THE STI CLASSIC VARIABLE ANNUITY
Glenbrook Life And Annuity Company Prospectus dated May 1, 1999
3100 Sanders Road, Northbrook, IL 60062
Telephone Number: 1-800-755-5275
Glenbrook Life and Annuity Company ("Glenbrook") is offering the STI Classic
Variable Annuity, an individual flexible premium deferred variable annuity
contract ("Contract"). This prospectus contains information about the Contract
that you should know before investing. Please keep it for future reference.
The Contract currently offers 16 investment alternatives ("investment
alternatives"). The investment alternatives include 3 fixed account options
("Fixed Account Options") and 13 variable sub-accounts ("Variable Sub-Accounts")
of the Glenbrook Life and Annuity Company Variable Annuity Account ("Variable
Account"). Each Variable Sub-Account invests exclusively in shares of one of the
following mutual fund portfolios ("Portfolios"):
<TABLE>
<CAPTION>
<S> <C>
STI Classic Variable Trust: Templeton Variable Products Series
- --------------------------- ----------------------------------
STI Capital Appreciation Fund (previously Templeton Bond Fund - Class 2
known as the Capital Growth Fund)
STI International Equity Fund Templeton Stock Fund - Class 2
STI Investment Grade Bond Fund
STI Mid-Cap Equity Fund (previously known Oppenheimer Variable Account Funds:
as the Aggressive Growth portfolio) -----------------------------------
STI Small Cap Equity Fund Oppenheimer Multiple Strategies Fund/VA
STI Value Income Stock Fund Oppenheimer Strategic Bond Fund/VA
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>
We (Glenbrook) have filed a Statement of Additional Information, dated May 1,
1999, with the Securities and Exchange Commission ("SEC"). It contains more
information about the Contract and is incorporated herein by reference, which
means it is legally a part of this prospectus. Its table of contents appears on
page C-1 of this prospectus. For a free copy, please write or call us at the
address or telephone number above, or go to the SEC's Web site
(http://www.sec.gov). You can find other information and documents about us,
including documents that are legally part of this prospectus, at the SEC's Web
site.
The Securities and Exchange Commission has not approved or
disapproved the securities described in this prospectus,
nor has it passed on the accuracy or the adequacy of this
prospectus. Anyone who tells you otherwise is committing a
federal crime.
IMPORTANT The Contracts may be distributed through broker-dealers that
NOTICES have relationships with banks or other financial institutions
or by employeesof such banks. However, the Contracts are not
deposits, or obligations of, or guaranteed by such institutions
or any federal regulatory agency. Investment in the Contracts
involves investment risks, including possible loss of
principal.
The Contracts are not FDIC insured.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C> <C>
Page
Important Terms............................................ 3
Overview The Contract At A Glance................................... 4
How the Contract Works..................................... 6
Expense Table.............................................. 7
Financial Information...................................... 10
The Contract............................................... 11
Purchases.................................................. 12
Contract Value............................................. 13
Investment Alternatives.................................... 14
The Variable Sub-Accounts......................... 14
The Fixed Account Options......................... 15
Transfers......................................... 17
Contract Expenses................................................... 19
Features Access To Your Money....................................... 21
Income Payments............................................ 22
Death Benefits............................................. 24
More Information: 26
Glenbrook......................................... 26
The Variable Account.............................. 26
The Portfolios.................................... 27
Other The Contract...................................... 27
Information Qualified Plans................................... 28
Legal Matters..................................... 28
Year 2000......................................... 28
Taxes...................................................... 29
Annual Reports and Other Documents......................... 31
Performance Information.................................... 32
Experts.................................................... 33
Appendix A--Accumulation Unit Values.......................A-1
Appendix B - Market Value Adjustment ......................B-1
Statement of Additional Information Table of Contents.....C-1
</TABLE>
<PAGE>
IMPORTANT TERMS
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This prospectus uses a number of important terms that you may not be familiar
with. The index below identifies the page that describes each term. The first
use of each term in this prospectus appears in highlights.
Page
Accumulation Phase........................................... 6
Accumulation Unit ........................................... 10
Accumulation Unit Value ..................................... 10
Anniversary Values........................................... 25
Annuitant.................................................... 11
Automatic Additions Program.................................. 12
Automatic Portfolio Rebalancing Program...................... 18
Beneficiary.................................................. 11
Cancellation Period ......................................... 4
Contract .................................................... 1
Contract Anniversary......................................... 5
Contract Owner ("You") ...................................... 11
Contract Value .............................................. 13
Contract Year............................................... 5
Death Benefit Anniversary ................................... 24
Dollar Cost Averaging Program................................ 18
Due Proof of Death........................................... 24
Enhanced Death Benefit Rider............................... 25
Fixed Account Options ....................................... 15
Free Withdrawal Amount ...................................... 20
Glenbrook ("We")............................................. 26
Guarantee Periods........................................... 15
Income Plan ................................................. 22
Investment Alternatives ..................................... 1
Issue Date .................................................. 6
Market Value Adjustment ..................................... 17
Payout Phase................................................. 6
Payout Start Date .......................................... 22
Portfolios................................................... 27
SEC.......................................................... 1
Settlement Value ........................................... 25
Systematic Withdrawal Program................................ 22
Valuation Date............................................... 12
Variable Account ............................................ 26
Variable Sub-Account ........................................ 26
<PAGE>
THE CONTRACT AT A GLANCE
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The following is a snapshot of the Contract. Please read the remainder of this
prospectus for more information.
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Flexible Payments
You can purchase a Contract with as little as
$3,000 ($2,000 for "Qualified Contracts," which are
Contracts issued with qualified plans). You can add
to your Contract as often and as much as you like,
but each payment must be at least $50.
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Right to Cancel You may cancel your Contract within 20 days of
receipt or any longer period your state may
require ("Cancellation Period"). Upon cancellation,
we will return your purchase payments adjusted,
to the extent state law permits, to reflect
the investment experience of any amounts allocated
to the Variable Account.
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Expenses You will bear the following expenses:
o Total Variable Account annual fees equal to
1.35% of average daily net assets (1.45% if
you select the Enhanced Death Benefit Rider)
o Annual contract maintenance charge of $30 (with
certain exceptions)
o Withdrawal charges ranging from 0% to 7% of
payment withdrawn (with certain exceptions)
o Transfer fee of $10 after 12th transfer in any
Contract Year (fee currently waived)
o State premium tax (if your state imposes one)
In addition, each Portfolio pays expenses that you
will bear indirectly if you invest in a Variable
Sub-Account.
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Investment
Alternatives The Contract offers 16 investment alternatives
including:
o 3 Fixed Account Options (which credit interest
at rates we guarantee)
o 13 Variable Sub-Accounts investing in
Portfolios offering professional money
management by these investment advisers:
o STI Capital Management, N.A.
o A I M Advisors, Inc.
o Templeton Investment Counsel, Inc.
o OppenheimerFunds, Inc.
o Federated Investment Management Company
To find out current rates being paid on the Fixed
Account Options or how the Variable Sub-Accounts
have performed, call us at 1-800-755-5275.
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Special Services For your convenience, we offer these special
services:
o Automatic Portfolio Rebalancing Program
o Automatic Additions Program
o Dollar Cost Averaging Program
o Systematic Withdrawal Program
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Income Payments You can choose fixed income payments,
variable income payments, or a combination of the
two. You can receive your income payments in one of
the following ways:
o life income with guaranteed payments
o a "joint and survivor" life income with
guaranteed payments
o guaranteed payments for a specified period
(5 to 30 years)
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Death Benefits If you die before the Payout Start Date we
will pay the death benefit described in the
Contract. We offer an Enhanced Death Benefit
Rider option to owners of Contracts issued on
or after May 1, 1997.
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Transfers Before the Payout Start Date you may transfer your
Contract value ("Contract Value") among the
investment alternatives, with certain restrictions.
No minimum applies to the amount you transfer.
We do not currently impose a fee upon transfers.
However, we reserve the right to charge $10 per
transfer after the 12th transfer in each "Contract
Year," which we measure from the date we issue your
Contract or a Contract anniversary ("Contract
Anniversary").
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Withdrawals You may withdraw some or all of your Contract Value
at anytime during the Accumulation Phase.
In general, you must withdraw at least $50 at a
time. A 10% federal tax penalty may apply if you
withdraw before you are 59 1/2 years old. A
withdrawal charge and Market Value Adjustment also
may apply.
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<PAGE>
HOW THE CONTRACT WORKS
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The Contract basically works in two ways.
First, the Contract can help you (we assume you are the Contract owner) save for
retirement because you can invest in up to 16 investment alternatives and pay no
federal income taxes on any earnings until you withdraw them. You do this during
what we call the "Accumulation Phase" of the Contract. The Accumulation Phase
begins on the date we issue your Contract (we call that date the "Issue Date")
and continues until the Payout Start Date, which is the date we apply your money
to provide income payments. During the Accumulation Phase, you may allocate your
purchase payments to any combination of the Variable Sub-Accounts and/or Fixed
Account Options. If you invest in any of the 3 Fixed Account Options, you will
earn a fixed rate of interest that we declare periodically. If you invest in any
of the Variable Sub-Accounts, your investment return will vary up or down
depending on the performance of the corresponding Portfolios.
Second, the Contract can help you plan for retirement because you can use it to
receive retirement income for life and/or for a pre-set number of years, by
selecting one of the income payment options (we call these "Income Plans")
described on page 22. You receive income payments during what we call the
"Payout Phase" of the Contract, which begins on the Payout Start Date and
continues until we make the last payment required by the Income Plan you select.
During the Payout Phase, if you select a fixed income payment option, we
guarantee the amount of your payments, which will remain fixed. If you select a
variable income payment option, based on one or more of the Variable
Sub-Accounts, the amount of your payments will vary up or down depending on the
performance of the corresponding Portfolios. The amount of money you accumulate
under your Contract during the Accumulation Phase and apply to an Income Plan
will determine the amount of your income payments during the Payout Phase.
The timeline below illustrates how you might use your Contract.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Issue Payout Start
Date Accumulation Phase Date Payout Phase
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| You save for retirement | | > ?
You buy You elect to You can receive Or you can receive
a Contract receive income income payments income payments
payments or receive for a set period for life
a lump sum payment
</TABLE>
As the Contract owner, you exercise all of the rights and privileges provided by
the Contract. If you die, any surviving Contract owner or, if there is none, the
Beneficiary will exercise the rights and privileges provided by the Contract.
See "The Contract." In addition, if you die before the Payout Start Date, we
will pay a death benefit to any surviving Contract owner or, if there is none,
to your Beneficiary. See "Death Benefits."
Please call us at 1-800-755-5275 if you have any question about how the Contract
works.
<PAGE>
EXPENSE TABLE
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The table below lists the expenses that you will bear directly or indirectly
when you buy a Contract. The table and the examples that follow do not reflect
premium taxes that may be imposed by the state where you reside. For more
information about Variable Account expenses, see "Expenses," below. For more
information about Portfolio expenses, please refer to the accompanying
prospectuses for the Portfolios.
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CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years
Since We Received Payment
Being Withdrawn: 0 1 2 3 4 5 6 7+
Applicable Charge: 7% 6% 5% 4% 3% 2% 1% 0%
Annual Contract Maintenance Charge..................................$30.00**
Transfer Fee.......................................................$10.00***
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* Each Contract Year, you may withdraw up to 10% of the Contract Value on the
date of the first withdrawal that Year without incurring a withdrawal charge.
However, any applicable Market Value Adjustment determined as of the date of
withdrawal will apply.
** We will waive this charge in certain cases. See "Expenses."
***Applies solely to the thirteenth and subsequent transfers within a
Contract Year. We are currently waiving the transfer fee.
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VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily net asset value deducted from each Variable
Sub-Account)
Mortality and Expense Risk Charge......................................1.25%*
Administrative Expense Charge..........................................0.10%
Total Variable Account Annual Expenses....................1.35%
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* If you select the Enhanced Death Benefit Rider (available to purchasers
after May 1, 1997), the Mortality and Expense Risk Charge will be equal to
1.35% of your Contract's average daily net assets in the Variable Account.
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<PAGE>
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<TABLE>
<CAPTION>
PORTFOLIO ANNUAL EXPENSES (After Voluntary Reductions and Reimbursements) (as
a percentage of Portfolio average daily net assets)(1)
Total
Annual
Advisory Rule 12b-1 Other Portfolio
Portfolio Fee Fees Expenses Expenses
--------- -------- ---------- -------- ---------
<S> <C> <C> <C>
STI Capital Appreciation Fund(2) 0.89% - 0.26% 1.15%
STI International Equity Fund 0.78% - 0.82% 1.60%
STI Investment Grade Bond Fund 0.15% - 0.60% 0.75%
STI Mid-Cap Equity Fund 0.77% - 0.38% 1.15%
STI Small Cap Equity Fund(3) 0.45% - 0.75% 1.20%
STI Value Income Stock Fund 0.64% - 0.31% 0.95%
AIM V.I. Capital Appreciation Fund 0.62% - 0.05% 0.67%
AIM V.I. High Yield Fund 0.00% - 1.13% 1.13%
Templeton Bond Fund Class-2(4) 0.50% 0.15% 0.23% 0.88%
Templeton Stock Fund Class-2 0.70% 0.25% 0.19% 1.14%
Oppenheimer Multiple Strategies Fund/VA 0.72% - 0.04% 0.76%
Oppenheimer Strategic Bond Fund/VA 0.74% - 0.06% 0.80%
Federated Prime Money Fund II 0.49% - 0.31% 0.80%
</TABLE>
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(1) Figures shown in the table are for each Portfolio's most
recently completed fiscal year. Absent voluntary reductions and
reimbursements for certain Portfolios, advisory fees, other
expenses and total annual Portfolio expenses expressed as a
percentage of average net assets of the Portfolios would have
been as follows:
STI Capital Appreciation Fund 1.15% 0.26% 1.41%
STI International Equity Fund 1.25% 0.82% 2.07%
STI Investment Grade Bond Fund 0.74% 0.60% 1.34%
STI Mid-Cap Equity Fund 1.15% 0.38% 1.53%
STI Small Cap Equity Fund 1.15% 0.75% 1.90%
STI Value Income Stock Fund 0.80% 0.31% 1.11%
Federated Prime Money Fund II 0.50% 0.31% 0.81%
(2) Previously known as STI Capital Growth Fund.
(3) The fees and/or expenses are based on estimated expenses for the
current fiscal year.
(4) Class 2 of the Templeton Bond Fund has a distribution plan or
"Rule 12b-1 plan" as described in the Fund prospectus. Because
no Class 2 shares were issued as of December 31, 1998, figures
(other than "12b-1 Fees") are based on the expenses of the
Fund's Class 1 shares for the fiscal year ended December 31,
1998, plus Class 2's maximum annual Rule 12b-1 fee of 0.15%.
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<PAGE>
EXAMPLE 1
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The example below shows the dollar amount of expenses that you would bear
directly or indirectly if you:
o invested $1,000 in a Variable Sub-Account,
o earned a 5% annual return on your investment,
o surrendered your Contract at the end of each time period, and
o elected the Enhanced Death Benefit Rider.
The example does not include any taxes or tax penalties you may be required to
pay if you surrender your Contract.
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
STI Capital Appreciation $84 $128 $174 $328
STI International Equity $91 $148 $207 $390
STI Investment Grade Bond $83 $125 $170 $321
STI Mid-Cap Equity $85 $131 $180 $340
STI Small Cap Equity $89 $142 $198 $374
STI Value Income Stock $81 $118 $159 $298
AIM V.I. Capital Appreciation $76 $105 $136 $253
AIM V.I. High Yield $81 $119 $160 $300
Templeton Bond-Class 2 $78 $111 $147 $275
Templeton Stock-Class 2 $81 $119 $160 $301
Oppenheimer Multiple Strategies/VA $77 $108 $141 $263
Oppenheimer Strategic Bond/VA $78 $109 $143 $267
Federated Prime Money Fund II $78 $109 $143 $267
</TABLE>
EXAMPLE 2
- ---------
Same assumptions as Example 1 above, except that you decide not to surrender
your Contract or you began receiving income payments at the end of each period.
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
STI Capital Appreciation $30 $ 92 $156 $328
STI International Equity $37 $112 $189 $390
STI Investment Grade Bond $29 $ 90 $153 $321
STI Mid-Cap Equity $31 $ 95 $162 $340
STI Small Cap Equity $35 $107 $180 $374
STI Value Income Stock $27 $ 83 $141 $298
AIM V.I. Capital Appreciation $22 $ 69 $118 $253
AIM V.I. High Yield $27 $ 83 $142 $300
Templeton Bond-Class 2 $25 $ 76 $129 $275
Templeton Stock-Class 2 $27 $ 84 $142 $301
Oppenheimer Multiple Strategies/VA $23 $ 72 $123 $263
Oppenheimer Strategic Bond/VA $24 $ 73 $125 $267
Federated Prime Money Fund II $24 $ 73 $126 $267
</TABLE>
Please remember that you are looking at examples and not a representation of
past or future expenses. Your actual expenses may be lower or greater than those
shown above. Similarly, your rate of return may be lower or greater than 5%,
which is not guaranteed. The above examples assume the election of the Enhanced
Death Benefit Rider with a mortality and expense risk charge of 1.35% rather
than 1.25%. If that Rider were not elected, the expense figures shown above
would be slightly lower. To reflect the contract maintenance charge in the
examples, we estimated an equivalent percentage charge, based on the current
average Contract size of $57,476.
<PAGE>
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
To measure the value of your investment in the Variable Sub-Accounts during the
Accumulation Phase, we use a unit of measure we call the "Accumulation Unit."
Each Variable Sub-Account has a separate value for its Accumulation Units we
call "Accumulation Unit Value." Accumulation Unit Value is analogous to, but not
the same as, the share price of a mutual fund.
Attached as Appendix A to this prospectus are tables showing the Accumulation
Unit Values of each Variable Sub-Account since its inception. To obtain a fuller
picture of each Variable Sub-Account's finances, please refer to the Variable
Account's financial statements contained in the Statement of Additional
Information. The financial statements of Glenbrook also appear in the Statement
of Additional Information.
<PAGE>
THE CONTRACT
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CONTRACT OWNER
The STI Classic Variable Annuity is a contract between you, the Contract owner,
and Glenbrook, a life insurance company. As the Contract owner, you may exercise
all of the rights and privileges provided to you by the Contract. That means it
is up to you to select or change (to the extent permitted):
o the investment alternatives during the Accumulation and Payout Phases,
o the amount and timing of your purchase payments and withdrawals,
o the programs you want to use to invest or withdraw money,
o the income payment plan you want to use to receive retirement income,
o the Annuitant (either yourself or someone else) on whose life the income
payments will be based,
o the Beneficiary or Beneficiaries who will receive the benefits that the
Contract provides when you die, and
o any other rights that the Contract provides.
If you die, any surviving Contract owner or, if none, the Beneficiary may
exercise the rights and privileges provided to them by the Contract.
The Contract cannot be jointly owned by both a non-natural person and a natural
person.
You can use the Contract with or without a qualified plan. A qualified plan is a
personal retirement savings plan, such as an IRA or tax-sheltered annuity, that
meets the requirements of the Internal Revenue Code. Qualified plans may limit
or modify your rights and privileges under the Contract. We use the term
"Qualified Contract" to refer to a Contract issued with a qualified plan. See
"Qualified Plans" on page 28.
ANNUITANT
The Annuitant is the individual whose life determines the amount and duration of
income payments (other than under Income Plans with guaranteed payments for a
specified period). You initially designate an Annuitant in your application. If
the Contract owner is a natural person, you may change the Annuitant at any time
prior to the Payout Start Date. You may designate a joint Annuitant, who is a
second person on whose life income payments depend. If the Annuitant dies prior
to the Payout Start Date, the new Annuitant will be:
(i) the youngest Contract owner; otherwise,
(ii) the youngest Beneficiary.
BENEFICIARY
The Beneficiary is the person who may elect to receive the death benefit or
become the new Contract owner if the sole surviving Contract owner dies before
the Payout Start Date. If the sole surviving Contract owner dies after the
Payout Start Date, the Beneficiary will receive any guaranteed income payments
scheduled to continue.
You may name one or more Beneficiaries when you apply for a Contract. You may
change or add Beneficiaries at any time, unless you have designated an
irrevocable Beneficiary. We will provide a change of Beneficiary form to be
signed and filed with us. Any change will be effective at the time you sign the
written notice. Until we receive your written notice to change a Beneficiary, we
are entitled to rely on the most recent Beneficiary information in our files. We
will not be liable as to any payment or settlement made prior to receiving the
written notice. Accordingly, if you wish to change your Beneficiary, you should
deliver your written notice to us promptly.
If you did not name a Beneficiary or if the named Beneficiary is no longer
living, the Beneficiary will be:
o your spouse or, if he or she is no longer alive,
o your surviving children equally, or if you have no surviving children,
o your estate.
If more than one Beneficiary survives you (the Annuitant if the Contract owner
is not a natural person), we will divide the death benefit among your
Beneficiaries according to your most recent written instructions. If you have
not given us written instructions, we will pay the death benefit in equal
amounts to the surviving Beneficiaries.
MODIFICATION OF THE CONTRACT
Only a Glenbrook officer may approve a change in or waive any provision of the
Contract. Any change or waiver must be in writing. None of our agents has the
authority to change or waive the provisions of the Contract. We may not change
the terms of the Contract without your consent, except to conform the Contract
to applicable law or changes in the law. If a provision of the Contract is
inconsistent with state law, we will follow state law.
ASSIGNMENT
We will not honor an assignment of an interest in a Contract as collateral or
security for a loan. However, you 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 payable to the Beneficiary. We will not be
bound by any assignment until you sign it and file it with us. We are not
responsible for the validity of any 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. An
assignment may also result in taxes or tax penalties. You should consult with an
attorney before trying to assign your Contract.
<PAGE>
PURCHASES
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MINIMUM PURCHASE PAYMENTS
Your initial purchase payment must be at least $3,000 ($2,000 for a Qualified
Contract). All subsequent purchase payments must be $50 or more. You may make
purchase payments at any time prior to the earlier of the Payout Start Date or
your 86th birthday. We reserve the right to limit the maximum amount of purchase
payments we will accept.
AUTOMATIC ADDITIONS PROGRAM
You may make subsequent purchase payments by automatically transferring money
from your bank account. Please call or write us for an enrollment form.
ALLOCATION OF PURCHASE PAYMENTS
At the time you apply for a Contract, you must decide how to credit your
purchase payments among the investment alternatives. The allocation you specify
on your application will be effective immediately. All allocations must be in
whole percentages that total 100% or in whole dollars. You can change your
allocations by notifying us in writing.
We will allocate your purchase payments to the investment alternatives according
to your most recent instructions on file with us. Unless you notify us in
writing otherwise, we will allocate subsequent purchase payments according to
the allocation for the previous purchase payment. We will effect any change in
allocation instructions at the time we receive written notice of the change in
good order.
We will credit the initial purchase payment that accompanies your completed
application to your Contract within 2 business days after we receive the payment
at our home office. If your application is incomplete, we will ask you to
complete your application within 5 business days. If you do so, we will credit
your initial purchase payment to your Contract within that 5 business day
period. If you do not, we will return your purchase payment at the end of the 5
business day period unless you expressly allow us to hold it until you complete
the application. We will credit subsequent purchase payments to the Contract at
the close of the business day on which we receive the purchase payment at our
home office.
We are open for business each day Monday through Friday that the New York Stock
Exchange is open for business. We also refer to these days as "Valuation Dates."
Our business day closes when the New York Stock Exchange closes, usually 4 p.m.
Eastern Time (3 p.m. Central Time). If we receive your purchase payment after 3
p.m. Central Time on any Valuation Date, we will credit your purchase payment
using the Accumulation Unit Values computed on the next Valuation Date.
RIGHT TO CANCEL
You may cancel the Contract by returning it to us within the Cancellation
Period, which is the 20 day period after you receive the Contract, or a longer
period should your state require it. You may return your Contract by delivering
it or mailing it to us. If you exercise this "Right to Cancel," the Contract
terminates and we will pay you the full amount of your purchase payments
allocated to the Fixed Account. We also will return your purchase payments
allocated to the Variable Account adjusted, to the extent state law permits, to
reflect investment gain or loss that occurred from the date of allocation
through the date of cancellation. Some states may require us to return a greater
amount to you.
<PAGE>
CONTRACT VALUE
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Your Contract Value at any time during the Accumulation Phase is equal to the
sum of the value of your Accumulation Units in the Variable Sub-Accounts you
have selected, plus the value of your investment in the Fixed Account Options.
ACCUMULATION UNITS
To determine the number of Accumulation Units of each Variable Sub-Account to
credit to your Contract, we divide (i) the amount of the purchase payment you
have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of
that Variable Sub-Account next computed after we receive your payment. For
example, if we receive a $10,000 purchase payment allocated to a Variable
Sub-Account when the Accumulation Unit Value for the Sub-Account is $10, we
would credit 1,000 Accumulation Units of that Variable Sub-Account to your
Contract.
ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account
will rise or fall to reflect:
o changes in the share price of the Portfolio in which the Variable
Sub-Account invests, and
o the deduction of amounts reflecting the mortality and expense risk
charge, administrative expense charge, and any provision for taxes
that have accrued since we last calculated the Accumulation Unit
Value.
We determine contract maintenance charges, withdrawal charges, and transfer fees
(currently waived) separately for each Contract. They do not affect Accumulation
Unit Value. Instead, we obtain payment of those charges and fees by redeeming
Accumulation Units. For details on how we calculate Accumulation Unit Value,
please refer to the Statement of Additional Information.
We determine a separate Accumulation Unit Value for each Variable Sub-Account on
each Valuation Date. We also determine a separate set of Accumulation Unit
Values reflecting the cost of the Enhanced Death Benefit Rider described on page
25 below.
You should refer to the prospectuses for the Portfolios that accompany this
prospectus for a description of how the assets of each Portfolio are valued,
since that determination directly bears on the Accumulation Unit Value of the
corresponding Variable Sub-Account and, therefore, your Contract Value.
<PAGE>
INVESTMENT ALTERNATIVES: The Variable Sub-Accounts
- --------------------------------------------------------------------------------
You may allocate your purchase payments to up to 13 Variable Sub-Accounts. Each
Variable Sub-Account invests in the shares of a corresponding Portfolio. Each
Portfolio has its own investment objective(s) and policies. We briefly describe
the Portfolios below.
For more complete information about each Portfolio, including expenses and risks
associated with the Portfolio, please refer to the accompanying prospectus for
the Portfolio. You should carefully review the Portfolio prospectuses before
allocating amounts to the Variable Sub-Accounts.
<TABLE>
<CAPTION>
- ----------------------------------- ---------------------------------------------- ------------------
<S> <C> <C>
Investment
Portfolio: Each Portfolio Seeks: Adviser:
- ----------------------------------- ---------------------------------------------- ------------------
STI Capital Appreciation Fund Capital appreciation
STI Capital
Management, N.A.
- ----------------------------------- ---------------------------------------------- ------------------
STI International Equity Fund Long-term capital appreciation
- ----------------------------------- ---------------------------------------------- ------------------
STI Investment Grade Bond Fund High total return through current income and
capital appreciation, while preserving the
principal amount invested
- ----------------------------------- ---------------------------------------------- ------------------
STI Mid-Cap Equity Fund Capital appreciation
- ----------------------------------- ---------------------------------------------- ------------------
STI Small Cap Equity Fund Capital appreciation with the secondary goal
of current income
- ----------------------------------- ---------------------------------------------- ------------------
STI Value Income Stock Fund Current income with the secondary goal of
capital appreciation
- ----------------------------------- ---------------------------------------------- ------------------
AIM V.I. Capital Appreciation Fund Growth of capital A I M Advisors,
Inc.
- ----------------------------------- ---------------------------------------------- ------------------
AIM V.I. High Yield Fund A high level of current income
- ----------------------------------- ---------------------------------------------- ------------------
Templeton Bond Fund-Class 2 High current income. Capital appreciation
is a secondary consideration. Templeton
Investment
Counsel, Inc.
- ----------------------------------- ---------------------------------------------- ------------------
Templeton Stock Fund-Class 2 Long-term capital growth
- ----------------------------------- ---------------------------------------------- ------------------
Oppenheimer Strategic Bond Fund/VA A high level of current income OppenheimerFunds,
Inc.
- ----------------------------------- ---------------------------------------------- ------------------
Oppenheimer Multiple Strategies A high total investment return (which
Fund/VA includes current income and capital
appreciation in the value of its shares)
- ----------------------------------- ---------------------------------------------- ------------------
Federated Prime Money Fund II Provide current income consistent with Federated Investment
stability of principal and liquidity Management Company
- ----------------------------------- ---------------------------------------------- ------------------
</TABLE>
Amounts you allocate to Variable Sub-Accounts may grow in value, decline in
value, or grow less than you expect, depending on the investment performance of
the Portfolios in which those Variable Sub-Accounts invest. You bear the
investment risk that the Portfolios might not meet their investment objectives.
Shares of the Portfolios are not deposits, or obligations of, or guaranteed or
endorsed by any bank and are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency.
<PAGE>
INVESTMENT ALTERNATIVES: The Fixed Account Options
- --------------------------------------------------------------------------------
You may allocate all or a portion of your purchase payments to the Fixed
Account. You may choose from among 3 Fixed Account Options, including a Standard
Fixed Account Option, a Dollar Cost Averaging Fixed Account Option, and the
option to invest in one or more Guarantee Periods (included in the Guaranteed
Maturity Amount Fixed Account). The Fixed Account Options may not be available
in all states. Please consult with your sales representative for current
information. The Fixed Account supports our insurance and annuity obligations.
The Fixed Account consists of our general assets other than those in segregated
asset accounts. We have sole discretion to invest the assets of the Fixed
Account, subject to applicable law. Any money you allocate to a Fixed Account
Option does not entitle you to share in the investment experience of the Fixed
Account.
STANDARD FIXED ACCOUNT OPTION AND
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
Standard Fixed Account Option. Purchase payments and transfers that you allocate
to the Standard Fixed Account Option will earn interest for a one year period at
the current rate in effect at the time of allocation. We will credit interest
daily at a rate that will compound over the year to the effective annual
interest rate we guaranteed at the time of allocation. After the one year
period, we will declare a renewal rate which we guarantee for a full year.
Subsequent renewal dates will be every 12 months for each payment or transfer.
Each payment or transfer you allocate to this Option must be at least $50.
Dollar Cost Averaging Fixed Account Option. You may establish a Dollar Cost
Averaging Program by allocating purchase payments to the Dollar Cost Averaging
Fixed Account Option ("DCA Fixed Account Option"). We will credit interest to
purchase payments you allocate to this Option for up to one year at the current
rate in effect at the time of allocation. Each purchase payment you allocate to
the DCA Fixed Account Option must be at least $5,000. We reserve the right to
reduce the minimum allocation amount.
We will follow your instructions in transferring amounts monthly from the DCA
Fixed Account Option. However, you may not choose monthly installments of less
than 3 or more than 12. Further, you must transfer each purchase payment and all
its earnings out of this Option by means of dollar cost averaging within the
selected program period. If you discontinue the Dollar Cost Averaging Program
before the end of the transfer period, we will transfer the remaining balance in
this Option to the Standard Fixed Account Option.
We bear the investment risk for all amounts allocated to the Standard Fixed
Account Option and the DCA Fixed Account Option. That is because we guarantee
the current and renewal interest rates we credit to the amounts you allocate to
either of these Options, which will never be less than the minimum guaranteed
rate in the Contract. Currently, we determine, in our sole discretion, the
amount of interest credited in excess of the guaranteed rate.
We may declare more than one interest rate for different monies based upon the
date of allocation to the Standard Fixed Account Option and the DCA Fixed
Account Option. For current interest rate information, please contact your sales
representative or Glenbrook at 1-800-755-5275.
GUARANTEE PERIODS
Each payment or transfer allocated to a Guarantee Period earns interest at a
specified rate that we guarantee for a period of years. Guarantee Periods may
range from 1 to 10 years. We are currently offering Guarantee Periods of 3, 5, 7
and 10 years in length. In the future we may offer Guarantee Periods of
different lengths or stop offering some Guarantee Periods.
Each payment or transfer allocated to a Guarantee Period must be at least $50.
We reserve the right to limit the number of additional purchase payments that
you may allocate to this Option.
Interest Rates. We will tell you what interest rates and Guarantee Periods we
are offering at a particular time. We will not change the interest rate that we
credit to a particular allocation until the end of the relevant Guarantee
Period. We may declare different interest rates for Guarantee Periods of the
same length that begin at different times.
We have no specific formula for determining the rate of interest that we will
declare initially or in the future. We will set those interest rates based on
investment returns available at the time of the determination. In addition, we
may consider various other factors in determining interest rates including
regulatory and tax requirements, our sales commission and administrative
expenses, general economic trends, and competitive factors. We determine the
interest rates to be declared in our sole discretion. We can neither predict nor
guarantee what those rates will be in the future. For current interest rate
information, please contact your sales representative or Glenbrook at
1-800-755-5275. The annual interest rate will never be less than the minimum
guaranteed rate stated in the Contract.
How We Credit Interest. We will credit interest daily to each amount allocated
to a Guarantee Period at a rate that compounds to the annual interest rate that
we declared at the beginning of the applicable Guarantee Period.
The following example illustrates how a purchase payment allocated to a
Guarantee Period would grow, given an assumed Guarantee Period and annual
interest rate:
Purchase Payment....................$10,000
Guarantee Period......................5 years
Annual Interest Rate................. 4.50%
<TABLE>
<CAPTION>
END OF CONTRACT YEAR
<S> <C> <C> <C> <C>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------ ------ ------ ------ ------
Beginning Contract Value $10,000.00
X (1 + Annual Interest Rate) X1.045
----------
$10,450.00
Contract Value at end of Contract Year $10,450.00
X (1 + Annual Interest Rate) X1.045
----------
$10,920.25
Contract Value at end of Contract Year $10,920.25
X (1 + Annual Interest Rate) X 1.045
----------
$11,411.66
Contract Value at end of Contract Year $11,411.66
X (1 + Annual Interest Rate) X 1.045
----------
$11,925.19
Contract Value at end of Contract Year $11,925.19
X (1 + Annual Interest Rate) X 1.045
----------
$12,461.82
Total Interest Credited During Guarantee Period = $2,461.82 ($12,461.82 -$10,000)
</TABLE>
This example assumes no withdrawals during the entire 5 year Guarantee Period.
If you were to make a partial withdrawal, you might be required to pay a
withdrawal charge. In addition, the amount withdrawn might be increased or
decreased by a Market Value Adjustment that reflects changes in interest rates
since the time you invested the amount withdrawn. 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 stated in the Contract.
Renewals. At the end of each Guarantee Period, we will mail you a notice asking
you what to do with the relevant amount, including the accrued interest. During
the 30-day period after the end of the Guarantee Period, you may:
1) take no action. We will automatically apply your money to a new
Guarantee Period of the same length as the expiring Guarantee Period.
The new Guarantee Period will begin on the day the previous Guarantee
Period ends. The new interest rate will be our then current declared
rate for a Guarantee Period of that length; or
2) instruct us to apply your money to one or more new Guarantee Periods of
your choice. The new Guarantee Period(s) will begin on the day the
previous Guarantee Period ends. The new interest rate will be our then
current declared rate for those Guarantee Periods; or
3) instruct us to transfer your money to the Standard Fixed Account Option.
Your allocation will be effective on the day the previous Guarantee
Period ends; or
4) instruct us to transfer all or a portion of your money to one or more
Variable Sub-Accounts of the Variable Account. We will effect the
transfer on the day we receive your instructions. We will not adjust the
amount transferred to include a Market Value Adjustment; or
5) withdraw all or a portion of your money. You may be required to pay a
withdrawal charge, but we will not adjust the amount withdrawn to
include a Market Value Adjustment. The amount withdrawn will be deemed
to have been withdrawn on the day the Guarantee Period ends. Amounts not
withdrawn will be applied to a new Guarantee Period of the same length
as the previous Guarantee Period. The new Guarantee Period will begin on
the day the previous Guarantee Period ends.
Market Value Adjustment. All withdrawals and transfers from a Guarantee Period,
other than those taken during the 30 day period after such Guarantee Period
expires, are subject to a Market Value Adjustment. A Market Value Adjustment
also applies upon payment of a death benefit under Contracts issued before May
1, 1997 and when you apply amounts currently invested in a Guarantee Period to
an Income Plan (unless paid or applied during the 30 day period after such
Guarantee Period expires).
We apply the Market Value Adjustment to reflect changes in interest rates from
the time the amount being withdrawn or transferred was allocated to a Guarantee
Period to the time of its withdrawal, transfer, or application to an Income
Plan. As such, you bear some investment risk on amounts you allocate to any
Guarantee Period.
The Market Value Adjustment may be positive or negative, depending on changes in
interest rates. If interest rates increase significantly from the time you make
a purchase payment, the Market Value Adjustment, withdrawal charge, premium
taxes, and income tax withholding (if applicable) could reduce the amount you
receive upon full withdrawal of your 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 for a period
equal to the time remaining in the Guarantee Period, then the Market Value
Adjustment will result in a lower amount payable to you or transferred.
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 you or
transferred.
For example, assume that you purchase a Contract and select an initial Guarantee
Period of 5 years that has an effective annual rate of 4.50%. Assume that at the
end of 3 years, you make 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 you. Conversely, 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 you.
The formula for calculating Market Value Adjustments is set forth in Appendix B
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment.
<PAGE>
INVESTMENT ALTERNATIVES: Transfers
- --------------------------------------------------------------------------------
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer Contract Value among the
investment alternatives. You may request transfers in writing or by telephone
according to the procedure described below. There is no minimum transfer amount.
We currently do not assess, but reserve the right to assess, a $10 charge on
each transfer in excess of twelve per Contract Year. All transfers to or from
more than one Portfolio on a given day count as one transfer.
We will process transfer requests that we receive before 3:00 p.m. Central Time
on any Valuation Date using the Accumulation Unit Values for that Date. We will
process requests completed after 3:00 p.m. on any Valuation Date using the
Accumulation Unit Values for the next Valuation Date. The Contract permits us to
defer transfers from the Fixed Account Options for up to 6 months from the date
we receive your request. If we decide to postpone transfers from any Fixed
Account Option for 30 days or more, we will pay interest as required by
applicable law. Any interest would be payable from the date we receive the
transfer request to the date we make the transfer.
We limit the amount you may transfer from the Standard Fixed Account Option to
any other investment alternative in any Contract Year to the greater of:
1) 25% of the value in the Standard Fixed Account Option as of the most
recent Contract Anniversary (if this amount 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 Option as of the most recent Contract Anniversary.
If you transfer an amount from the Guaranteed Maturity Fixed Account Option
other than during the 30 day period after a Guarantee Period expires, we will
increase or decrease the amount by a Market Value Adjustment.
You may not transfer Contract Value into the DCA Fixed Account Option.
We reserve the right to waive any transfer restrictions.
TRANSFERS DURING THE PAYOUT PHASE
During the Payout Phase, you may make transfers among the Variable Sub-Accounts
so as to change the relative weighting of the Variable Sub-Accounts on which
your variable income payments will be based. In addition, you will have a
limited ability to make transfers from the Variable Sub-Accounts to increase the
proportion of your income payments consisting of fixed income payments. You may
not, however, convert any portion of your right to receive fixed income payments
into variable income payments.
You may not make any transfers for the first 6 months after the Payout Start
Date. Thereafter, you may make transfers among the Variable Sub-Accounts or make
transfers from the Variable Sub-Accounts to increase the proportion of your
income payments consisting of fixed income payments. Your transfers must be at
least 6 months apart.
TELEPHONE TRANSFERS
You may make transfers by telephone by calling 1-800-453-6038, if you first send
us a completed authorization form. The cut off time for telephone transfer
requests is 3:00 p.m. Central time. In the event that the New York Stock
Exchange closes early, i.e., before 3:00 p.m. Central Time, or in the event that
the Exchange closes early for a period of time but then reopens for trading on
the same day, we will process telephone transfer requests as of the close of the
Exchange on that particular day. We will not accept telephone requests received
at any telephone number other than the number that appears in this paragraph or
received after the close of trading on the Exchange.
We may suspend, modify or terminate the telephone transfer privilege at any time
without notice.
We use procedures that we believe provide reasonable assurance that the
telephone transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
DOLLAR COST AVERAGING PROGRAM
Through our Dollar Cost Averaging Program, you may automatically transfer a
fixed dollar amount every month during the Accumulation Phase from any Variable
Sub-Account, the Standard Fixed Account Option or the Dollar Cost Averaging
Fixed Account Option, to any other Variable Sub-Account. You may not use the
Dollar Cost Averaging Program to transfer amounts to a Fixed Account Option.
We will not charge a transfer fee for transfers made under this Program, nor
will such transfers count against the 12 transfers you can make each Contract
Year without paying a transfer fee.
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 this Program does not assure you of a greater profit from your
purchases under the Program nor will it prevent or necessarily reduce losses in
a declining market. Call or write us for instructions on how to enroll.
AUTOMATIC PORTFOLIO REBALANCING PROGRAM
Once you have allocated your money among the Variable Sub-Accounts, the
performance of each Sub-Account may cause a shift in the percentage you
allocated to each Sub-Account. If you select our Automatic Portfolio Rebalancing
Program, we will automatically rebalance the Contract Value in each Variable
Sub-Account and return it to the desired percentage allocations.
We will rebalance your account each quarter according to your instructions. We
will transfer amounts among the Variable Sub-Accounts to achieve the percentage
allocations you specify. You can change your allocations at any time by
contacting us in writing or by telephone. The new allocation will be effective
with the first rebalancing that occurs after we receive your request. We are not
responsible for rebalancing that occurs prior to receipt of your request.
Example:
Assume that you want your initial purchase payment split among two
Variable Sub-Accounts. You want 40% to be in the STI Investment
Grade Bond Variable Sub-Account and 60% to be in the STI Capital
Appreciation Variable Sub-Account. Over the next 2 months the bond
market does very well while the stock market performs poorly. At
the end of the first quarter, the STI Investment Grade Bond
Variable Sub-Account now represents 50% of your holdings because of
its increase in value. If you choose to have your holdings
rebalanced quarterly, on the first day of the next quarter, we
would sell some of your units in the STI Investment Grade Bond
Variable Sub-Account and use the money to buy more units in the STI
Capital Appreciation Variable Sub-Account so that the percentage
allocations would again be 40% and 60% respectively.
The Automatic Portfolio Rebalancing Program is available only during the
Accumulation Phase. The transfers made under the Program do not count towards
the 12 transfers you can make without paying a transfer fee. Portfolio
rebalancing is consistent with maintaining your allocation of investments among
market segments, although it is accomplished by reducing your Contract Value
allocated to the better performing segments.
<PAGE>
EXPENSES
- --------------------------------------------------------------------------------
As a Contract owner, you will bear, directly or indirectly, the charges and
expenses described below.
CONTRACT MAINTENANCE CHARGE
During the Accumulation Phase, on each Contract Anniversary, we will deduct a
$30 contract maintenance charge from your Contract Value invested in each
Variable Sub-Account in proportion to the amount invested. If you surrender your
Contract, we will deduct the contract maintenance charge pro rated for the part
of the Contract Year elapsed, unless your Contract qualifies for a waiver,
described below. During the Payout Phase, we will deduct the charge
proportionately from each income payment.
The charge is to compensate us for the cost of administering Contracts and the
Variable Account. Maintenance costs include expenses we incur collecting
purchase payments; keeping records; processing death claims, cash withdrawals,
and policy changes; proxy statements; calculating Accumulation Unit Values and
income payments; and issuing reports to Contract owners and regulatory agencies.
We cannot increase the charge. However, we will waive this charge if:
o total purchase payments equal $25,000 or more as of a Contract
Anniversary or upon full withdrawal, or
o all of your money is allocated to the Fixed Account Options on a
Contract Anniversary.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily at an annual rate of 1.25%
of the daily net assets you have invested in the Variable Sub-Accounts (1.35% if
you select the Enhanced Death Benefit Rider, available to purchasers after May
1, 1997). The mortality and expense risk charge is for all the insurance
benefits available with your Contract (including our guarantee of annuity rates
and the death benefits), for certain expenses of the Contract, and for assuming
the risk (expense risk) that the current charges will be sufficient in the
future to cover the cost of administering the Contract. If the charges under the
Contract are not sufficient, then we will bear the loss. We charge an additional
0.10% for the Enhanced Death Benefit Rider to compensate us for the additional
risk that we accept by providing the rider.
We guarantee that we will not raise the mortality and expense risk charge. We
assess the mortality and expense risk charge during both during the Accumulation
Phase and the Payout Phase.
ADMINISTRATIVE EXPENSE CHARGE
We deduct an administrative expense charge daily at an annual rate of 0.10% of
the average daily net assets you have invested in the Variable Sub-Accounts. We
intend this charge to cover actual administrative expenses that exceed the
revenues from the contract maintenance charge. We assess this charge each day
during the Accumulation Phase and the Payout Phase. We guarantee that we will
not raise this charge.
TRANSFER FEE
We do not currently impose a fee upon transfers among the Investment Options.
However, we reserve the right to charge $10 per transfer after the 12th transfer
in each Contract Year. We will not charge a transfer fee on transfers that are
part of a dollar cost averaging or automatic portfolio rebalancing program.
WITHDRAWAL CHARGE
We may assess a withdrawal charge of up to 7% of the purchase payment(s) you
withdraw. The charge declines annually to 0% over a 7 year period that begins on
the day we receive your purchase payment. A schedule showing how the charge
declines appears on page 7. During each Contract Year, you can withdraw up to
10% of the Contract Value on the date of the first withdrawal in that Contract
Year without paying the charge. Unused portions of this 10% "Free Withdrawal
Amount" are not carried forward to future Contract Years.
We will deduct withdrawal charges, if applicable, from the amount paid. For
purposes of the withdrawal charge, we will treat withdrawals as coming from the
oldest purchase payments first. However, for federal income tax purposes, please
note that withdrawals are considered to have come first from earnings in the
Contract. Thus, for tax purposes, earnings are considered to come out first,
which means you pay taxes on the earnings portion of your withdrawal.
We do not apply a withdrawal charge in the following situations:
o on the Payout Start Date;
o the death of the Contract owner (Annuitant if Contract owner is not a
natural person);
o withdrawals taken to satisfy IRS minimum distribution rules for this
Contract, or
o withdrawals that qualify for one of the waivers described below.
We use the amounts obtained from the withdrawal charge to pay sales commissions
and other promotional or distribution expenses associated with marketing the
Contracts. To the extent that the withdrawal charge does not cover all sales
commissions and other promotional or distribution expenses, we may use any of
our corporate assets, including potential profit which may arise from the
mortality and expense risk charge or any other charges or fee described above,
to make up any difference.
Withdrawals may be subject to tax penalties or income tax and a Market Value
Adjustment. You should consult your own tax counsel or other tax advisers
regarding any withdrawals.
Confinement Waiver. We will waive the withdrawal charge on all withdrawals taken
prior to the Payout Start Date under your Contract if the following conditions
are satisfied:
1) you or the Annuitant, if the Contract is owned by a company or other
legal entity, are confined to a long term care facility or a hospital
for at least 90 consecutive days. You or the Annuitant must enter the
long term care facility or hospital at least 30 days after the Issue
Date;
2) you must request the withdrawal and provide written proof of the stay
no later than 90 days following the end of your or the Annuitant's
stay at the long term care facility or hospital; and
3) a physician must have prescribed the stay and the stay must be
medically necessary (as defined in the Contract).
You may not claim this benefit if you or the Annuitant, or a member of your or
the Annuitant's immediate family, is the physician prescribing your or the
Annuitant's stay in a long term care facility.
Terminal Illness Waiver. We will waive the withdrawal charge on all withdrawals
taken prior to the Payout Start Date under your Contract if:
1) you (or the Annuitant if the Contract owner is not a natural person)
are diagnosed with a terminal illness at least 30 days after the
Issue Date; and
2) you claim this benefit and deliver adequate proof of diagnosis to us.
Unemployment Waiver. We will waive the withdrawal charge on one partial or a
full withdrawal taken prior to the Payout Start Date under your Contract, if you
meet the following requirements:
1) you become unemployed at least one year after the Issue Date;
2) you receive unemployment compensation for at least 30 days as a
result of that unemployment; and
3) you claim this benefit within 180 days of your initial receipt of
unemployment compensation.
You may exercise this benefit once during the life of your Contract.
Please refer to your Contract for more detailed information about the terms and
conditions of these waivers.
The laws of your state may limit the availability of these waivers and may also
change certain terms and/or benefits available under the waivers. You should
consult your Contract for further details on these variations. Also, even if you
do not need to pay our withdrawal charge because of these waivers, you still may
be required to pay taxes or tax penalties on the amount withdrawn. You should
consult your tax adviser to determine the effect of a withdrawal on your taxes.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for paying these taxes and
will deduct them from your Contract Value. Some of these taxes are due when the
Contract is issued, others are due when income payments begin or upon surrender.
Our current practice is not to charge anyone for these taxes until income
payments begin or when a total withdrawal occurs, including payment upon death.
At our discretion, we may discontinue this practice and deduct premium taxes
from the purchase payments. Premium taxes generally range from 0% to 4%,
depending on the state.
At the Payout Start Date, we deduct the charge for premium taxes from each
investment alternative in the proportion that the Contract owner's value in the
investment alternative bears to the total Contract Value.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES
We are not currently maintaining a provision for taxes. In the future, however,
we may establish a provision for taxes if we determine, in our sole discretion,
that we will incur a tax as a result of the operation of the Variable Account.
We will deduct for any taxes we incur as a result of the operation of the
Variable Account, whether or not we previously made a provision for taxes and
whether or not it was sufficient. Our status under the Internal Revenue Code is
briefly described in the Statement of Additional Information.
OTHER EXPENSES
Each Portfolio deducts advisory fees and other expenses from its assets. You
indirectly bear the charges and expenses of the Portfolios whose shares are held
by the Variable Sub-Accounts. These fees and expenses are described in the
accompanying prospectuses for the Portfolios. For a summary of current estimates
of those charges and expenses, see page 7 above. We may receive compensation
from the investment advisers or administrators of the Portfolios in connection
with administrative services we provide to the Portfolios.
<PAGE>
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
You can withdraw some or all of your Contract Value at any time prior to the
earlier of the death of the Contract owner (the Annuitant if the Contract owner
is not a natural person) or the Payout Start Date. Withdrawals also are
available under limited circumstances on or after the Payout Start Date. See
"Income Plans" on page 22.
The amount payable upon withdrawal is the Contract Value next computed after we
receive the request for a withdrawal at our home office, adjusted by any Market
Value Adjustment, less any withdrawal charges, contract maintenance charges,
income tax withholding, penalty tax, and any premium taxes. We will pay
withdrawals from the Variable Account within 7 days of receipt of the request,
subject to postponement in certain circumstances.
You can withdraw money from the Variable Account and/or the Fixed Account
Options. To complete a partial withdrawal from the Variable Account, we will
cancel Accumulation Units in an amount equal to the withdrawal and any
applicable withdrawal charge and premium taxes.
You must name the investment alternative from which you are taking the
withdrawal. If none is named, then the withdrawal request is incomplete and
cannot be honored.
In general, you must withdraw at least $50 at a time. You also may withdraw a
lesser amount if you are withdrawing your entire interest in a Variable
Sub-Account.
If you request a total withdrawal, you must return your Contract to us.
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under
the Contract if:
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 SEC; or
3) The SEC permits delay for your protection.
In addition, we may delay payments or transfers from the Fixed Account Options
for up to 6 months (or shorter period if required by law). If we delay payment
or transfer for 30 days or more, we will pay interest as required by law.
SYSTEMATIC WITHDRAWAL PROGRAM
You may choose to receive systematic withdrawal payments on a monthly,
quarterly, semi-annual, or annual basis at any time prior to the Payout Start
Date. The minimum amount of each systematic withdrawal is $50. At our
discretion, systematic withdrawals may not be offered in conjunction with Dollar
Cost Averaging or Automatic Portfolio Rebalancing.
Depending on fluctuations in the value of the Variable Sub-Accounts and the
value of the Fixed Account Options, systematic withdrawals may reduce or even
exhaust the Contract Value. Income taxes may apply to systematic withdrawals.
Please consult your tax advisor before taking any withdrawal.
We will make systematic withdrawal payments to you or your designated payee. We
may modify or suspend the Systematic Withdrawal Program and charge a processing
fee for the service. If we modify or suspend the Systematic Withdrawal Program,
existing systematic withdrawal payments will not be affected.
MINIMUM CONTRACT VALUE
If your request for a partial withdrawal will reduce the Contract Value to less
than $2,000, we may treat it as a request for a withdrawal of your entire
Contract Value. Your Contract will terminate if you withdraw all of your
Contract Value. We will, however, ask you to confirm your withdrawal request
before terminating your Contract.
MINIMUM SURRENDER VALUE
Certain states may require us to endorse your Contract to provide a minimum
surrender value. Please refer to the endorsement for details.
<PAGE>
INCOME PAYMENTS
- --------------------------------------------------------------------------------
PAYOUT START DATE
You select the Payout Start Date in your application. The Payout Start Date is
the day that money is applied to an Income Plan. The Payout Start Date must be:
o at least one month after the Issue Date; and
o no later than the day the Annuitant reaches age 90, or the 10th
Contract Anniversary, if later.
You may change the Payout Start Date at any time by notifying us in writing of
the change at least 30 days before the scheduled Payout Start Date. Absent a
change, we will use the Payout Start Date stated in your Contract.
INCOME PLANS
An Income Plan is a series of scheduled payments to you or someone you
designate. You may choose and change your choice of Income Plan until 30 days
before the Payout Start Date. If you do not select an Income Plan, we will make
income payments in accordance with Income Plan 1 with guaranteed payments for 10
years.
Three Income Plans are available under the Contract. Each is available to
provide:
o fixed income payments;
o variable income payments; or
o a combination of the two.
The three Income Plans are:
Income Plan 1 -- Life Income with Guaranteed Payments. Under this plan,
we make periodic income payments for at least as long as the Annuitant
lives. If the Annuitant dies before we have made all of the guaranteed
income payments, we will continue to pay the remainder of the guaranteed
income payments.
Income Plan 2 -- Joint and Survivor Life Income with Guaranteed
Payments. Under this plan, we make periodic income payments for at least
as long as either the Annuitant or the joint Annuitant is alive. If both
the Annuitant and the joint Annuitant die before we have made all of the
guaranteed income payments, we will continue to pay the remainder of the
guaranteed income payments.
Income Plan 3 -- Guaranteed Payments for a Specified Period (5 Years to
30 Years). Under this plan, we make periodic income payments for the
period you have chosen. These payments do not depend on the Annuitant's
life. We will deduct the mortality and expense risk charge from the
Variable Account assets supporting these payments even though we may not
bear any mortality risk.
The length of any guaranteed payment period under your selected Income Plan
generally will affect the dollar amounts of each income payment. As a general
rule, longer Guarantee Periods result in lower income payments, all other things
being equal. For example, if you choose an Income Plan with payments that depend
on the life of the Annuitant but with no minimum specified period for guaranteed
payments, the income payments generally will be greater than the income payments
made under the same Income Plan with a minimum specified period for guaranteed
payments.
If you choose Income Plan 1 or 2, or, if available, another Income Plan with
payments that continue for the life of the Annuitant or joint Annuitant, we may
require proof of age and sex of the Annuitant or joint Annuitant before starting
income payments, and proof that the Annuitant or joint Annuitant is alive before
we make each payment. Please note that under such Income Plans, if you elect to
take no minimum guaranteed payments, it is possible that the payee could receive
only 1 income payment if the Annuitant and any joint Annuitant both die before
the second income payment, or only 2 income payments if they die before the
third income payment, and so on.
Generally, you may not make withdrawals after the Payout Start Date. One
exception to this rule applies if you are receiving variable income payments
that do not depend on the life of the Annuitant (such as under Income Plan 3).
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 present value of the
remaining variable payments due. A withdrawal charge may apply. We also assess
applicable premium taxes against all income payments.
We may make other Income Plans available.
You must apply at least the Contract Value in the Fixed Account Options on the
Payout Start Date to fixed income payments. If you wish to apply any portion of
your Fixed Account Option balance to provide variable income payments, you
should plan ahead and transfer that amount to the Variable Sub-Accounts prior to
the Payout Start Date. If you do not tell us how to allocate your Contract Value
among fixed and variable income payments, we will apply your Contract Value in
the Variable Account to variable income payments and your Contract Value in the
Fixed Account Options to fixed income payments.
We will apply your Contract Value, adjusted by a Market Value Adjustment, less
applicable taxes to your Income Plan on the Payout Start Date. If the amount
available to apply under an Income Plan is less than $2,000 or not enough to
provide an initial payment of at least $20, and state law permits, we may:
o pay you the Contract Value, adjusted by any Market Value Adjustment
and less any applicable taxes, in a lump sum instead of the periodic
payments you have chosen, or
o reduce the frequency of your payments so that each payment will be at
least $20.
VARIABLE INCOME PAYMENTS
The amount of your variable income payments depends upon the investment results
of the Variable Sub-Accounts you select, the premium taxes you pay, the age and
sex of the Annuitant, and the Income Plan you choose. We guarantee that the
payments will not be affected by (a) actual mortality experience and (b) the
amount of our administration expenses.
We cannot predict the total amount of your variable income payments. Your
variable income payments may be more or less than your total purchase payments
because (a) variable income payments vary with the investment results of the
underlying Portfolios and (b) the Annuitant could live longer or shorter than we
expect based on the tables we use.
In calculating the amount of the periodic payments in the annuity tables in the
Contract, we assumed an annual investment rate of 3%. If the actual net
investment return of the Variable Sub-Accounts you choose is less than this
assumed investment rate, then the dollar amount of your variable income payments
will decrease. The dollar amount of your variable income payments will increase,
however, if the actual net investment return exceeds the assumed investment
rate. The dollar amount of the variable income payments stays level if the net
investment return equals the assumed investment rate. Please refer to the
Statement of Additional Information for more detailed information as to how we
determine variable income payments.
FIXED INCOME PAYMENTS
We guarantee income payment amounts derived from any Fixed Account Option for
the duration of the Income Plan. We calculate the fixed income payments by:
1) adjusting the portion of the Contract Value in any Fixed Account
Option on the Payout Start Date by any applicable Market Value
Adjustment;
2) deducting any applicable premium tax; and
3) applying the resulting amount to the greater of (a) the appropriate
value from the income payment table in your Contract or (b) such other
value as we are offering at that time.
We may defer making fixed income payments for a period of up to 6 months or such
shorter time period required by law. If we defer payments for 30 days or more,
we will pay interest as required by law from the date we receive the withdrawal
request to the date we make payment.
CERTAIN EMPLOYEE BENEFIT PLANS
The Contracts offered by this prospectus contain income payment tables that
provide for different payments to men and women of the same age, except in
states that require unisex tables. We reserve the right to use income payment
tables that do not distinguish on the basis of sex to the extent permitted by
law. In certain employment-related situations, employers are required by law to
use the same income payment tables for men and women. Accordingly, if the
Contract is to be used in connection with an employment-related retirement or
benefit plan and we do not offer unisex annuity tables in your state, you should
consult with legal counsel as to whether the purchase of a Contract is
appropriate.
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DEATH BENEFITS
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We will pay a death benefit if, prior to the Payout Start Date:
1) any Contract owner dies , or
2) the Annuitant dies, if the Contract owner is not a natural person.
We will pay the death benefit to the new Contract owner as determined
immediately after the death. The new Contract owner would be a surviving
Contract owner or, if none, the Beneficiary.
A claim for a distribution on death must include Due Proof of Death. We will
accept the following documentation as "Due Proof of Death":
o a certified copy of a death certificate,
o a certified copy of a decree of a court of competent jurisdiction as
to the finding of death, or
o any other proof acceptable to us.
CONTRACTS ISSUED BEFORE MAY 1, 1997
Death Benefit Amount. Prior to the Payout Start Date, the death benefit before
any Market Value Adjustment is equal to the greater of:
1) the Contract Value as of the date we receive a complete request for
payment of the death benefit, or
2) for each previous Death Benefit Anniversary, the Contract Value at
that Anniversary; plus any purchase payments made since that
anniversary; minus any amounts we paid the Contract 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.
We will adjust the death benefit by any applicable Market Value Adjustment as of
the date we determine the death benefit. The death benefit will never be less
than the sum of all purchase payments less any amounts previously paid to the
Contract owner (including income tax withholding).
Death Benefit Payments. The Contract owner eligible to receive death benefits
has the following options:
1) If the Contract owner is not a natural person, then the Contract owner must
receive the death benefit in a lump sum within 5 years of the date of
death.
2) Otherwise, within 60 days of the date when the death benefit is calculated,
the Contract 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:
o the life of the Contract owner; or
o a period not to exceed the life expectancy of the Contract
owner; or
o the life of the Contract owner with payments guaranteed for
a period not to exceed the life expectancy of the Contract
owner.
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 5 year period.
3) If the surviving spouse of the deceased Contract owner is the new Contract
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.
CONTRACTS ISSUED ON OR AFTER MAY 1, 1997
Death Benefit Amount. Prior to the Payout Start Date, the death benefit is equal
to the greatest of:
1) the Contract Value as of the date we receive a complete request for payment
of the death benefit, or
2) the Settlement Value (that is, the amount payable on a full withdrawal of
Contract Value) on the date we receive a complete request for payment of
the death benefit, or
3) the Contract Value on each Death Benefit Anniversary prior to the date we
receive 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.
We will calculate the Death Benefit Anniversary values until the oldest
Contract owner, or the Annuitant if the Contract owner is not a natural
person, attains age 80.
Enhanced Death Benefit Rider. For Contracts with the Enhanced Death Benefit
Rider, the death benefit will be the greatest of (1) through (3) above, or (4)
the value of the Enhanced Death Benefit Rider, which is the greatest of the
Anniversary Values as of the date we determine the death benefit. An
"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 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 that Contract Anniversary adjusted by any
prior purchase payments and withdrawals since that Contract
Anniversary.
We will calculate Anniversary Values for each Contract Anniversary prior to the
oldest Contract owner's or the Annuitant's, if the Contract owner is not a
natural person, 80th birthday. The Enhanced Death Benefit Rider will never be
greater than the maximum death benefit allowed by any non-forfeiture laws that
govern the Contract.
Death Benefit Payments. A death benefit will be paid:
1) if the Contract 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. We are
currently waiving the 180 day limit, but we reserve the right to enforce
the limitation in the future.
In any event, the entire value of the Contract must be distributed within 5
years after the date of death unless an Income Plan is elected or a surviving
spouse continues the Contract in accordance with the provisions described below.
If the Contract owner eligible to receive the distribution upon death is not a
natural person, the Contract owner may elect to receive the distribution upon
death in one or more distributions.
If the Contract owner is a natural person, the Contract 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:
o the life of the Contract owner; or
o a period not to exceed the life expectancy of the Contract owner; or
o the life of the Contract owner with payments guaranteed to a period
not to exceed the life expectancy of the Contract owner.
If the surviving spouse of the deceased Contract owner is the new Contract
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.
<PAGE>
MORE INFORMATION
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GLENBROOK
Glenbrook is the issuer of the Contract. Glenbrook is a stock life insurance
company organized under the laws of the State of Arizona in 1998. Previously,
Glenbrook was organized under the laws of the State of Illinois in 1992.
Glenbrook was originally organized under the laws of the State of Indiana in
1965. From 1965 to 1983 Glenbrook was known as "United Standard Life Assurance
Company" and from 1983 to 1992 as "William Penn Life Assurance Company of
America."
Glenbrook is currently licensed to operate in the District of Columbia and all
states except New York. We intend to offer the Contract in those jurisdictions
in which we are licensed and in which SunTrust Bank, Inc., through its banking
subsidiaries, conducts business. Our home office is located at 3100 Sanders
Road, Northbrook, Illinois, 60062.
Glenbrook 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, a stock property-liability insurance company incorporated
under the laws of Illinois. All of the outstanding capital stock of Allstate
Insurance Company is owned by The Allstate Corporation.
Glenbrook and Allstate Life entered into a reinsurance agreement effective June
5, 1992. Under the reinsurance agreement, Allstate Life reinsures substantially
all of Glenbrook's liabilities under its various insurance contracts. The
reinsurance agreement provides us with financial backing from Allstate Life.
However, it does not create a direct contractual relationship between Allstate
Life and you. In other words, the obligations of Allstate Life under the
reinsurance agreement are to Glenbrook; Glenbrook remains the sole obligor under
the Contract to you.
Several independent rating agencies regularly evaluate life insurers'
claims-paying ability, quality of investments, and overall stability. A.M. Best
Company assigns A+ (Superior) to Allstate Life which automatically reinsures all
net business of Glenbrook. A.M. Best Company also assigns Glenbrook the rating
of A+(r) because Glenbrook automatically reinsures all net business with
Allstate Life. Standard & Poor's Insurance Rating Services assigns an AA+ (Very
Strong) financial strength rating and Moody's assigns an Aa2 (Excellent)
financial strength rating to Glenbrook. Glenbrook shares the same ratings of its
parent, Allstate Life. These ratings do not reflect the investment performance
of the Variable Account. We may from time to time advertise these ratings in our
sales literature.
THE VARIABLE ACCOUNT
Glenbrook established the Glenbrook Life and Annuity Company Variable Annuity
Account on December 15, 1992. We have registered the Variable Account with the
SEC as a unit investment trust. The SEC does not supervise the management of the
Variable Account or Glenbrook.
We own the assets of the Variable Account. The Variable Account is a segregated
asset account under Arizona law. That means we account for the Variable
Account's income, gains and losses separately from the results of our other
operations. It also means that only the assets of the Variable Account that are
in excess of the reserves and other Contract liabilities with respect to the
Variable Account are subject to liabilities relating to our other operations.
Our obligations arising under the Contracts are general corporate obligations of
Glenbrook.
The Variable Account consists of 13 Variable Sub-Accounts, each of which invests
in a corresponding Portfolio. We may add new Variable Sub-Accounts or eliminate
one or more of them, if we believe marketing, tax, or investment conditions so
warrant. We do not guarantee the investment performance of the Variable Account,
its Sub-Accounts or the Portfolios. We may use the Variable Account to fund our
other annuity contracts. We will account separately for each type of annuity
contract funded by the Variable Account.
THE PORTFOLIOS
Dividends and Capital Gain Distributions. We automatically reinvest all
dividends and capital gains distributions from the Portfolios in shares of the
distributing Portfolio at their net asset value.
Voting Privileges. As a general matter, you do not have a direct right to vote
the shares of the Portfolios held by the Variable Sub-Accounts to which you have
allocated your Contract Value. Under current law, however, you are entitled to
give us instructions on how to vote those shares on certain matters. Based on
our present view of the law, we will vote the shares of the Portfolios that we
hold directly or indirectly through the Variable Account in accordance with
instructions that we receive from Contract owners entitled to give such
instructions.
As a general rule, before the Payout Start Date, the Contract owner or anyone
with a voting interest is the person entitled to give voting instructions. The
number of shares that a person has a right to instruct will be determined by
dividing the Contract Value allocated to the applicable Variable Sub-Account by
the net asset value per share of the corresponding Portfolio as of the record
date of the meeting. After the Payout Start Date, the person receiving income
payments has the voting interest. The payee's number of votes will be determined
by dividing the reserve for such Contract allocated to the applicable Variable
Sub-Account by the net asset value per share of the corresponding Portfolio. The
votes decrease as income payments are made and as the reserves for the Contract
decrease.
We will vote shares attributable to Contracts for which we have not received
instructions, as well as shares attributable to us, in the same proportion as we
vote shares for which we have received instructions, unless we determine that we
may vote such shares in our own discretion. We will apply voting instructions to
abstain on any item to be voted on a pro-rata basis to reduce the votes eligible
to be cast.
We reserve the right to vote Portfolio shares as we see fit without regard to
voting instructions to the extent permitted by law. If we disregard voting
instructions, we will include a summary of that action and our reasons for that
action in the next semi annual financial report we send to you.
Changes in Portfolios. If the shares of any of the Portfolios are no longer
available for investment by the Variable Account or if, in our judgment, further
investment in such shares is no longer desirable in view of the purposes of the
Contract, we may eliminate that Portfolio and substitute shares of another
eligible investment fund. Any substitution of securities will comply with the
requirements of the Investment Company Act of 1942. We also may add new Variable
Sub-Accounts that invest in additional mutual funds. We will notify you in
advance of any change.
Conflicts of Interest. Certain of the Portfolios sell their shares to separate
accounts underlying both variable life insurance and variable annuity contracts.
It is conceivable that in the future it may be unfavorable for variable life
insurance separate accounts and variable annuity separate accounts to invest in
the same Portfolio. The boards of directors or trustees of these Portfolios
monitor for possible conflicts among separate accounts buying shares of the
Portfolios. Conflicts could develop for a variety of reasons. For example,
differences in treatment under tax and other laws or the failure by a separate
account to comply with such laws could cause a conflict. To eliminate a
conflict, a Portfolio's board of directors or trustees may require a separate
account to withdraw its participation in a Portfolio. A Portfolio's net asset
value could decrease if it had to sell investment securities to pay redemption
proceeds to a separate account withdrawing because of a conflict.
THE CONTRACT
Distribution. Allstate Life Financial Services, Inc. ("ALFS"), located at 3100
Sanders Road, Northbrook, IL 60062-7154, serves as distributor of the Contracts.
ALFS is a wholly owned subsidiary of Allstate Life Insurance Company. ALFS is a
registered broker dealer under the Securities and Exchange Act of 1934, as
amended ("Exchange Act"), and is a member of the National Association of
Securities Dealers, Inc.
We will pay commissions to broker-dealers who sell the contracts. Commissions
paid may vary, but we estimate that the total commissions paid on all Contract
sales will not exceed 6% of all purchase payments (on a present value basis).
These commissions are intended to cover distribution expenses. Sometimes, we
also pay the broker-dealer a persistency bonus in addition to the standard
commissions. 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, pursuant to legal and regulatory
exceptions.
Glenbrook does not pay ALFS a commission for distribution of the Contracts. The
underwriting agreement with ALFS provides that we will reimburse ALFS for any
liability to Contract owners arising out of services rendered or Contracts
issued.
Administration. We have primary responsibility for all administration of the
Contracts and the Variable Account. We provide the following administrative
services, among others:
o issuance of the Contracts;
o maintenance of Contract owner records;
o Contract owner services;
o calculation of unit values;
o maintenance of the Variable Account; and
o preparation of Contract owner reports.
We will send you Contract statements and transaction confirmations at least
quarterly. You should notify us promptly in writing of any address change. You
should read your statements and confirmations carefully and verify their
accuracy. You should contact us promptly if you have a question about a periodic
statement. We will investigate all complaints and make any necessary adjustments
retroactively, but you must notify us of a potential error within a reasonable
time after the date of the questioned statement. If you wait too long, we will
make the adjustment as of the date that we receive notice of the potential
error.
We also will provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.
QUALIFIED PLANS
If you use the Contract with a qualified plan, the plan may impose different or
additional conditions or limitations on withdrawals, waivers of withdrawal
charges, death benefits, Payout Start Dates, income payments, and other Contract
features. In addition, adverse tax consequences may result if qualified plan
limits on distributions and other conditions are not met. Please consult your
qualified plan administrator for more information.
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised Glenbrook on
certain federal securities law matters. All matters of state law pertaining to
the Contracts, including the validity of the Contracts and Glenbrook's right to
issue such Contracts under state insurance law, have been passed upon by Michael
J. Velotta, General Counsel of Glenbrook.
YEAR 2000
Glenbrook is heavily dependent upon complex computer systems for all phases of
its operations, including customer service, and policy and contract
administration. Since many of Glenbrook's older computer software programs
recognize only the last two digits of the year in any date, some software may
fail to operate properly in or after the year 1999, if the software is not
reprogrammed or replaced ("Year 2000 Issue"). Glenbrook believes that many of
its counterparties and suppliers also have Year 2000 Issues which could affect
Glenbrook. In 1995, Allstate Insurance Company commenced a plan intended to
mitigate and/or prevent the adverse effects of Year 2000 Issues. These
strategies include normal development and enhancement of new and existing
systems, upgrades to operating systems already covered by maintenance agreements
and modifications to existing systems to make them Year 2000 compliant. The plan
also includes Glenbrook actively working with its major external counterparties
and suppliers to assess their compliance efforts and Glenbrook's exposure to
them. Glenbrook presently believes that it will resolve the Year 2000 Issue in a
timely manner, and the financial impact will not materially affect its results
of operations, liquidity or financial position. Year 2000 costs are and will be
expensed as incurred.
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TAXES
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The following discussion is general and is not intended as tax advice. Glenbrook
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 your individual circumstances.
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, you are not taxed on increases in the Contract Value
until a distribution occurs. This rule applies only where:
1) the Contract owner is a natural person,
2) the investments of the Variable Account are "adequately diversified"
according to Treasury Department regulations, and
3) Glenbrook is considered the owner of the Variable Account assets for
federal income tax purposes.
Non-natural Owners. As a general rule, annuity contracts owned by non-natural
persons such as corporations, trusts, or other entities are not treated as
annuity contracts for federal income tax purposes. The income on such contracts
is taxed as ordinary income received or accrued by the owner during the taxable
year. Please see the Statement of Additional Information for a discussion of
several exceptions to the general rule for Contracts owned by non-natural
persons.
Diversification Requirements. For a Contract to be treated as an annuity for
federal income tax purposes, the investments in the Variable Account must be
"adequately diversified" consistent with standards under Treasury Department
regulations. If the investments in the Variable Account are not adequately
diversified, the Contract will not be treated as an annuity contract for federal
income tax purposes. As a result, the income on the Contract will be taxed as
ordinary income received or accrued by the Contract owner during the taxable
year. Although Glenbrook does not have control over the Portfolios or their
investments, we expect the Portfolios to meet the diversification requirements.
Ownership Treatment. The IRS has stated that you will be considered the owner of
Variable Account assets if you possess incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. At the time
the diversification regulations were issued, the Treasury Department announced
that the regulations do not provide guidance concerning circumstances in which
investor control of separate account investments may cause an investor to be
treated as the owner of the separate account. The Treasury Department also
stated that future guidance would be issued regarding the extent that owners
could direct sub-account investments without being treated as owners of the
underlying assets of the separate account.
Your rights under the Contract are different than those described by the IRS in
rulings in which it found that contract owners were not owners of separate
account assets. For example, you have the choice to allocate premiums and
Contract Values among more investment alternatives. Also, you may be able to
transfer among investment alternatives more frequently than in such rulings.
These differences could result in you being treated as the owner of the Variable
Account. If this occurs, income and gain from the Variable Account assets would
be includible in your gross income. Glenbrook does not know what standards will
be set forth in any regulations or rulings which the Treasury Department may
issue. It is possible that future standards announced by the Treasury Department
could adversely affect the tax treatment of your Contract. We reserve the right
to modify the Contract as necessary to attempt to prevent you from being
considered the federal tax owner of the assets of the Variable Account. However,
we make no guarantee that such modification to the Contract will be successful.
Taxation of Partial and Full Withdrawals. If you make a partial withdrawal under
a non-Qualified Contract, amounts received are taxable to the extent the
Contract Value, without regard to surrender charges, exceeds the investment in
the Contract. The investment in the Contract is the gross premium paid for the
Contract minus any amounts previously received from the Contract if such amounts
were properly excluded from your gross income. If you make a partial withdrawal
under a Qualified Contract, the portion of the payment that bears the same ratio
to the total payment that the investment in the Contract (i.e., nondeductible
IRA contributions, after tax contributions to qualified plans) bears to the
Contract Value, is excluded from your income. If you make a full withdrawal
under a non-Qualified Contract or a Qualified Contract, the amount received will
be taxable only to the extent it exceeds the investment in the Contract.
"Non-qualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions. "Qualified distributions" from Roth IRAs are
not included in gross income. "Qualified distributions" are any distributions
made more than 5 taxable years after the taxable year of the first contribution
to any Roth IRA and which are:
o made on or after the date the individual attains age 59 1/2,
o made to a beneficiary after the Contract owner's death,
o attributable to the Contract owner being disabled, or
o for a first time home purchase (first time home purchases are subject
to a lifetime limit of $10,000).
If you transfer a non-Qualified Contract without full and adequate consideration
to a person other than your spouse (or to a former spouse incident to a
divorce), you will be taxed on the difference between the Contract Value and the
investment in the Contract at the time of transfer. Except for certain Qualified
Contracts, any amount you receive as a loan under a Contract, and any assignment
or pledge (or agreement to assign or pledge) of the Contract Value is treated as
a withdrawal of such amount or portion.
Taxation of Annuity Payments. Generally, the rule for income taxation of annuity
payments received from a non-Qualified Contract provides for the return of your
investment in the Contract in equal tax-free amounts over the payment period.
The balance of each payment received is taxable. For fixed annuity payments, the
amount excluded from income is determined by multiplying the payment by the
ratio of the investment in the Contract (adjusted for any refund feature or
period certain) to the total expected value of annuity payments for the term of
the Contract. If you elect variable annuity payments, the amount excluded from
taxable income is determined by dividing the investment in the Contract by the
total number of expected payments. The annuity payments will be fully taxable
after the total amount of the investment in the Contract is excluded using these
ratios. If you die, and annuity payments cease before the total amount of the
investment in the Contract is recovered, the unrecovered amount will be allowed
as a deduction for your last taxable year.
Taxation of Annuity Death Benefits. Death of a Contract owner, or death of the
Annuitant if the Contract is owned by a non-natural person, will cause a
distribution of death benefits from a Contract. Generally, such amounts are
included in income as follows:
1) if distributed in a lump sum, the amounts are taxed in the same manner
as a full withdrawal; or
2) if distributed under an annuity option, the amounts are taxed in the
same manner as an annuity payment. Please see the Statement of
Additional Information for more detail on distribution at death
requirements.
Penalty Tax on Premature Distributions. A 10% penalty tax applies to the taxable
amount of any premature distribution from a non-Qualified Contract. The penalty
tax generally applies to any distribution made prior to the date you attain age
59 1/2. However, no penalty tax is incurred on distributions:
1) made on or after the date the Contract owner attains age 59 1/2;
2) made as a result of the Contract owner's death or disability;
3) made in substantially equal periodic payments over the Contract
owner's life or life expectancy;
4) made under an immediate annuity; or
5) attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine if any other exceptions
to the penalty apply to your situation. Similar exceptions may apply to
distributions from Qualified Contracts.
Aggregation of Annuity Contracts. All non-qualified deferred annuity contracts
issued by Glenbrook (or its affiliates) to the same Contract 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
Contracts may be used as investments with certain qualified plans such as:
o Individual Retirement Annuities or Accounts (IRAs) under Section 408
of the Internal Revenue Code ("Code");
o Roth IRAs under Section 408A of the Code;
o Simplified Employee Pension Plans under Section 408(k) of the Code;
o Savings Incentive Match Plans for Employees (SIMPLE) Plans under
Section 408(p) of the Code;
o Tax Sheltered Annuities under Section 403(b) of the Code;
o Corporate and Self Employed Pension and Profit Sharing Plans; and
o State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans.
In the case of certain qualified plans, the terms of the plans may govern the
right to benefits, regardless of the terms of the Contract.
Restrictions Under Section 403(b) Plans. Section 403(b) of the Code provides
tax-deferred retirement savings plans for employees of certain non-profit and
educational organizations. Under Section 403(b), any Contract used for a 403(b)
plan must provide that distributions attributable to salary reduction
contributions made after 12/31/88, and all earnings on salary reduction
contributions, may be made only:
1) on or after the date of employee
o attains age 59 1/2,
o separates from service,
o dies,
o becomes disabled, or
2) on account of hardship (earnings on salary reduction contributions may
not be distributed on the account of hardship).
These limitations do not apply to withdrawals where Glenbrook is directed to
transfer some or all of the Contract Value to another 403(b) plan.
Income Tax Withholding
Glenbrook is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless you elect to make a "direct rollover"
of such amounts to an IRA or eligible retirement plan. Eligible rollover
distributions generally include all distributions from Qualified Contracts,
excluding IRAs, with the exception of:
1) required minimum distributions, or
2) a series of substantially equal periodic payments made over a period
of at least 10 years, or,
3) over the life (joint lives) of the participant (and beneficiary).
Glenbrook may be required to withhold federal and state income taxes on any
distributions from non-Qualified Contracts or Qualified Contracts that are not
eligible rollover distributions, unless you notify us of your election to not
have taxes withheld.
<PAGE>
ANNUAL REPORTS AND OTHER DOCUMENTS
- --------------------------------------------------------------------------------
Glenbrook's annual report on Form 10-K for the year ended December 31 is
incorporated herein by reference, which means that it is legally a part of this
prospectus.
After the date of this prospectus and before we terminate the offering of the
securities under this prospectus, all documents or reports we file with the SEC
under the Exchange Act are also incorporated herein by reference, which means
that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC
and that legally become a part of this prospectus, may change or supersede
statements in other documents that are legally part of this prospectus.
Accordingly, only the statement that is changed or replaced will legally be a
part of this prospectus.
We file our Exchange Act documents and reports, including our annual and
quarterly reports on Form 10-K and Form 10-Q electronically on the SEC's "EDGAR"
system using the identifying number CIK No. 0000945094. The SEC maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov. You can also view these materials at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. For more information on the operations of SEC's Public Reference Room,
call 1-800-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of
any document incorporated herein by reference (other than exhibits not
specifically incorporated by reference into the text of such documents), please
write or call us at 3100 Sanders Road, Northbrook, Illinois 60062 (telephone:
1-800-755-5275).
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
We may advertise the performance of the Variable Sub-Accounts, including yield
and total return information. Yield refers to the income generated by an
investment in a Variable Sub-Account over a specified period. Total return
represents the change, over a specified period of time, in the value of an
investment in a Variable Sub-Account after reinvesting all income distributions.
All performance advertisements will include, as applicable, standardized yield
and total return figures that reflect the deduction of insurance charges, the
contract maintenance charge, and withdrawal charge. Performance advertisements
also may include total return figures that reflect the deduction of insurance
charges, but not the contract maintenance or withdrawal charges. The deduction
of such charges would reduce the performance shown. In addition, performance
advertisements may include aggregate average, year-by-year, or other types of
total return figures.
Performance information for periods prior to the inception date of the Variable
Sub-Accounts will be based on the historical performance of the corresponding
Portfolios for the periods beginning with the inception dates of the Portfolios
and adjusted to reflect current Contract expenses. You should not interpret
these figures to reflect actual historical performance of the Variable Account.
We may include in advertising and sales materials tax deferred compounding
charts and other hypothetical illustrations that compare currently taxable and
tax deferred investment programs based on selected tax brackets. Our
advertisements also may compare the performance of our Variable Sub-Accounts
with: (a) certain unmanaged market indices, including but not limited to the Dow
Jones Industrial Average, the Standard & Poor's 500, and the Shearson Lehman
Bond Index; and/or (b) other management investment companies with investment
objectives similar to the underlying funds being compared. In addition, our
advertisements may include the performance ranking assigned by various
publications, including the Wall Street Journal, Forbes, Fortune, Money,
Barron's, Business Week, USA Today, and statistical services, including Lipper
Analytical Services Mutual Fund Survey, Lipper Annuity and Closed End Survey,
the Variable Annuity Research Data Survey, and SEI.
<PAGE>
EXPERTS
- --------------------------------------------------------------------------------
The financial statements and the related financial statement schedule
incorporated in this prospectus by reference from Glenbrook's Annual Report on
Form 10-K for the year ended December 31, 1998 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
<PAGE>
APPENDIX A
Accumulation Unit Value and Number of Accumulation Units
Outstanding for Each Variable Sub-Account Since Inception
Basic Policy
<TABLE>
<CAPTION>
For the Years Beginning January 1* and Ending December 31 1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
STI CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.000 $10.661 $13.105 $17.533
Accumulation Unit Value, End of Period $10.661 $13.015 $17.533 $22.310
Number of Units Outstanding, End of Period 103,697 1,680,419 2,788,068 3,048,172
STI INVESTMENT GRADE BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.000 $10.336 $10.429 $11.201
Accumulation Unit Value, End of Period $10.336 $10.429 $11.201 $12.090
Number of Units Outstanding, End of Period 40,503 506,887 685,967 974,155
STI INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- $10.000 $10.150 $11.699
Accumulation Unit Value, End of Period -- $10.150 $11.699 $12.790
Number of Units Outstanding, End of Period -- 97,975 734,702 785,600
STI MID-CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.000 $10.285 $11.775 $14.200
Accumulation Unit Value, End of Period $10.285 $11.775 $14.200 $15.035
Number of Units Outstanding, End of Period 80,549 959,682 1,354,069 1,398,523
STI SMALL CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period -- -- $10.000 $9.769
Accumulation Unit Value, End of Period -- -- $9.769 $8.464
Number of Units Outstanding, End of Period -- -- 111,688 339,380
STI VALUE INCOME STOCK SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.000 $10.696 $12.518 $15.663
Accumulation Unit Value, End of Period $10.696 $12.518 $15.663 $16.950
Number of Units Outstanding, End of Period 124,596 2,238,993 3,718,933 3,867,770
FEDERATED PRIME MONEY FUND II SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.000 $10.052 $10.429 $10.796
Accumulation Unit Value, End of Period $10.052 $10.429 $10.796 $11.177
Number of Units Outstanding, End of Period 132,650 488,506 343,107 483,734
</TABLE>
* The following Variable Sub-Accounts commenced operations on October 6, 1995:
STI Mid-Cap Equity, STI Capital Appreciation, 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 January 10, 1999. 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 Values and Number of Accumulation Units
Outstanding for Each Variable Sub-Account Since Inception
Basic Policy plus Enhanced Death Benefit Rider
<TABLE>
<CAPTION>
For the Years Beginning January 1* and Ending December 31 1997 1998
---- ----
<S> <C> <C>
STI CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $13.019 $17.521
Accumulation Unit Value, End of Period $17.521 $22.272
Number of Units Outstanding, End of Period 740,261 1,683,922
STI INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.153 $11.692
Accumulation Unit Value, End of Period $11.692 $12.768
Number of Units Outstanding, End of Period 449,232 694,787
STI INVESTMENT GRADE BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.432 $11.193
Accumulation Unit Value, End of Period $11.193 $12.070
Number of Units Outstanding, End of Period 187,763 604,179
STI MID-CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $11.779 $14.190
Accumulation Unit Value, End of Period $14.190 $15.010
Number of Units Outstanding, End of Period 329,138 671,132
STI SMALL CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.000 $9.768
Accumulation Unit Value, End of Period $9.768 $8.454
Number of Units Outstanding, End of Period 161,267 706,858
STI VALUE INCOME STOCK SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $12.522 $15.652
Accumulation Unit Value, End of Period $15.652 $16.903
Number of Units Outstanding, End of Period 923,837 1,961,704
FEDERATED PRIME MONEY FUND II SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period $10.432 $10.789
Accumulation Unit Value, End of Period $10.789 $11.158
Number of Units Outstanding, End of Period 240,430 266,876
</TABLE>
* The Enhanced Death Benefit Rider was made available for the Federated Prime
Money Fund II, STI Capital Appreciation, 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 0.10%.
No Accumulation unit data is shown for the New Sub-Accounts for which the
Enhanced Death Benefit Rider was made available as of January 10, 1999.
<PAGE>
[back cover]
APPENDIX B
MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I = the interest crediting rate for a Guarantee Period
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 Guarantee Period; and
J = the current interest crediting rate offered for a Guarantee Period of 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) X N
Any transfer, withdrawal, or death benefit (depending on your Contract) paid or
amount applied to an Income Plan from a Guarantee Period (except during the 30
day period after such Guarantee Period expires) will be multiplied by the Market
Value Adjustment factor to determine the Market Value Adjustment.
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES OF MARKET VALUE ADJUSTMENT
Purchase Payment: $10,000 allocated to a Guarantee Period
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)
<S> <C> <C>
Step 1. Calculate Contract Value at End of Contract 10,000.00 X (1.0450)3 = $11,411.66
Year 3:
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 = 4.2%
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 = 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE 2: (Assumes rising interest rates)
<S> <C> <C>
Step 1. Calculate Contract Value at End of Contract 10,000.00 X (1.045)3 = $11,411.66
Year 3:
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 = 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
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Description Page
Additions, Deletions or Substitutions of Investments............. 2
The Contract..................................................... 3
Purchases................................................ 3
Tax-free Exchanges (1035 Exchanges, Rollovers and
Transfers)............................................... 4
Performance Information.......................................... 5
Calculation of Accumulation Unit Values..........................10
Calculation of Variable Income Payments..........................11
General Matters..................................................12
Incontestability.........................................12
Settlements..............................................12
Safekeeping of the Variable Account's Assets.............12
Premium Taxes............................................12
Tax Reserves.............................................12
Federal Tax Matters..............................................13
Experts..........................................................16
Financial Statements.............................................F-1
-----------------------------------------------
This prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made. We do not authorize anyone to provide
any information or representations regarding the offering described in this
prospectus other than as contained in this prospectus.
<PAGE>
THE STI CLASSIC VARIABLE ANNUITY
Glenbrook Life and Annuity Company Statement of Additional Information
Glenbrook Life and Annuity Company dated May 1, 1999
Variable Annuity Account
3100 Sanders Road, Northbrook, Il 60062
1-800/755-5275
This Statement of Additional Information supplements the information in the
prospectus for The STI Classic Variable Annuity. This Statement of Additional
Information is not a prospectus. You should read it with the prospectus, dated
May 1, 1999, for the Contract. You may obtain a prospectus by calling or writing
us at the address or telephone number listed above.
Except as otherwise noted, this Statement of Additional Information uses the
same defined terms as the prospectus.
TABLE OF CONTENTS
Description Page
Additions, Deletions or Substitutions of Investments 2
The Contract 3
Purchases 3
Tax-free Exchanges (1035 Exchanges, Rollovers
and Transfers) 4
Performance Information 5
Calculation of Accumulation Unit Values 10
Calculation of Variable Income Payments 11
General Matters 12
Incontestability 12
Settlements 12
Safekeeping of the Variable Account's Assets 12
Premium Taxes 12
Tax Reserves 12
Federal Tax Matters 13
Experts 16
Financial Statements F-1
<PAGE>
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
- --------------------------------------------------------------------------------
We may add, delete, or substitute the Portfolio shares held by any Variable
Sub-Account to the extent the law permits. We may substitute shares of any
Portfolio with those of another Portfolio of the same or different mutual fund
if the shares of the Portfolio are no longer available for investment, or if we
believe investment in any Portfolio would become inappropriate in view of the
purposes of the Variable Account.
We will not substitute shares attributable to a Contract owner's interest in a
Variable Sub-Account until we have notified the Contract owner of the change,
and until the Securities and Exchange Commission has approved the change, to the
extent such notification and approval are required by law. 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 Contract owners.
We also may establish additional Variable Sub-Accounts or series of Variable
Sub-Accounts. Each additional Variable Sub-Account would purchase shares in a
new Portfolio of the same or different mutual fund. We may establish new
Variable Sub-Accounts when we believe marketing needs or investment conditions
warrant. We determine the basis on which we will offer any new Variable
Sub-Accounts in conjunction with the Contract to existing Contract owners. We
may eliminate one or more Variable Sub-Accounts if, in our sole discretion,
marketing, tax or investment conditions so warrant.
We may, by appropriate endorsement, change the Contract as we believe necessary
or appropriate to reflect any substitution or change in the Portfolios. If we
believe the best interests of persons having voting rights under the Contracts
would be served, we may operate the Variable Account as a management company
under the Investment Company Act of 1940 or we may withdraw its registration
under such Act if such registration is no longer required.
<PAGE>
THE CONTRACT
- --------------------------------------------------------------------------------
The Contract is primarily designed to aid individuals in long-term financial
planning. You can use it for retirement planning regardless of whether the
retirement plan qualifies for special federal income tax treatment.
PURCHASE OF CONTRACTS
We offer the Contracts to the public through banks as well as brokers licensed
under the federal securities laws and state insurance laws. The principal
underwriter for the Variable Account, Allstate Life Financial Services, Inc.
("ALFS"), distributes the Contracts. ALFS is an affiliate of Glenbrook. The
offering of the Contracts is continuous. We do not anticipate discontinuing the
offering of the Contracts, but we reserve the right to do so at any time.
TAX-FREE EXCHANGES (1035 EXCHANGES, ROLLOVERS AND TRANSFERS)
We accept purchase payments that are the proceeds of a Contract in a transaction
qualifying for a tax-free exchange under Section 1035 of the Internal Revenue
Code ("Code"). Except as required by federal law in calculating the basis of the
Contract, we do not differentiate between Section 1035 purchase payments and
non-Section 1035 purchase payments.
We also accept "rollovers" and transfers from Contracts qualifying as
tax-sheltered annuities ("TSAs"), individual retirement annuities or accounts
("IRAs"), or any other Qualified Contract that is eligible to "rollover" into an
IRA. We differentiate among non-Qualified Contracts, TSAs, IRAs and other
Qualified Contracts to the extent necessary to comply with federal tax laws. For
example, we restrict the assignment, transfer, or pledge of TSAs and IRAs so the
Contracts will continue to qualify for special tax treatment. A Contract 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.
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time we may advertise the "standardized," "non-standardized," and
"adjusted historical" total returns of the Variable Sub-Accounts, as described
below. Please remember that past performance is not an estimate or guarantee of
future performance and does not necessarily represent the actual experience of
amounts invested by a particular Contract owner.
STANDARDIZED TOTAL RETURNS
A Variable Sub-Account's standardized total return represents the average annual
total return of that Sub-Account over a particular period. We compute
standardized total return by finding the annual percentage rate that, 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 Variable Sub-Account's operations,
if shorter than any of the foregoing. We use the following formula prescribed by
the SEC for computing standardized total return:
1000(1 + T)n = ERV
where:
T = average annual total return
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of 1, 5, or 10 year periods or
shorter period
n = number of years in the period
1000 = hypothetical $1,000 investment
When factoring in the withdrawal charge assessed upon redemption, we exclude the
Free Withdrawal Amount, which is the amount you can withdraw from the Contract
without paying a withdrawal charge. We also use the withdrawal charge that would
apply upon redemption at the end of each period. Thus, for example, when
factoring in the withdrawal charge for a one year standardized total return
calculation, we would use the withdrawal charge that applies to a withdrawal of
a purchase payment made one year prior.
When factoring in the contract maintenance charge, we pro rate the charge by
dividing (i) the contract maintenance charge by (ii) the average contract size
of $57,476. We then multiply the resulting percentage by a hypothetical $1,000
investment.
<PAGE>
The standardized total returns for the Variable Sub-Accounts for the periods
ended December 31, 1998 are set out below. No standardized total returns are
shown for the Federated Prime Money Fund II. In addition, no standardized total
returns are set out for the AIM, Oppenheimer, and Templeton Variable
Sub-Accounts, which commenced operations on January 14, 1999.
(Without the Enhanced Death Benefit Option)
<TABLE>
<CAPTION>
Ten Years or
Variable Sub-Account One Year Five Years Since Inception
- -------------------- -------- ---------- ---------------
<S> <C> <C> <C>
STI Capital Appreciation (previously 20.31% N/A 26.63%
known as the Capital Growth Sub-Account)
STI International Equity 3.35% N/A 9.68%
STI Investment Grade Bond 2.04% N/A 4.75%
STI Mid-Cap Equity 0.10% N/A 12.03%
STI Small Cap Equity -18.11% N/A -17.11%
STI Value Income Stock 2.31% N/A 16.25%
- -------------------
</TABLE>
* The Variable Sub-Accounts commenced operations on the following dates:
STI Capital Appreciation October 6, 1995
STI International Equity November 7, 1996
STI Investment Grade Bond October 6, 1995
STI Mid-Cap Equity October 6, 1995
STI Small Cap Equity October 20, 1997
STI Value Income October 6, 1995
AIM V.I. Capital Appreciation January 14, 1999
AIM V.I. High Yield January 14, 1999
Oppenheimer Multiple Strategies January 14, 1999
Oppenheimer Strategic Bond January 14, 1999
Templeton Bond January 14, 1999
Templeton Stock January 14, 1999
(With the Enhanced Death Benefit Option)*
<TABLE>
<CAPTION>
Ten Years or
Variable Sub-Account One Year Five Years Since Inception**
- -------------------- -------- ---------- ---------------
<S> <C> <C> <C>
STI Capital Appreciation 20.19% N/A 26.40%
STI International Equity 3.24% N/A 9.57%
STI Investment Grade Bond 1.94% N/A 4.64%
STI Mid-Cap Equity 0.00% N/A 11.92%
STI Small Cap Equity -18.19% N/A -17.19%
STI Value Income Stock 2.21% N/A 16.14%
- -------------------
</TABLE>
*The Enhanced Death Benefit Option was made available for each Variable
Sub-Account on May 1, 1997, except that it became available for the STI Small
Cap Equity Variable Sub-Account on October 20, 1997, and for the AIM,
Oppenheimer, and Templeton Variable Sub-Accounts on January 14, 1999. The STI
Variable Sub-Accounts (other than Small Cap Equity) commenced operations prior
to the time the Enhanced Death Benefit Option became available. Accordingly, the
"Since Inception" performance figures shown for those Variable Sub-Accounts
reflects the historic performance of those Variable Sub-Accounts, adjusted to
reflect the current charge for the Enhanced Death Benefit Option.
**The nception dates of the Variable Sub-Accounts appear in the footnote
to the preceding table.
NON-STANDARDIZED TOTAL RETURNS
From time to time, we also may quote average annual total returns that do not
reflect the withdrawal charge. We calculate these "non-standardized total
returns" in exactly the same way as the standardized total returns described
above, except that we replace the ending redeemable value of the hypothetical
account for the period with an ending redeemable value for the period that does
not take into account any charges on amounts surrendered.
In addition, we may advertise the total return over different periods of time by
means of aggregate, average, year-by-year or other types of total return
figures. Such calculations would not reflect deductions for withdrawal charges
which may be imposed on the Contracts which, if reflected, would reduce the
performance quoted. The formula for computing such total return quotations
involves a per unit change calculation. This calculation is based on the
Accumulation Unit Value at the end of the defined period divided by the
Accumulation Unit Value at the beginning of such period, minus 1. The periods
included in such advertisements are "year-to- date" (prior calendar year end to
the day of the advertisement); "year to most recent quarter" (prior calendar
year end to the end of the most recent quarter); "the prior calendar year"; "
'n' most recent Calendar Years"; and "Inception (commencement of the
Sub-account's operation) to date" (day of the advertisement).
The non-standardized total returns for the Variable Sub-Accounts for the periods
ended December 31, 1998 are set out below. No non-standardized total returns are
shown for the Federated Prime Money Fund II Variable Sub-Account. In addition,
no non-standardized total returns are shown for the AIM, Oppenheimer, or
Templeton Variable Sub-Accounts, which commenced operations on January 14, 1999.
(Without the Enhanced Death Benefit Option)
<TABLE>
<CAPTION>
Ten Years or
Variable Sub-Account One Year Five Years Since Inception*
- -------------------- -------- ---------- ---------------
<S> <C> <C> <C>
STI Capital Appreciation 27.25% N/A 28.03%
STI International Equity 9.32% N/A 12.15%
STI Investment Grade Bond 7.94% N/A 6.02%
STI Mid-Cap Equity 5.88% N/A 13.38%
STI Small Cap Equity -13.36% N/A -13.04%
STI Value Income Stock 8.22% N/A 17.65%
</TABLE>
- -------------------
*The inception dates of the Variable Sub-Accounts appear in the footnote to
the first table under "Standardized Total Returns."
(With the Enhanced Death Benefit Option)*
<TABLE>
<CAPTION>
Ten Years or
Variable Sub-Account One Year Five Years Since Inception**
- -------------------- -------- ---------- ---------------
<S> <C> <C> <C>
STI Capital Appreciation 27.12% N/A 27.91%
STI International Equity 9.21% N/A 12.03%
STI Investment Grade Bond 7.83% N/A 5.91%
STI Mid-Cap Equity 5.78% N/A 13.27%
STI Small Cap Equity -13.45% N/A -13.12%
STI Value Income Stock 8.11% N/A 17.53%
- -------------------
</TABLE>
*The Enhanced Death Benefit Option was made available for each Variable
Sub-Account on May 1, 1997, except that it became available for the STI Small
Cap Equity Variable Sub-Account on October 20, 1997, and for the AIM,
Oppenheimer, and Templeton Variable Sub-Accounts on January 14, 1999. The STI
Variable Sub-Accounts (other than Small Cap Equity) commenced operations prior
to the time the Enhanced Death Benefit Option became available. Accordingly, the
"Since Inception" performance figures shown for those Variable Sub-Accounts
reflect the historic performance of those Variable Sub-Accounts, adjusted to
reflect the current charge for the Enhanced Death Benefit Option.
**The inception dates of the Variable Sub-Accounts appear in the
footnote to the first table under "Standardized Total Returns."
ADJUSTED HISTORICAL TOTAL RETURNS
We may advertise the total return for periods prior to the date that the
Variable Sub-Accounts commenced operations. We will calculate such "adjusted
historical total returns" using the performance of the underlying Portfolios and
adjusting such performance to reflect the current level of charges that apply to
the Variable Sub-Accounts under the Contract and the contract maintenance charge
and the appropriate withdrawal charge.
The adjusted historical total returns for the Variable Sub-Accounts for the
periods ended December 31, 1998 are set out below. No adjusted historical total
returns are shown for the Federated Prime Money Fund II Variable Sub-Account.
(Without the Enhanced Death Benefit Option)
<TABLE>
<CAPTION>
Ten Years or
Since Inception
Variable Sub-Account One Year Five Years of the Portfolio*
- -------------------- -------- ---------- ----------------
<S> <C> <C> <C>
STI Capital appreciation 20.31% N/A 26.53%
STI International Equity 3.35% N/A 9.68%
STI Investment Grade Bond 2.04% N/A 4.75%
STI Mid-Cap Equity 0.10% N/A 12.03%
STI Small Cap Equity -18.11% N/A -17.11%
STI Value Income Stock 2.31% N/A 16.26%
AIM V.I. Capital Appreciation 11.28% 15.19% 16.75%
AIM V.I. High Yield N/A N/A -20.71%
Oppenheimer Multiple Strategies -0.52% 9.48% 20.30%
Oppenheimer Strategic Bond -4.03% 4.95% 4.95%
Templeton Bond** - - -
Templeton Stock -15.46% N/A -6.33%
- -------------------
</TABLE>
* The inception dates of the Portfolios corresponding to the Variable
Sub-Accounts are as follows:
STI Capital Appreciation Fund October 2, 1995
STI International Equity Fund November 7, 1996
STI Investment Grade Bond Fund October 2, 1995
STI Mid-Cap Equity Fund October 2, 1995
STI Small Cap Equity Fund October 22, 1997
STI Value Income Stock Fund October 2, 1995
AIM V.I. Capital Appreciation Fund May 5, 1993
AIM V.I. High Yield Fund May 1, 1998
Oppenheimer Multiple Strategies Fund February 9, 1987
Oppenheimer Strategic Bond Fund May 3, 1993
Templeton Bond Fund - Class 2 January 14, 1999
Templeton Stock Fund - Class 2 May 1, 1997
** For periods prior to the inception date of Templeton Bond Fund -
Class 2, 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 the Enhanced Death Benefit Option)*
<TABLE>
<CAPTION>
Ten Years or
Since Inception
of the
Variable Sub-Account One Year Five Years Portfolio**
- -------------------- -------- ---------- --------------
<S> <C> <C> <C>
STI Capital Appreciation 20.19% N/A 26.40%
STI International Equity 3.24% N/A 9.57%
STI Investment Grade Bond 1.94% N/A 4.64%
STI Mid-Cap Equity 0.00% N/A 11.92%
STI Small Cap Equity -18.19% N/A -17.19%
STI Value Income Stock 2.21% N/A 16.14%
AIM V.I. Capital Appreciation 11.17% 15.07% 16.63%
AIM V.I. High Yield N/A N/A -20.79%
Oppenheimer Multiple Strategies -0.62% 9.37% 20.05%
Oppenheimer Strategic Bond -4.13% 4.84% 4.84%
Templeton Bond*** - - -
Templeton Stock -15.54% N/A -6.43%
</TABLE>
- -------------------
*Performance figures have been adjusted to reflect the current charge
for the Enhanced Death Benefit Option as if that feature had been available
throughout the periods shown.
** The inception dates for the Portfolios appear in the first footnote
to the preceding table.
*** For periods prior to the inception date of Templeton Bond Fund -
Class 2, 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.
<PAGE>
Calculation of Accumulation Unit Values
- --------------------------------------------------------------------------------
The value of Accumulation Units will change each Valuation Period according to
the investment performance of the Portfolio shares purchased by each Variable
Sub-Account and the deduction of certain expenses and charges. A "Valuation
Period" is the period from the end of one Valuation Date and continues to the
end of the next Valuation Date. A Valuation Date ends at the close of regular
trading on the New York Stock Exchange (currently 3:00 p.m. Central Time).
The Accumulation Unit Value of a Variable Sub-Account for any Valuation Period
equals the Accumulation Unit Value as of the immediately preceding Valuation
Period, multiplied by the Net Investment Factor (described below) for that
Sub-Account for the current Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor for a Valuation Period is a number representing the
change, since the last Valuation Period, 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. We determine the Net
Investment Factor for each Variable Sub-Account for any Valuation Period by
dividing (A) by (B) and subtracting (C) from the result, where:
(A) is the sum of:
(1) the net asset value per share of the Portfolio underlying the
Variable Sub-Account determined at the end of the current Valuation
Period; plus,
(2) the per share amount of any dividend or capital gain
distributions made by the Portfolio underlying the Variable
Sub-Account during the current Valuation Period;
(B) is the net asset value per share of the Portfolio underlying the
Variable Sub-Account determined as of the end of the immediately preceding
Valuation Period; and
(C) is the annualized mortality and expense risk and administrative expense
charges divided by 365 and then multiplied by the number of calendar days
in the current Valuation Period.
<PAGE>
CALCULATION OF VARIABLE INCOME PAYMENTS
- --------------------------------------------------------------------------------
We calculate the amount of the first variable income payment under an Income
Plan by applying the Contract Value allocated to each Variable Sub-Account less
any applicable premium tax charge deducted at the time, to the income payment
tables in the Contract. We divide the amount of the first variable annuity
income payment by the Variable Sub-Account's then current Annuity Unit value to
determine the number of annuity units ("Annuity Units") upon which later income
payments will be based. To determine income payments after the first, we simply
multiply the number of Annuity Units determined in this manner for each Variable
Sub-Account by the then current Annuity Unit value ("Annuity Unit Value") for
that Variable Sub-Account.
CALCULATION OF ANNUITY UNIT VALUES
Annuity Units in each Variable Sub-Account are valued separately and Annuity
Unit Values will depend upon the investment experience of the particular
Portfolio in which the Variable Sub-Account invests. We calculate the Annuity
Unit Value for each Variable Sub-Account at the end of any Valuation Period by:
o multiplying the Annuity Unit Value at the end of the immediately
preceding Valuation Period by the Variable Sub-Account's Net
Investment Factor (described in the preceding section) for the Period;
and then
o dividing the product by the sum of 1.0 plus the assumed investment
rate for the Valuation 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
income payment, and is at an effective annual rate which is disclosed in the
Contract.
We determine the amount of the first variable income payment paid under an
Income Plan using the income payment tables set out in the Contracts. The
Contracts include tables that differentiate on the basis of sex, except in
states that require the use of unisex tables.
<PAGE>
GENERAL MATTERS
- --------------------------------------------------------------------------------
INCONTESTABILITY
We will not contest the Contract after we issue it.
SETTLEMENTS
The Contract must be returned to us prior to any settlement. We must receive due
proof of the Contract owner(s) death (or Annuitant's death if there is a
non-natural Contract owner) before we will settle a death claim.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
We hold title to the assets of the Variable Account. We keep the assets
physically segregated and separate and apart from our general corporate assets.
We maintain records of all purchases and redemptions of the Portfolio shares
held by each of the Variable Sub-Accounts.
The Portfolios do not issue stock certificates. Therefore, we hold the Variable
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.
PREMIUM TAXES
Applicable premium tax rates depend on the Contract owner's state of residency
and the insurance laws and our status in those states where premium taxes are
incurred. Premium tax rates may be changed by legislation, administrative
interpretations, or judicial acts.
TAX RESERVES
We do not establish capital gains tax reserves for any Variable Sub-Account nor
do we deduct charges for tax reserves because we believe that capital gains
attributable to the Variable Account will not be taxable. However, we reserve
the right to deduct charges to establish tax reserves for potential taxes on
realized or unrealized capital gains.
<PAGE>
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. WE MAKE
NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION
INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on 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
Glenbrook 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 Glenbrook, and its operations form a part of Glenbrook, 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, Glenbrook 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,
Glenbrook does not anticipate that it will incur any federal income tax
liability attributable to the Variable Account, and therefore Glenbrook does not
intend to make provisions for any such taxes. If Glenbrook is taxed on
investment income or capital gains of the Variable Account, then Glenbrook 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 annuity 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.
<PAGE>
QUALIFIED PLANS
- --------------------------------------------------------------------------------
The 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. Contract 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.
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.
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 Glenbrook 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
Section 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>
EXPERTS
- --------------------------------------------------------------------------------
The financial statements and the related financial statement schedule included
in this statement of additional information have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein,
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
<PAGE>
Financial Statements
INDEX
PAGE
Independent Auditors' Report................................................F-1
Financial Statements:
Statements of Financial Position
December 31, 1998 and 1997........................................F-2
Statements of Operations and Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996..................................F-3
Statements of Shareholder's Equity for the Years Ended
December 31, 1998, 1997 and 1996..................................F-4
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996..................................F-5
Notes to Financial Statements........................................F-6
Schedule IV - Reinsurance for the Years Ended
December 31, 1998, 1997 and 1996..................................F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (the "Company", an affiliate of The Allstate
Corporation) as of December 31, 1998 and 1997, and the related Statements of
Operations and Comprehensive Income, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1998. Our audits also
included Schedule IV - Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 19, 1999
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
December 31,
------------
($ in thousands) 1998 1997
---- ----
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $87,415 and $81,369) $ 94,313 $ 86,243
Short-term 4,663 4,231
---------- ----------
Total investments 98,976 90,474
Reinsurance recoverable from Allstate Life
Insurance Company 3,113,278 2,637,983
Other assets 2,590 2,549
Separate Accounts 993,622 620,535
---------- ----------
TOTAL ASSETS $4,208,466 $3,351,541
========== ==========
LIABILITIES
Contractholder funds 3,113,278 2,637,983
Current income taxes payable 2,181 609
Deferred income taxes 2,499 1,772
Payable to affiliates, net 3,583 2,698
Separate Accounts 993,622 620,535
---------- ----------
TOTAL LIABILITIES 4,115,163 3,263,597
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 9)
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 4,200 shares
authorized, issued and outstanding 2,100 2,100
Additional capital paid-in 69,641 69,641
Retained income 17,079 13,035
Accumulated other comprehensive income:
Unrealized net capital gains 4,483 3,168
---------- ----------
Total accumulated other comprehensive income 4,483 3,168
---------- ----------
TOTAL SHAREHOLDER'S EQUITY 93,303 87,944
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $4,208,466 $3,351,541
========== ==========
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
REVENUES
Net investment income $ 6,231 $ 5,304 $ 3,774
Realized capital gains and losses (5) 3,460 --
------- ------- -------
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 6,226 8,764 3,774
Income tax expense 2,182 3,078 1,339
------- ------- -------
NET INCOME 4,044 5,686 2,435
------- ------- -------
OTHER COMPREHENSIVE INCOME, AFTER-TAX
Change in unrealized net capital
gains and losses 1,315 378 (567)
------- ------- -------
COMPREHENSIVE INCOME $ 5,359 $ 6,064 $ 1,868
======= ======= =======
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
December 31,
------------
($ in thousands) 1998 1997 1996
---- ---- ----
COMMON STOCK $ 2,100 $ 2,100 $ 2,100
-------- -------- --------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year 69,641 69,641 49,641
Capital contribution -- -- 20,000
-------- -------- --------
Balance, end of year 69,641 69,641 69,641
-------- -------- --------
RETAINED INCOME
Balance, beginning of year 13,035 7,349 4,914
Net income 4,044 5,686 2,435
-------- -------- --------
Balance, end of year 17,079 13,035 7,349
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of year 3,168 2,790 3,357
Change in unrealized net capital gains
and losses 1,315 378 (567)
-------- -------- --------
Balance, end of year 4,483 3,168 2,790
-------- -------- --------
Total shareholder's equity $ 93,303 $ 87,944 $ 81,880
======== ======== ========
See notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,044 $ 5,686 $ 2,435
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and other non-cash items (24) 29 --
Realized capital gains and losses 5 (3,460) --
Changes in:
Income taxes payable 1,590 240 (1,223)
Other operating assets and liabilities 915 961 717
-------- -------- --------
Net cash provided by operating activities 6,530 3,456 1,929
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,966 1,405 --
Investment collections 7,123 14,217 2,891
Investment purchases (15,250) (50,115) (5,667)
Participation in Separate Accounts -- 13,981 (232)
Change in short-term investments, net (369) (2,944) 815
-------- -------- --------
Net cash used in investing activities (6,530) (23,456) (2,193)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution -- 20,000 --
-------- -------- --------
Net cash provided by financing activities -- 20,000 --
-------- -------- --------
NET DECREASE IN CASH -- -- (264)
CASH AT THE BEGINNING OF YEAR -- -- 264
-------- -------- --------
CASH AT END OF YEAR $ -- $ -- $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash financing activity:
Capital contribution receivable from
Allstate Life Insurance Company $ -- $ -- $ 20,000
======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). These financial statements have been prepared in conformity with
generally accepted accounting principles.
To conform with the 1998 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets savings products and life insurance through banks, direct
marketing and broker-dealers. Savings products include deferred annuities, such
as variable annuities and fixed rate single and flexible premium annuities. Life
insurance includes universal life and variable life products. The Company has
entered into exclusive distribution arrangements with management investment
companies to market its variable annuity contracts. In 1998, substantially all
of the Company's statutory premiums and deposits were from annuities. The
Company re-domesticated its operations from Illinois to Arizona in 1998.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrender or withdrawal by customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal and
state regulation and legislation that, if passed, would allow banks greater
participation in securities and insurance businesses, which would present an
increased level of competition, as well as opportunities, for sales of the
Company's life and savings products. Furthermore, the market for deferred
annuities and interest-sensitive life insurance is enhanced by the tax
incentives available under current law. Any legislative changes which lessen
these incentives are likely to negatively impact the demand for these products.
Although the Company currently benefits from agreements with financial services
entities who market and distribute its products, change in control of these
non-affiliated entities with which the Company has alliances could have a
detrimental effect on the Company's sales.
Additionally, traditional demutualizations of mutual insurance companies and
enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; and (2) increasing competition in the
capital markets.
F-6
<PAGE>
The Company is authorized to sell life and savings products in all states except
New York, as well as in the District of Columbia. The top geographic locations
for statutory premiums and deposits for the Company are Florida, Pennsylvania,
Texas, California and Tennessee for the year ended December 31, 1998. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits.
Substantially all premiums and deposits are ceded to ALIC under reinsurance
agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost or amortized cost, which approximates fair value.
Investment income consists primarily of interest and dividends on short-term
investments. Interest is recognized on an accrual basis and dividends are
recorded at the ex-dividend date. Interest income on mortgage-backed securities
is determined on the effective yield method, based on the estimated principal
repayments. Accrual of income is suspended for fixed income securities that are
in default or when the receipt of interest payments is in doubt. Realized
capital gains and losses are determined on a specific identification basis.
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC. Such amounts are reflected net of such reinsurance in the
statements of operations and comprehensive income. The amounts shown in the
Company's statements of operations and comprehensive income relate to the
investment of those assets of the Company that are not transferred under
reinsurance agreements. Reinsurance recoverable and the related contractholder
funds are reported separately in the statements of financial position. The
Company continues to have primary liability as the direct insurer for risks
reinsured.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Revenues on universal life-type contracts are comprised of contract charges and
fees, and are recognized when assessed against the policyholder account balance.
Revenues on investment contracts include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balance. All premium revenues and contract charges are primarily
reinsured with ALIC.
INCOME TAXES
The income tax provision is calculated under the liability method and presented
net of reinsurance. Deferred tax assets and liabilities are recorded based on
the difference between the financial statement and tax bases of assets and
liabilities at the enacted tax rates.
F-7
<PAGE>
Deferred income taxes arise from unrealized capital gains and losses on fixed
income securities carried at fair value and differences in the tax bases of
investments.
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity and variable life
policies, the assets and liabilities of which are legally segregated and
reflected in the accompanying statements of financial position as assets and
liabilities of the Separate Accounts. The Company's Separate Accounts consist
of: Glenbrook Life and Annuity Company Separate Account A, Glenbrook Life and
Annuity Company Variable Annuity Account, Glenbrook Life Variable Life Separate
Account A, Glenbrook Life Scudder Variable Account (A), Glenbrook Life
Multi-Manager Variable Account, Glenbrook Life AIM Variable Life Separate
Account A and Glenbrook Life Variable Life Separate Account B. Each of the
Separate Accounts are unit investment trusts registered with the Securities and
Exchange Commission.
The assets of the Separate Accounts are carried at fair value. Investment income
and realized capital gains and losses of the Separate Accounts accrue directly
to the contractholders and, therefore, are not included in the Company's
statements of operations and comprehensive income. Revenues to the Company from
the Separate Accounts consist of contract maintenance fees, administration fees,
mortality and expense risk charges and cost of insurance charges, all of which
are reinsured with ALIC.
Prior to 1998, the Company had an ownership interest ("Participation") in the
Separate Accounts. The Company's Participation was carried at fair value and
unrealized gains and losses, net of deferred income taxes, were shown as a
component of shareholder's equity. Investment income and realized capital gains
and losses which arose from the Participation were included in the Company's
statements of operations and comprehensive income. The Company liquidated its
Participation during 1997, which resulted in a pretax realized capital gain of
$3.5 million.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most fixed annuities
and universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the contractholder less withdrawals, mortality
charges and administrative expenses. During 1998, credited interest rates on
contractholder funds ranged from 3.46% to 11.00% for those contracts with fixed
interest rates and from 3.75% to 10.00% for those with flexible rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-8
<PAGE>
NEW ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive income is a
measurement of certain changes in shareholder's equity that result from
transactions and other economic events other than transactions with
shareholders. For the Company, these consist of changes in unrealized gains and
losses on the investment portfolio (See Note 8).
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 redefines how segments are
determined and requires additional segment disclosures for both annual and
interim financial reporting. The Company has identified itself as a single
operating segment.
PENDING ACCOUNTING STANDARDS
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP is required to be adopted in 1999. The
SOP provides guidance concerning when to recognize a liability for
insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: 1) an assessment has been
imposed or it is probable that an assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying alternatives for estimating the accrual. In addition,
industry groups are working to improve the information available. Adoption of
this standard is not expected to be material to the results of operations or
financial position of the Company.
3. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company has reinsurance agreements whereby substantially all premiums,
contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such reinsurance in the statements of
operations and comprehensive income. The amounts shown in the Company's
statements of operations and comprehensive income relate to the investment of
those assets of the Company that are not transferred under reinsurance
agreements. Reinsurance recoverable and the related contracholder funds are
reported separately in the statements of financial position. The Company
continues to have primary liability as the direct insurer for risks reinsured.
F-9
<PAGE>
Investment income earned on the assets which support contractholder funds is not
included in the Company's financial statements as those assets are owned and
managed under terms of reinsurance agreements. The following amounts were ceded
to ALIC under reinsurance agreements.
YEAR ENDED DECEMBER 31,
-----------------------
($ in thousands) 1998 1997 1996
-------- -------- --------
Contract charges $ 19,009 $ 11,641 $ 4,254
Credited interest, policy benefits, and
certain expenses 218,008 179,954 113,703
BUSINESS OPERATIONS
The Company utilizes services provided by AIC and ALIC and business facilities
owned or leased, and operated by AIC in conducting its business activities. The
Company reimburses AIC and ALIC for the operating expenses incurred on behalf of
the Company. The cost to the Company is determined by various allocation methods
and is primarily related to the level of services provided. Operating expenses,
including compensation and retirement and other benefit programs, allocated to
the Company were $15,949, $19,243 and $4,804 in 1998, 1997 and 1996,
respectively. Of these costs, the Company retains investment related expenses.
All other costs are ceded to ALIC under reinsurance agreements.
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
AT DECEMBER 31, 1998
U.S. government and agencies $24,350 $ 4,308 $ -- $28,658
Municipal 656 24 -- 680
Corporate 33,009 1,575 (39) 34,545
Mortgage-backed securities 29,400 1,047 (17) 30,430
------- ------- ------- -------
Total fixed income securities $87,415 $ 6,954 $ (56) $94,313
======= ======= ======= =======
AT DECEMBER 31, 1997
U.S. government and agencies $24,419 $ 2,961 $ -- $27,380
Municipal 656 17 -- 673
Corporate 25,476 840 -- 26,316
Mortgage-backed securities 30,818 1,056 -- 31,874
------- ------- ------- -------
Total fixed income securities $81,369 $ 4,874 $ -- $86,243
======= ======= ======= =======
F-10
<PAGE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at December
31, 1998:
AMORTIZED FAIR
COST VALUE
---- -----
Due in one year or less $ 400 $ 400
Due after one year through five years 8,711 8,943
Due after five years through ten years 36,027 39,009
Due after ten years 12,877 15,531
------- -------
58,015 63,883
Mortgage-backed securities 29,400 30,430
------- -------
Total $87,415 $94,313
======= =======
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
Fixed income securities $ 6,151 $ 5,014 $ 3,478
Short-term investments 183 231 126
Participation in Separate Accounts -- 161 232
------- ------- -------
Investment income, before expense 6,334 5,406 3,836
Investment expense 103 102 62
------- ------- -------
Net investment income $ 6,231 $ 5,304 $ 3,774
======= ======= =======
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1998 1997 1996
------- ------- -------
Fixed income securities $ (5) $ (61) $ --
Short-term investments -- 6 --
Participation in Separate Accounts -- 3,515 --
------- ------- -------
Realized capital gains and losses (5) 3,460 --
Income taxes 2 (1,211) --
------- ------- -------
Realized capital gains and losses,
after tax $ (3) $ 2,249 $ --
======= ======= =======
Excluding calls and prepayments, gross losses of $5 and $61 were realized on
sales of fixed income securities during 1998 and 1997, respectively. There were
no gains or losses, excluding calls and prepayments during 1996.
F-11
<PAGE>
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
COST/
AMORTIZED FAIR GROSS UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES NET GAINS
---- ----- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 87,415 $ 94,313 $ 6,954 $ (56) $ 6,898
======== ======== ======== ========
Deferred income taxes (2,415)
--------
Unrealized net capital gains $ 4,483
========
</TABLE>
CHANGE IN UNREALIZED NET CAPITAL GAINS
YEAR ENDED DECEMBER 31,
1998 1997 1996
------- ------- -------
Fixed income securities $ 2,024 $ 2,410 $(2,239)
Participation in Separate Accounts -- (1,829) 1,368
Deferred income taxes (709) (203) 304
------- ------- -------
Increase (decrease) in unrealized
net capital gains $ 1,315 $ 378 $ (567)
======= ======= =======
SECURITIES ON DEPOSIT
At December 31, 1998, fixed income securities with a carrying value of $11,416
were on deposit with regulatory authorities as required by law.
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented on the following page are not necessarily
indicative of the amounts the Company might pay or receive in actual market
transactions. Potential taxes and other transaction costs have not been
considered in estimating fair value. The disclosures that follow do not reflect
the fair value of the Company as a whole since a number of the Company's
significant assets (including reinsurance recoverable) and liabilities
(including universal life-type insurance reserves and deferred income taxes) are
not considered financial instruments and are not carried at fair value. Other
assets and liabilities considered financial instruments, such as accrued
investment income, are generally of a short-term nature. Their carrying values
are assumed to approximate fair value.
F-12
<PAGE>
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Fixed income securities $ 94,313 $ 94,313 $ 86,243 $ 86,243
Short-term investments 4,663 4,663 4,231 4,231
Separate Accounts 993,622 993,622 620,535 620,535
Fair values for fixed income securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. Short-term investments are highly
liquid investments with maturities of less than one year whose carrying value
approximates fair value. Separate Accounts assets are carried in the statements
of financial position at fair value based on quoted market prices.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----- ----- ----- -----
Contractholder funds on
investment contracts $3,130,228 $2,967,101 $2,636,331 $2,492,095
Separate Accounts 993,622 993,622 620,535 620,535
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
6. INCOME TAXES
For 1996, the Company filed a separate federal income tax return. Beginning in
1997, the Company joined the Corporation and its other eligible domestic
subsidiaries (the "Allstate Group") in the filing of a consolidated federal
income tax return and is party to a federal income tax allocation agreement (the
"Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the
Company pays to or receives from the Corporation the amount, if any, by which
the Allstate Group's federal income tax liability is affected by virtue of
inclusion of the Company in the consolidated federal income tax return.
Effectively, this results in the Company's annual income tax provision being
computed, with adjustments, as if the Company filed a separate return.
F-13
<PAGE>
Prior to Sears, Roebuck and Co.'s ("Sears") distribution ("Sears distribution")
on June 30, 1995 of its 80.3% ownership in the Corporation to Sears
shareholders, the Allstate Group joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Tax Sharing Agreement"). Under the Tax Sharing
Agreement, the Company, through the Corporation, paid to or received from the
Sears Group the amount, if any, by which the Sears Tax Group's federal income
tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return.
As a result of the Sears distribution, the Allstate Group was no longer included
in the Sears Tax Group, and the Tax Sharing Agreement was terminated.
Accordingly, the Allstate Group and Sears Group entered into a new tax sharing
agreement, which adopts many of the principles of the Tax Sharing Agreement and
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Sears distribution, including the treatment
of audits of tax returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's federal income tax returns through the 1993 tax year. Any adjustment
that may result from IRS examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or results of operations of
the Company.
The components of the deferred income tax liability at December 31, are as
follows:
1998 1997
------- -------
Unrealized net capital gains $(2,415) $(1,706)
Difference in tax bases of investments (84) (66)
------- -------
Total deferred liability $(2,499) $(1,772)
======= =======
The components of income tax expense for the year ended December 31, are as
follows:
1998 1997 1996
------ ------ ------
Current $2,164 $3,037 $1,335
Deferred 18 41 4
------ ------ ------
Total income tax expense $2,182 $3,078 $1,339
====== ====== ======
The Company paid income taxes of $592, $2,839 and $2,446 in 1998, 1997 and 1996,
respectively. The Company had a current income tax liability of $2,181 and $609
at December 31, 1998 and 1997, respectively.
F-14
<PAGE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
1998 1997 1996
------ ------ ------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other -- .1 .5
------ ------ ------
Effective income tax rate 35.0% 35.1% 35.5%
====== ====== ======
7. STATUTORY FINANCIAL INFORMATION
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Arizona
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a significant impact on statutory surplus or statutory net
income.
The NAIC's codification initiative has produced a comprehensive guide of revised
statutory accounting principles. While the NAIC has approved a January 1, 2001
implementation date for the newly developed guidance, companies must adhere to
the implementation date adopted by their state of domicile. The Company's state
of domicile, Arizona, is continuing its comparison of codification and current
statutory accounting requirements to determine necessary revisions to existing
state laws and regulations. The requirements are not expected to have a material
impact on the statutory surplus of the Company.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by the Company without the prior approval of the state
insurance regulator is limited to formula amounts based on net income and
capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1999 without prior approval of the Arizona Department of Insurance is
$4,698.
F-15
<PAGE>
8. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ---------------------------- -----------------------------
After- After- After-
Pretax Tax tax Pretax Tax tax Pretax Tax tax
------ --- --- ------ --- --- ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized capital gains
and losses:
- --------------------------
Unrealized holding gains
(losses) arising during
the period $ 2,019 $ (707) $ 1,312 $ 4,034 $(1,412) $ 2,622 $ (871) $ 304 $ (567)
Less: reclassification
adjustment for realized
net capital gains
included in net income (5) 2 (3) 3,453 (1,209) 2,244 -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Unrealized net capital
gains (losses) $ 2,024 $ (709) $ 1,315 $ 581 $ (203) $ 378 $ (871) $ 304 $ (567)
------- ------- ------- ------- ------- ------- ------- ------- -------
Other comprehensive
income $ 2,024 $ (709) $ 1,315 $ 581 $ (203) $ 378 $ (871) $ 304 $ (567)
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
9. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing banks
from engaging in the securities and insurance business, tax law changes
affecting the taxation of insurance companies, the tax treatment of insurance
products and its impact on the relative desirability of various personal
investment vehicles, and proposed legislation to prohibit the use of gender in
determining insurance rates and benefits. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
F-16
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
--------- --------- -------
Life insurance in force $ 12,056 $ 12,056 $ --
========= ========= =======
Premiums and contract charges:
Life and annuities $ 19,009 $ 19,009 $ --
========= ========= =======
GROSS NET
YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED AMOUNT
--------- --------- -------
Life insurance in force $ 4,095 $ 4,095 $ --
========= ========= =======
Premiums and contract charges:
Life and annuities $ 11,641 $ 11,641 $ --
========= ========= =======
GROSS NET
YEAR ENDED DECEMBER 31, 1996 AMOUNT CEDED AMOUNT
--------- --------- -------
Life insurance in force $ 2,436 $ 2,436 $ --
========= ========= =======
Premiums and contract charges:
Life and annuities $ 4,254 $ 4,254 $ --
========= ========= =======
F-17
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
Financial Statements as of December 31, 1998
and for the periods ended December 31, 1998 and
December 31, 1997, and Independent Auditors' Report
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Independent Auditors' Report 1
Statements of Net Assets As of December 31, 1998 for the following: 2
Investments in the STI Classic Variable Trust Portfolios:
Capital Growth
Investment Grade Bond
Mid-Cap Equity
Value Income Stock
International Equity
Small-Cap Equity
Investments in the Federated Insurance Series Portfolio:
Federated Prime Money Fund II
Statements of Operations For the Year Ended December 31, 1998
for the following: 3
Investments in the STI Classic Variable Trust Portfolios:
Capital Growth
Investment Grade Bond
Mid-Cap Equity
Value Income Stock
International Equity
Small-Cap Equity
Investments in the Federated Insurance Series Portfolio:
Federated Prime Money Fund II
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Statements of Changes in Net Assets for the following: 4 - 5
For the Years and Periods Ended December 31, 1998 and December
31, 1997
Investments in the STI Classic Variable Trust Portfolios:
Capital Growth
Investment Grade Bond
Mid-Cap Equity
Value Income Stock
International Equity
For the Year Ended December 31, 1998 and for the Period October
21, 1997 to December 31, 1997
Investments in the STI Classic Variable Trust Portfolios:
Small-Cap Equity
For the Years Ended December 31, 1998 and December 31, 1997
Investments in the Federated Insurance Series Portfolio:
Federated Prime Money Fund II
Notes to Financial Statements 6 - 9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Glenbrook Life and Annuity Company:
We have audited the accompanying statements of net assets of each of the
sub-accounts ("portfolios" for purposes of this report), listed in the table of
contents, that comprise Glenbrook Life and Annuity Company Variable Account (the
"Account"), a Separate Account of Glenbrook Life and Annuity Company, an
affiliate of The Allstate Corporation, as of December 31, 1998, and the related
statements of operations and changes in net assets for the applicable periods
indicated in the table of contents. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1998. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of each of the portfolios, listed in the table
of contents, that comprise the Account as of December 31, 1998, and the results
of their operations, and the changes in their net assets for each of the
periods, indicated in the table of contents, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 18, 1999.
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
($ and shares in thousands)
ASSETS
Investments in the STI Classic Variable Trust Portfolios:
Capital Growth, 5,266 shares (cost $82,003) $105,540
Investment Grade Bond, 1,803 shares (cost $18,430) 19,076
Mid-Cap Equity, 2,291 shares (cost $28,155) 31,110
Value Income Stock, 6,548 shares (cost $89,830) 98,749
International Equity, 1,450 shares (cost $17,225) 18,924
Small-Cap Equity, 1,044 shares (cost $10,069) 8,851
Investments in the Federated Insurance Series Portfolio:
Federated Prime Money Fund II, 8,387 shares (cost $8,387) 8,387
--------
Total assets $290,637
LIABILITIES
Payable to Glenbrook Life and Annuity Company:
Accrued contract maintenance charges 87
--------
Net assets $290,550
========
See notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
FEDERATED
INSURANCE
SERIES
STI CLASSIC VARIABLE TRUST PORTFOLIOS PORTFOLIO
-------------------------------------------------------------------- ---------
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------
FEDERATED
INVESTMENT VALUE INTER- PRIME
CAPITAL GRADE MID-CAP INCOME NATIONAL SMALL-CAP MONEY
GROWTH BOND EQUITY STOCK EQUITY EQUITY FUND II
-------- ---------- -------- -------------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 7,907 $ 749 $ 2,305 $ 8,473 $ 134 $ 90 $ 336
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (1,079) (186) (355) (1,154) (223) (93) (91)
Administrative expense (84) (15) (28) (90) (17) (7) (7)
-------- -------- -------- -------- -------- -------- --------
Net investment income (loss) 6,744 548 1,922 7,229 (106) (10) 238
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 6,826 2,907 2,849 7,926 2,283 1,032 9,658
Cost of investments sold 5,356 2,790 2,710 6,893 2,174 1,217 9,658
-------- -------- -------- -------- -------- -------- --------
Net realized gains (losses) 1,470 117 139 1,033 109 (185) --
-------- -------- -------- -------- -------- -------- --------
Change in unrealized gains (losses) 11,150 399 (611) (2,112) 1,144 (1,254) --
-------- -------- -------- -------- -------- -------- --------
Net gains (losses) on investments 12,620 516 (472) (1,079) 1,253 (1,439) --
-------- -------- -------- -------- -------- -------- --------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 19,364 $ 1,064 $ 1,450 $ 6,150 $ 1,147 $ (1,449) $ 238
======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
FEDERATED
INSURANCE
SERIES
STI CLASSIC VARIABLE TRUST PORTFOLIOS PORTFOLIO
-------------------------------------------------------------------- ---------
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------
FEDERATED
INVESTMENT VALUE INTER- PRIME
CAPITAL GRADE MID-CAP INCOME NATIONAL SMALL-CAP MONEY
GROWTH BOND EQUITY STOCK EQUITY EQUITY FUND II
-------- ---------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 6,744 $ 548 $ 1,922 $ 7,229 $ (106) $ (10) $ 238
Net realized gains (losses) 1,470 117 139 1,033 109 (185) --
Change in unrealized gains (losses) 11,150 399 (611) (2,112) 1,144 (1,254) --
--------- -------- -------- -------- -------- ------- -------
Change in net assets resulting from
operations 19,364 1,064 1,450 6,150 1,147 (1,449) 238
FROM CAPITAL TRANSACTIONS
Deposits 24,446 6,475 7,142 25,036 4,433 6,248 5,468
Benefit payments (562) (176) (78) (600) (73) (4) (119)
Payments on termination (3,807) (639) (1,150) (4,353) (567) (203) (711)
Contract maintenance charges (31) (5) (8) (30) (5) (2) (1)
Transfers among the portfolios and with the
Fixed Account - net 4,247 2,569 (153) (197) 138 1,591 (2,789)
--------- -------- -------- -------- -------- ------- -------
Change in net assets resulting from capital
transactions 24,293 8,224 5,753 19,856 3,926 7,630 1,848
--------- -------- -------- -------- -------- ------- -------
INCREASE IN NET ASSETS 43,657 9,288 7,203 26,006 5,073 6,181 2,086
NET ASSETS AT BEGINNING OF PERIOD 61,852 9,782 23,897 72,713 13,846 2,667 6,299
--------- -------- -------- -------- -------- ------- -------
NET ASSETS AT END OF PERIOD $ 105,509 $ 19,070 $ 31,100 $ 98,719 $ 18,919 $ 8,848 $ 8,385
========= ======== ======== ======== ======== ======= =======
<FN>
See notes to financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
($ and units in thousands, except value per unit)
FEDERATED
INSURANCE
SERIES
STI CLASSIC VARIABLE TRUST PORTFOLIOS PORTFOLIO
-------------------------------------------------------------------- ----------
FOR THE PERIOD FOR THE
OCTOBER 21,1997 YEAR ENDED
TO DECEMBER DECEMBER
FOR THE YEAR ENDED DECEMBER 31, 1997 31, 1997 31, 1997
-------------------------------------------------------- --------- ---------
FEDERATED
INVESTMENT VALUE INTER- PRIME
CAPITAL GRADE MID-CAP INCOME NATIONAL SMALL-CAP MONEY
GROWTH BOND EQUITY STOCK EQUITY EQUITY FUND II
-------- ---------- -------- -------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 998 $ 270 $ 500 $ 1,285 $ (109) $ 3 $ 176
Net realized gains 1,865 115 941 1,402 81 -- --
Change in unrealized gains 9,650 246 2,148 8,568 540 36 --
-------- -------- -------- -------- -------- -------- --------
Change in net assets resulting from
operations 12,513 631 3,589 11,255 512 39 176
FROM CAPITAL TRANSACTIONS
Deposits 27,212 3,848 9,224 32,285 11,749 1,455 9,566
Benefit payments (248) (94) (42) (414) (14) -- --
Payments on termination (1,045) (299) (492) (1,345) (163) (3) (242)
Contract maintenance charges (19) (3) (8) (24) (5) (1) (1)
Liquidation of Glenbrook Life and Annuity
Company Seed Money (4,127) (2,719) (3,334) (3,781) -- -- --
Transfers among the portfolios and with the
Fixed Account - net 2,387 488 666 3,526 773 1,177 (8,295)
-------- -------- -------- -------- -------- -------- --------
Change in net assets resulting from capital
transactions 24,160 1,221 6,014 30,247 12,340 2,628 1,028
-------- -------- -------- -------- -------- -------- --------
INCREASE IN NET ASSETS 36,673 1,852 9,603 41,502 12,852 2,667 1,204
NET ASSETS AT BEGINNING OF PERIOD 25,179 7,930 14,294 31,211 994 -- 5,095
-------- -------- -------- -------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 61,852 $ 9,782 $ 23,897 $ 72,713 $ 13,846 $ 2,667 $ 6,299
======== ======== ======== ======== ======== ======== ========
CONTRACTS WITHOUT THE DEATH BENEFIT OPTION
Net asset value per unit at end of period $ 17.53 $ 11.20 $ 14.20 $ 15.66 $ 11.70 $ 9.77 $ 10.80
======== ======== ======== ======== ======== ======== ========
Units outstanding at end of period 2,788 686 1,354 3,719 735 112 343
======== ======== ======== ======== ======== ======== ========
CONTRACTS WITH THE DEATH BENEFIT OPTION
Net asset value per unit at end of period $ 17.52 $ 11.19 $ 14.19 $ 15.65 $ 11.69 $ 9.77 $ 10.79
======== ======== ======== ======== ======== ======== ========
Units outstanding at end of period 740 188 329 924 449 161 240
======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
5
<PAGE>
GLENBROOK lIFE AND ANNUITY COMPANY
VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 issues certain annuity contracts, the deposits of which are
invested at the direction of the contractholder in the sub-accounts
("portfolios" for purposes of this report) that comprise the Account.
Contractholders bear all investment risk for amounts allocated to the
Account. The Account portfolios invest in the following: STI Classic
Variable Trust and Federated Insurance Series (collectively the "Funds").
Effective January 10, 1999 the following portfolios have been added to the
Account: AIM Variable Insurance Funds, Inc., Templeton Variable Products
Series Fund and Oppenheimer Variable Account Funds.
Glenbrook Life provides insurance and administrative services to the
Account for a fee.
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 at
December 31, 1998.
Investment Income - Investment income consists of dividends declared by the
Funds and is recognized on the date of record.
Realized Gains and Losses - Realized gains and losses represent the
difference between the proceeds from sales of portfolio shares by the
Account and the cost of such shares, which is determined on a weighted
average basis.
Federal Income Taxes - The Account intends to qualify as a segregated asset
account as defined in the Internal Revenue Code ("Code"). As such, the
operations of the Account are included in the tax return of Glenbrook Life.
Glenbrook Life is taxed as a life insurance company under the Code. No
federal income taxes are payable by the Account in 1998 as the Account did
not generate taxable income.
6
<PAGE>
3. CONTRACT CHARGES
Glenbrook Life assumes mortality and expense risks related to the
operations of the Account and deducts charges daily at a rate equal to
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. An enchanced death benefit rider is available at an
additional charge of .10%, bringing the total mortality and expense charge
to 1.35%.
Glenbrook Life deducts administrative expense charges daily at a rate equal
to .10% per annum of the daily net assets of the Account.
If aggregate deposits are less than $25,000, Glenbrook Life will deduct an
annual contract maintenance fee of $30.
4. FINANCIAL INSTRUMENTS
The investments of the Account 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.
7
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
Contracts without Enhanced Death Benefit Rider
Unit activity during 1998:
--------------------------------------
Units Units Accumulation
Outstanding Outstanding Unit Value
December 31, Units Units December 31, December 31,
1997 Issued Redeemed 1998 1998
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Investments in the STI Classic
Variable Trust Portfolios:
Capital Growth 2,788,068 834,362 (574,258) 3,048,172 22.31
Investment Grade Bond 685,967 695,136 (406,948) 974,155 12.09
Mid-Cap Equity 1,354,069 340,810 (296,356) 1,398,523 15.03
Value Income Stock 3,718,933 875,652 (726,815) 3,867,770 16.95
International Equity 734,702 291,655 (240,757) 785,600 12.79
Small Cap Equity 111,688 356,572 (128,880) 339,380 8.46
Investments in the Federated
Insurance Series Portfolio:
Federated Prime Money Fund II 343,107 775,134 (634,507) 483,734 11.18
<FN>
Units relating to accrued contract maintenance charges are included in units
redeemed.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
Contracts with Enhanced Death Benefit Rider
Unit activity during 1998:
----------------------------------------
Units Units Accumulation
Outstanding Outstanding Unit Value
December 31, Units Units December 31, December 31,
1997 Issued Redeemed 1998 1998
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Investments in the STI Classic Variable
Trust Portfolios:
Capital Growth 740,261 1,296,898 (353,237) 1,683,922 22.27
Investment Grade Bond 187,763 580,668 (164,252) 604,179 12.07
Mid-Cap Equity 329,138 498,744 (156,750) 671,132 15.01
Value Income Stock 923,837 1,383,246 (345,379) 1,961,704 16.90
International Equity 449,232 432,076 (186,521) 694,787 12.77
Small Cap Equity 161,267 745,950 (200,359) 706,858 8.45
Investments in the Federated
Insurance Series Portfolio:
Federated Prime Money Fund II 240,430 795,691 (769,245) 266,876 11.16
<FN>
Units relating to accrued contract maintenance charges are included in units
redeemed.
</FN>
</TABLE>
9
