stated in their reports appearing herein
and incorporated by reference in this prospectus, and are included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
<PAGE>
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised the Company on
certain federal securities law matters. All matters of Illinois law pertaining
to the Contracts, including the validity of the Contracts and the Company's
right to issue such Contracts under Illinois insurance law, have been passed
upon by Michael J. Velotta, General Counsel of the Company.
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (the "Company") as of December 31, 1997 and 1996, and
the related Statements of Operations, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1997. Our audits also
included Schedule IV - Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 20, 1998
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
------------
($ in thousands) 1997 1996
---------- ---------
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $81,369 and $46,925) $ 86,243 $ 49,389
Short-term 4,231 1,287
--------------- ---------------
Total investments 90,474 50,676
Reinsurance recoverable from Allstate Life Insurance
Company 2,637,983 2,060,419
Net receivable from affiliates - 18,963
Other assets 2,549 2,049
Separate Accounts 620,535 272,420
--------------- ---------------
Total assets $ 3,351,541 $ 2,404,527
=============== ===============
LIABILITIES
Contractholder funds $ 2,637,983 $ 2,060,419
Income taxes payable 609 410
Deferred income taxes 1,772 1,528
Net payable to affiliates 2,698 -
Separate Accounts 620,535 260,290
--------------- ---------------
Total liabilities 3,263,597 2,322,647
=============== ===============
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 4,200 shares
authorized, issued, and outstanding 2,100 2,100
Additional capital paid-in 69,641 69,641
Unrealized net capital gains 3,168 2,790
Retained income 13,035 7,349
--------------- ---------------
Total shareholder's equity 87,944 81,880
--------------- ---------------
Total liabilities and shareholder's equity $ 3,351,541 $ 2,404,527
=============== ===============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
REVENUES
Net investment income $ 5,304 $ 3,774 $ 3,996
Realized capital gains and losses 3,460 - 459
---------------- --------------- ----------------
INCOME BEFORE INCOME TAX EXPENSE 8,764 3,774 4,455
INCOME TAX EXPENSE 3,078 1,339 1,576
---------------- --------------- ----------------
NET INCOME $ 5,686 $ 2,435 $ 2,879
================ =============== ================
</TABLE>
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
COMMON STOCK $ 2,100 $ 2,100 $ 2,100
--------------- --------------- ---------------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year 69,641 49,641 49,641
Capital contributions - 20,000 -
--------------- --------------- ---------------
Balance, end of year 69,641 69,641 49,641
--------------- --------------- ---------------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year 2,790 3,357 (1,118)
Net change 378 (567) 4,475
--------------- --------------- ---------------
Balance, end of year 3,168 2,790 3,357
--------------- --------------- ---------------
RETAINED INCOME
Balance, beginning of year 7,349 4,914 2,035
Net income 5,686 2,435 2,879
--------------- --------------- ---------------
Balance, end of year 13,035 7,349 4,914
--------------- --------------- ---------------
Total shareholder's equity $ 87,944 $ 81,880 $ 60,012
=============== =============== ===============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,686 $ 2,435 $ 2,879
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and other non-cash
items 29 - -
Realized capital gains and losses (3,460) - (459)
Change in deferred income taxes 41 4 (39)
Changes in other operating assets and liabilities 1,160 (510) 1,217
------------ ------------ ------------
Net cash provided by operating activities 3,456 1,929 3,598
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,405 - 7,836
Investment collections 14,217 2,891 1,568
Investment purchases (50,115) (5,667) (1,491)
Participation in Separate Accounts 13,981 (232) (10,069)
Change in short-term investments, net (2,944) 815 (1,178)
------------ ------------ ------------
Net cash used in investing activities (23,456) (2,193) (3,334)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 20,000 - -
------------ ------------ ------------
Net cash provided by financing activities 20,000 - -
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH - (264) 264
CASH AT BEGINNING OF YEAR - 264 -
------------ ------------ ------------
CASH AT END OF YEAR $ - $ - $ 264
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Noncash financing activity:
Capital contribution receivable from
Allstate Life Insurance Company $ - $ 20,000 $ -
============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. General
Basis of presentation
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). On June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed
its 80.3% ownership in the Corporation to Sears common shareholders through a
tax-free dividend (the "Distribution"). These financial statements have been
prepared in conformity with generally accepted accounting principles.
To conform with the 1997 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
Nature of operations
The Company markets life insurance and annuity products in the United States
through banks and broker-dealers. Life insurance includes both
interest-sensitive and variable life insurance products. Annuities include
deferred annuities, such as variable annuities and fixed rate flexible premium
annuities. The Company has entered into exclusive distribution arrangements with
management investment companies to market its variable annuity contracts.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary withdrawal or surrender by customers, subject to applicable
surrender charges. These policies and contracts are reinsured with ALIC (see
Note 3), which invests premiums and deposits to provide cash flows that will be
used to fund future benefits and expenses. In order to support competitive
crediting rates and limit interest rate risk, ALIC , as the Company's reinsurer,
adheres to a basic philosophy of matching assets with related liabilities while
maintaining adequate liquidity and a prudent and diversified level of credit
risk.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be new and proposed federal
and state regulation and legislation that would allow banks greater
participation in the securities and insurance businesses, which will present an
increased level of competition for sales of the Company's life and annuity
products. Furthermore, the market for deferred annuities and interest-sensitive
life insurance is enhanced by the tax incentives available under current law.
Any legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
Although the Company currently benefits from agreements with financial services
entities who market and distribute its products, consolidation within that
industry and specifically, a change in control of those entities with which the
Company partners, could affect the Company's sales.
Enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; (2) increasing competition in capital
markets; and (3) reopening stock/mutual company disagreements related to such
issues as taxation disparity between mutual and stock insurance companies.
The Company is authorized to sell life and annuity products in all states except
New York, as well as in the District of Columbia. The Company is also authorized
to sell variable annuities in Puerto Rico. The top geographic locations for
statutory premiums and deposits earned by the Company are Florida, Pennsylvania,
California, Texas and Michigan for the year ended December 31, 1997. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits. All
premiums and contract charges are ceded to ALIC under reinsurance agreements.
2. Summary of Significant Accounting Policies
Investments
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ( "available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost which approximates fair value.
F-6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on the estimated principal repayments. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
Reinsurance
The Company and ALIC entered into a reinsurance agreement effective June 5,
1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers.
Contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such cessions in the statements of
operations. The amounts shown in the Company's statements of operations relate
to the investment of those assets of the Company that are not transferred to
ALIC under the reinsurance agreements. Reinsurance recoverable and
contractholder funds are reported separately in the statements of financial
position. The Company continues to have primary liability as the direct insurer
for risks reinsured.
Recognition of premium revenue and contract charges
Revenues on interest-sensitive life insurance policies are comprised of contract
charges and fees, and are recognized when assessed against the policyholder
account balance. Revenues on annuities, which are considered investment
contracts, include contract charges and fees for contract administration and
surrenders. These revenues are recognized when levied against the contract
balance.
Income taxes
The income tax provision is calculated under the liability method. Deferred tax
assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted tax
rates, and reflect the impact of reinsurance agreements. Deferred income taxes
arise primarily from unrealized capital gains and losses on fixed income
securities carried at fair value.
Separate Accounts
The Company issues flexible premium deferred variable annuity contracts and
single premium variable life policies, the assets and liabilities of which are
legally segregated and reflected in the accompanying statements of financial
position as assets and liabilities of the Separate Accounts (Glenbrook Life and
Annuity Company Variable Annuity Account, Glenbrook Life and Annuity Company
Separate Account A, Glenbrook Life Multi-Manager Variable Account and Glenbrook
Life Variable Life Separate Account A, unit investment trusts registered with
the Securities and Exchange Commission).
Assets of the Separate Accounts, including the Company's ownership interest
("Participation"), are carried at fair value. Unrealized gains and losses on the
Company's Participation, net of deferred income taxes, are shown as a component
of shareholder's equity. Investment income and realized capital gains and losses
arising from the Participation are included in the Company's statements of
operations. The Company liquidated its Participation during 1997, resulting in a
realized capital gain of $3,515. At December 31, 1996, the Participation
amounted to $12,130.
Investment income and realized capital gains and losses of the Separate
Accounts, other than the portion related to the Participation, accrue directly
to the contractholders and, therefore, are not included in the Company's
statements of operations. Revenues to the Company from the Separate Accounts
consist of contract maintenance fees, administrative fees, mortality and expense
risk charges, cost of insurance charges and tax expense charges, all of which
are ceded to ALIC.
Contractholder funds
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most annuities and
universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the customer less withdrawals, mortality charges and
administrative expenses. During 1997, credited interest rates on contractholder
funds ranged from 3.55% to 7.45% for those contracts with fixed interest rates
and from 3.70% to 7.85% for those with flexible rates.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
3. Related Party Transactions
Reinsurance
Contract charges ceded to ALIC were $11,641, $4,254 and $1,523 in 1997, 1996 and
1995, respectively. Credited interest, policy benefits and expenses ceded to
ALIC amounted to $179,954, $113,703 and $71,905 in 1997, 1996 and 1995,
respectively. Investment income earned on the assets which support
contractholder funds is not included in the Company's financial statements as
those assets are owned and managed by ALIC under the terms of reinsurance
agreements.
Business operations
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. The
cost to the Company is determined by various allocation methods and is primarily
related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $5,959, $759 and $348 in 1997, 1996 and 1995, respectively. Of these costs,
the Company retains investment related expenses. All other costs are ceded to
ALIC under reinsurance agreements.
Laughlin Group
Laughlin Group, Inc. ("Laughlin") is an indirect wholly owned subsidiary of
ALIC. Laughlin markets certain of the Company's flexible premium deferred
variable annuity contracts and flexible premium deferred fixed annuity
contracts. Sales commissions paid to Laughlin, for which the related cost was
ceded to ALIC, were $945 and $8,623 during 1997 and 1996, respectively. The
Company had a receivable of $850 from Laughlin at December 31, 1996, which is
included in net receivable from affiliates in the statements of financial
position.
4. Investments
Fair values
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
----------------
Amortized Fair
Cost Gains Losses Value
--------- ----- ------ -----
<S> <C> <C> <C> <C>
At December 31, 1997
U.S. government and agencies $ 24,419 $ 2,961 $ - $ 27,380
Municipal 656 17 - 673
Corporate 25,476 840 - 26,316
Mortgage-backed securities 30,818 1,056 - 31,874
-------- ------- --------- --------
Total fixed income securities $ 81,369 $ 4,874 $ - $ 86,243
======== ======= ========= ========
At December 31, 1996
U.S. government and agencies $ 24,265 $ 1,722 $ (3) $ 25,984
Corporate 6,970 96 (15) 7,051
Mortgage-backed securities 15,690 664 - 16,354
-------- ------- --------- --------
Total fixed income securities $ 46,925 $ 2,482 $ (18) $ 49,389
======== ======= ========= ========
</TABLE>
F-8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Scheduled maturities
The scheduled maturities for fixed income securities are as follows at December
31, 1997:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
Due in one year or less $ 400 $ 400
Due after one year through five years 3,838 3,877
Due after five years through ten years 33,245 35,102
Due after ten years 13,068 14,990
----------- ------------
50,551 54,369
Mortgage-backed securities 30,818 31,874
----------- ------------
Total $ 81,369 $ 86,243
=========== ============
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
<TABLE>
<CAPTION>
Net investment income
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 5,014 $ 3,478 $ 3,850
Short-term investments 231 126 113
Participation in Separate Accounts 161 232 69
-------------- -------------- --------------
Investment income, before expense 5,406 3,836 4,032
Investment expense 102 62 36
-------------- -------------- --------------
Net investment income $ 5,304 $ 3,774 $ 3,996
============== ============== ==============
</TABLE>
Realized capital gains and losses
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ (61) $ - $ 459
Short-term investments 6 - -
Participation in Separate Accounts 3,515 - -
------------- ------------- -------------
Realized capital gains and losses 3,460 - 459
Income taxes (1,211) - (161)
------------- ------------- -------------
Realized capital gains and losses,
after tax $ 2,249 $ - $ 298
============= ============= =============
</TABLE>
Excluding calls and prepayments, gross losses of $61 and gross gains of $459
were realized on sales of fixed income securities during 1997 and 1995,
respectively.
F-9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Unrealized net capital gains
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Cost/ Unrealized
Amortized Fair Net
Cost Value Gains
--------- ----- -----------
<S> <C> <C> <C>
Fixed income securities $ 81,369 $ 86,243 $ 4,874
Deferred income taxes ======== ======== (1,706)
-------
Unrealized net capital gains $ 3,168
=======
</TABLE>
Change in unrealized net capital gains
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 2,410 $ (2,239) $ 6,423
Participation in Separate Accounts (1,829) 1,368 461
Deferred income taxes (203) 304 (2,409)
------------- ------------- -------------
Increase (decrease) in unrealized net capital gains $ 378 $ (567) $ 4,475
============= ============== =============
</TABLE>
Securities on deposit
At December 31, 1997, fixed income securities with a carrying value of
$10,108 were on deposit with regulatory authorities as required by law.
5. Financial Instruments
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable) and liabilities (including deferred income
taxes) are not considered financial instruments and are not carried at fair
value. Other assets and liabilities considered financial instruments, such as
accrued investment income, are generally of a short-term nature. It is assumed
that their carrying value approximates fair value.
F-10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Financial assets
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Fixed income securities $ 86,243 $ 86,243 $ 49,389 $ 49,389
Short-term investments 4,231 4,231 1,287 1,287
Separate Accounts 620,535 620,535 272,420 272,420
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying value approximates fair value.
Separate Accounts assets are carried in the statements of financial position at
fair value.
Financial liabilities
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $ 2,636,331 $ 2,492,095 $ 2,059,642 $ 1,949,329
Separate Accounts 620,535 620,535 260,290 260,290
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
F-11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
6. Income Taxes
For 1996 and 1995, the Company filed a separate federal income tax return. The
Company will join the Corporation and its other eligible domestic subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate Group")
for 1997 and is party to a federal income tax allocation agreement (the "Tax
Sharing Agreement"). Under the Tax Sharing Agreement, the Company paid to or
received from the Corporation the amount, if any, by which the Allstate Group's
federal income tax liability was affected by virtue of inclusion of the Company
in the consolidated federal income tax return. Effectively, this results in the
Company's annual income tax provision being computed, with adjustments, as if
the Company filed a separate return.
Prior to the Distribution, the Corporation and all of its eligible domestic
subsidiaries, including the Company, joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Sears Tax Sharing Agreement"). Under the Sears Tax
Sharing Agreement, the Company, through the Corporation, paid to or received
from the Sears Group the amount, if any, by which the Sears Tax Group's federal
income tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed as if the Allstate Group
filed a separate consolidated return, except that items such as net operating
losses, capital losses or similar items, which might not be recognized in a
separate return, were allocated according to the Sears Tax Sharing Agreement.
The Allstate Group and Sears Group have entered into an agreement which governs
their respective rights and obligations with respect to federal income taxes for
all periods prior to the Distribution ("Consolidated Tax Years"). The agreement
provides that all Consolidated Tax Years will continue to be governed by the
Sears Tax Sharing Agreement with respect to the Allstate Group's federal income
tax liability.
The components of the deferred income tax liability at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Unrealized net capital gains on fixed income securities $ 1,706 $ 1,503
Difference in tax bases of investments 66 25
------------- -------------
Total deferred liability $ 1,772 $ 1,528
============= =============
</TABLE>
F-12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 3,037 $ 1,335 $ 1,615
Deferred 41 4 (39)
------- ------- -------
Total income tax expense $ 3,078 $ 1,339 $ 1,576
======= ======= =======
</TABLE>
The Company paid income taxes of $2,839, $2,446 and $866 in 1997, 1996 and 1995,
respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other .1 .5 .4
---- ---- ----
Effective federal income tax rate 35.1% 35.5% 35.4%
==== ==== ====
</TABLE>
F-13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
7. Statutory Financial Information
The following tables reconcile net income for the year ended December 31, and
shareholder's equity at December 31, as reported herein in conformity with
generally accepted accounting principles with statutory net income and capital
and surplus, determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities:
<TABLE>
<CAPTION>
Net Income
----------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance per generally accepted accounting principles $ 5,686 $ 2,435 $ 2,879
Deferred income taxes 41 4 (39)
Unrealized gain on participation in
Separate Accounts (1,829) 1,368 -
Statutory investment reserves 93 35 (279)
Other (354) (85) 108
----------- ------------ ------------
Balance per statutory accounting practices $ 3,637 $ 3,757 $ 2,669
=========== ============ ============
Shareholder's Equity
--------------------
1997 1996
---- ----
Balance per generally accepted accounting principles $ 87,944 $ 81,880
Deferred income taxes 1,772 1,528
Unrealized gain/loss on fixed income securities (4,874) (2,464)
Non-admitted assets (86) (850)
Statutory investment reserves 958 (2,282)
Other (3,114) (2,118)
---------- ------------
Balance per statutory accounting practices $ 82,600 $ 75,694
========== ============
</TABLE>
Permitted statutory accounting practices
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Illinois
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a material effect on statutory surplus, statutory net income
or risk-based capital.
Final approval of the NAIC's proposed "Comprehensive Guide" on statutory
accounting principles is expected in early 1998. The requirements may be
effective as early as January 1, 1999, and are not expected to have a material
impact on statutory surplus of the Company.
Dividends
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by insurance companies without the prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1998 without prior approval of the Illinois Department of Insurance is
$8,050.
F-14
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ in thousands)
<TABLE>
<CAPTION>
Gross Net
Year Ended December 31, 1997 amount Ceded amount
- ---------------------------- --------- ------------ --------
<S> <C> <C> <C>
Life insurance in force $ 4,095 $ 4,095 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 11,641 $ 11,641 $ -
================== ================== ==================
Gross Net
Year Ended December 31, 1996 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 2,436 $ 2,436 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 4,254 $ 4,254 $ -
================== =================== ==================
Gross Net
Year Ended December 31, 1995 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 1,250 $ 1,250 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 6,571 $ 6,571 $ -
================== ================== ==================
</TABLE>
F-15
<PAGE>
APPENDIX A
MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I = the Interest Crediting Rate for that Sub-Account
N = the number of whole and partial years from the date we receive the transfer,
withdrawal, or death benefit request, or from the Payout Start Date to the end
of the Sub-Account's Guarantee Period; and
J = the current interest crediting rate offered for a Guarantee Period or length
N on the date we determine the Market Value Adjustment.
J will be determined by a linear interpolation between the current interest
rates for the next higher and lower integral years. For purposes of
interpolation, current interest rates for Guarantee Periods not available
under this Contract will be calculated in a manner consistent with those
which are available.
The Market Value Adjustment factor is determined from the following formula:
.9 X (I--J)* N
Any transfer, withdrawal, or death benefit paid or amount applied to an Income
Plan from a Sub-Account of the Guaranteed Maturity Amount Fixed Account will be
multiplied by the Market Value Adjustment factor to determine the Market Value
Adjustment.
ILLUSTRATION
EXAMPLE OF MARKET VALUE ADJUSTMENT
Purchase Payment: $10,000
Guarantee Period: 5 years
Interest Rate: 4.50%
Full Surrender: End of Contract Year 3
NOTE: This illustration assumes that premium taxes are not applicable.
EXAMPLE 1: (Assumes declining interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.0450)(3) = $11,411.66
Step 2: Calculate the Free Withdrawal Amount
= .10 X 11,411.66 = $1,141.17
Step 3: Calculate the Withdrawal Charge:
= .05 X (10,000.00 - 1,141.17) = $442.94
A-1
<PAGE>
Step 4: Calculate the Market Value Adjustment:
I = 4.5%
J = 4.2%
730 Days
--------
N = 365 days = 2
Market Value Adjustment Factor: .9 X (I-J) X N
= .9 X (.045 - .042) X 730/365 = .0054
Market Value Adjustment = Factor X Amount Subject to Market Value Adjustment:
= .0054 X 11,411.66 = $61.62
Step 5: Calculate The Amount Received by Customers as a Result of Full
Withdrawal at the end of Contract Year 3:
= 11,411.66 - 442.94 + 61.62 = $11,030.34
EXAMPLE 2: (Assumes rising interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.045)(3) = $11,411.66
Step 2: Calculate the Free Withdrawal Amount:
= .10 X (11,411.66) = $1,141.17
Step 3: Calculate the Withdrawal Charge:
= .05 X (10,000.00 - 1,141.17) = $442.94
Step 4: Calculate the Market Value Adjustment:
I = 4.5%
J = 4.8%
730 days
--------
N = 365 days = 2
Market Value Adjustment Factor: .9 X (I-J) X N
= .9 X (.045 - .048) X (730/365) = -.0054
Market Value Adjustment = Factor X Amount Subject to Market Value Adjustment
= -.0054 X 11,411.66 = - $61.62
Step 5: Calculate The Amount Received by Customers as a Result of Full
Withdrawal at the end of Contract Year 3:
= 11,411.66 - 442.94 - 61.62 = $10,907.10
A-2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
----
Additions, Deletions or Substitutions of Investments 3
Reinvestment 3
The Contract 3
Purchase of Contracts 3
Performance Data 3
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers) 5
Premium Taxes 5
Tax Reserves 6
Income Payments 6
Calculation of Variable Annuity Unit Values 6
General Matters 6
Incontestability 6
Settlements 6
Safekeeping of the Variable Account's Assets 6
Federal Tax Matters 6
Introduction 6
Taxation of Glenbrook Life and Annuity Company 6
Exceptions to the Non-Natural Owner Rule 7
IRS Required Distribution at Death Rules 7
Qualified Plans 7
Types of Qualified Plans 7
Variable Account Financial Statements F-1
B-1
<PAGE>
ORDER FORM
Please send me a copy of the most recent Statement of Additional Information for
the Glenbrook Life and Annuity Company Variable Annuity Account.
(Date) (NAME)
(STREET ADDRESS)
(City) (State) (Zip Code)
Send to: Glenbrook Life and Annuity Company Post Office Box 94042
Palatine, Illinois 60094 Attention: VA Customer Service Unit
B-2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
GLENBROOK LIFE AND ANNUITY COMPANY
VARIABLE ANNUITY ACCOUNT
OFFERED BY
GLENBROOK LIFE AND ANNUITY COMPANY
3100 SANDERS ROAD
NORTHBROOK, IL 60062
1-800/755-5275
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACTS
This Statement of Additional Information supplements the information in the
prospectus for the Individual Flexible Premium Deferred Variable Annuity
Contract offered by Glenbrook Life and Annuity Company ("Company"). The Company
is a wholly owned subsidiary of Allstate Life Insurance Company. The Contract is
primarily designed to aid individuals in long-term financial planning and it can
be used for retirement planning regardless of whether the plan qualifies for
special federal income tax treatment. The prospectus may be obtained from
Glenbrook Life and Annuity Company by writing or calling the address or
telephone number listed above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT
The prospectus for the Contract, dated December 23, 1998 ("Prospectus"), has
been filed with the Securities and Exchange Commission.
DATED DECEMBER 23, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
Additions, Deletions or Substitutions of Investments 3
Reinvestment 3
The Contract 3
Purchase of Contracts 3
Performance Data 3
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers) 5
Premium Taxes 5
Tax Reserves 6
Income Payments 6
Calculation of Variable Annuity Unit Values 6
General Matters 6
Incontestability 6
Settlements 6
Safekeeping of the Variable Account's Assets 6
Federal Tax Matters 6
Introduction 6
Taxation of Glenbrook Life and Annuity Company 6
Exceptions to the Non-Natural Owner Rule 7
IRS Required Distribution at Death Rules 7
Qualified Plans 7
Types of Qualified Plans 7
Variable Account Financial Statements F-1
<PAGE>
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to applicable law, to add, delete or
substitute the Fund shares held by any Sub-Account of the Variable Account. The
Company reserves the right to eliminate the shares of any of the portfolios and
to substitute shares of another portfolio of the Funds, or of another open-end,
registered investment company, if the shares of the portfolio are no longer
available for investment, or if, in the Company's judgment, investment in any
portfolio would become inappropriate in view of the purposes of the Variable
Account. Substitutions of shares attributable to an Owner's interest in a
Sub-Account will not be made until the Owner has been notified of the change,
and until the Securities and Exchange Commission has approved the change, to the
extent such notification and approval are required by the Investment Company Act
of 1940. Nothing contained in this Statement of Additional Information shall
prevent the Variable Account from purchasing other securities for other series
or classes of contracts, or from effecting a conversion between series or
classes of contracts on the basis of requests made by Owners.
The Company may also establish additional Sub-Accounts or series of Sub-Accounts
of the Variable Account. Each additional Sub-Account would purchase shares in a
new portfolio of a Fund or in another mutual fund. New Sub-Accounts may be
established when, in the sole discretion of the Company, marketing needs or
investment conditions warrant. Any new Sub-Accounts offered in conjunction with
the Contract will be made available to existing Owners on a basis to be
determined by the Company. The Company may also eliminate one or more
Sub-Accounts if, in its sole discretion, marketing, tax or investment conditions
so warrant.
In the event of any such substitution or change, the Company may, by appropriate
endorsement, make such changes in the Contract as may be necessary or
appropriate to reflect such substitution or change. If deemed to be in the best
interests of persons having voting rights under the policies, the Variable
Account may be operated as a management company under the Investment Company Act
of 1940 or it may be deregistered under such Act in the event such registration
is no longer required.
REINVESTMENT
All dividends and capital gains distributions from the portfolios are
automatically reinvested in shares of the distributing portfolio at their net
asset value.
THE CONTRACT
PURCHASE OF CONTRACTS
The Contracts are offered to the public through banks as well as brokers
licensed under the federal securities laws and state insurance laws. The
Contracts are distributed through the principal underwriter for the Variable
Account, Allstate Life Financial Services, Inc., an affiliate of the Company.
The offering of the Contracts is continuous and the Company does not anticipate
discontinuing the offering of the Contracts. However, the Company reserves the
right to discontinue the offering of the Contracts.
<PAGE>
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 Federated Prime Money Fund II Sub-Account) will
always be accompanied by standardized average annual total return quotations
("standardized total returns"). Performance figures used by the Variable Account
are based on actual historical performance of its Sub-Accounts for specified
periods, and the figures are not intended to indicate future performance. The
Variable Account may also disclose yield and total return for periods prior to
the date that the Variable Account commenced operations. For periods prior to
the date the Variable Account commenced operations, performance information for
the Sub-Accounts will be calculated based on the performance of the underlying
Funds and the assumption that the Sub-Accounts were in existence for the same
periods as those of the underlying Funds, with a level of charges equal to those
currently assessed against the Sub-Accounts.
STANDARDIZED TOTAL RETURNS
A Sub-Account's standardized total return represents an annualization of the
Sub-Account's total return over a particular period and is computed by finding
the annual percentage rate which, when compounded annually, will accumulate a
hypothetical $1,000 Purchase Payment to the redeemable value at the end of the
one, five or ten year period, or for a period from the date of commencement of
the Sub-Account's operations, if shorter than any of the foregoing. The average
annual total return is obtained by dividing the ending redeemable value, after
deductions for any Withdrawal Charges or Contract Maintenance Charges imposed on
the Contracts by the Variable Account, by the initial hypothetical $1,000
Purchase Payment, taking the "n"th root of the quotient (where "n" is the number
of years in the period) and subtracting 1 from the result.
The Withdrawal Charges assessed upon redemption are computed as follows: no
Withdrawal Charge is assessed on 10% of the Contract Value, as determined on the
date of the first withdrawal during the Contract Year. Withdrawal Charges are
charged on the amount of redemption equal to the Purchase Payment, reduced by
the amount entitled to the 10% exception, if any. The remaining amount of the
redemption, if any, is not assessed a Withdrawal Charge. The Withdrawal Charge
Schedule specifies rates based on the number of complete years since the
Purchase Payment being withdrawn was made. One rate is specified for Purchase
Payments made in the current Contract Year, another rate for Purchase Payments
made in the prior Contract Year, another rate for Purchase Payments made in the
second prior Contract Year, and so on until a rate for Purchase Payments made in
the seventh prior Contract Year or prior to it is reached. For a one year total
return calculation the second rate, (i.e., the rate for Purchase Payments made
in the prior complete year since Purchase Payment being withdrawn was made), is
assessed. The Contract Maintenance Charge ($30 per contract) used in the total
return calculation is normally prorated using the following method: The total
amount of annual Contract fees collected during the year is divided by the total
average net assets of all the Sub-Accounts. The resulting percentage is then
multiplied by the ending Contract Value.
The standardized total returns for Sub-Accounts that have commenced operations
are presented below:
(Without Enhanced Death Benefit)
SINCE
ONE YEAR INCEPTION
Sub-Account* 1/1/97 to 12/31/97 10/6/95 to 12/31/97
- ----------- ------------------ -------------------
STI Investment Grade Bond 1.93% 1.43%
STI Capital Growth 29.24% 26.82%
STI Value Income 19.65% 20.44%
STI Mid-Cap Equity 15.12% 15.13%
STI International Equity** 9.80% 9.91%
STI Small Cap Equity*** N/A -8.68%
* No standardized total returns are shown for the AIM V.I. Capital Appreciation,
AIM V.I. High Yield, Oppenheimer Strategic Bond, Oppenheimer Multiple
Strategies, Templeton Bond, and Templeton Stock Sub-Accounts (collectively, the
"New Sub-Accounts"), which commenced operations as of the date of the
Prospectus. In addition, no standardized total returns are shown for the
Federated Prime Money Fund II.
** Sub-Account commenced operations on November 7, 1996
*** Sub-Account commenced operations on October 20, 1997.
<PAGE>
(With Enhanced Death Benefit)
SINCE
ONE YEAR INCEPTION
Sub-Account* 1/1/97 to 12/31/97 10/6/95 to 12/31/97
- ----------- ------------------ -------------------
STI Investment Grade Bond 1.83% 3.06%
STI Capital Growth 29.11% 26.69%
STI Value Income 19.53% 20.31%
STI Mid-Cap Equity 15.00% 15.02%
STI International Equity** 9.68% 9.80%
STI Small Cap Equity*** N/A -37.37%
* No standardized total returns are shown for the New Sub-Accounts or for the
Federated Prime Money Fund II. The enhanced death benefit option was made
available for each Sub-Account (except for the STI Small Cap Equity Sub-Account
and the New Sub-Accounts) on May 1, 1997, for the STI Small Cap Equity
Sub-Account on October 20, 1997, and for the New Sub-Accounts as of the date of
the Prospectus. The Sub-Accounts named in the table above commenced operations
prior to the time the enhanced death benefit option became available.
Accordingly, the performance shown above reflects the historic performance of
those Sub-Accounts, adjusted to reflect the current charge for the enhanced
death benefit option.
** Sub-Account commenced operations on November 7, 1996
*** Sub-Account commenced operations on October 20, 1997.
NON-STANDARDIZED TOTAL RETURNS
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the Withdrawal Charge. These
"non-standardized total returns" are calculated in exactly the same way as the
standardized total returns described above, except that the ending redeemable
value of the hypothetical account for the period is replaced with an ending
value for the period that does not take into account any charges on amounts
surrendered.
The non-standardized total returns for the Sub-Accounts that have commenced
operations are presented below:
(Without Enhanced Death Benefit)
SINCE
ONE YEAR INCEPTION
Sub-Account* 1/1/97 to 12/31/97 10/6/95 to 12/31/97
- ----------- ------------------ -------------------
STI Investment Grade Bond 7.40% 5.17%
STI Capital Growth 34.71% 28.38%
STI Value Income 25.12% 22.09%
STI Mid-Cap Equity 20.59% 16.88%
STI International Equity** 15.27% 14.66%
STI Small Cap Equity*** N/A -2.31%
* No non-standardized total returns are shown for the New Sub-Accounts, which
commenced operations as of the date of the Prospectus, or for the Federated
Prime Money Fund II Sub-Account.
** Sub-Account commenced operations on November 7, 1996
*** Sub-Account commenced operations on October 20, 1997.
(With Enhanced Death Benefit)
SINCE
ONE YEAR INCEPTION
Sub-Account* 1/1/97 to 12/31/97 10/6/95 to 12/31/97
- ----------- ------------------ -------------------
STI Investment Grade Bond 7.30% 5.06%
STI Capital Growth 34.58% 28.25%
STI Value Income 25.00% 21.97%
STI Mid-Cap Equity 20.47% 16.77%
STI International Equity** 15.16% 14.55%
STI Small Cap Equity*** N/A -11.39%
* No non-standardized total returns are shown for the New Sub-Accounts, which
commenced operations as of the date of the Prospectus, or for the Federated
Prime Money Fund II Sub-Account. The enhanced death benefit option was made
available for each Sub-Account (except for the STI Small Cap Equity Sub-Account
and the New Sub-Accounts) on May 1, 1997, for the STI Small Cap Equity
Sub-Account on October 20, 1997, and for the New Sub-Accounts as of the date of
the Prospectus. The Sub-Accounts named in the table above commenced operations
prior to the time the enhanced death benefit option became available.
Accordingly, the performance shown above reflects the historic performance of
those Sub-Accounts, adjusted to reflect the current charge for the enhanced
death benefit option.
** Sub-Account commenced operations on November 7, 1996
*** Sub-Account commenced operations on October 20, 1997.
HISTORICAL TOTAL RETURNS
The Variable Account may also disclose yield and total return for periods prior
to the date that the Variable Account commenced operations. For periods prior to
the date the Variable Account commenced operations, performance information for
the Sub-Accounts 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 portfolios, with a level of charges equal to those
currently assessed against the Sub-Accounts.
The historical total returns for the Sub-Accounts for various periods ended
12/31/97 are presented below:
(Without Enhanced Death Benefit)
<TABLE>
<CAPTION>
Ten Years or Since
Sub-Account One Year Five Years Inception of Portfolio*
- ----------- -------- ---------- ------------------------
<S> <C> <C> <C>
STI Capital Growth 29.24% N/A 26.82%
STI International Equity 9.80% N/A 9.91%
STI Investment Grade Bond 1.93% N/A 3.18%
STI Mid-Cap Equity 15.12% N/A 15.13%
STI Small Cap Equity N/A N/A -37.30%
STI Value Income Stock 19.65% N/A 20.44%
AIM V.I. Capital Appreciation 6.51% N/A 16.68%
AIM V.I. High Yield N/A N/A N/A
Templeton Bond - Class 2** -4.34% 4.35% 5.74%
Templeton Stock - Class 2 N/A N/A -0.37%
Oppenheimer Multiple Strategies 10.18% 11.50% 23.61%
Oppenheimer Strategic Bond 1.78% N/A 5.65%
Federated Prime Money Fund II -1.95% N/A 2.37%
</TABLE>
* The inception dates of the portfolios are as follows: AIM V.I. Capital
Appreciation Fund, May 5, 1993; AIM V.I. High Yield Fund, May 1, 1998; Federated
Prime Money Fund II Fund, November 18, 1994 (date of initial public investment);
Oppenheimer Multiple Strategies Fund, February 9, 1987; Oppenheimer Strategic
Bond Fund, May 3, 1993; STI Capital Growth Fund, STI Investment Grade Bond Fund,
STI Mid-Cap Equity Fund, and STI Value Income Stock Fund, October 2, 1995; STI
International Equity Fund, November 7, 1996; STI Small Cap Equity Fund, October
22, 1997; and Templeton Stock Fund - Class 2, May 1, 1997.
** Templeton Bond Fund - Class 2 has no prior operating performance.
Accordingly, the performance shown is based on the historical performance of
Templeton Bond Fund - Class 1 adjusted to reflect the current expenses of
Templeton Bond Fund - Class 2. The inception date for Templeton Bond Fund -
Class 1 was August 24, 1988.
(With Enhanced Death Benefit)
<TABLE>
<CAPTION>
Ten Years or Since
Sub-Account One Year Five Years Inception of Portfolio*
- ----------- -------- ---------- ------------------------
<S> <C> <C> <C>
STI Capital Growth 29.11% N/A 26.69%
STI International Equity 9.68% N/A 9.80%
STI Investment Grade Bond 1.83% N/A 3.06%
STI Mid-Cap Equity 15.00% N/A 9.80%
STI Small Cap Equity N/A N/A -37.37%
STI Value Income Stock 19.53% N/A 20.31%
AIM V.I. Capital Appreciation 6.40 N/A 16.56%
AIM V.I. High Yield N/A N/A N/A
Templeton Bond - Class 2** -4.44% 4.25% 5.63%
Templeton Stock - Class 2 N/A N/A -0.48%
Oppenheimer Multiple Strategies 10.06% 11.39% 23.36%
Oppenheimer Strategic Bond 1.67% N/A 5.55%
Federated Prime Money Fund II -2.05% N/A 2.24%
</TABLE>
* See the portfolio inception dates in the first footnote to the preceding
table.
** Templeton Bond Fund - Class 2 has no prior operating performance.
Accordingly, the performance shown is based on the historical performance of
Templeton Bond Fund - Class 1 adjusted to reflect the current expenses of
Templeton Bond Fund - Class 2. The inception date for Templeton Bond Fund -
Class 1 was August 24, 1988.
The Variable Account may also advertise the performance of the Sub-Accounts
relative to certain performance rankings and indexes compiled by independent
organizations, such as: (a) Lipper Analytical Services, Inc.; (b) the Standard &
Poor's 500 Composite Stock Price Index ("S & P 500"); (c) A.M. Best Company; (d)
Bank Rate Monitor; and (e) Morningstar.
TAX-FREE EXCHANGES (1035 EXCHANGES, ROLLOVERS AND TRANSFERS)
The Company accepts Purchase Payments which are the proceeds of a Contract in a
transaction qualifying for a tax-free exchange under Section 1035 of the
Internal Revenue Code. Except as required by federal law in calculating the
basis of the Contract, the Company does not differentiate between Section 1035
Purchase Payments and non-Section 1035 Purchase Payments.
The Company also accepts "rollovers" and transfers from Contracts qualifying as
tax-sheltered annuities ("TSAs"), individual retirement annuities or accounts
("IRAs"), or any other Qualified Contract which is eligible to "rollover" into
an IRA. The Company differentiates among Non-Qualified Contracts, TSAs, IRAs and
other Qualified Contracts to the extent necessary to comply with federal tax
laws. For example, the Company restricts the assignment, transfer or pledge of
TSAs and IRAs so the Contracts will continue to qualify for special tax
treatment. An Owner contemplating any such exchange, rollover or transfer of a
Contract should contact a competent tax adviser with respect to the potential
effects of such a transaction.
PREMIUM TAXES
Applicable premium tax rates depend on the Owner's state of residency and the
insurance laws and status of the Company in those states where premium taxes are
incurred. Premium tax rates may be changed by legislation, administrative
interpretations or judicial acts.
TAX RESERVES
The Company does not establish capital gains tax reserves for any Sub-Account
nor does it deduct charges for tax reserves because the Company believes that
capital gains attributable to the Variable Account will not be taxable. However,
the Company reserves the right to deduct charges to establish tax reserves for
potential taxes on realized or unrealized capital gains.
INCOME PAYMENTS
CALCULATION OF VARIABLE ANNUITY UNIT VALUES
The amount of the first Income Payment is calculated by applying the Contract
Value allocated to each Variable Sub-Account less any applicable premium tax
charge deducted at this time, to the income payment tables in the Contract. The
first Variable Annuity Income Payment is divided by the Sub-Account's then
current Annuity Unit value to determine the number of Annuity Units upon which
later Income Payments will be based. Variable Annuity Income Payments 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 variable Sub-Account are valued separately and Annuity
Unit values will depend upon the investment experience of the particular
portfolios in which the Sub-Account invests. The value of the Annuity Unit for
each variable 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.
The amount of the first Income Payment paid under an income plan is determined
using the interest rate and mortality table disclosed in the Contract. Due to
judicial or legislative developments regarding the use of tables which do not
differentiate on the basis of sex, different annuity tables may be used.
GENERAL MATTERS
INCONTESTABILITY
The Contract will not be contested after it is issued.
SETTLEMENTS
The Contract must be returned to the Company prior to any settlement. Due proof
of the Owner(s) 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
The Company holds title to the assets of the Variable Account. The assets are
kept physically segregated and held separate and apart from the Company's
general corporate assets. Records are maintained of all purchases and
redemptions of the portfolio shares held by each of the variable Sub-Accounts.
The Funds do not issue certificates and, therefore, the Company holds the
Account's assets in open account in lieu of stock certificates. See the Funds'
prospectuses for a more complete description of the custodian of the Funds.
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or receipt of distributions under an annuity contract
depend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
TAXATION OF GLENBROOK LIFE AND ANNUITY COMPANY
The Company is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code. Since the Variable Account is not an entity separate
from the Company, and its operations form a part of the Company, it will not be
taxed separately as a "Regulated Investment Company" under Subchapter M of the
Code. Investment income and realized capital gains of the Variable Account are
automatically applied to increase reserves under the contract. Under existing
federal income tax law, the Company believes that the Variable Account
investment income and capital gains will not be taxed to the extent that such
income and gains are applied to increase the reserves under the contract.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Variable Account, and therefore the
Company does not intend to make provisions for any such taxes. If the Company is
taxed on investment income or capital gains of the Variable Account, then the
Company may impose a charge against the Variable Account in order to make
provision for such taxes.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE
There are several exceptions to the general rule that contracts held by a
non-natural owner are not treated as annuity contracts for federal income tax
purposes. Contracts will generally be treated as held by a natural person if the
nominal owner is a trust or other entity which holds the contract as agent for a
natural person. However, this special exception will not apply in the case of an
employer who is the nominal owner of an annuity contract under a non-qualified
deferred compensation arrangement for its employees. Other exceptions to the
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
In order to be considered an annuity contract for federal income tax purposes,
an annuity contract must provide: (1) if any owner dies on or after the annuity
start date but before the entire interest in the contract has been distributed,
the remaining portion of such interest must be distributed at least as rapidly
as under the method of distribution being used as of the date of the owner's
death; (2) if any owner dies prior to the annuity start date, the entire
interest in the contract will be distributed within five years after the date of
the owner's death. These requirements are satisfied if any portion of the
owner's interest which is payable to (or for the benefit of) a designated
beneficiary is distributed over the life of such beneficiary (or over a period
not extending beyond the life expectancy of the beneficiary) and the
distributions begin within one year of the owner's death. If the owner's
designated beneficiary is the surviving spouse of the owner, the contract may be
continued with the surviving spouse as the new owner. If the owner of the
contract is a non-natural person, then the annuitant will be treated as the
owner for purposes of applying the distribution at death rules. In addition, a
change in the annuitant on a contract owned by a 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 tax
rules applicable to participants in such qualified plans vary according to the
type of plan and the terms and conditions of the plan itself. Adverse tax
consequences may result from excess contributions, premature distributions,
distributions that do not conform to specified commencement and minimum
distribution rules, excess distributions and in other circumstances. Owners and
participants under the plan and annuitants and beneficiaries under the contract
may be subject to the terms and conditions of the plan regardless of the terms
of the contract.
TYPES OF QUALIFIED PLANS
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity (IRA).
Individual Retirement Annuities are subject to limitations on the amount that
can be contributed and on the time when distributions may commence. Certain
distributions from other types of qualified plans may be "rolled over" on a
tax-deferred basis into an Individual Retirement Annuity. An IRA generally may
not provide life insurance, but it may provide a death benefit that equals the
greater of the premiums paid and the contract's cash value. The contract
provides a death benefit that in certain circumstances may exceed the greater of
the payments and the contract value. It is possible that the Death Benefit could
be viewed as violating the prohibition on investment in life insurance contracts
with the result that the Contract would not be viewed as satisfying the
requirements of an IRA.
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth Individual
Retirement Annuity. Roth Individual Retirement Annuities are subject to
limitations on the amount that can be contributed and on the time when
distributions may commence. "Qualified distributions" from Roth Individual
Retirement Annuities are not includible in gross income. "Qualified
distributions" are any distributions made more than five taxable years after the
taxable year of the first contribution to the Roth Individual Retirement
Annuity, and which are made on or after the date the individual attains age 59
1/2, made to a beneficiary after the owner's death, attributable to the owner
being disabled or for a first time home purchase (first time home purchases are
subject to a lifetime limit of $10,000). "Nonqualified distributions" are
treated as made from contributions first and are includible in gross income to
the extent such distributions exceed the contributions made to the Roth
Individual Retirement Annuity. The taxable portion of a "nonqualified
distribution" may be subject to the 10% penalty tax on premature distributions.
Subject to certain limitations, a traditional Individual Retirement Account or
Annuity may be converted or "rolled over" to a Roth Individual Retirement
Annuity. The taxable portion of a conversion or rollover distribution is
includible in gross income, but is exempted from the 10% penalty tax on
premature distributions.
SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees using the employees' individual retirement
annuities if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to their individual retirement annuities. Employers intending to use
the contract in connection with such plans should seek competent advice. In
particular, employers should consider that an IRA generally may not provide life
insurance, but it may provide a death benefit that equals the greater of the
premiums paid and the contract's cash value. The contract provides a death
benefit that in certain circumstances may exceed the greater of the payments and
the contract value. It is possible that the Death Benefit could be viewed as
violating the prohibition on investment in life insurance contracts with the
result that the Contract would not be viewed as satisfying the requirements of
an IRA.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS)
Sections 408(p) and 401(k) of the Code allow employers with 100 or fewer
employees to establish SIMPLE retirement plans for their employees. SIMPLE plans
may be structured as a SIMPLE retirement account using an employee's IRA to hold
the assets or as a Section 401(k) qualified cash or deferred arrangement. In
general, a SIMPLE plan consists of a salary deferral program for eligible
employees and matching or nonelective contributions made by employers. Employers
intending to use the contract in conjunction with SIMPLE plans should seek
competent tax and legal advice.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees of
certain types of tax-exempt organizations (specified in Section 501(c)(3) of the
Code) to have their employers purchase annuity contracts for them, and subject
to certain limitations, to exclude the purchase payments from the employees'
gross income. An annuity contract used for a Section 403(b) plan must provide
that distributions attributable to salary reduction contributions made after
12/31/88, and all earnings on salary reduction contributions, may be made only
on or after the date the employee attains age 59 1/2, separates from service,
dies, becomes disabled or on the account of hardship (earnings on salary
reduction contributions may not be distributed for hardship). These limitations
do not apply to withdrawals where the Company is directed to transfer some or
all of the contract value to another 403(b) plan.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Sections 401(a) and 403(a) of the Code permit corporate employers to establish
various types of tax favored retirement plans for employees. The Self-Employed
Individuals Retirement Act of 1962, as amended, (commonly referred to as "H.R.
10" or "Keogh") permits self-employed individuals to establish tax favored
retirement plans for themselves and their employees. Such retirement plans may
permit the purchase of annuity contracts in order to provide benefits under the
plans.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION
DEFERRED COMPENSATION PLANS
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current taxes. The employees must be participants in an eligible deferred
compensation plan. To the extent the contracts are used in connection with an
eligible plan, employees are considered general creditors of the employer and
the employer as owner of the contract has the sole right to the proceeds of the
contract. Generally, under the 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 includible in
the employees' gross income until distributed from the plan. However, under a
457 plan all the compensation deferred under the plan must
remain solely the property of the employer, subject only to the claims of the
employer's general creditors, until such time as made available to the employee
or a beneficiary.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Glenbrook Life and Annuity Company:
We have audited the accompanying statement of net assets of Glenbrook Life and
Annuity Company Variable Annuity Account (the "Account") as of December 31,
1997, and the related statement of operations for the year then ended and the
statements of changes in net assets of the Capital Growth, Investment Grade
Bond, Mid-Cap Equity, Value Income Stock, International Equity, and Small-Cap
Equity portfolios of the STI Classic Variable Trust and the Federated Prime
Money Fund II portfolio of the Federated Insurance Series that comprise the
Account for the year ended December 31, 1997 and of the Capital Growth,
Investment Grade Bond, Mid-Cap Equity, Value Income Stock, and International
Equity portfolios of the STI Classic Variable Trust and the Federated Prime
Money Fund II portfolio of the Federated Insurance Series that comprise the
Account for the year ended December 31, 1996. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1997. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Account as of December 31, 1997, and the
results of operations of each of the portfolios comprising the account for the
year then ended and the changes in their net assets for each of the two years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 20, 1998
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
VARIABLE ANNUITY ACCOUNT
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
- -----------------------
($ and shares in thousands)
ASSETS
Investments in the STI Classic Variable Trust Portfolios:
Capital Growth, 3,583 shares (cost $49,483) $ 61,870
Investment Grade Bond, 961 shares (cost $9,541) 9,788
Mid-Cap Equity, 1,711 shares (cost $20,339) 23,905
Value Income Stock, 4,782 shares (cost $61,700) 72,731
International Equity, 1,167 shares (cost $13,297) 13,852
Small-Cap Equity, 273 shares (cost $2,631) 2,667
Investments in the Federated Insurance Series Portfolio:
Federated Prime Money Fund II, 6,301 shares (cost $6,301) 6,301
---------
Total assets 191,114
LIABILITIES
Payable to Glenbrook Life and Annuity Company:
Accrued contract maintenance charges 58
---------
Net assets $ 191,056
=========
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- ----------------------------
($ in thousands)
<TABLE>
<CAPTION>
FEDERATED
INSURANCE
SERIES
STI CLASSIC VARIABLE TRUST PORTFOLIOS PORTFOLIO
--------------------------------------------------------- ----------- -----
INVESTMENT VALUE INTER- SMALL- FEDERATED
CAPITAL GRADE MID-CAP INCOME NATIONAL CAP PRIME MONEY
GROWTH BOND EQUITY STOCK EQUITY EQUITY FUND II TOTAL
-------- ---------- ------- ------ -------- ------ ----------- -----
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $ 1,572 $ 367 $ 735 $ 1,985 $ 1 $ 7 $ 245 $ 4,912
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (532) (90) (218) (648) (102) (4) (64) (1,658)
Administrative expense (42) (7) (17) (52) (8) - (5) (131)
------- ------- ------- ------- ------- ------- ------ -------
Net investment income (loss) 998 270 500 1,285 (109) 3 176 3,123
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Realized gains from sales of
investments:
Proceeds from sales 5,486 3,532 4,226 5,221 1,090 15 8,787 28,357
Cost of investments sold (3,621) (3,417) (3,285) (3,819) (1,009) (15) (8,787) (23,953)
------- ------- ------- ------- ------- ------- ------ -------
Net realized gains 1,865 115 941 1,402 81 - - 4,404
Change in unrealized gains 9,650 246 2,148 8,568 540 36 - 21,188
------- ------- ------- ------- ------- ------- ------ -------
Net gains on investments 11,515 361 3,089 9,970 621 36 - 25,592
------- ------- ------- ------- ------- ------- ------ -------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $12,513 $ 631 $ 3,589 $11,255 $ 512 $ 39 $ 176 $28,715
======= ======= ======= ======= ======= ======= ====== =======
</TABLE>
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
- ----------------------------------
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
FEDERATED
INSURANCE
SERIES
STI CLASSIC VARIABLE TRUST PORTFOLIOS PORTFOLIO
-------------------------------------------------------- ----------- -----
INVESTMENT VALUE INTER- SMALL- FEDERATED
CAPITAL GRADE MID-CAP INCOME NATIONAL CAP PRIME MONEY
GROWTH BOND EQUITY STOCK EQUITY EQUITY FUND II TOTAL
------- ---------- ------- ------ -------- ------ ----------- -----
FROM OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 998 $ 270 $ 500 $ 1,285 $ (109) $ 3 $ 176 $ 3,123
Net realized gains 1,865 115 941 1,402 81 - - 4,404
Change in unrealized gains 9,650 246 2,148 8,568 540 36 - 21,188
-------- -------- -------- -------- -------- ------ -------- --------
Change in net assets resulting from
operations 12,513 631 3,589 11,255 512 39 176 28,715
FROM CAPITAL TRANSACTIONS
Deposits 27,212 3,848 9,224 32,285 11,749 1,455 9,566 95,339
Benefit payments (248) (94) (42) (414) (14) - - (812)
Payments on termination (1,045) (299) (492) (1,345) (163) (3) (242) (3,589)
Contract maintenance charges (19) (3) (8) (24) (5) (1) (1) (61)
Liquidation of Glenbrook Life and Annuity
Company Seed Money (4,127) (2,719) (3,334) (3,781) - - - (13,961)
Transfers among the portfolios and with the
Fixed Account - net 2,387 488 666 3,526 773 1,177 (8,295) 722
-------- -------- -------- -------- -------- ------ -------- --------
Change in net assets resulting from
capital transactions 24,160 1,221 6,014 30,247 12,340 2,628 1,028 77,638
-------- -------- -------- -------- -------- ------ -------- --------
INCREASE IN NET ASSETS 36,673 1,852 9,603 41,502 12,852 2,667 1,204 106,353
NET ASSETS AT BEGINNING OF YEAR 25,179 7,930 14,294 31,211 994 - 5,095 84,703
-------- -------- -------- -------- -------- ------ -------- --------
NET ASSETS AT END OF YEAR $ 61,852 $ 9,782 $ 23,897 $ 72,713 $ 13,846 $2,667 $ 6,299 $191,056
======== ======== ======== ======== ======== ====== ======== ========
CONTRACTS WITHOUT THE DEATH BENEFIT OPTION
Net asset value per unit at end of year $ 17.53 $ 11.20 $ 14.20 $ 15.66 $ 11.70 $ 9.77 $ 10.80
======== ======== ======== ======== ======== ====== ========
Units outstanding at end of year 2,788 686 1,354 3,719 735 112 343
======== ======== ======== ======== ======== ====== ========
CONTRACTS WITH THE DEATH BENEFIT OPTION
Net asset value per unit at end of year $ 17.52 $ 11.19 $ 14.19 $ 15.65 $ 11.69 $ 9.77 $ 10.79
======== ======== ======== ======== ======== ====== ========
Units outstanding at end of year 740 188 329 924 449 161 240
======== ======== ======== ======== ======== ====== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
- ----------------------------------
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
FEDERATED
INSURANCE
SERIES
STI CLASSIC VARIABLE TRUST PORTFOLIOS PORTFOLIO
----------------------------------------------- ----------- -----
INVESTMENT VALUE INTER- FEDERATED
CAPITAL GRADE MID-CAP INCOME NATIONAL PRIME MONEY
GROWTH BOND EQUITY STOCK EQUITY FUND II TOTAL
------- ---------- ------- ------ -------- ----------- -----
FROM OPERATIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 13 $ 272 $ (26) $ 245 $ - $ 95 $ 599
Net realized gains (losses) 3 (1) 3 1 - - 6
Change in unrealized gains (losses) 2,553 (68) 1,340 2,266 15 - 6,106
-------- -------- -------- -------- -------- -------- -------
Change in net assets resulting from operations 2,569 203 1,317 2,512 15 95 6,711
FROM CAPITAL TRANSACTIONS
Deposits 13,874 3,421 7,035 17,425 773 20,503 63,031
Benefit payments (13) (14) - (14) - - (41)
Payments on termination (226) (124) (124) (284) (1) (17) (776)
Contract maintenance charges (8) (2) (4) (10) - (2) (26)
Transfers among the portfolios and with the
Fixed Account - net 5,205 1,433 2,661 7,567 207 (16,817) 256
-------- -------- -------- -------- -------- -------- -------
Change in net assets resulting from
capital transactions 18,832 4,714 9,568 24,684 979 3,667 62,444
-------- -------- -------- -------- -------- -------- -------
INCREASE IN NET ASSETS 21,401 4,917 10,885 27,196 994 3,762 69,155
NET ASSETS AT BEGINNING OF YEAR 3,778 3,013 3,409 4,015 - 1,333 15,548
-------- -------- -------- -------- -------- -------- -------
NET ASSETS AT END OF YEAR $ 25,179 $ 7,930 $ 14,294 $ 31,211 $ 994 $ 5,095 $84,703
======== ======== ======== ======== ======== ======== =======
Net asset value per unit at end of year $ 13.01 $ 10.43 $ 11.78 $ 12.52 $ 10.15 $ 10.43
======== ======== ======== ======== ======== ========
Units outstanding at end of year 1,680 507 960 2,239 98 489
======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 1997
- ---------------------------------
1. ORGANIZATION
Glenbrook Life and Annuity Company Variable Annuity Account (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 writes certain annuity contracts, the proceeds of which are
invested at the direction of the contractholder. Contractholders primarily
invest in units of the portfolios comprising the Account, for which they
bear all of the investment risk, but may also invest in the general account
of Glenbrook Life (the "Fixed Account"). The Account, in turn, invests
solely in shares of the portfolios of the STI Classic Variable Trust and
Federated Insurance Series (collectively the "Funds"). Glenbrook Life
provides administrative and insurance services to the Account for a fee.
STI Capital Management, N.A. and Federated Advisers, the investment
advisors for the Funds, receive investment management fees from the Funds.
During 1995, Glenbrook Life made an initial investment of $10.0 million
("Seed Money") in the Account to enhance the diversification of the
Account's investments. Glenbrook Life liquidated its Seed Money during
1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS - Investments consist of shares in the portfolios
of the Funds and are stated at fair value based on quoted market prices.
RECOGNITION OF INVESTMENT INCOME - Investment income consists of dividends
declared by the portfolios of the Funds and is recognized on the date of
record.
REALIZED GAINS AND LOSSES - Realized gains and losses represent the
difference between the proceeds from sales of shares by the Account and the
cost of such shares, which is determined on a weighted average basis.
CONTRACTHOLDER ACCOUNT ACTIVITY - Account activity is reflected in
individual contractholder accounts on a daily basis.
FEDERAL INCOME TAXES - The Account is intended to qualify as a segregated
asset account as defined in the Internal Revenue Code ("Code"). As such,
the operations of the Account are included with and taxed as a part of
Glenbrook Life. Glenbrook Life is taxed as a life insurance company under
the Code. Under current law, no federal income taxes are payable by the
Account.
ACCOUNT VALUE - Certain calculations that could be made in the financial
statements may differ from published amounts due to the truncation of
actual Account values.
3. CONTRACT MAINTENANCE, MORTALITY AND EXPENSE RISK, ADMINISTRATIVE EXPENSE
CHARGES, AND ENHANCED DEATH BENEFIT
For each year or portion of a year a contract is in effect, Glenbrook Life
deducts a fixed annual contract maintenance charge of $30 as reimbursement
for expenses related to the maintenance of each contract and the Account.
The amount of this charge is guaranteed not to increase over the life of
the contract. This charge is waived if the total purchase payments are
$25,000 or more on a contract anniversary, or if all money is allocated to
the Fixed Account on the contract anniversary.
Glenbrook Life assumes mortality and expense risks related to the
operations of the Account and deducts charges daily at a rate equal to
1.25% per annum of the daily net assets of the Account. Glenbrook Life
guarantees that the amount of this charge will not increase over the life
of the contract.
Glenbrook Life deducts administrative expense charges daily at a rate equal
to .10% per annum of the daily net assets of the Account. This charge is
designed to cover administrative expenses.
F-6
<PAGE>
Beginning in 1997, Glenbrook Life offers contractholders an enhanced death
benefit which guarantees that the death benefit will provide a cumulative
return greater than or equal to a specified level ("Death Benefit Option").
Glenbrook Life deducts an additional charge daily at a rate equal to .10%
per annum of the daily net assets of the Account which are attributable to
contractholders who have elected the Death Benefit Option.
4. FINANCIAL INSTRUMENTS
The investments of the Separate Accounts are carried at fair value, based
upon quoted market prices. Accrued contract maintenance charges are of a
short-term nature. It is assumed that their carrying value approximates
fair value.
5. UNITS ISSUED AND REDEEMED
Units issued and redeemed by the Account during 1997 for contracts with and
without the Death Benefit Option were as follows:
<TABLE>
<CAPTION>
FEDERATED
INSURANCE
SERIES
STI CLASSIC VARIABLE TRUST PORTFOLIOS PORTFOLIO
--------------------------------------------------------- ----------
(UNITS IN THOUSANDS) INVESTMENT VALUE INTER- SMALL- FEDERATED
CAPITAL GRADE MID-CAP INCOME NATIONAL CAP PRIME MONEY
GROWTH BOND EQUITY STOCK EQUITY EQUITY FUND II
------- ---------- ------- ------ -------- ------ -----------
CONTRACTS WITHOUT THE
DEATH BENEFIT OPTION
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
beginning of year 1,680 507 960 2,239 98 - 489
Unit activity during 1997:
Issued 1,259 258 492 1,669 731 113 585
Redeemed (151) (79) (98) (189) (94) (1) (731)
------- ------- ------- ------- ------- ------- -------
Units outstanding at
end of year 2,788 686 1,354 3,719 735 112 343
======= ======= ======= ======= ======= ======= =======
CONTRACTS WITH THE
DEATH BENEFIT OPTION
Units outstanding at
beginning of year - - - - - - -
Unit activity during 1997:
Issued 749 192 337 937 476 161 444
Redeemed (9) (4) (8) (13) (27) - (204)
------- ------- ------- ------- ------- ------- -------
Units outstanding at
end of year 740 188 329 924 449 161 240
======= ======= ======= ======= ======= ======= =======
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
F-7
<PAGE>
PART C
OTHER INFORMATION
24A. FINANCIAL STATEMENTS
Glenbrook Life and Annuity Company Financial Statements are contained in Part A
of this Registration Statement.
The financial statements of the Variable Account are contained in Part B of this
Registration Statement.
24B. EXHIBITS
The following exhibits correspond to those required by paragraph (b) of item 24
as to exhibits in Form N-4:
(1) Resolution of the Board of Directors of Glenbrook Life and Annuity
Company authorizing establishment of the Glenbrook Life and Annuity Company
Variable Annuity Account.*
(2) Not Applicable.
(3) Form of Underwriting Agreement.*
(4) Specimen Contract.**
(5) Form of application for a Contract.***
(6) (a) Certificate of Incorporation of Glenbrook Life and Annuity
Company.****
(b) By-laws of Glenbrook Life and Annuity Company.****
(7) Reinsurance Agreement.****
(8) (a) Form of Participation Agreement.*****
(b) Form of Participation Agreement with
(1) AIM Variable Insurance Funds, Inc.********
(2) Oppenheimer Variable Account Funds
(3) Templeton Variable Products Series Fund
(9) Opinion and Consent of Michael J. Velotta, Vice President, Secretary
and General Counsel of Glenbrook Life and Annuity Company.***
(10) (a) Consent of Accountants.
(b) Consent of Attorneys.
(11) Not applicable.
(12) Not applicable.
(13) (a) Computation of Performance Quotations*******
(b) Computation of Historical Return Performance Quotations
(14) Financial Data Schedule******
(99) Powers of Attorney.*******
* Incorporated by reference to Depositor's Form S-1 Registration Statement
No. 33-91916 dated April 24, 1996.
** Incorporated by reference to Depositor's Form S-1 Registration Statement No.
33-91916 dated February 25, 1997.
*** Incorporated by reference to Depositor's Form S-1 Registration Statement No.
33-91916 dated May 4, 1995.
**** Incorporated by reference to Depositor's Form S-1 Registration Statement
No. 333-07275 dated June 28, 1996.
*****Previously filed by amendment, dated September 15, 1995, to this Form N-4
Registration Statement No. 33-91914.
****** Incorporated by reference to Depositor's Form 10-K, filed March 31, 1998.
******* Previously filed by amendment, dated February 28, 1997, to this Form N-
4 Registration Statement No. 33-91914.
******** Previously filed by amendment, dated April 23, 1996, to Depositor's
Form N-4 Registration Statement No. 33-62203. Amended Schedule A to the
agreement is filed herewith.
25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Name and Principal Position and Office
Business Address With Depositor of the Trust
- ---------------- ---------------------------
Louis G. Lower, II Chairman of the Board and Chief Executive Officer
Michael J. Velotta Vice President, Secretary, General Counsel and Director
Peter H. Heckman President, Chief Operating Officer and Director
Marla G. Friedman Vice President
Kevin R. Slawin Vice President
James P. Zils Treasurer
Casey J. Sylla Chief Investment Officer
John R. Hunter Director
G. Craig Whitehead Senior Vice President and Director
Sarah R. Donahue Assistant Vice President
Emma M. Kalaidjian Assistant Secretary
Paul N. Kierig Assistant Secretary
Mary J. McGinn Assistant Secretary
Keith A. Hauschildt Assistant Vice President and Controller
Barry S. Paul Assistant Vice President
Robert N. Roeters Assistant Vice President
Nancy M. Bufalino Assistant Treasurer
C. Nelson Strom Assistant Vice President and Corporate Actuary
Patricia W. Wilson Assistant Treasurer
Brenda D. Sneed Assistant Secretary and Assistant General Counsel
Joanne M. Derrig Chief Compliance Officer and Assistant Secretary
The principal business address of the foregoing officers and directors is 3100
Sanders Road, Northbrook, IL 60062
26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR REGISTRANT
See 10-K Commission File #1-11840, The Allstate Corporation.
27. NUMBER OF CONTRACT OWNERS
As of December 1, 1998, there were 3,710 nonqualified contracts and 1,937
qualified contracts.
28. INDEMNIFICATION
The by-laws of both Glenbrook Life and Annuity Company (Depositor) and Allstate
Life Financial Services, Inc. (Distributor), provide for the indemnification of
its Directors, Officers and Controlling Persons, against expenses, judgments,
fines and amounts paid in settlement as incurred by such person, if such person
acted properly. No indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of a duty to the Company, unless a
court determines such person is entitled to such indemnity.
29A. RELATIONSHIP OF PRINCIPAL UNDERWRITER TO OTHER INVESTMENT COMPANIES
Glenbrook Life and Annuity Company Separate Account A Glenbrook Life
Multi-Manager Variable Account Glenbrook Life Variable Life Separate Account A
Allstate Life of New York Separate Account A Glenbrook Life AIM Variable Life
Variable Life Separate Account A
29B. PRINCIPAL UNDERWRITER
Name and Principal Business Allstate Life Financial
Address Of Each Such Person Services, Inc. ("ALFS")
- --------------------------- -----------------------
Louis G. Lower, II Director
Kevin R. Slawin Director
Michael J. Velotta Director and Secretary
John R. Hunter President and Chief Executive Officer
Diane Bellas Vice President and Controller
Karen C. Gardner Vice President
Andrea J. Schur Vice President
Brent H. Hamann Vice President
James P. Zils Treasurer
John R. Hedrick General Counsel and Assistant Secretary
Lisa A. Burnell Assistant Vice President and Compliance
Officer
Robert N. Roeters Assistant Vice President
Emma M. Kalaidjian Assistant Secretary
Brenda D. Sneed Assistant Secretary
Nancy M. Bufalino Assistant Treasurer
The principal address of ALFS is 3100 Sanders Road, Northbrook, Illinois
29C. COMPENSATION OF ALLSTATE LIFE FINANCIAL SERVICES, INC.
None
30. LOCATION OF ACCOUNTS AND RECORDS
The Depositor, Glenbrook Life and Annuity Company, is located at 3100 Sanders
Road, Northbrook, Illinois 60062.
The Distributor, Allstate Life Financial Services, Inc., is located at 3100
Sanders Road, Northbrook, Illinois 60062.
Each company maintains those accounts and records required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the rules
promulgated thereunder.
31. MANAGEMENT SERVICES
None
32. UNDERTAKINGS
The undersigned registrant, Glenbrook Life and Annuity Company, hereby
undertakes:
(a) To file, as frequently as is necessary to ensure that the audited
financial statements in the registration statment are never more than 16
months old for so long as payments under the variable annuity contracts may
be accepted; a post-effective amendment to this registration statement
(b) To include either (1) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the applicant
can remove to send for a Statement of Additional Information.
(c) To deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 ("Act") may be permitted to directors, officers and controlling persons of
Glenbrook Life and Annuity Company ("Registrant"), Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other that the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
33. REPRESENTATION PURSUANT TO SECTION 403(b) OF THE INTERNAL REVENUE CODE
The Company represents that it is relying upon a November 28, 1988 Securities
and Exchange Commission no-action letter issued to the American Council of Life
Insurance ("ACLI") and that the provisions of paragraphs 1-4 of the no-action
letter have been complied with.
34. REPRESENTATION REGARDING CONTRACT EXPENSES
Glenbrook Life and Annuity Company ("Glenbrook Life") represents that the fees
and charges deducted under the Flexible Premium Deferred Variable Annuity
Contract hereby registered by this Registration Statement, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Glenbrook Life.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 ("Securities Act") and the Investment
Company Act of 1940, the Registrant, Glenbrook Life and Annuity Company Variable
Annuity Account, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this amended Registration Statement and has caused
this amended Registration Statement to be signed on its behalf, by the
undersigned, thereunto duly authorized, and its seal to be hereunto affixed and
attested, in the village of Northfield, and State of Illinois on the 4th day of
December, 1998.
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
(REGISTRANT)
BY: GLENBROOK LIFE AND ANNUITY COMPANY
(DEPOSITOR)
(SEAL)
Attest: /s/BRENDA D. SNEED By: /s/MICHAEL J. VELOTTA
-------------------------- ----------------------
Brenda D. Sneed Michael J. Velotta
Assistant Secretary and Vice President, Secretary
Assistant General Counsel and General Counsel
As required by the Securities Act of 1933, this amended Registration Statement
has been duly signed below by the following Directors and Officers of Glenbrook
Life and Annuity Company on the 4th day of December, 1998.
*/LOUIS G. LOWER, II Chairman of the Board of Directors and
- -------------------- Chief Executive Officer
Louis G. Lower, II (Principal Executive Officer)
/s/MICHAEL J. VELOTTA Vice President, Secretary,
- --------------------- General Counsel and Director
Michael J. Velotta
*/PETER H. HECKMAN President, Chief Operating Officer
- -------------------- and Director
Peter H. Heckman
*/JOHN R. HUNTER Director
- --------------------
John R. Hunter
*/KEVIN R. SLAWIN Vice President
- -------------------- (Principal Financial Officer)
Kevin R. Slawin
*/MARLA G. FRIEDMAN Vice President
- --------------------
Marla G. Friedman
*/G. CRAIG WHITEHEAD Senior Vice President and Director
- --------------------
G. Craig Whitehead
*/JAMES P. ZILS Treasurer
- --------------------
James P. Zils
*/CASEY J. SYLLA Chief Investment Officer
- ---------------------
Casey J. Sylla
*/KEITH A. HAUSCHILDT Assistant Vice President and Controller
- --------------------- (Principal Accounting Officer)
Keith A. Hauschildt
*/ By Michael J. Velotta, pursuant to Power of Attorney, previously filed.
EXHIBIT 8(B)
PARTICIPATION AGREEMENTS
SCHEDULE A
FUNDS AVAILABLE UNDER THE POLICIES
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Global Utilities Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. International Equity Fund
AIM V.I.. Money Market Fund
AIM V.I. Value Fund
AIM V.I. Balanced Fund
AIM V.I. High Yield Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
Glenbrook Life and Annuity Company Separate Account A
Glenbrook Life Mutli-Manager Variable Account(excludes AIM V.I.. Money
Market Fund)
Glenbrook Life and Annuity Company Variable Account (includes only AIM
V.I. Capital Appreciation Fund and AIM V.I. High Yield Fund)
Glenbrook Life and Annuity Company
By:__________________________________
Its:__________________________________
AIM Variable Insurance Funds, Inc.
By:__________________________________
Its:__________________________________
<PAGE>
FORM OF
PARTICIPATION AGREEMENT
Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC.
and
LIFE INSURANCE COMPANY
THIS AGREEMENT (the "Agreement"), made and entered into as of the ____ day
of ____________, 199__ by and among Glenbrook Life and Annuity Company
(hereinafter the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement, as may be amended
from time to time by mutual consent (hereinafter collectively the "Accounts"),
Oppenheimer Variable Account Funds (hereinafter the "Fund") and
OppenheimerFunds, Inc. (hereinafter the "Adviser"). WHEREAS, the Fund is an
open-end management investment company and is available to act as the investment
vehicle for separate accounts now in existence or to be established at any date
hereafter for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") offered by insurance companies
(hereinafter "Participating Insurance Companies"); WHEREAS, the beneficial
interest in the Fund is divided into several series of shares, each designated a
"Portfolio", and each representing the interests in a particular managed pool of
securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated July 16, 1986 (File No. 812-6324) granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Mixed and Shared Funding
Exemptive Order")
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment adviser under the
federal Investment Advisers Act of 1940;
WHEREAS, the Company has registered or will register certain variable
annuity and/or life insurance contracts under the 1933 Act (hereinafter
"Contracts") (unless an exemption from registration is available);
WHEREAS, the Accounts are or will be duly organized, validly existing
segregated asset accounts, established by resolution of the Board of Directors
of the Company, to set aside and invest assets attributable to the aforesaid
variable contracts (the Contract(s) and the Account(s) covered by the Agreement
are specified in Schedule 2 attached hereto, as may be modified by mutual
consent from time to time);
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless an exemption from registration is
available);
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios (the
Portfolios covered by this Agreement are specified in Schedule 2 attached hereto
as may be modified by mutual consent from time to time), on behalf of the
Accounts to fund the Contracts named in Schedule 3, as may be amended from time
to time by mutual consent, and the Fund is authorized to sell such shares to
unit investment trusts such as the Accounts at net asset value; and
NOW, THEREFORE, in consideration of their mutual promises, the Fund, the
Adviser and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of the Fund which
the Company orders on behalf of the Account, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Fund. For purposes of this Section
1.1, the Company shall be the designee of the Fund for receipt of such orders
from each Account and receipt by such designee shall constitute receipt by the
Fund; provided that the Fund receives written (or facsimile) notice of such
order by 9:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the SEC.
1.2. The Company shall pay for Fund shares on the next Business Day after
it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire or by a credit for
any shares redeemed.
1.3. The Fund agrees to make Fund shares available for purchase at the
applicable net asset value per share by the Company for their separate Accounts
listed in Schedule 1 on those days on which the Fund calculates its net asset
value pursuant to rules of the SEC; provided, however, that the Board of
Trustees of the Fund (hereinafter the "Trustees") may refuse to sell shares of
any Portfolio to any person, or suspend or terminate the offering of shares of
any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees, acting in
good faith and in light of their fiduciary duties under federal and any
applicable state laws, in the best interests of the shareholders of any
Portfolio.
1.4. The Fund agrees to redeem, upon the Company's request, any full or
fractional shares of the Fund held by the Company, executing such requests on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Fund for receipt of requests for
redemption and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives written (or facsimile) notice of such request
for redemption by 9:30 a.m. New York time on the next following Business Day.
Payment shall be made within the time period specified in the Fund's prospectus
or statement of additional information, in federal funds transmitted by wire to
the Company's account as designated by the Company in writing from time to time.
1.5. The Company shall pay for the Fund shares on the next Business Day
after an order to purchase shares is made in accordance with the provisions of
Section 1.4 hereof. Payment shall be in federal funds transmitted by wire
pursuant to the instructions of the Fund's treasurer or by a credit for any
shares redeemed.
1.6. The Company agree to purchase and redeem the shares of the Portfolios
named in Schedule 2 offered by the then current prospectus and statement of
additional information of the Fund in accordance with the provisions of such
prospectus and statement of additional information. The Company shall not permit
any person other than a Contract owner to give instructions to the Company which
would require the Company to redeem or exchange shares of the Fund.
ARTICLE II. Sales Material, Prospectuses and Other Reports
2.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or the Adviser is named, at least ten Business Days prior to its
use. No such material shall be used if the Fund or its designee reasonably
object to such use within ten Business Days after receipt of such material.
"Business Day" shall mean any day in which the New York Stock Exchange is open
for trading and in which the Fund calculates its net asset value pursuant to the
rules of the Securities and Exchange Commission.
2.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sale
literature or other promotional material approved by the Fund or its designee,
except with the permission of the Fund.
2.3. For purposes of this Article II, the phrase "sales literature or other
promotional material" means advertisements (such as material published, or
designed for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboard
or electronic media), and sales literature (such as brochures, circulars, market
letters and form letters), distributed or made generally available to customers
or the public.
2.4. The Fund shall provide a copy of its current prospectus within a
reasonable period of its filing date, and provide other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the prospectus for the Fund is supplemented or amended) to have the
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense). The Adviser shall be
permitted to review and approve the typeset form of the Fund's Prospectus prior
to such printing.
2.5. The Fund or the Adviser shall provide the Company with either: (i) a
copy of the Fund's proxy material, reports to shareholders, other information
relating to the Fund necessary to prepare financial reports, and other
communications to shareholders for printing and distribution to Contract owners
at the Company's expense, or (ii) camera ready and/or printed copies, if
appropriate, of such material for distribution to Contract owners at the
Company' expense, within a reasonable period of the filing date for definitive
copies of such material. The Adviser shall be permitted to review and approve
the typeset form of such proxy material and shareholder reports prior to such
printing provided such materials have been provided within a reasonable period.
ARTICLE III. Fees and Expenses
3.1. The Fund and Adviser shall pay no fee or other compensation to the
Company under this agreement, and the Company shall pay no fee or other
compensation to the Fund or Adviser, except as provided herein.
3.2. All expenses incident to performance by each party of its respective
duties under this Agreement shall be paid by that party. The Fund shall see to
it that all its shares are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, and the preparation of all statements
and notices required by any federal or state law.
3.3. The Company shall bear the expenses of typesetting, printing and
distributing the Fund's prospectus, proxy materials and reports to owners of
Contracts issued by the Company.
3.4. In the event the Fund adds one or more additional Portfolios and the
parties desire to make such Portfolios available to the respective Contract
owners as an underlying investment medium, a new Schedule 3 or an amendment to
this Agreement shall be executed by the parties authorizing the issuance of
shares of the new Portfolios to the particular Account. The amendment may also
provide for the sharing of expenses for the establishment of new Portfolios
among Participating Insurance Companies desiring to invest in such Portfolios
and the provision of funds as the initial investment in the new Portfolios.
ARTICLE IV. Potential Conflicts
4.1. The Board of Trustees of the Fund (the "Board") will monitor the Fund
for the existence of any material irreconcilable conflict between the interests
of the Contract owners of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise for a variety of reasons, including:
(a) an action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of Contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
4.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. The Company agrees to be bound by the responsibilities
of a participating insurance companies as set forth in the Mixed and Shared
Funding Exemptive Order, including without limitation the requirement that the
Company report any potential or existing conflicts of which it is aware to the
Board. The Company will assist the Board in carrying out its responsibilities in
monitoring such conflicts under the Mixed and Shared Funding Exemptive Order, by
providing the Board in a timely manner with all information reasonably necessary
for the Board to consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Board whenever Contract owner
voting instructions are disregarded and by confirming in writing, at the Fund's
request, that the Company are unaware of any such potential or existing material
irreconcilable conflicts.
4.3. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to an
including: (1) withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Contract owners the option of making such a change; and
(2) establishing a new registered management investment company or managed
separate account.
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement; provided, however, that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of the six month period the
Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six months
after the Board informs the Company in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the disinterested members of the Board. Until the end of the foregoing six month
period, the Fund shall continue to accept and implement orders by the Company
for the purchase and redemption of shares of the Fund, subject to applicable
regulatory limitation.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 4.3 to establish a new funding
medium for Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the particular Account's investment in the Fund and
terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
ARTICLE V. Applicable Law
5.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
5.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Mixed and
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE VI. Termination
6.1 This Agreement shall terminate with respect to some or all Portfolios:
(a) at the option of any party upon six month's advance written notice
to the other parties;
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the requirements of its
Contracts or are not appropriate funding vehicles for the Contracts, as
determined by the Company reasonably and in good faith. Prompt notice of
the election to terminate for such cause and an explanation of such cause
shall be furnished by the Company; or
(c) as provided in Article IV 6.2. It is understood and agreed that
the right of any party hereto to terminate this Agreement pursuant to
Section 6.1(a) may be exercised for cause or for no cause.
ARTICLE VII. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
to the other party.
If to the Fund:
Oppenheimer Variable Account Funds
c/o OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: Legal Department
If to the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: General Counsel
If to the Company:
ARTICLE VIII. Miscellaneous
8.1. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as confidential the names
and addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as it may come into the
public domain.
8.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.5. Each party hereto shall cooperate with, and promptly notify each other
party and all appropriate governmental authorities (including without limitation
the Securities and Exchange Commission, the National Association of Securities
Dealers, Inc. and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
8.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.7. It is understood by the parties that this Agreement is not an
exclusive arrangement in any respect.
8.8. The Company and the Adviser each understand and agree that the
obligations of the Fund under this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund and the Fund's
property; the Company and the Adviser each represent that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
liability for acts or obligations of the Fund.
8.9. This Agreement shall not be assigned by any party hereto without the
prior written consent of all the parties.
8.10. This Agreement sets forth the entire agreement between the parties
and supercedes all prior communications, agreements and understandings, oral or
written, between the parties regarding the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed as of the date specified below.
_____________ LIFE INSURANCE COMPANY
By: __________________________________
Title: _______________________________
Date: ________________________________
OPPENHEIMER VARIABLE ACCOUNT
FUNDS
By: __________________________________
Title: _______________________________
Date: ________________________________
OPPENHEIMERFUNDS, INC.
By:______________________________________
Title: __________________________________
Date: ________________________________
<PAGE>
FORM OF
PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. and
GLENBROOK LIFE AND ANNUITY COMPANY
THIS AGREEMENT made as of ____________, 1998, among Templeton Variable
Products Series Fund (the "Trust"), an open-end management investment company
organized as a business trust under Massachusetts law, Franklin Templeton
Distributors, Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and Glenbrook Life and Annuity Company, a life insurance
company organized as a corporation under Illinois law (the "Company"), on its
own behalf and on behalf of each segregated asset account of the Company set
forth in Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the SEC, dated November 16,
1993 (File No. 812-8546), granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and Rules 6e-2 (b) (15) and 6e-3 (T) (b) (15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised; and has registered
or will register certain variable annuity contracts and variable life insurance
policies, listed on Schedule C attached hereto, under which the portfolios are
to be made available as investment vehicles (the "Contracts") under the 1933 Act
unless such interests under the Contracts in the Accounts are exempt from
registration under the 1933 Act and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such account on Schedule A hereto, to set aside
and invest assets attributable to one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an "Adviser")
is duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended ("Advisers Act") and any applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as each Account
at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
Purchase and Redemption of Trust Portfolio Shares
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for receipt of purchase orders and requests for redemption relating to each
Portfolio from each Account, provided that the Company notifies the Trust of
such purchase orders and requests for redemption by 9:00 a.m. Eastern time on
the next following Business Day, as defined in Section 1.3.
1.2. The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust
describing Portfolio purchase procedures on those days on which the Trust
calculates its net asset value pursuant to rules of the SEC, and the Trust shall
use its best efforts to calculate such net asset value on each day on which the
New York Stock Exchange ("NYSE") is open for trading. The Company will transmit
orders from time to time to the Trust for the purchase of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or if, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, such action is deemed in the best interests of the shareholders of
such Portfolio.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of business on the
next Business Day after the Trust receives the purchase order. Payment shall be
made in federal funds transmitted by wire to the Trust or its designated
custodian. Upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the NYSE is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of business on the next Business Day after the receipt
of the request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the Account.
Portfolio Shares purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of the Trust. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated (normally by 6:30 p.m. Eastern time) and shall use
reasonable efforts to make such net asset value per share available by 7:00 p.m.
Eastern time each Business Day.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that it will use Trust shares only for the
purposes of funding the Contracts through the Accounts listed in Schedule A, as
amended from time to time.
1.10 The Company agrees that all net amounts available under the Contracts
shall be invested in the Trust, in such other Funds advised by an Adviser or its
affiliates as may be mutually agreed to in writing by the parties hereto, or in
the Company's general account, provided that such amounts may also be invested
in an investment company other than the Trust if: (a) such other investment
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of the
Portfolios; or (b) the Company gives the Trust and the Underwriter 45 days
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company is
available as a funding vehicle for the Contracts at the date of this Agreement
and the Company so informs the Trust and the Underwriter prior to their signing
this Agreement (a list of such investment companies appearing on Schedule D to
this Agreement); or (d) the Trust or Underwriter consents to the use of such
other investment company.
1.11 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.10 and Article IV of
this Agreement.
1.12 Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any affiliate of
any other party), and shall not be liable in the event that an error results
from any incorrect information or confirmations supplied by any other party. If
an error is made in reliance upon incorrect information or confirmations, any
amount required to make a Contract owner's account whole shall be borne by the
party who provided the incorrect information or confirmation.
ARTICLE II.
Obligations of the Parties; Fees and Expenses
2.1 The Trust shall prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
The Trust shall bear the costs of registration and qualification of its shares
of the Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance and
transfer of its shares.
2.2 At the option of the Company, the Trust or the Underwriter shall either
(a) provide the Company with as many copies of portions of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with a camera ready copy of such documents
in a form suitable for printing and from which information relating to series of
the Trust other than the Portfolios has been deleted to the extent practicable.
The Trust or the Underwriter shall provide the Company with a copy of its
current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. Expenses of
furnishing such documents for marketing purposes shall be borne by the Company
and expenses of furnishing such documents for current contract owners invested
in the Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with copies of any
Trust-sponsored proxy materials in such quantity as the Company shall reasonably
require for distribution to Contract owners. The Company shall bear the costs of
distributing proxy materials (or similar materials such as voting solicitation
instructions), prospectuses and statements of additional information to Contract
owners. The Company assumes sole responsibility for ensuring that such materials
are delivered to Contract owners in accordance with applicable federal and state
securities laws.
2.4 If and to the extent required by law, the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such Portfolio for which instructions have been received; so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The Company
reserves the right to vote Trust shares held in any segregated asset account in
its own right, to the extent permitted by law.
2.5 Except as provided in section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" or any other Trademark relating to the Trust or Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
the Company shall cease all use of any such name or mark as soon as reasonably
practicable.
2.6 The Company shall furnish, or cause to be furnished to the Trust or its
designee, at least one complete copy of each registration statement, prospectus,
statement of additional information, retirement plan disclosure information or
other disclosure documents or similar information, as applicable (collectively
"disclosure documents"), as well as any report, solicitation for voting
instructions, sales literature and other promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at least 15
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within five Business Days after
receipt of such material. For purposes of this paragraph, "sales literature or
other promotional material" includes, but is not limited to, portions of the
following that use any Trademark related to the Trust or Underwriter or refer to
the Trust or affiliates of the Trust: advertisements (such as material published
or designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or electronic communication or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
disclosure documents, shareholder reports and proxy materials.
2.7 The Company and its agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser in connection with the sale of the Contracts other
than information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
2.8 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of disclosure
documents and annual and semi-annual reports pertaining to the Contracts.
2.9 The Trust shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, the Accounts or
the Contracts other than information or representations contained in and
accurately derived from disclosure documents for the Contracts (as such
disclosure documents may be amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales literature or
other promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.10 So long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for Contract owners, the Company will
provide pass-through voting privileges to Contract owners whose Contract values
are invested, through the registered Accounts, in shares of one or more
Portfolios of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each registered Account,
the Company will vote shares of each Portfolio of the Trust held by a registered
Account and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares held by that registered Account
for which voting instructions are received. The Company and its agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contracts without the prior written consent of
the Trust, which consent may be withheld in the Trust's sole discretion.
2.11 The Trust and Underwriter shall pay no fee or other compensation to
the Company under this Agreement except as provided on Schedule E, if attached.
Nevertheless, the Trust or the Underwriter or an affiliate may make payments
(other than pursuant to a Rule 12b-1 Plan) to the Company or its affiliates or
to the Contracts' underwriter in amounts agreed to by the Underwriter in writing
and such payments may be made out of fees otherwise payable to the Underwriter
or its affiliates, profits of the Underwriter or its affiliates, or other
resources available to the Underwriter or its affiliates.
ARTICLE III.
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of its state of incorporation
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to each Account,
(1) the Company has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated asset account for
the Contracts, or (2) if the Account is exempt from registration as an
investment company under Section 3(c) of the 1940 Act, the Company will make
every effort to maintain such exemption and will notify the Trust and the
Adviser immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
3.3 The Company represents and warrants that, with respect to each
Contract, (1) the Contract will be registered under the 1933 Act, or (2) if the
Contract is exempt from registration under Section 3(a)(2) of the 1933 Act or
under Section 4(2) and Regulation D of the 1933 Act, the Company will make every
effort to maintain such exemption and will notify the Trust and the Adviser
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future. The Company further represents
and warrants that the Contracts will be sold by broker-dealers, or their
registered representatives, who are registered with the SEC under the 1934 Act
and who are members in good standing of the NASD; the Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
For any unregistered Accounts which are exempt from registration under the
`40 Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company
represents and warrants that:
(a) each Account and sub-account thereof has a principal underwriter which
is registered as a broker-dealer under the Securities Exchange Act of
1934, as amended;
(b) Trust shares are and will continue to be the only investment
securities held by the corresponding Account sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding sub-account, will:
(1) seek instructions from all Contract owners with regard to the
voting of all proxies with respect to Trust shares and vote such
proxies only in accordance with such instructions or vote such
shares held by it in the same proportion as the vote of all other
holders of such shares; and
(2) refrain from substituting shares of another security for such
shares unless the SEC has approved such substitution in the
manner provided in Section 26 of the `40 Act.
3.4 The Trust represents and warrants that it is duly organized and validly
existing under the laws of the State of Massachusetts and that it does and will
comply in all material respects with the 1940 Act and the rules and regulations
thereunder.
3.5 The Trust represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
in that event immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
3.7 The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act, the Trustees, including a majority who are not "interested persons" of
the Trust under the 1940 Act ( "disinterested Trustees" ), will formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Trust are and shall be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than $5 million. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Trust and the Underwriter in the event that such coverage
no longer applies.
3.11 The Underwriter represents that each Adviser is duly organized and
validly existing under applicable corporate law and that it is registered and
will during the term of this Agreement remain registered as an investment
adviser under the Advisers Act.
3.12 The Trust currently intends for one or more Classes to make payments
to finance its distribution expenses, including service fees, pursuant to a Plan
adopted under Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may
determine to discontinue such practice in the future. To the extent that any
Class of the Trust finances its distribution expenses pursuant to a Plan adopted
under Rule 12b-1, the Trust undertakes to comply with any then current SEC and
SEC staff interpretations concerning Rule 12b-1 or any successor provisions.
ARTICLE IV.
Potential Conflicts
4.1 The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trust shall promptly inform the Company of any determination by the Trustees
that an irreconcilable material conflict exists and of the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such withdrawal should be implemented to a vote of all affected
Contract owners and, as appropriate, withdrawal of the assets of any appropriate
group (i.e. , annuity contract owners, life insurance policy owners, or variable
contract owners of one or more Participating Insurance Companies) that votes in
favor of such withdrawal, or offering to the affected Contract owners the option
of making such a change; and (b) establishing a new registered management
investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. In
the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V.
Indemnification
5.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless the
Underwriter, the Trust and each of its Trustees, officers,
employees and agents and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually the
"Indemnified Party" for purposes of this Article V) against any
and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company, which
consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may
become subject under any statute or regulation, or at common law
or otherwise, insofar as such Losses are related to the sale or
acquisition of Trust Shares or the Contracts and
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
a disclosure document for the Contracts or in the Contracts
themselves or in sales literature generated or approved by
the Company on behalf of the Contracts or Accounts (or any
amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately
derived from written information furnished to the Company by
or on behalf of the Trust for use in Company Documents or
otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or result from statements or representations
(other than statements or representations contained in and
accurately derived from Trust Documents as defined in
Section 5.2 (a)(i)) or wrongful conduct of the Company or
persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(iii)arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a)(i) or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written
information furnished to the Trust by or on behalf of the
Company; or
(iv) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under
the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
(b) The Company shall not be liable under this
indemnification provision with respect to any Losses to
which an Indemnified Party would otherwise be subject
by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard
of obligations and duties under this Agreement or to
the Trust or Underwriter, whichever is applicable. The
Company shall also not be liable under this
indemnification provision with respect to any claim
made against an Indemnified Party unless such
Indemnified Party shall have notified the Company in
writing within a reasonable time after the summons or
other first legal process giving information of the
nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any
designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on
account of this indemnification provision. In case any
such action is brought against the Indemnified Parties,
the Company shall be entitled to participate, at its
own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the
action. After notice from the Company to such party of
the Company's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses
of any additional counsel retained by it, and the
Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with
the defense thereof other than reasonable costs of
investigation.
(c) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust.
5.2 Indemnification By The Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the
Company, the underwriter of the Contracts and each of its
directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually an
"Indemnified Party" for purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter,
which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith)
(collectively, "Losses") to which the Indemnified Parties may
become subject under any statute, at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of
the Trust's Shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement, prospectus or sales literature
of the Trust (or any amendment or supplement to any of the
foregoing) (collectively, the "Trust Documents") or arise
out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission of such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Underwriter or Trust by or on behalf of the
Company for use in the Registration Statement or prospectus
for the Trust or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
disclosure documents or sales literature for the Contracts
not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Trust, Adviser or
Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Trust shares;
or
(iii)arise out of any untrue statement or alleged untrue
statement of a material fact contained in a disclosure
document or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the qualification
representation specified in Section 3.7 of this Agreement
and the diversification requirements specified in Section
3.6 of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of Sections
5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in
the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to each Company or the Account,
whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the
Underwriter in writing within a reasonable time after the summons
or other first legal process giving information of the nature of
the claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the
Underwriter of any such claim shall not relieve the Underwriter
from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be
entitled to participate, at its own expense, in the defense
thereof. The Underwriter also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Underwriter to such party of
the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the expenses of any additional
counsel retained by it, and the Underwriter will not be liable to
such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of
investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or
sale of the Contracts or the operation of each Account.
5.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this
Section 5.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Trust, which consent shall not be
unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence,
bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Trust, and arise
out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement or arise out
of or result from any other material breach of this Agreement by
the Trust; as limited by and in accordance with the provisions of
Section 5.3(b) and 5.3(c) hereof. It is understood and expressly
stipulated that neither the holders of shares of the Trust nor
any Trustee, officer, agent or employee of the Trust shall be
personally liable hereunder, nor shall any resort to be had to
other private property for the satisfaction of any claim or
obligation hereunder, but the Trust only shall be liable.
(b) The Trust shall not be liable under this indemnification
provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against any
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Trust, the
Underwriter or each Account, whichever is applicable.
(c) The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Trust
in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the
claims shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the Trust
of any such claim shall not relieve the Trust from any liability
which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Trust will be entitled to
participate, at its own expense, in the defense thereof. The
Trust also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After
notice from the Trust to such party of the Trust's election to
assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and
the Trust will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other
than reasonable costs of investigation.
(d) The Company and the Underwriter agree promptly to notify the
Trust of the commencement of any litigation or proceedings
against it or any of its respective officers or directors in
connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either the Account,
or the sale or acquisition of share of the Trust.
ARTICLE VI.
Termination
6.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios or any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment, as that term is used in the 1940 Act.
6.2 This Agreement may be terminated immediately by either the Trust or the
Underwriter following consultation with the Trustees upon written notice to the
Company if :
(a) the Company notifies the Trust or the Underwriter that the
exemption from registration under Section 3(c) of the 1940 Act no
longer applies, or might not apply in the future, to the
unregistered Accounts, or that the exemption from registration
under Section 4(2) or Regulation D promulgated under the 1933 Act
no longer applies or might not apply in the future, to interests
under the unregistered Contracts; or
(b) either one or both of the Trust or the Underwriter respectively,
shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its
business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse
publicity; or
(c) the Company gives the Trust and the Underwriter the written
notice specified in Section 1.10 hereof and at the same time such
notice was given there was no notice of termination outstanding
under any other provision of this Agreement; provided, however,
that any termination under this Section 6.2(c) shall be effective
forty-five (45) days after the notice specified in Section 1.10
was given; or
6.3 If this Agreement is terminated for any reason, except under Article IV
(Potential Conflicts) above, the Trust shall, at the option of the Company,
continue to make available additional shares of any Portfolio and redeem shares
of any Portfolio pursuant to all of the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement. If this Agreement is terminated pursuant to Article IV, the
provisions of Article IV shall govern.
6.4 The provisions of Articles II (Representations and Warranties) and V
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.3, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
6.5 The Company shall not redeem Trust shares attributable to the Contracts
(as opposed to Trust shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
ARTICLE VII.
Notices.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
WITH A COPY TO
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention:Karen L. Skidmore, Senior Corporate Counsel
If to the Company:
Glenbrook Life and Annuity Company
Dept. J5B
3100 Sanders Road
Northbrook, IL 60062
Attention: David Stone, Esq.
ARTICLE VIII.
Miscellaneous
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Florida. It shall also be
subject to the provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the SEC granting exemptive relief
therefrom and the conditions of such orders. Copies of any such orders shall be
promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7 Each party hereto shall treat as confidential the names and addresses
of the Contract owners and all information reasonably identified as confidential
in writing by any other party hereto, and, except as permitted by this Agreement
or as required by legal process or regulatory authorities, shall not disclose,
disseminate, or utilize such names and addresses and other confidential
information until such time as they may come into the public domain, without the
express written consent of the affected party. Without limiting the foregoing,
no party hereto shall disclose any information that such party has been advised
is proprietary, except such information that such party is required to disclose
by any appropriate governmental authority (including, without limitation, the
SEC, the NASD, and state securities and insurance regulators).
8.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.9 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect, except as provided in Section 1.10.
8.10 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.11 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written. The Company: Glenbrook Life and Annuity Company By its authorized
officer
By:
Name:
Title:
The Trust:
Templeton Variable Products Series Fund
By its authorized officer
By:
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
By its authorized officer
By:
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
<PAGE>
SCHEDULE A
Separate Accounts of
Glenbrook Life and Annuity Company
1. Glenbrook Life and Annuity Company, Variable Annuity Account Date
Established: SEC Registration Number:
<PAGE>
SCHEDULE B
Trust Portfolios and Classes Available
Templeton Variable Products Series Adviser
Templeton Bond Fund Templeton Investment Counsel, Inc.
-Class 2
Templeton Stock Fund Templeton Investment Counsel, Inc.
-Class 2
<PAGE>
SCHEDULE C
Variable Annuity Contracts
Issued by Glenbrook Life and Annuity Company
Representative Contract
Form Number
1. STI Classic Variable Annuity
Title: Form:
SEC Registration Number:
<PAGE>
SCHEDULE D
Other Portfolios Available under the Contracts
<PAGE>
SCHEDULE E
RULE 12B-1 PLANS
Compensation Schedule
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
Portfolio Name Maximum Annual Payment Rate
TEMPLETON BOND FUND 0.25%
TEMPLETON STOCK FUND 0.25%
Agreement Provisions
If the Company, on behalf of any Account, purchases Trust Portfolio shares
("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under the
1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") you provide administrative and other services which assist
in the promotion and distribution of Eligible Shares or Variable Contracts
offering Eligible Shares, the Underwriter, the Trust or their affiliates
(collectively, "we") may pay you a Rule 12b-1 fee. "Administrative and other
services" may include, but are not limited to, furnishing personal services to
owners of Contracts which may invest in Eligible Shares ("Contract Owners"),
answering routine inquiries regarding a Portfolio, coordinating responses to
Contract Owner inquiries regarding the Portfolios, maintaining such accounts or
providing such other enhanced services as a Trust Portfolio or Contract may
require, maintaining customer accounts and records, or providing other services
eligible for service fees as defined under NASD rules. Your acceptance of such
compensation is your acknowledgment that eligible services have been rendered.
All Rule 12b-1 fees, shall be based on the value of Eligible Shares owned by the
Company on behalf of its Accounts, and shall be calculated on the basis and at
the rates set forth in the Compensation Schedule stated above. The aggregate
annual fees paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These maximums shall be a
specified percent of the value of a Portfolio's net assets attributable to
Eligible Shares owned by the Company on behalf of its Accounts (determined in
the same manner as the Portfolio uses to compute its net assets as set forth in
its effective Prospectus).
You shall furnish us with such information as shall reasonably be requested
by the Trust's Boards of Trustees ("Trustees") with respect to the Rule 12b-1
fees paid to you pursuant to the Plans. We shall furnish to the Trustees, for
their review on a quarterly basis, a written report of the amounts expended
under the Plans and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Trustees, including the Trustees who are not
interested persons of the Trust and who have no financial interest in the Plans
or any related agreement ("Disinterested Trustees"). Each Plan may be terminated
at any time by the vote of a majority of the Disinterested Trustees, or by a
vote of a majority of the outstanding shares as provided in the Plan, on sixty
(60) days' written notice, without payment of any penalty. The Plans may also be
terminated by any act that terminates the Underwriting Agreement between the
Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to a
Plan have a duty to furnish, such information as may reasonably be necessary to
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be
limited in all cases to the assets of the Trust and no person shall seek
satisfaction thereof from shareholders of the Trust. You agree to waive payment
of any amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule E, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable
statutes, rules and regulations of all rule 12b-1 fees received from us in the
prospectus of the contracts.
EXHIBIT 10(A)
INDEPENDENT AUDITORS' CONSENT
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 7 to Registration
Statement No. 033-91914 of Glenbrook Life and Annuity Company Variable Annuity
Account of Glenbrook Life and Annuity Company on Form N-4 of our report dated
February 20, 1998 relating to the financial statements and financial statement
schedule of Glenbrook Life and Annuity Company, appearing in the Prospectus, and
our report dated February 20, 1998 relating to the financial statements of
Glenbrook Life and Annuity Company Variable Annuity Account contained in the
Statement of Additional Information (which is incorporated by reference in the
Prospectus of Glenbrook Life and Annuity Company Variable Annuity Account),
which is part of such Registration Statement, and to the reference to us under
the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Chicago, Illinois
December 8, 1998
EXHIBIT 10(B)
CONSENT OF ATTORNEYS
Freedman, Levy, Kroll & Simonds
CONSENT OF
FREEDMAN, LEVY, KROLL & SIMONDS
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the prospectus contained in Post-Effective Amendment No. 7 to the
Form N-4 Registration Statement of Glenbrook Life and Annuity Company Variable
Annuity Account (File No. 33-91914).
FREEDMAN, LEVY, KROLL & SIMONDS
Washington, D.C.
December 1, 1998
EXHIBIT 13(B)
COMPUTATION OF HISTORICAL RETURN PERFORMANCE QUOTATIONS
<TABLE>
<CAPTION>
1yr ago: 12/31/96
Date: 12/31/97
<S> <C> <C> <C> <C> <C> <C>
MM
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 10.432479 95.85449
1 FEE 31-Dec-970.705758 10.789240 0.06541 0.06
RESULTING VALUE 31-Dec-97 10.789240 95.789081033.4914
1.000
FORMULA: 1000*(1+T)= 1033.4914
= 979.4913875
T = -2.05% 3.35%
R = -2.05% 3.35%
Investment Grade Bonds
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 10.432132 95.85768
1 FEE 31-Dec-970.705758 11.193239 0.06305 0.06
RESULTING VALUE 31-Dec-97 11.193239 95.794631072.2522
1.000
FORMULA: 1000*(1+T)= 1072.2522
= 1018.252196
T = 1.83% 7.23%
R = 1.83% 7.23%
Capital Growth
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 13.018867 76.81160
1 FEE 31-Dec-970.705758 17.520802 0.04028 0.06
RESULTING VALUE 31-Dec-97 17.520802 76.771321345.0951
1.000
FORMULA: 1000*(1+T)= 1345.0951
= 1291.095071
T = 29.11% 34.51%
R = 29.11% 34.51%
Value Income
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 12.522083 79.85892
1 FEE 31-Dec-970.705758 15.652368 0.04509 0.06
RESULTING VALUE 31-Dec-97 15.652368 79.813831249.2754
1.000
FORMULA: 1000*(1+T)= 1249.2754
= 1195.275415
T = 19.53% 24.93%
R = 19.53% 24.93%
Mid Cap
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 11.779063 84.89640
1 FEE 31-Dec-970.705758 14.190246 0.04974 0.06
RESULTING VALUE 31-Dec-97 14.190246 84.846661203.9950
1.000
FORMULA: 1000*(1+T)= 1203.9950
= 1149.99499
T = 15.00% 20.40%
R = 15.00% 20.40%
International Equity
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 10.152909 98.49394
1 FEE 31-Dec-970.705758 11.691613 0.06036 0.06
RESULTING VALUE 31-Dec-97 11.691613 98.433571150.8473
1.000
FORMULA: 1000*(1+T)= 1150.8473
= 1096.84726
T = 9.68% 15.08%
R = 9.68% 15.08%
Small Cap
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 #N/A #N/A
1 FEE 31-Dec-970.705758 9.767600 0.07225 0.06
RESULTING VALUE 31-Dec-97 9.767#N/A #N/A
1.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Federated Prime Money Market
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-1000.00 10.02108199.78963
1 FEE 02-Oct-96 0.705758 10.353771 0.06816 0.07
2 FEE 02-Oct-97 0.705758 10.696176 0.06598 0.06
3 FEE 31-Dec-97 0.705758 10.789240 0.06541 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 10.78924099.59007 1074.5012
2.248
FORMULA: 1000*(1+T)= 1074.5012
= 1029.501208
T = 1.30% 3.25%
R = 2.95%
Investment Grade Bonds
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-1000.00 10.01734599.82685
1 FEE 02-Oct-96 0.705758 10.251671 0.06884 0.07
2 FEE 02-Oct-97 0.705758 10.979865 0.06428 0.06
3 FEE 31-Dec-97 0.705758 11.193239 0.06305 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 11.19323999.63068 1115.1900
2.248
FORMULA: 1000*(1+T)= 1115.1900
= 1070.189985
T = 3.06% 4.97%
R = 7.02%
Value Income
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-1000.00 10.01575099.84275
1 FEE 02-Oct-96 0.705758 11.944932 0.05908 0.07
2 FEE 02-Oct-97 0.705758 15.803112 0.04466 0.06
3 FEE 31-Dec-97 0.705758 15.652368 0.04509 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 15.65236899.69391 1560.4458
2.248
FORMULA: 1000*(1+T)= 1560.4458
= 1515.445836
T = 20.31% 21.89%
R = 51.54%
Capital Growth
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-1000.00 10.01551199.84513
1 FEE 02-Oct-96 0.705758 12.350383 0.05714 0.07
2 FEE 02-Oct-97 0.705758 17.027354 0.04145 0.06
3 FEE 31-Dec-97 0.705758 17.520802 0.04028 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 17.52080299.70626 1746.9336
2.248
FORMULA: 1000*(1+T)= 1746.9336
= 1701.93357
T = 26.69% 28.17%
R = 70.19%
Mid Cap
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-1000.00 10.01576599.84260
1 FEE 02-Oct-96 0.705758 11.231166 0.06284 0.07
2 FEE 02-Oct-97 0.705758 14.587668 0.04838 0.06
3 FEE 31-Dec-97 0.705758 14.190246 0.04974 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 14.19024699.68164 1414.5070
2.248
FORMULA: 1000*(1+T)= 1414.5070
= 1369.507037
T = 15.02% 16.68%
R = 36.95%
International Equity
07-Nov-96
TO NO. YEARS 1.147
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 07-Nov-1000.00 10.00476599.95237
1 FEE 07-Nov-97 0.705758 11.667351 0.06049 0.07
2 FEE 31-Dec-97 0.705758 11.691613 0.06036 0.06
3 FEE N/A 0 N/A 0.00000 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 11.69161399.83152 1167.1915
1.147
FORMULA: 1000*(1+T)= 1167.1915
= 1113.191477
T = 9.80% 14.43%
R = 11.32%
Small Cap
21-Oct-97
TO NO. YEARS 0.194
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 21-Oct-1000.00 10.00000100.00000
1 FEE 31-Dec-97 0.705758 9.767600 0.07225 0.07
2 FEE N/A 0 N/A 0.00000 0.06
3 FEE N/A 0 N/A 0.00000 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 9.76760099.92775 976.0542
0.194
FORMULA: 1000*(1+T)= 976.0542
= 913.0542422
T = -37.37% -11.72%
R = -8.69%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Today: 12/31/97
One Month Ago: 11/28/97
Three Months Ago: 9/30/97
End of last year: 12/31/96
One Year Ago: 12/31/96
Three Years Ago: 12/31/94
Five Years Ago: 12/31/92
Ten Years Ago: 12/31/87
AUVs
Today One Month Ago Three Months Ago End of last year One Year Ago Inception
<S> <C> <C> <C> <C> <C> <C>
MM 10.78924 10.757368 10.695581 10.432479 10.432479 10.021081
IB 11.193239 11.121879 10.92295 10.432132 10.432132 10.017345
CG 17.520802 17.120667 16.835538 13.018867 13.018867 10.015511
VI 15.652368 15.377506 15.629557 12.522083 12.522083 10.01575
MC 14.190246 13.903671 14.435899 11.779063 11.779063 10.015765
IN 11.691613 11.628038 12.475885 10.152909 10.152909 10.004765
SC 9.7676 9.645395 #N/A #N/A #N/A 10
Three Years Ago Five Years Ago Ten Years Ago Inception Dates
MM 9.749171 #N/A #N/A 10/2/95 2.247775
IB #N/A #N/A #N/A 10/2/95 2.247775
CG #N/A #N/A #N/A 10/2/95 2.247775
VI #N/A #N/A #N/A 10/2/95 2.247775
MC #N/A #N/A #N/A 10/2/95 2.247775
IN #N/A #N/A #N/A 11/7/96 1.147159
SC #N/A #N/A #N/A 10/21/97 0.194387
Returns
Month to Date Three Months to Date Year to Date One Year Cum Inception Ave Inception
MM 0.30% 0.88% 3.42% 3.42% 7.67% 3.34%
IB 0.64% 2.47% 7.30% 7.30% 11.74% 5.06%
CG 2.34% 4.07% 34.58% 34.58% 74.94% 28.25%
VI 1.79% 0.15% 25.00% 25.00% 56.28% 21.97%
MC 2.06% -1.70% 20.47% 20.47% 41.68% 16.77%
IN 0.55% -6.29% 15.16% 15.16% 16.86% 14.55%
SC 1.27% #N/A #N/A #N/A -2.32% -11.39%
Three Years Avg Five Years Avg Ten Years Avg
MM 3.44% #N/A #N/A
IB #N/A #N/A #N/A
CG #N/A #N/A #N/A
VI #N/A #N/A #N/A
MC #N/A #N/A #N/A
IN #N/A #N/A #N/A
SC #N/A #N/A #N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1yr ago: 12/31/96
Date: 12/31/97
MM
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 10.432479 95.85449
1 FEE 31-Dec-970.705758 10.789240 0.06541 0.06
RESULTING VALUE 31-Dec-97 10.789240 95.789081033.4914
1.000
FORMULA: 1000*(1+T)= 1033.4914
= 979.4913875
T = -2.05% 3.35%
R = -2.05% 3.35%
Investment Grade Bonds
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 10.432132 95.85768
1 FEE 31-Dec-970.705758 11.193239 0.06305 0.06
RESULTING VALUE 31-Dec-97 11.193239 95.794631072.2522
1.000
FORMULA: 1000*(1+T)= 1072.2522
= 1018.252196
T = 1.83% 7.23%
R = 1.83% 7.23%
Capital Growth
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 13.018867 76.81160
1 FEE 31-Dec-970.705758 17.520802 0.04028 0.06
RESULTING VALUE 31-Dec-97 17.520802 76.771321345.0951
1.000
FORMULA: 1000*(1+T)= 1345.0951
= 1291.095071
T = 29.11% 34.51%
R = 29.11% 34.51%
Value Income
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 12.522083 79.85892
1 FEE 31-Dec-970.705758 15.652368 0.04509 0.06
RESULTING VALUE 31-Dec-97 15.652368 79.813831249.2754
1.000
FORMULA: 1000*(1+T)= 1249.2754
= 1195.275415
T = 19.53% 24.93%
R = 19.53% 24.93%
Mid Cap
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 11.779063 84.89640
1 FEE 31-Dec-970.705758 14.190246 0.04974 0.06
RESULTING VALUE 31-Dec-97 14.190246 84.846661203.9950
1.000
FORMULA: 1000*(1+T)= 1203.9950
= 1149.99499
T = 15.00% 20.40%
R = 15.00% 20.40%
International Equity
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 10.152909 98.49394
1 FEE 31-Dec-970.705758 11.691613 0.06036 0.06
RESULTING VALUE 31-Dec-97 11.691613 98.433571150.8473
1.000
FORMULA: 1000*(1+T)= 1150.8473
= 1096.84726
T = 9.68% 15.08%
R = 9.68% 15.08%
Small Cap
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 #N/A #N/A
1 FEE 31-Dec-970.705758 9.767600 0.07225 0.06
RESULTING VALUE 31-Dec-97 9.767#N/A #N/A
1.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
AIM Capital Appreciation
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 18.531033 53.96353
1 FEE 31-Dec-970.705758 20.730907 0.03404 0.06
RESULTING VALUE 31-Dec-97 20.730907 53.929491118.0072
1.000
FORMULA: 1000*(1+T)= 1118.0072
= 1064.007214
T = 6.40% 11.80%
R = 6.40% 11.80%
AIM High Yield
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 #N/A #N/A
1 FEE 31-Dec-970.705758 #N/A #N/A 0.06
RESULTING VALUE 31-Dec-97 #N/A #N/A #N/A
1.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Templeton Bond
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 16.613342 60.19258
1 FEE 31-Dec-970.705758 16.785034 0.04205 0.06
RESULTING VALUE 31-Dec-97 16.785034 60.150541009.6288
1.000
FORMULA: 1000*(1+T)= 1009.6288
= 955.6288275
T = -4.44% 0.96%
R = -4.44% 0.96%
Templeton Stock
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 #N/A #N/A
1 FEE 31-Dec-970.705758 10.604984 0.06655 0.06
RESULTING VALUE 31-Dec-97 10.604#N/A #N/A
1.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Oppenheimer Strategic Bond
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 12.295334 81.33167
1 FEE 31-Dec-970.705758 13.173371 0.05357 0.06
RESULTING VALUE 31-Dec-97 13.173371 81.278091070.7065
1.000
FORMULA: 1000*(1+T)= 1070.7065
= 1016.706454
T = 1.67% 7.07%
R = 1.67% 7.07%
Oppenheimer Multiple Strategies
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 25.485130 39.23857
1 FEE 31-Dec-970.705758 29.444323 0.02397 0.06
RESULTING VALUE 31-Dec-97 29.444323 39.214601154.6473
1.000
FORMULA: 1000*(1+T)= 1154.6473
= 1100.647305
T = 10.06% 15.46%
R = 10.06% 15.46%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date: 12/31/97
1 yr ago: 12/31/96
2 yr ago: 12/29/95
3 yr ago: 12/31/94
4 yr Ago: 12/31/93
5 Yr. ago: 12/31/92
MM
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 9.749171 0.07239
3 FEE 29-Dec-95 0.705758 10.111425 0.06980
4 FEE 31-Dec-96 0.705758 10.432479 0.06765
5 FEE 31-Dec-97 0.705758 10.789240 0.06541 0.02
RESULTING VALUE 31-Dec-97 10.78#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Investment Grade Bonds
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 10.351046 0.06818
4 FEE 31-Dec-96 0.705758 10.432132 0.06765
5 FEE 31-Dec-97 0.705758 11.193239 0.06305 0.02
RESULTING VALUE 31-Dec-97 11.19#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Value Income
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 10.710020 0.06590
4 FEE 31-Dec-96 0.705758 12.522083 0.05636
5 FEE 31-Dec-97 0.705758 15.652368 0.04509 0.02
RESULTING VALUE 31-Dec-97 15.65#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Capital Growth
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 10.674729 0.06611
4 FEE 31-Dec-96 0.705758 13.018867 0.05421
5 FEE 31-Dec-97 0.705758 17.520802 0.04028 0.02
RESULTING VALUE 31-Dec-97 17.52#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Mid Cap
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 10.298791 0.06853
4 FEE 31-Dec-96 0.705758 11.779063 0.05992
5 FEE 31-Dec-97 0.705758 14.190246 0.04974 0.02
RESULTING VALUE 31-Dec-97 14.19#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
International Equity
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 #N/A #N/A
4 FEE 31-Dec-96 0.705758 10.152909 0.06951
5 FEE 31-Dec-97 0.705758 11.691613 0.06036 0.02
RESULTING VALUE 31-Dec-97 11.69#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Small Cap
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 #N/A #N/A
4 FEE 31-Dec-96 0.705758 #N/A #N/A
5 FEE 31-Dec-97 0.705758 9.767600 0.07225 0.02
RESULTING VALUE 31-Dec-97 9.76#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
AIM Capital Appreciation
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 11.835895 0.05963
2 FEE 31-Dec-94 0.705758 11.957289 0.05902
3 FEE 29-Dec-95 0.705758 15.991601 0.04413
4 FEE 31-Dec-96 0.705758 18.531033 0.03809
5 FEE 31-Dec-97 0.705758 20.730907 0.03404 0.02
RESULTING VALUE 31-Dec-97 20.73#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
AIM High Yield
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 #N/A #N/A
4 FEE 31-Dec-96 0.705758 #N/A #N/A
5 FEE 31-Dec-97 0.705758 #N/A #N/A 0.02
RESULTING VALUE 31-Dec-97 #N/A #N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Templeton Bond
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 13.39463274.65677
1 FEE 31-Dec-93 0.705758 14.710429 0.04798
2 FEE 31-Dec-94 0.705758 13.593735 0.05192
3 FEE 29-Dec-95 0.705758 15.184377 0.04648
4 FEE 31-Dec-96 0.705758 16.613342 0.04248
5 FEE 31-Dec-97 0.705758 16.785034 0.04205 0.02
RESULTING VALUE 31-Dec-97 16.78503474.42587 1249.2408
5.000
FORMULA: 1000*(1+T)= 1249.2408
= 1231.240774
T = 4.25% 4.55%
R = 23.12% 24.92%
Templeton Stock
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 13.39463274.65677
1 FEE 31-Dec-93 0.705758 14.710429 0.04798
2 FEE 31-Dec-94 0.705758 13.593735 0.05192
3 FEE 29-Dec-95 0.705758 15.184377 0.04648
4 FEE 31-Dec-96 0.705758 16.613342 0.04248
5 FEE 31-Dec-97 0.705758 16.785034 0.04205 0.02
RESULTING VALUE 31-Dec-97 16.78503474.42587 1249.2408
5.000
FORMULA: 1000*(1+T)= 1249.2408
= 1231.240774
T = 4.25% 4.55%
R = 23.12% 24.92%
Oppenheimer Strategic Bond
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 10.325565 0.06835
2 FEE 31-Dec-94 0.705758 9.792927 0.07207
3 FEE 29-Dec-95 0.705758 11.131898 0.06340
4 FEE 31-Dec-96 0.705758 12.295334 0.05740
5 FEE 31-Dec-97 0.705758 13.173371 0.05357 0.02
RESULTING VALUE 31-Dec-97 13.17#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Oppenheimer Multiple Strategies
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 16.94734059.00631
1 FEE 31-Dec-93 0.705758 19.367471 0.03644
2 FEE 31-Dec-94 0.705758 18.717789 0.03771
3 FEE 29-Dec-95 0.705758 22.389749 0.03152
4 FEE 31-Dec-96 0.705758 25.485130 0.02769
5 FEE 31-Dec-97 0.705758 29.444323 0.02397 0.02
RESULTING VALUE 31-Dec-97 29.44432358.84898 1732.7684
5.000
FORMULA: 1000*(1+T)= 1732.7684
= 1714.768403
T = 11.39% 11.62%
R = 71.48% 73.28%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Federated Prime Money Market
21-Nov-94
TO NO. YEARS 3.110
31-Dec-97
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 21-Nov-941000.00 9.71687102.91379
1 FEE 21-Nov-95 0.705757807 10.069884 0.07009 0.07
2 FEE 21-Nov-96 0.705757807 10.399462 0.06786 0.06
3 FEE 21-Nov-97 0.705757807 10.750011 0.06565 0.05
4 FEE 31-Dec-97 0.705757807 10.789240 0.06541 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 10.78924102.64477 1107.4591
3.110
FORMULA: 1000*(1+T)= 1107.4591
= 1071.45908
T = 2.24% 3.34%
R = 7.15%
Investment Grade Bonds
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-951000.00 10.01734599.82685
1 FEE 02-Oct-96 0.705757807 10.251671 0.06884 0.07
2 FEE 02-Oct-97 0.705757807 10.979865 0.06428 0.06
3 FEE 31-Dec-97 0.705757807 11.193239 0.06305 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 11.19323999.63068 1115.1900
2.248
FORMULA: 1000*(1+T)= 1115.1900
= 1070.189985
T = 3.06% 4.97%
R = 7.02%
Value Income
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-951000.00 10.01575099.84275
1 FEE 02-Oct-96 0.705757807 11.944932 0.05908 0.07
2 FEE 02-Oct-97 0.705757807 15.803112 0.04466 0.06
3 FEE 31-Dec-97 0.705757807 15.652368 0.04509 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 15.65236899.69391 1560.4458
2.248
FORMULA: 1000*(1+T)= 1560.4458
= 1515.445836
T = 20.31% 21.89%
R = 51.54%
Capital Growth
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-951000.00 10.01551199.84513
1 FEE 02-Oct-96 0.705757807 12.350383 0.05714 0.07
2 FEE 02-Oct-97 0.705757807 17.027354 0.04145 0.06
3 FEE 31-Dec-97 0.705757807 17.520802 0.04028 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 17.52080299.70626 1746.9336
2.248
FORMULA: 1000*(1+T)= 1746.9336
= 1701.93357
T = 26.69% 28.17%
R = 70.19%
Mid Cap
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-951000.00 10.01576599.84260
1 FEE 02-Oct-96 0.705757807 11.231166 0.06284 0.07
2 FEE 02-Oct-97 0.705757807 14.587668 0.04838 0.06
3 FEE 31-Dec-97 0.705757807 14.190246 0.04974 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 14.19024699.68164 1414.5070
2.248
FORMULA: 1000*(1+T)= 1414.5070
= 1369.507037
T = 15.02% 16.68%
R = 36.95%
International Equity
07-Nov-96
TO NO. YEARS 1.147
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 07-Nov-961000.00 10.00476599.95237
1 FEE 07-Nov-97 0.705757807 11.667351 0.06049 0.07
2 FEE 31-Dec-97 0.705757807 11.691613 0.06036 0.06
3 FEE N/A 0 N/A 0.00000 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 11.69161399.83152 1167.1915
1.147
FORMULA: 1000*(1+T)= 1167.1915
= 1113.191477
T = 9.80% 14.43%
R = 11.32%
Small Cap
21-Oct-97
TO NO. YEARS 0.194
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 21-Oct-971000.00 10.00000100.00000
1 FEE 31-Dec-97 0.705757807 9.767600 0.07225 0.07
2 FEE N/A 0 N/A 0.00000 0.06
3 FEE N/A 0 N/A 0.00000 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 9.76760099.92775 976.0542
0.194
FORMULA: 1000*(1+T)= 976.0542
= 913.0542422
T = -37.37% -11.72%
R = -8.69%
AIM Capital Appreciation
05-May-93
TO NO. YEARS 4.657
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 05-May-931000.00 10.00000100.00000
1 FEE 05-May-94 0.705757807 11.787143 0.05988 0.07
2 FEE 05-May-95 0.705757807 13.136137 0.05373 0.06
3 FEE 05-May-96 0.705757807 17.767657 0.03972 0.05
4 FEE 05-May-97 0.705757807 18.619478 0.03790 0.04
5 FEE 31-Dec-97 0.705757807 20.730907 0.03404 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 20.73090799.77473 2068.4206
4.657
FORMULA: 1000*(1+T)= 2068.4206
= 2041.420624
T = 16.56% 16.89%
R = 104.14%
AIM High Yield
01-May-98
TO NO. YEARS -0.331
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 01-May-981000.00 10.00000100.00000
1 FEE 31-Dec-97 0.705757807 #N/A #N/A 0.07
2 FEE N/A 0 N/A 0.00000 0.06
3 FEE N/A 0 N/A 0.00000 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 #N/A #N/A #N/A
-0.331
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A
Templeton Bond
24-Aug-88
TO NO. YEARS 9.352
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 24-Aug-881000.00 10.00000100.00000
1 FEE 24-Aug-89 0.705757807 10.541079 0.06695 0.07
2 FEE 24-Aug-90 0.705757807 11.009692 0.06410 0.06
3 FEE 24-Aug-91 0.705757807 11.699565 0.06032 0.05
4 FEE 24-Aug-92 0.705757807 13.396920 0.05268 0.04
5 FEE 24-Aug-93 0.705757807 14.422087 0.04894 0.03
6 FEE 24-Aug-94 0.705757807 13.588395 0.05194 0.02
7 FEE 24-Aug-95 0.705757807 14.788158 0.04772 0.01
8 FEE 24-Aug-96 0.705757807 15.548950 0.04539 0
9 FEE 24-Aug-97 0.705757807 16.627556 0.04245 0
10 FEE 31-Dec-97 0.705757807 16.785034 0.04205 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 16.78503499.47746 1669.7325
9.352
FORMULA: 1000*(1+T)= 1669.7325
= 1669.73254
T = 5.63% 5.63%
R = 66.97%
Templeton Stock
01-May-97
TO NO. YEARS 0.668
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 01-May-971000.00 10.00000100.00000
1 FEE 31-Dec-97 0.705757807 10.604984 0.06655 0.07
2 FEE N/A 0 N/A 0.00000 0.06
3 FEE N/A 0 N/A 0.00000 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 10.60498499.93345 1059.7926
0.668
FORMULA: 1000*(1+T)= 1059.7926
= 996.7926422
T = -0.48% 9.08%
R = -0.32%
Oppenheimer Strategic Bond
03-May-93
TO NO. YEARS 4.663
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 03-May-931000.00 10.00000100.00000
1 FEE 03-May-94 0.705757807 9.835169 0.07176 0.07
2 FEE 03-May-95 0.705757807 10.218312 0.06907 0.06
3 FEE 03-May-96 0.705757807 11.280327 0.06257 0.05
4 FEE 03-May-97 0.705757807 12.377391 0.05702 0.04
5 FEE 31-Dec-97 0.705757807 13.173371 0.05357 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 13.17337199.68601 1313.2008
4.663
FORMULA: 1000*(1+T)= 1313.2008
= 1286.200841
T = 5.55% 6.02%
R = 28.62%
Oppenheimer Multiple Strategies Since Inception
09-Feb-87
TO NO. YEARS 10.891
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 09-Feb-871000.00 10.00000100.00000
1 FEE 09-Feb-88 0.705757807 10.420620 0.06773 0.07
2 FEE 09-Feb-89 0.705757807 12.994077 0.05431 0.06
3 FEE 09-Feb-90 0.705757807 13.752028 0.05132 0.05
4 FEE 09-Feb-91 0.705757807 14.017970 0.05035 0.04
5 FEE 09-Feb-92 0.705757807 16.242122 0.04345 0.03
6 FEE 09-Feb-93 0.705757807 17.422516 0.04051 0.02
7 FEE 09-Feb-94 0.705757807 19.754679 0.03573 0.01
8 FEE 09-Feb-95 0.705757807 19.237392 0.03669 0
9 FEE 09-Feb-96 0.705757807 23.136064 0.03050 0
10 FEE 09-Feb-97 0.705757807 26.081649 0.02706 0
11 FEE 31-Dec-97 0.705757807 29.444323 0.02397 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 29.44432399.53839 2930.8404
10.891
FORMULA: 1000*(1+T)= 2930.8404
= 2930.840365
T = 10.38% 10.38%
R = 193.08%
Oppenheimer Multiple Strategies Ten Years
31-Dec-97
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-871000.00 10.26332897.43428
1 FEE 30-Dec-88 0.705757807 12.353800 0.05713
2 FEE 30-Dec-89 0.705757807 14.095886 0.05007
3 FEE 30-Dec-90 0.705757807 13.566224 0.05202
4 FEE 31-Dec-91 0.705757807 15.778442 0.04473
5 FEE 30-Dec-92 0.705757807 16.920828 0.04171
6 FEE 30-Dec-93 0.705757807 19.340331 0.03649
7 FEE 30-Dec-94 0.705757807 18.717789 0.03771
8 FEE 31-Dec-95 0.705757807 22.389749 0.03152
9 FEE 30-Dec-96 0.705757807 25.583979 0.02759
10 FEE 31-Dec-97 0.705757807 29.444323 0.02397 0
RESULTING VALUE 31-Dec-97 29.44432397.03135 2857.0224
5.000
FORMULA: 1000*(1+T)= 2857.0224
= 2857.022417
T = 23.36% 23.36%
R = 185.70% 185.70%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1yr ago: 12/31/96
Date: 12/31/97
MM
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 10.429060 95.88592
1 FEE 31-Dec-970.705758 10.796476 0.06537 0.06
RESULTING VALUE 31-Dec-97 10.796476 95.820551034.5243
1.000
FORMULA: 1000*(1+T)= 1034.5243
= 980.5242629
T = -1.95% 3.45%
R = -1.95% 3.45%
Investment Grade Bonds
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 10.428707 95.88916
1 FEE 31-Dec-970.705758 11.200752 0.06301 0.06
RESULTING VALUE 31-Dec-97 11.200752 95.826151073.3250
1.000
FORMULA: 1000*(1+T)= 1073.3250
= 1019.324992
T = 1.93% 7.33%
R = 1.93% 7.33%
Capital Growth
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 13.014601 76.83678
1 FEE 31-Dec-970.705758 17.532559 0.04025 0.06
RESULTING VALUE 31-Dec-97 17.532559 76.796521346.4396
1.000
FORMULA: 1000*(1+T)= 1346.4396
= 1292.439575
T = 29.24% 34.64%
R = 29.24% 34.64%
Value Income
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 12.517972 79.88514
1 FEE 31-Dec-970.705758 15.662858 0.04506 0.06
RESULTING VALUE 31-Dec-97 15.662858 79.840091250.5239
1.000
FORMULA: 1000*(1+T)= 1250.5239
= 1196.523914
T = 19.65% 25.05%
R = 19.65% 25.05%
Mid Cap
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 11.775200 84.92425
1 FEE 31-Dec-970.705758 14.199761 0.04970 0.06
RESULTING VALUE 31-Dec-97 14.199761 84.874551205.1983
1.000
FORMULA: 1000*(1+T)= 1205.1983
= 1151.198261
T = 15.12% 20.52%
R = 15.12% 20.52%
International Equity
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 10.149581 98.52623
1 FEE 31-Dec-970.705758 11.699464 0.06032 0.06
RESULTING VALUE 31-Dec-97 11.699464 98.465911151.9984
1.000
FORMULA: 1000*(1+T)= 1151.9984
= 1097.998378
T = 9.80% 15.20%
R = 9.80% 15.20%
Small Cap
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 #N/A #N/A
1 FEE 31-Dec-970.705758 9.769496 0.07224 0.06
RESULTING VALUE 31-Dec-97 9.769#N/A #N/A
1.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
AIM Capital Appreciation
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 18.598923 53.76655
1 FEE 31-Dec-970.705758 20.827677 0.03389 0.06
RESULTING VALUE 31-Dec-97 20.827677 53.732671119.1267
1.000
FORMULA: 1000*(1+T)= 1119.1267
= 1065.126665
T = 6.51% 11.91%
R = 6.51% 11.91%
AIM High Yield
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 #N/A #N/A
1 FEE 31-Dec-970.705758 #N/A #N/A 0.06
RESULTING VALUE 31-Dec-97 #N/A #N/A #N/A
1.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Templeton Bond
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 16.751964 59.69449
1 FEE 31-Dec-970.705758 16.941998 0.04166 0.06
RESULTING VALUE 31-Dec-97 16.941998 59.652841010.6382
1.000
FORMULA: 1000*(1+T)= 1010.6382
= 956.6382255
T = -4.34% 1.06%
R = -4.34% 1.06%
Templeton Stock
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 #N/A #N/A
1 FEE 31-Dec-970.705758 10.612039 0.06651 0.06
RESULTING VALUE 31-Dec-97 10.612#N/A #N/A
1.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Oppenheimer Strategic Bond
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 12.340422 81.03451
1 FEE 31-Dec-970.705758 13.234898 0.05333 0.06
RESULTING VALUE 31-Dec-97 13.234898 80.981181071.7777
1.000
FORMULA: 1000*(1+T)= 1071.7777
= 1017.777663
T = 1.78% 7.18%
R = 1.78% 7.18%
Oppenheimer Multiple Strategies
31-Dec-96
TO NO. YEARS 1.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec1000.00 25.738400 38.85245
1 FEE 31-Dec-970.705758 29.766670 0.02371 0.06
RESULTING VALUE 31-Dec-97 29.766670 38.828741155.8024
1.000
FORMULA: 1000*(1+T)= 1155.8024
= 1101.802417
T = 10.18% 15.58%
R = 10.18% 15.58%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date: 12/31/97
1 yr ago: 12/31/96
2 yr ago: 12/29/95
3 yr ago: 12/31/94
4 yr Ago: 12/31/93
5 Yr. ago: 12/31/92
MM
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 9.721342 0.07260
3 FEE 29-Dec-95 0.705758 10.092566 0.06993
4 FEE 31-Dec-96 0.705758 10.429060 0.06767
5 FEE 31-Dec-97 0.705758 10.796476 0.06537 0.02
RESULTING VALUE 31-Dec-97 10.79#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Investment Grade Bonds
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 10.335610 0.06828
4 FEE 31-Dec-96 0.705758 10.428707 0.06767
5 FEE 31-Dec-97 0.705758 11.200752 0.06301 0.02
RESULTING VALUE 31-Dec-97 11.20#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Value Income
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 10.695754 0.06598
4 FEE 31-Dec-96 0.705758 12.517972 0.05638
5 FEE 31-Dec-97 0.705758 15.662858 0.04506 0.02
RESULTING VALUE 31-Dec-97 15.66#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Capital Growth
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 10.660767 0.06620
4 FEE 31-Dec-96 0.705758 13.014601 0.05423
5 FEE 31-Dec-97 0.705758 17.532559 0.04025 0.02
RESULTING VALUE 31-Dec-97 17.53#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Mid Cap
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 10.285062 0.06862
4 FEE 31-Dec-96 0.705758 11.775200 0.05994
5 FEE 31-Dec-97 0.705758 14.199761 0.04970 0.02
RESULTING VALUE 31-Dec-97 14.19#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
International Equity
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 #N/A #N/A
4 FEE 31-Dec-96 0.705758 10.149581 0.06954
5 FEE 31-Dec-97 0.705758 11.699464 0.06032 0.02
RESULTING VALUE 31-Dec-97 11.69#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Small Cap
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 #N/A #N/A
4 FEE 31-Dec-96 0.705758 #N/A #N/A
5 FEE 31-Dec-97 0.705758 9.769496 0.07224 0.02
RESULTING VALUE 31-Dec-97 9.76#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
AIM Capital Appreciation
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 11.843676 0.05959
2 FEE 31-Dec-94 0.705758 11.977094 0.05893
3 FEE 29-Dec-95 0.705758 16.034058 0.04402
4 FEE 31-Dec-96 0.705758 18.598923 0.03795
5 FEE 31-Dec-97 0.705758 20.827677 0.03389 0.02
RESULTING VALUE 31-Dec-97 20.82#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
AIM High Yield
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 #N/A #N/A
2 FEE 31-Dec-94 0.705758 #N/A #N/A
3 FEE 29-Dec-95 0.705758 #N/A #N/A
4 FEE 31-Dec-96 0.705758 #N/A #N/A
5 FEE 31-Dec-97 0.705758 #N/A #N/A 0.02
RESULTING VALUE 31-Dec-97 #N/A #N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Templeton Bond
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 13.45274874.33425
1 FEE 31-Dec-93 0.705758 14.788925 0.04772
2 FEE 31-Dec-94 0.705758 13.680007 0.05159
3 FEE 29-Dec-95 0.705758 15.294591 0.04614
4 FEE 31-Dec-96 0.705758 16.751964 0.04213
5 FEE 31-Dec-97 0.705758 16.941998 0.04166 0.02
RESULTING VALUE 31-Dec-97 16.94199874.10501 1255.4869
5.000
FORMULA: 1000*(1+T)= 1255.4869
= 1237.486949
T = 4.35% 4.66%
R = 23.75% 25.55%
Templeton Stock
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 13.45274874.33425
1 FEE 31-Dec-93 0.705758 14.788925 0.04772
2 FEE 31-Dec-94 0.705758 13.680007 0.05159
3 FEE 29-Dec-95 0.705758 15.294591 0.04614
4 FEE 31-Dec-96 0.705758 16.751964 0.04213
5 FEE 31-Dec-97 0.705758 16.941998 0.04166 0.02
RESULTING VALUE 31-Dec-97 16.94199874.10501 1255.4869
5.000
FORMULA: 1000*(1+T)= 1255.4869
= 1237.486949
T = 4.35% 4.66%
R = 23.75% 25.55%
Oppenheimer Strategic Bond
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 #N/A #N/A
1 FEE 31-Dec-93 0.705758 10.332410 0.06831
2 FEE 31-Dec-94 0.705758 9.809187 0.07195
3 FEE 29-Dec-95 0.705758 11.161491 0.06323
4 FEE 31-Dec-96 0.705758 12.340422 0.05719
5 FEE 31-Dec-97 0.705758 13.234898 0.05333 0.02
RESULTING VALUE 31-Dec-97 13.23#N/A #N/A
5.000
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A #N/A
Oppenheimer Multiple Strategies
31-Dec-92
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 17.04745458.65979
1 FEE 31-Dec-93 0.705758 19.501362 0.03619
2 FEE 31-Dec-94 0.705758 18.866004 0.03741
3 FEE 29-Dec-95 0.705758 22.589542 0.03124
4 FEE 31-Dec-96 0.705758 25.738400 0.02742
5 FEE 31-Dec-97 0.705758 29.766670 0.02371 0.02
RESULTING VALUE 31-Dec-97 29.76667058.50381 1741.4637
5.000
FORMULA: 1000*(1+T)= 1741.4637
= 1723.463721
T = 11.50% 11.73%
R = 72.35% 74.15%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Federated Prime Money Market
21-Nov-94
TO NO. YEARS 3.110
31-Dec-97
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 21-Nov-1000.00 9.68807103.21972
1 FEE 21-Nov-95 0.705758 10.050080 0.07022 0.07
2 FEE 21-Nov-96 0.705758 10.390707 0.06792 0.06
3 FEE 21-Nov-97 0.705758 10.756040 0.06562 0.05
4 FEE 31-Dec-97 0.705758 10.796476 0.06537 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 10.79647102.95059 1111.5036
3.110
FORMULA: 1000*(1+T)= 1111.5036
= 1075.503596
T = 2.37% 3.46%
R = 7.55%
Investment Grade Bonds
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-1000.00 10.00000100.00000
1 FEE 02-Oct-96 0.705758 10.245783 0.06888 0.07
2 FEE 02-Oct-97 0.705758 10.984525 0.06425 0.06
3 FEE 31-Dec-97 0.705758 11.200752 0.06301 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 11.20075299.80386 1117.8783
2.248
FORMULA: 1000*(1+T)= 1117.8783
= 1072.878253
T = 3.18% 5.08%
R = 7.29%
Value Income
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-1000.00 10.00000100.00000
1 FEE 02-Oct-96 0.705758 11.938077 0.05912 0.07
2 FEE 02-Oct-97 0.705758 15.809807 0.04464 0.06
3 FEE 31-Dec-97 0.705758 15.662858 0.04506 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 15.66285899.85118 1563.9549
2.248
FORMULA: 1000*(1+T)= 1563.9549
= 1518.954884
T = 20.44% 22.01%
R = 51.90%
Capital Growth
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-1000.00 10.00000100.00000
1 FEE 02-Oct-96 0.705758 12.343296 0.05718 0.07
2 FEE 02-Oct-97 0.705758 17.034580 0.04143 0.06
3 FEE 31-Dec-97 0.705758 17.532559 0.04025 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 17.53255999.86114 1750.8213
2.248
FORMULA: 1000*(1+T)= 1750.8213
= 1705.821286
T = 26.82% 28.30%
R = 70.58%
Mid Cap
02-Oct-95
TO NO. YEARS 2.248
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 02-Oct-1000.00 10.00000100.00000
1 FEE 02-Oct-96 0.705758 11.224723 0.06288 0.07
2 FEE 02-Oct-97 0.705758 14.593850 0.04836 0.06
3 FEE 31-Dec-97 0.705758 14.199761 0.04970 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 14.19976199.83906 1417.6908
2.248
FORMULA: 1000*(1+T)= 1417.6908
= 1372.690828
T = 15.13% 16.80%
R = 37.27%
International Equity
07-Nov-96
TO NO. YEARS 1.147
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 07-Nov-1000.00 10.00000100.00000
1 FEE 07-Nov-97 0.705758 11.673464 0.06046 0.07
2 FEE 31-Dec-97 0.705758 11.699464 0.06032 0.06
3 FEE N/A 0 N/A 0.00000 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 11.69946499.87922 1168.5333
1.147
FORMULA: 1000*(1+T)= 1168.5333
= 1114.533312
T = 9.91% 14.54%
R = 11.45%
Small Cap
21-Oct-97
TO NO. YEARS 0.194
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 21-Oct-1000.00 10.00000100.00000
1 FEE 31-Dec-97 0.705758 9.769496 0.07224 0.07
2 FEE N/A 0 N/A 0.00000 0.06
3 FEE N/A 0 N/A 0.00000 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 9.76949699.92776 976.2438
0.194
FORMULA: 1000*(1+T)= 976.2438
= 913.2438422
T = -37.30% -11.63%
R = -8.68%
AIM Capital Appreciation
05-May-93
TO NO. YEARS 4.657
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 05-May-1000.00 10.00000100.00000
1 FEE 05-May-94 0.705758 11.798941 0.05982 0.07
2 FEE 05-May-95 0.705758 13.162436 0.05362 0.06
3 FEE 05-May-96 0.705758 17.820955 0.03960 0.05
4 FEE 05-May-97 0.705758 18.694099 0.03775 0.04
5 FEE 31-Dec-97 0.705758 20.827677 0.03389 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 20.82767799.77532 2078.0882
4.657
FORMULA: 1000*(1+T)= 2078.0882
= 2051.088228
T = 16.68% 17.01%
R = 105.11%
AIM High Yield
01-May-98
TO NO. YEARS -0.331
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 01-May-1000.00 10.00000100.00000
1 FEE 31-Dec-97 0.705758 #N/A #N/A 0.07
2 FEE N/A 0 N/A 0.00000 0.06
3 FEE N/A 0 N/A 0.00000 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 #N/A #N/A #N/A
-0.331
FORMULA: 1000*(1+T)= #N/A
= #N/A
T = #N/A #N/A
R = #N/A
Templeton Bond
24-Aug-88
TO NO. YEARS 9.352
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 24-Aug-1000.00 10.00000100.00000
1 FEE 24-Aug-89 0.705758 10.550876 0.06689 0.07
2 FEE 24-Aug-90 0.705758 11.030908 0.06398 0.06
3 FEE 24-Aug-91 0.705758 11.733780 0.06015 0.05
4 FEE 24-Aug-92 0.705758 13.449422 0.05247 0.04
5 FEE 24-Aug-93 0.705758 14.492994 0.04870 0.03
6 FEE 24-Aug-94 0.705758 13.668905 0.05163 0.02
7 FEE 24-Aug-95 0.705758 14.890551 0.04740 0.01
8 FEE 24-Aug-96 0.705758 15.672223 0.04503 0
9 FEE 24-Aug-97 0.705758 16.776026 0.04207 0
10 FEE 31-Dec-97 0.705758 16.941998 0.04166 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 16.94199899.48002 1685.3903
9.352
FORMULA: 1000*(1+T)= 1685.3903
= 1685.390338
T = 5.74% 5.74%
R = 68.54%
Templeton Stock
01-May-97
TO NO. YEARS 0.668
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 01-May-1000.00 10.00000100.00000
1 FEE 31-Dec-97 0.705758 10.612039 0.06651 0.07
2 FEE N/A 0 N/A 0.00000 0.06
3 FEE N/A 0 N/A 0.00000 0.05
4 FEE N/A 0 N/A 0.00000 0.04
5 FEE N/A 0 N/A 0.00000 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 10.61203999.93349 1060.4981
0.668
FORMULA: 1000*(1+T)= 1060.4981
= 997.4981422
T = -0.37% 9.19%
R = -0.25%
Oppenheimer Strategic Bond
03-May-93
TO NO. YEARS 4.663
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 03-May-1000.00 10.00000100.00000
1 FEE 03-May-94 0.705758 9.845001 0.07169 0.07
2 FEE 03-May-95 0.705758 10.238749 0.06893 0.06
3 FEE 03-May-96 0.705758 11.314210 0.06238 0.05
4 FEE 03-May-97 0.705758 12.426933 0.05679 0.04
5 FEE 31-Dec-97 0.705758 13.234898 0.05333 0.03
6 FEE N/A 0 N/A 0.00000 0.02
7 FEE N/A 0 N/A 0.00000 0.01
8 FEE N/A 0 N/A 0.00000 0
9 FEE N/A 0 N/A 0.00000 0
10 FEE N/A 0 N/A 0.00000 0
11 FEE N/A 0 N/A 0.00000 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 13.23489899.68689 1319.3458
4.663
FORMULA: 1000*(1+T)= 1319.3458
= 1292.34578
T = 5.65% 6.12%
R = 29.23%
Oppenheimer Multiple Strategies Since Inception
09-Feb-87
TO NO. YEARS 10.891
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 09-Feb-1000.00 10.00000100.00000
1 FEE 09-Feb-88 0.705758 10.431046 0.06766 0.07
2 FEE 09-Feb-89 0.705758 13.020083 0.05421 0.06
3 FEE 09-Feb-90 0.705758 13.793333 0.05117 0.05
4 FEE 09-Feb-91 0.705758 14.074107 0.05015 0.04
5 FEE 09-Feb-92 0.705758 16.323424 0.04324 0.03
6 FEE 09-Feb-93 0.705758 17.527353 0.04027 0.02
7 FEE 09-Feb-94 0.705758 19.893425 0.03548 0.01
8 FEE 09-Feb-95 0.705758 19.391900 0.03639 0
9 FEE 09-Feb-96 0.705758 23.345194 0.03023 0
10 FEE 09-Feb-97 0.705758 26.343586 0.02679 0
11 FEE 31-Dec-97 0.705758 29.766670 0.02371 0
12 FEE N/A 0 N/A 0.00000 0
13 FEE N/A 0 N/A 0.00000 0
14 FEE N/A 0 N/A 0.00000 0
15 FEE N/A 0 N/A 0.00000 0
RESULTING VALUE 31-Dec-97 29.76667099.54072 2962.9957
10.891
FORMULA: 1000*(1+T)= 2962.9957
= 2962.995703
T = 10.49% 10.49%
R = 196.30%
Oppenheimer Multiple Strategies Ten Years
31-Dec-97
TO NO. YEARS 5.000
31-Dec-97
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITSEND VALUE SURRENDER CHARGES
0 INIT DEPOSIT 31-Dec-1000.00 10.27247797.34750
1 FEE 30-Dec-88 0.705758 12.377138 0.05702
2 FEE 30-Dec-89 0.705758 14.136599 0.04992
3 FEE 30-Dec-90 0.705758 13.618985 0.05182
4 FEE 31-Dec-91 0.705758 15.855777 0.04451
5 FEE 30-Dec-92 0.705758 17.020739 0.04146
6 FEE 30-Dec-93 0.705758 19.473981 0.03624
7 FEE 30-Dec-94 0.705758 18.866004 0.03741
8 FEE 31-Dec-95 0.705758 22.589542 0.03124
9 FEE 30-Dec-96 0.705758 25.838161 0.02731
10 FEE 31-Dec-97 0.705758 29.766670 0.02371 0
RESULTING VALUE 31-Dec-97 29.76667096.94684 2885.7847
5.000
FORMULA: 1000*(1+T)= 2885.7847
= 2885.784741
T = 23.61% 23.61%
R = 188.58% 188.58%
</TABLE>
