<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
FILE NO. 33-91916
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 3 /X/
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GLENBROOK LIFE AND ANNUITY COMPANY
(Exact Name of Registrant)
MICHAEL J. VELOTTA
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
GLENBROOK LIFE AND ANNUITY COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
847/402-2400
(Name and Complete Address of Agent for Service)
-----------
COPIES TO:
GREGOR B. MCCURDY, ESQUIRE JOHN R. HEDRICK, ESQUIRE
ROUTIER AND JOHNSON, P.C. ALLSTATE LIFE FINANCIAL
1700 K. STREET N. W., SERVICES, INC.
SUITE 1003 3100 SANDERS ROAD
WASHINGTON, D.C. 20006 NORTHBROOK, IL 60062
-----------
Approximate date of commencement of proposed sale to the Public: The annuity
contract covered by this registration statement is to be issued promptly and
from time to time after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE CHART
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE FEE
<S> <C> <C> <C> <C>
DEFERRED ANNUITY CONTRACTS AND
PARTICIPATING INTERESTS
THEREIN............... * * * *
</TABLE>
*THESE CONTRACTS ARE NOT ISSUED IN PREDETERMINED AMOUNTS OR UNITS.
............................
A maximum aggregate offering price of $150,290,000 was previously registered.
No additional amount of securities is being registered by this post effective
amendment to the registration statement.
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY VARIABLE ANNUITY ACCOUNT
OFFERED BY
GLENBROOK LIFE AND ANNUITY COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
1-800/453-6038
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS
------------------------
This prospectus describes the STI Classic Variable Annuity, an Individual
Flexible Premium Deferred Variable Annuity Contract ("Contract") designed to aid
you in long-term financial planning and which can be used for retirement
planning.
The Contracts are issued by Glenbrook Life and Annuity Company ("Company"), a
wholly owned subsidiary of Allstate Life Insurance Company. Purchase payments
for the Contracts will be allocated to a series of Variable Sub-accounts of the
Glenbrook Life and Annuity Company Variable Annuity Account ("Variable Account")
and/or to one or more of the Fixed Account Options funded through the Company's
general account.
The Variable Sub-accounts invest in shares of the STI Classic Variable Trust and
the Federated Prime Money Fund II (the "Funds"). The Funds have a total of five
portfolios available under the Contract. The STI Classic Variable Trust
portfolios include: (1) Investment Grade Bond; (2) Capital Growth; (3) Value
Income; (4) Mid-Cap Equity (previously known as the Aggressive Growth
portfolio); and (5) International Equity. The Federated Prime Money Fund II
(previously known as the Prime Money Fund) is a portfolio of Federated Insurance
Series that invests exclusively in money market instruments. The Fixed Account
Options include a Standard Fixed Account and a Guaranteed Maturity Amount Fixed
Account.
This prospectus presents information you should know before making a decision to
invest in the Contract and the available Investment Alternatives.
THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS WHICH HAVE RELATIONSHIPS
WITH BANKS OR OTHER FINANCIAL INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS;
HOWEVER, THE CONTRACTS AND THE INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS, OR
OBLIGATIONS OF, OR GUARANTEED BY SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY
AGENCY. INVESTMENT IN THE CONTRACTS INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
THESE CONTRACTS ARE NOT FDIC INSURED
The Company has prepared and filed a Statement of Additional Information dated
May 1, 1997 with the U.S. Securities and Exchange Commission. If you wish to
receive the Statement of Additional Information, you may obtain a free copy by
calling or writing the Company at the address above. For your convenience, an
order form for the Statement of Additional Information may be found on page B-2
of this prospectus. Before ordering, you may wish to review the Table of
Contents of the Statement of Additional Information on page B-1 of this
prospectus. The Statement of Additional Information has been incorporated by
reference into this prospectus.
This Prospectus is Valid Only When Accompanied or Preceded By A Current
Prospectus For the STI Classic Variable Trust and the Federated Prime Money Fund
II.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE
THE DATE OF THIS PROSPECTUS IS MAY 1, 1997.
<PAGE>
The Contract is not available in all states.
At least once each Contract Year, the Company will send the Owner an annual
statement that contains certain information pertinent to the individual Owner's
Contract. The annual statement details values and specific Contract data that
applies to each particular Contract. The annual statement does not contain
financial statements of the Company, although the Company's financial statements
are on page F-1 of this prospectus. Our Company files annual and quarterly
reports and other information with the SEC. You may read and copy any reports,
statements or other information we file at the SEC's public reference room in
Washington, D.C. You can request copies of these documents upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings are also available to the public on the SEC Internet site
http://www.sec.gov.).
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Glossary....................................... 4
Highlights..................................... 6
Summary of Variable Account Expenses........... 8
Condensed Financial Information................ 10
Yield and Total Return Disclosure.............. 10
Financial Statements........................... 11
Glenbrook Life and Annuity Company and the
Variable Account.............................. 11
Glenbrook Life and Annuity Company........... 11
The Variable Account......................... 12
The Funds...................................... 12
The STI Classic Variable Trust............... 12
The Federated Prime Money Fund II, a
Portfolio of Federated Insurance Series..... 13
Investment Advisors for the Portfolios....... 13
Fixed Account Options.......................... 13
The Standard Fixed Account................... 13
The Guaranteed Maturity Amount Fixed
Account..................................... 14
Example of Interest Crediting During the
Guarantee Period............................ 14
Withdrawals or Transfers..................... 16
Market Value Adjustment...................... 16
Purchase of the Contracts...................... 17
Purchase Payment Limits...................... 17
Free-Look Period............................. 17
Crediting of Purchase Payments............... 17
Allocation of Purchase Payments.............. 17
Accumulation Units........................... 17
Accumulation Unit Value...................... 18
<CAPTION>
PAGE
<S> <C>
Transfers Among Portfolios................... 18
Dollar Cost Averaging........................ 18
Automatic Portfolio Rebalancing.............. 19
Benefits Under the Contract.................... 19
Withdrawals.................................. 19
Payout Start Date for Income Payments........ 19
Amount of Variable Account Income Payments... 20
Amount of Fixed Account Income Payments...... 20
Income Plans................................. 20
Death Benefit Payable........................ 21
Death Benefit Amount......................... 21
Death Benefit Payment Provisions............. 22
Charges and Other Deductions................... 23
Deductions from Purchase Payments............ 23
Withdrawal Charge (Contingent Deferred Sales
Charge)..................................... 24
Contract Maintenance Charge.................. 24
Administrative Expense Charge................ 25
Mortality and Expense Risk Charge............ 25
Taxes........................................ 25
Transfer Charges............................. 25
Fund Expenses................................ 26
General Matters................................ 26
Owner........................................ 26
Annuitant.................................... 26
Beneficiary.................................. 26
Assignments.................................. 26
Delay of Payments............................ 26
Modification................................. 26
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Customer Inquiries........................... 27
Federal Tax Matters............................ 27
Introduction................................. 27
Taxation of Annuities in General............. 27
Tax Referral............................... 27
Non-Natural Owners......................... 27
Diversification Requirements............... 27
Ownership Treatment........................ 27
Taxation of Partial and Full Withdrawals... 28
Taxation of Annuity Payments............... 28
Taxation of Annuity Death Benefits......... 28
Penalty Tax on Premature Distributions..... 29
Aggregation of Annuity Contracts........... 29
Tax Qualified Contracts...................... 29
Restrictions Under Section 403(b) Plans.... 29
Income Tax Withholding....................... 29
Distribution of the Contracts.................. 29
Voting Rights.................................. 30
Selected Financial Data........................ 30
<CAPTION>
PAGE
<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 31
Results of Operations........................ 31
Financial Position........................... 32
Liquidity and Capital Resources.............. 33
Pending Accounting Standard.................. 33
Competition.................................... 33
Employees...................................... 33
Properties..................................... 33
State and Federal Regulation................... 33
Executive Officers and Directors of the
Company....................................... 35
Executive Compensation......................... 37
Legal Proceedings.............................. 37
Experts........................................ 37
Legal Matters.................................. 37
Financial Statements........................... F-1
Statement of Additional Information: Table of
Contents...................................... B-1
Order Form..................................... B-2
Appendix A..................................... A-1
</TABLE>
3
<PAGE>
GLOSSARY
ACCUMULATION UNIT -- A measure of your ownership interest in a Sub-account of
the Variable Account prior to the Payout Start Date. Analogous, though not
identical, to a share owned in a mutual fund.
ACCUMULATION UNIT VALUE -- The value of each Accumulation Unit which is
calculated each Valuation Date. Each Sub-account of the Variable Account has its
own distinct Accumulation Unit Value. Analogous, though not identical, to the
share price (net asset value) of a mutual fund.
ANNUITANT(S) -- The person or persons whose life determines the latest Payout
Start Date and the amount and duration of any income payments for Income Plan
options other than Guaranteed Payments for a Specified Period.
BENEFICIARY(IES) -- The person(s) to whom any benefits are due when a death
benefit is payable and there is no surviving Owner.
COMPANY("WE," "US") -- Glenbrook Life and Annuity Company.
CONTRACT -- The Glenbrook Life and Annuity Company Flexible Premium Deferred
Variable Annuity Contract, known as the "STI Classic Variable Annuity," that is
described in this prospectus.
CONTRACT ANNIVERSARY -- An anniversary of the date that the Contract was issued.
CONTRACT VALUE -- The value of all amounts accumulated under the Contract prior
to the Payout Start Date, equivalent to the Accumulation Units in each
Sub-account of the Variable Account multiplied by the respective Accumulation
Unit Value, plus the value in the Fixed Account Options.
CONTRACT YEAR -- A period of 12 months starting with the issue date or any
Contract Anniversary.
DEATH BENEFIT ANNIVERSARY -- Every seventh Contract Anniversary beginning on the
date that the Contract was issued. For example, the issue date, 7th and 14th
Contract Anniversaries are the first three Death Benefit Anniversaries.
ENHANCED DEATH BENEFIT -- An additional death benefit option which can be
selected at the time the Contract is purchased.
FIXED ACCOUNT OPTIONS -- The Standard Fixed Account and the Guaranteed Maturity
Amount Fixed Account.
GUARANTEE PERIOD -- A period of years for which a specified effective annual
interest rate is guaranteed by the Company.
GUARANTEED MATURITY AMOUNT FIXED SUB-ACCOUNTS -- These Sub-accounts are
distinguished by Guarantee Period(s) and the dates the period(s) begin. The
Guaranteed Maturity Amount Fixed Sub-accounts are established when purchase
payments are made and when previous Sub-accounts expire and a new Guarantee
Period is selected.
INCOME PLAN -- One of several ways in which a series of payments are made after
the Payout Start Date. Income payments are based on the Contract Value adjusted
by any applicable Market Value Adjustment and any applicable taxes on the Payout
Start Date. Under a Fixed Account option, the dollar amount of each income
payment does not change over time. Under a Variable Account option, the dollar
amount of each income payment may change over time, depending on the investment
experience of the Sub-account or Sub-accounts you choose.
INVESTMENT ALTERNATIVES -- The six Sub-accounts of the Variable Account and the
two Fixed Account Options constitute the eight Investment Alternatives.
MARKET VALUE ADJUSTMENT -- The Market Value Adjustment is the adjustment made to
the money distributed from a Sub-account of the Guaranteed Maturity Amount Fixed
Account prior to the end of the Guarantee Period under the Contract to reflect
the impact of changes in interest rates between the time
4
<PAGE>
the Sub-account of the Guaranteed Maturity Amount Fixed Account was established
and the time of distribution.
OWNER(S)("YOU") -- The person or persons designated as the Owner in the
Contract.
PAYOUT START DATE -- The date on which income payments begin.
SETTLEMENT VALUE -- The amount payable in the event of a full withdrawal of the
Contract Value.
VALUATION DATE -- Each day that the New York Stock Exchange is open for
business. The Valuation Date does not include such Federal and non-Federal
holidays as are observed by the New York Stock Exchange.
VALUATION PERIOD -- The period between successive Valuation Dates, commencing at
the close of regular trading on the New York Stock Exchange (which is currently
4:00pm Eastern Time) and ending as of the close of regular trading on the New
York Stock Exchange on the next succeeding Valuation Date.
VARIABLE ACCOUNT -- Glenbrook Life and Annuity Company Variable Annuity Account,
a separate investment account established by the Company to receive and invest
purchase payments paid under the Contracts.
VARIABLE SUB-ACCOUNT -- A portion of the Variable Account invested in shares of
a Fund's portfolios. The investment performance of each Variable Sub-account is
linked directly to the investment performance of the portfolios.
5
<PAGE>
HIGHLIGHTS
THE CONTRACT
This Contract is designed for long-term financial planning and retirement
planning. Money can be allocated to any combination of the Funds' portfolios
and/or Fixed Account Options. You have access to your funds either through
withdrawals of Contract Value or through periodic income payments.
You bear the entire investment risk for Contract Values and income payments
based upon the Variable Account, because values will vary depending on the
investment performance of the portfolio(s) you select. See "Accumulation Unit
Value," page 18 and "Amount of Variable Account Income Payments," page 20.
You will also bear the investment risk of adverse changes in interest rates in
the event amounts are prematurely withdrawn or transferred from Sub-accounts of
the Guaranteed Maturity Amount Fixed Account. See "The Guaranteed Maturity
Amount Fixed Account," page 14.
FREE-LOOK
You may cancel the Contract any time within 20 days after receipt of the
Contract and receive a full refund of purchase payments allocated to the Fixed
Account Options. Unless a refund of purchase payments is required by state or
federal law, purchase payments allocated to the Variable Account will be
returned after an adjustment to reflect investment gain or loss that occurred
from the date of allocation through the date of cancellation. See "Free-Look
Period," page 17.
HOW TO INVEST
Your first purchase payment must be at least $3,000 (for qualified contracts,
$2,000). Subsequent purchase payments must be at least $50, See "Purchase
Payment Limits," page 17.
At the time of your application, you will allocate your purchase payment among
the Investment Alternatives. All allocations must be in whole percents from 0%
to 100% (total allocation equals 100%) or in whole dollars. Allocations may be
changed by notifying the Company in writing. See "Allocation of Purchase
Payments," page 17.
INVESTMENT ALTERNATIVES
The Variable Account invests in shares of the STI Classic Variable Trust and the
Federated Prime Money Fund II (the "Funds"). The Funds have a total of five
portfolios available under the Contract. The STI Classic Variable Trust
portfolios include: the Investment Grade Bond portfolio, the Capital Growth
portfolio, the Value Income Stock portfolio, the Mid-Cap Equity portfolio and
the International Equity portfolio. The Federated Prime Money Fund II is a
portfolio of Federated Insurance Series that invests exclusively in money market
instruments. The assets of each portfolio are held separately from the other
portfolios and each has distinct investment objectives and policies which are
described in the accompanying prospectuses for the Funds. In addition to the
Variable Account, Owners can also allocate all or part of their purchase
payments among two Fixed Account Options. See "Fixed Account Options," on page
13.
TRANSFERS AMONG INVESTMENT ALTERNATIVES
Prior to the Payout Start Date, you may transfer amounts among the Investment
Alternatives. The Company reserves the right to assess a $10 charge on each
transfer in excess of 12 per Contract Year. The Company is presently waiving
this charge. Certain Fixed Account transfers may be restricted. See "Transfers
Among Portfolios," page 18.
You may want to enroll in a Dollar Cost Averaging Program or an Automatic
Portfolio Rebalancing Program. See "Dollar Cost Averaging," page 18, and
"Automatic Portfolio Rebalancing," page 19.
6
<PAGE>
CHARGES AND DEDUCTIONS
The costs of the Contract include: a contract maintenance charge ($30 annually),
a mortality and expense risk charge (deducted daily, equal on an annual basis to
1.25% of the Contract's daily net assets of the Variable Account), and an
administrative expense charge (deducted daily, equal on an annual basis to .10%
of the Contract's daily net assets of the Variable Account). For Contracts with
the Enhanced Death Benefit provision, the mortality and expense risk charge will
be deducted daily, at a rate equal on an annual basis, to 1.35% of the daily net
assets in the Variable Account. The assessment of the additional .10% for the
Enhanced Death Benefit is attributed to the assumption of additional mortality
risks. The Company reserves the right to assess a transfer charge ($10 on each
transfer in excess of 12 per Contract Year). Additional deductions may be made
for certain taxes. See "Contract Maintenance Charge," page 24, "Mortality and
Expense Risk Charge," page 25, "Administrative Expense Charge," page 25,
"Transfer Charges," page 25, and "Taxes," page 25.
WITHDRAWALS
You may withdraw all or part of the Contract Value before the earliest of the
Payout Start Date, the death of any Owner or, if the Owner is not a natural
person, the death of the Annuitant. No withdrawal charges will be deducted on
amounts withdrawn up to 10% of the Contract Value on the date of the first
withdrawal in a Contract Year. Amounts withdrawn in excess of the 10% may be
subject to a withdrawal charge of 0% to 7% depending on how long the purchase
payments have been invested in the Contract. Amounts withdrawn from a
Sub-account of the Guaranteed Maturity Amount Fixed Account, except during the
30 day period after the Guarantee Period expires, will be subject to a Market
Value Adjustment. See "Withdrawals," page 19, "Withdrawals or Transfers," page
16, and "Taxation of Annuities in General," page 27.
DEATH BENEFIT
The Company will pay a death benefit prior to the Payout Start Date on the death
of any Owner or, if the Owner is not a natural person, the death of the
Annuitant. See "Death Benefit Amount," page 21.
INCOME PAYMENTS
You will receive periodic income payments beginning on the Payout Start Date.
You may choose among several Income Plans to fit your needs. Income payments may
be received for a specified period or for life (either single or joint life),
with or without a guaranteed number of payments. You can select income payments
that are fixed, variable or a combination of fixed and variable. See "Income
Plans," page 20.
7
<PAGE>
SUMMARY OF VARIABLE ACCOUNT EXPENSES
The following table illustrates all expenses and fees that you will incur. The
expenses and fees set forth in the table are based on charges under the
Contracts and on the expenses of the Variable Account and the underlying Funds.
OWNER TRANSACTION EXPENSES (ALL SUB-ACCOUNTS)
<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of purchase payments)..... None
Contingent Deferred Sales Charge (as a percentage of purchase payments).... *
<CAPTION>
APPLICABLE SALES
NUMBER OF COMPLETE YEARS SINCE PURCHASE CHARGE AS
PAYMENT BEING WITHDRAWN WAS MADE A PERCENTAGE
- --------------------------------------------------------------------------- -------------------
<S> <C>
0 years................................................................ 7%
1 year................................................................. 6%
2 years................................................................ 5%
3 years................................................................ 4%
4 years................................................................ 3%
5 years................................................................ 2%
6 years................................................................ 1%
7 years or more........................................................ 0%
Transfer Fee............................................................... **
Annual Contract Fee........................................................ $30***
</TABLE>
VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<CAPTION>
WITHOUT OPTIONAL WITH OPTIONAL ENHANCED
ENHANCED DEATH BENEFIT DEATH BENEFIT
PROVISION PROVISION
---------------------- ----------------------
<S> <C> <C>
Mortality and Expense Risk Charge...................................... 1.25% 1.35%
Administrative Expense Charge.......................................... .10% .10%
Total Variable Account Annual Expenses................................. 1.35% 1.45%
</TABLE>
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* Each Contract Year up to 10% of the Contract Value on the date of the first
withdrawal may be withdrawn without a contingent deferred sales charge.
However, any applicable Market Value Adjustment determined as of the date of
withdrawal will apply.
** No charges will be imposed on the first 12 transfers in any Contract Year.
The Company reserves the right to assess a $10 charge for each transfer in
excess of 12 in any Contract Year, excluding transfers due to dollar cost
averaging and automatic portfolio rebalancing.
*** The annual Contract fee will be waived if total purchase payments as of a
Contract Anniversary or upon full withdrawal are $25,000 or more or if all
money is allocated to the Fixed Account Options.
FUND EXPENSES (NET OF VOLUNTARY REDUCTIONS AND REIMBURSEMENTS)(1)
(AS A PERCENTAGE OF FUND ASSETS)
<TABLE>
<CAPTION>
OTHER TOTAL FUND ANNUAL
PORTFOLIO ADVISORY FEES EXPENSES EXPENSES
- ------------------------------------------------------- ------------- ------------ -------------------
<S> <C> <C> <C>
Federated Prime Money Fund II.......................... .0% .80 % .80%
Investment Grade Bond.................................. .0% .75 % .75%
Capital Growth......................................... .0% 1.15 % 1.15%
Value Income Stock..................................... .0% .95 % .95%
Mid-Cap Equity......................................... .0% 1.15 % 1.15%
International Equity................................... .0% 1.60 % 1.60%
</TABLE>
- ------------
(1) Absent voluntary reductions and reimbursements, advisory fees, other
expenses and total operating expenses expressed as a percentage of average
net assets of each Fund would be: Federated Prime Money Fund II -- .50%,
.87% and 1.37%; Investment Grade Bond Fund -- .74%, 2.04% and 2.78%;
8
<PAGE>
Capital Growth Fund -- 1.15%, 1.28% and 2.43%; Value Income Stock Fund --
.80%, 1.15% and 1.95%; Mid-Cap Equity Fund -- 1.15%, 1.64% and 2.79%; and
International Equity Fund -- 1.25%, 2.35% and 3.60%. Fee reductions and
reimbursements are voluntary and may be terminated at any time after one
year from the date of this prospectus. To the extent the assets of the Funds
increase over time, it is anticipated that the operating expenses identified
in this footnote will be significantly reduced. Other expenses prior to
reimbursements and waivers are based on estimated amounts for the current
fiscal year.
EXAMPLE
You (the Owner) would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return under the following circumstances:
If you terminate your Contract or annuitize for a specified period of less than
120 months at the end of the applicable time period:
(without Enhanced Death Benefit provision)
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Federated Prime Money Fund II............................ $ 77 $ 106 $ 138 $ 257
Investment Grade Bond.................................... $ 76 $ 104 $ 135 $ 251
Capital Growth........................................... $ 80 $ 117 $ 156 $ 292
Value Income Stock....................................... $ 78 $ 110 $ 145 $ 272
Mid-Cap Equity........................................... $ 80 $ 117 $ 156 $ 292
International Equity..................................... $ 85 $ 130 $ 178 $ 337
</TABLE>
(with Enhanced Death Benefit provision)
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Federated Prime Money Fund II............................ $ 78 $ 109 $ 143 $ 267
Investment Grade Bond.................................... $ 77 $ 107 $ 140 $ 262
Capital Growth........................................... $ 81 $ 120 $ 161 $ 302
Value Income Stock....................................... $ 79 $ 113 $ 150 $ 282
Mid-Cap Equity........................................... $ 81 $ 120 $ 161 $ 302
International Equity..................................... $ 86 $ 133 $ 183 $ 346
</TABLE>
If you do not terminate your Contract or if you annuitize for a specified period
of 120 months or more at the end of the applicable time period:
(without Enhanced Death Benefit provision)
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Federated Prime Money Fund II............................ $ 23 $ 70 $ 120 $ 257
Investment Grade Bond.................................... $ 22 $ 68 $ 117 $ 251
Capital Growth........................................... $ 26 $ 81 $ 138 $ 292
Value Income Stock....................................... $ 24 $ 75 $ 128 $ 272
Mid-Cap Equity........................................... $ 26 $ 81 $ 138 $ 292
International Equity..................................... $ 31 $ 95 $ 161 $ 337
</TABLE>
(with Enhanced Death Benefit provision)
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Federated Prime Money Fund II............................ $ 24 $ 73 $ 125 $ 267
Investment Grade Bond.................................... $ 23 $ 72 $ 122 $ 262
Capital Growth........................................... $ 27 $ 84 $ 143 $ 302
Value Income Stock....................................... $ 25 $ 78 $ 133 $ 282
Mid-Cap Equity........................................... $ 27 $ 84 $ 143 $ 302
International Equity..................................... $ 32 $ 98 $ 166 $ 346
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of
the example is to assist you in understanding the various costs and expenses
that you will bear directly or indirectly. Premium taxes are not reflected in
the example but may be applicable.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUE AND NUMBER
OF ACCUMULATION UNITS OUTSTANDING FOR
EACH SUB-ACCOUNT SINCE INCEPTION
<TABLE>
<CAPTION>
FOR THE
YEARS BEGINNING
JANUARY 1 AND
ENDING DECEMBER 31
---------------------
1995 1996
--------- ----------
<S> <C> <C>
FEDERATED PRIME MONEY FUND II SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.................................. $10.000 $10.052
Accumulation Unit Value, End of Period........................................ $10.052 $10.429
Number of Units Outstanding, End of Period.................................... 132,650 488,506
INVESTMENT GRADE BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.................................. $10.000 $10.336
Accumulation Unit Value, End of Period........................................ $10.336 $10.429
Number of Units Outstanding, End of Period.................................... 40,503 506,887
CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.................................. $10.000 $10.661
Accumulation Unit Value, End of Period........................................ $10.661 $13.015
Number of Units Outstanding, End of Period.................................... 103,697 1,680,419
VALUE INCOME STOCK SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.................................. $10.000 $10.696
Accumulation Unit Value, End of Period........................................ $10.696 $12.518
Number of Units Outstanding, End of Period.................................... 124,596 2,238,993
MID-CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.................................. $10.000 $10.285
Accumulation Unit Value, End of Period........................................ $10.285 $11.775
Number of Units Outstanding, End of Period.................................... 80,549 959,682
INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period.................................. -- $10.000
Accumulation Unit Value, End of Period........................................ -- $10.150
Number of Units Outstanding, End of Period.................................... -- 97,975
</TABLE>
All Sub-Accounts commenced operations on October 6, 1995 except for the
International Equity Sub-Account which commenced operations on November 7, 1996.
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%.
YIELD AND TOTAL RETURN DISCLOSURE
From time to time the Variable Account may advertise the yield and total return
investment performance of one or more of the Sub-accounts. Yield and
standardized total return advertisements include charges and expenses
attributable to the Contracts. Including these fees has the effect of decreasing
the advertised performance of a Sub-account, so that a Sub-account's investment
performance will not be directly comparable to that of an ordinary mutual fund.
When a Sub-account advertises its standardized total return it will usually be
calculated for one year, five years, and ten years or since inception if the
Sub-account has not been in existence for such periods. Total return is measured
by comparing the value of an investment in the Sub-account at the end of the
relevant period to the value of the investment at the beginning of the period.
In addition to the standardized total return, the Sub-account may advertise a
non-standardized total return. This figure will usually be calculated for one
year, five years, and ten years or other periods. Non-
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<PAGE>
standardized total return is measured in the same manner as the standardized
total return described above, except that the withdrawal charges under the
Contract are not deducted. Therefore, a non-standardized total return for a
Sub-account can be higher than a standardized total return for a Sub-account.
Certain Sub-accounts may advertise yield in addition to total return. The yield
will be computed in the following manner: the net investment income per unit
earned during a recent one month period is divided by the unit value on the last
day of the period, and then annualized. This figure reflects the recurring
charges at the Variable Account level.
The money market Sub-account (the Federated Prime Money Fund II) may advertise
its total return, yield or effective yield. Total return represents the change,
over a specified period of time, in the value of an investment in that
Sub-account after reinvesting all income distributions. The yield refers to the
income generated by an investment in that Sub-account over a seven-day period.
The income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized, the income earned by an investment in
the money market Sub-account (the Federated Prime Money Fund II) is assumed to
be reinvested at the end of each seven-day period. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment during a 52-week period.
The Variable Account may also disclose yield, standard total return, and
non-standard total return for periods prior to the date that the Variable
Account commenced operations. For periods prior to the date the Variable Account
commenced operations, performance information for the Sub-accounts will be
calculated based on the performance of the underlying Funds and the assumption
that the Sub-accounts were in existence for the same periods as those of the
underlying Funds, with a level of charges equal to those currently assessed
against the Sub-accounts.
Please refer to the Statement of Additional Information for a further
description of the method used to calculate a Sub-account's yield and total
return.
FINANCIAL STATEMENTS
The financial statements of Glenbrook Life and Annuity Company are on page F-1
of the prospectus. The financial statements of Glenbrook Life and Annuity
Company Variable Annuity Account are found in the Statement of Additional
Information, which is incorporated by reference into this prospectus and which
is available upon request. (See order form on page B-2)
GLENBROOK LIFE AND ANNUITY COMPANY AND THE VARIABLE ACCOUNT
GLENBROOK LIFE AND ANNUITY COMPANY
The Company is the issuer of the Contract. The Company is a stock life insurance
company which was organized under the insurance laws of the State of Illinois in
1992. The Company was originally organized under the laws of the State of
Indiana in 1965. From 1965 to 1983 the Company was known as "United Standard
Life Assurance Company" and from 1983 to 1992 the Company was known as "William
Penn Life Assurance Company of America." The Company is currently licensed to
operate in the District of Columbia and all states except New York. The Company
intends to market the Contract in those jurisdictions in which it is licensed to
operate and which SunTrust Banks, Inc., through its banking subsidiaries,
conducts business. The Company's home office is located at 3100 Sanders Road,
Northbrook, Illinois, 60062.
The Company is a wholly-owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), a stock life insurance company incorporated under the laws of
the State of Illinois. Allstate Life is a wholly-owned subsidiary of Allstate
Insurance Company ("Allstate"), a stock property-liability insurance company
incorporated under the laws of Illinois. All of the outstanding capital stock of
Allstate is owned by The Allstate Corporation ("Corporation"). On June 30, 1995,
Sears, Roebuck and Co. ("Sears") distributed its 80.3% ownership in the
Corporation to Sears common shareholders through a tax-free dividend.
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<PAGE>
The Company and Allstate Life entered into a reinsurance agreement, effective
June 5, 1992. Under the reinsurance agreement, fixed account purchase payments
are automatically transferred to Allstate Life and become invested with the
assets of Allstate Life, and Allstate Life accepts 100% of the liability under
such contracts. However, the obligations of Allstate Life under the reinsurance
agreement are to the Company; the Company remains the sole obligor under the
Contract to the Owners.
THE VARIABLE ACCOUNT
Established on December 15, 1992, the Glenbrook Life and Annuity Company
Variable Annuity Account is a unit investment trust registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
However, such registration does not signify that the Commission supervises the
management or investment practices or policies of the Variable Account. The
investment performance of the Variable Account is entirely independent of both
the investment performance of the Company's general account and the performance
of any other separate account.
The Variable Account has been divided into five Sub-accounts, each of which
invests solely in its corresponding portfolio of the STI Classic Variable Trust
and Federated Prime Money Fund II. Additional Variable Sub-accounts may be added
at the discretion of the Company. The Variable Account also funds other
contracts issued by the Company, which are separately accounted for.
The assets of the Variable Account are held separately from the other assets of
the Company. They are not chargeable with liabilities incurred in the Company's
other business operations. Accordingly, the income, capital gains and capital
losses, realized or unrealized, incurred on the assets of the Variable Account
are credited to or charged against the assets of the Variable Account, without
regard to the income, capital gains or capital losses arising out of any other
business the Company may conduct. The Company's obligations arising under the
Contracts are general corporate obligations of the Company. The Variable Account
may be subject to liabilities arising from Sub-accounts whose assets are
attributable to other variable contracts offered by the Variable Account which
are not described in this prospectus.
THE FUNDS
The Variable Account will invest in shares of the STI Classic Variable Trust and
the Federated Prime Money Fund II (the "Funds"). The Funds are registered with
the Securities and Exchange Commission as open-end, diversified management
investment companies. Registration of the Funds does not involve supervision of
its management, investment practices or policies by the Securities and Exchange
Commission. The Funds are designed to provide investment vehicles for variable
insurance contracts of various insurance companies, in addition to the Variable
Account.
Shares of the portfolios of the Funds are not deposits, or obligations of, or
guaranteed or endorsed by any bank and the shares are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency.
THE STI CLASSIC VARIABLE TRUST
The STI Classic Variable Trust offers five portfolios for use with this
Contract: the Investment Grade Bond portfolio, the Capital Growth portfolio, the
Value Income Stock portfolio and the Mid-Cap Equity portfolio. Each portfolio
has different investment objectives and policies and operates as a separate
investment fund.
The Investment Grade Bond portfolio seeks to provide as high a level of total
return through current income and capital appreciation as is consistent with the
preservation of capital primarily through investment in investment grade fixed
income securities.
The Capital Growth portfolio seeks to provide capital appreciation by investing
primarily in a portfolio of common stocks, warrants and securities convertible
into common stock which in the advisor's opinion are undervalued in the
marketplace at the time of purchase.
The Value Income Stock portfolio seeks to provide current income with the
secondary goal of achieving capital appreciation by investing primarily in
equity securities.
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<PAGE>
The Mid-Cap Equity portfolio seeks to provide capital appreciation by investing
primarily in a diversified portfolio of common stocks, preferred stocks and
securities convertible into common stock of small to mid-sized companies with
above-average growth of earnings. Current income will not be an important
criterion of investment selection and any such income should be considered
incidental.
The International Equity portfolio seeks to provide long term capital
appreciation by investing primarily in a diversified portfolio of equity
securities of foreign issuers.
THE FEDERATED PRIME MONEY FUND II, A PORTFOLIO OF FEDERATED INSURANCE SERIES
The investment objective of the Federated Prime Money Fund II is to provide
current income consistent with the stability of principal and liquidity.
Federated Prime Money Fund II pursues this objective by investing exclusively in
a portfolio of money market instruments maturing in 397 days or less.
The Federated Prime Money Fund II attempts to maintain a stable net asset value
of $1.00 per share; however, an investment in the Fund is neither insured nor
guaranteed by the U.S. government, and there can be no assurance that the
portfolio will maintain a stable $1.00 per share price.
INVESTMENT ADVISORS FOR THE PORTFOLIOS
STI Capital Management, N.A. ("STI Capital") serves as advisor to the Investment
Grade Bond, Capital Growth, Value Income Stock, Mid-Cap Equity, and
International Equity portfolios. STI Capital is an indirect wholly-owned
subsidiary of SunTrust Banks, Inc. ("SunTrust"), a southeastern regional bank
holding company with assets of $52.5 billion as of December 31, 1996.
STI Capital, as advisor, makes the investment decisions for the assets of the
portfolios it advises and continuously reviews, supervises and administers the
respective portfolio's investment program. STI Capital charges the portfolios an
investment management fee. These fees are part of the portfolios' operating
expenses. See the attached prospectus for the STI Classic Variable Trust for a
discussion of the Fund's expenses.
The investment advisor for the Federated Prime Money Fund II is Federated
Advisers. Federated Advisers is a subsidiary of Federated Investors which
services assets of over $110 billion as of December 31, 1996. See the attached
prospectus for Federated Prime Money Fund II for a discussion of the Fund's
expenses.
There is no assurance that the portfolios in each Fund will attain their
respective stated objectives. Additional information concerning the investment
objectives and policies of the portfolios can be found in the current prospectus
for each Fund accompanying this prospectus.
You will find more complete information about each Fund, including the risks
associated with each portfolio, in the accompanying prospectuses. You should
read the prospectus for each Fund in conjunction with this prospectus.
THE PROSPECTUS OF EACH FUND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR VARIABLE
SUB-ACCOUNT.
FIXED ACCOUNT OPTIONS
THE STANDARD FIXED ACCOUNT
Purchase payments and transfers allocated to the Standard Fixed Account become
part of the general account of the Company, which supports insurance and annuity
obligations. The general account consists of the general assets of the Company
other than those in segregated asset accounts.
Instead of you bearing the investment risk, as is the case for amounts in the
Variable Account or in other segregated asset accounts of the Company, we bear
the investment risk for all amounts in the Standard Fixed Account. We have sole
discretion to invest the assets of the Standard Fixed Account, subject to
applicable law. We guarantee that the amounts allocated to the Standard Fixed
Account will be credited interest at a net effective annual interest rate at
least equal to the minimum guaranteed rate found in the
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<PAGE>
Contract. Currently, the amount of interest credited in excess of the guaranteed
rate will vary periodically at the sole discretion of the Company. Any interest
held in the Standard Fixed Account does not entitle an Owner to share in the
investment experience of the general account.
Money allocated to the Standard Fixed Account earns interest for a one year
period at the current rate in effect at the time of allocation. After the one
year period, a renewal rate will be declared. Subsequent renewal dates will be
every twelve months for each payment or transfer. The renewal interest rate will
be guaranteed by us for a full year and will not be less than the minimum
guaranteed rate found in the Contract.
We may declare more than one interest rate for different monies based upon the
date of allocation to the Standard Fixed Account. For current interest rate
information, please contact your sales representative or the Company's customer
support unit at 1-800/453-6038.
Any interest credited to amounts allocated to the Standard Fixed Account in
excess of the guaranteed rate found in the Contract will be determined at the
sole discretion of the Company.
Amounts may be transferred from the Sub-accounts of the Variable Account to the
Standard Fixed Account, and prior to the Payout Start Date, amounts may also be
transferred from the Standard Fixed Account to any other Investment Alternative.
The maximum amount in any Contract Year which may be transferred from the
Standard Fixed Account to any other Investment Alternative is limited to the
greater of (1) 25% of the value in the Standard Fixed Account as of the most
recent Contract Anniversary; if 25% of the value as of the most recent Contract
Anniversary is less than $1,000, then up to $1,000 may be transferred; or (2)
25% of the sum of all purchase payments and transfers to the Standard Fixed
Account as of the most recent Contract Anniversary.
After the Payout Start Date no transfers may be made from the Fixed Account
Options. Transfers from the Variable Account to the Standard Fixed Account may
not be made for six months after the Payout Start Date and may be made
thereafter only once every six months.
Full and partial withdrawals from the Standard Fixed Account may be delayed for
up to six months.
THE GUARANTEED MATURITY AMOUNT FIXED ACCOUNT
Purchase payments and transfers allocated to one or more of the Sub-accounts of
the Guaranteed Maturity Amount Fixed Account become part of the general account
of the Company. Each Sub-account offers a separate interest rate Guarantee
Period. Guarantee Periods will be offered at the Company's discretion and may
range from one to ten years. Presently, the Company offers Guarantee Periods of
three, five, seven and ten years. The Owner must select the Sub-account(s) in
which to allocate each purchase payment and transfer. No less than $50 may be
allocated to any one Sub-account. The Company reserves the right to limit the
number of additional purchase payments.
Interest is credited daily to each Sub-account at a rate which compounds to the
effective annual interest rate declared for each Sub-account's Guarantee Period
that has been selected. The effective annual interest rate will never be less
than the minimum guaranteed rate, as found in the Contract.
The following example illustrates how the Sub-account value for a Sub-account of
the Guaranteed Maturity Amount Fixed Account would grow given an assumed
purchase payment, Guarantee Period, and effective annual interest rate:
EXAMPLE OF INTEREST CREDITING DURING THE GUARANTEE PERIOD
<TABLE>
<S> <C>
Purchase Payment:............................................................... $10,000.00
Guarantee Period:............................................................... 5 years
Effective Annual Rate:.......................................................... 4.50%
</TABLE>
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<PAGE>
END OF CONTRACT YEAR:
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Beginning Sub-Account Value.................. $ 10,000.00
X (1 + Effective Annual Rate) 1.0450
------------
$ 10,490.00
Sub-Account Value at end of Contract $ 10,490.00
year 1 X (1 + Effective Annual Rate) 1.0450
------------
$ 10,920.25
Sub-Account Value at end of Contract $ 10,920.25
year 2 X (1 + Effective Annual Rate) 1.0450
------------
$ 11,411.66
Sub-Account Value at end of Contract $ 11,411.66
year 3 X (1 + Effective Annual Rate) 1.0450
------------
$ 11,925.19
Sub-Account Value at end of Contract $ 11,925.19
year 4 X (1 + Effective Annual Rate) 1.0450
------------
Sub-Account Value at end of Guarantee
Period: $ 12,461.82
------------
------------
</TABLE>
TOTAL INTEREST CREDITED IN GUARANTEE PERIOD: $2,461.82 ($12,461.82 - $10,000.00)
NOTE: The above illustration assumes no withdrawals of any amount during the
entire five year period. A Market Value Adjustment would apply to any such
interim withdrawal. A withdrawal charge may apply to any amount withdrawn in
excess of 10% of the Contract Value on the date of the first withdrawal in a
Contract Year. The hypothetical interest rate is for illustrative purposes only
and is not intended to predict future interest rates to be declared under the
Contract. Actual interest rates declared for any given Guarantee Period may be
more or less than shown above but will never be less than the guaranteed minimum
rate as found in the Contract.
The Company has no specific formula for determining the rate of interest that it
will declare initially or in the future. Such interest rates will be reflective
of investment returns available at the time of the determination. In addition,
the management of the Company may also consider various other factors in
determining interest rates, including regulatory and tax requirements, sales
commissions and administrative expenses borne by the Company, general economic
trends, and competitive factors. For current interest rate information, please
contact your sales representative or the Company's customer support unit at
1-800/453-6038.
THE MANAGEMENT OF THE COMPANY WILL MAKE THE FINAL DETERMINATION AS TO THE
INTEREST RATES TO BE DECLARED. THE COMPANY CAN NEITHER PREDICT NOR GUARANTEE
FUTURE INTEREST RATES TO BE DECLARED.
At the end of a Guarantee Period, a notice will be mailed to the Owner outlining
the options available at the end of a Guarantee Period. During the 30 day period
after a Guarantee Period expires the Owner may:
-take no action and the Company will automatically renew the Sub-account
value to a Guarantee Period of the same duration to be established on the
day the previous Guaranteed Period expired; or
-notify the Company to apply the Sub-account value to a new Guarantee Period
or periods to be established on the day the previous Guarantee Period
expired; or
-notify the Company to apply the Sub-account value to the Standard Fixed
Account to be established on the day the Guarantee Period expired; or
-notify the Company to apply the Sub-account value to any Sub-accounts of
the Variable Account on the day we receive the notification; or
15
<PAGE>
-receive a portion of the Sub-account value or the entire Sub-account value
through a partial or full withdrawal that is not subject to a Market Value
Adjustment. In this case, the Sub-Account will be deemed to have been
renewed for the same Guarantee Period as the one that just expired with
current interest credited from the date the Guarantee Period expired.
The Automatic Laddering Program allows the Owner to choose, in advance, one
renewal Guarantee Period for all renewing Sub-accounts. The Owner can select the
Automatic Laddering Program at any time during the accumulation phase, including
on the issue date. The Automatic Laddering Program will continue until the Owner
gives written notice to the Company.
WITHDRAWALS OR TRANSFERS
All withdrawals and transfers, from a Sub-account of the Guaranteed Maturity
Amount Fixed Account other than during the 30 day period after a Guarantee
Period expires are subject to a Market Value Adjustment.
The main component in determining the amount received by the Owner is the amount
which was requested; however, there may be adjustments to the requested amount.
A withdrawal charge may reduce the amount received. A Market Value Adjustment
may apply which would reduce or increase the amount received. Premium taxes and
federal income tax withholding may also apply which would reduce the amount
received.
The amount received by the Owner under a withdrawal request equals the amount
requested, adjusted by any Market Value Adjustment, less any applicable
withdrawal charge (based upon the amount requested prior to any Market Value
Adjustment), less premium taxes and withholding (if applicable).
Amounts may be transferred from the Sub-accounts of the Variable Account to the
Guaranteed Maturity Amount Fixed Account, and prior to the Payout Start Date,
amounts may also be transferred from the Guaranteed Maturity Amount Fixed
Account to any other Investment Alternative.
After the Payout Start Date no transfers may be made from the Fixed Account
Options. Transfers from the Variable Account to the Guaranteed Maturity Amount
Fixed Account may not be made for six months after the Payout Start Date and may
be made thereafter only once every six months.
Full and partial withdrawals from the Guaranteed Maturity Amount Fixed Account
may be delayed for up to six months.
MARKET VALUE ADJUSTMENT
The Market Value Adjustment reflects the relationship between (1) the current
effective annual interest rate for the time remaining in the Guarantee Period at
the time of the request for withdrawal or transfer, and (2) the effective annual
interest rate guaranteed for that Sub-account. Since current interest rates are
based, in part, upon investment yields available at the time, the effect of the
Market Value Adjustment will be closely related to the levels of such yields. As
such, the Owner bears some investment risk under the Contract.
It is possible, therefore, that should investment yields increase significantly
from the time the purchase payment was made, the Market Value Adjustment,
withdrawal charge, premium taxes and withholding (if applicable), would reduce
the amount received by the Owner upon full withdrawal of the Contract Value to
an amount that is less than the purchase payment plus interest at the minimum
guaranteed interest rate under the Contract.
Generally, if the effective annual interest rate for the Guarantee Period is
lower than the applicable current effective annual interest rate (interest rate
for a period equal to the time remaining in the Sub-account), then the Market
Value Adjustment will result in a lower amount payable to the Owner. Similarly,
if the effective annual interest rate for the Guarantee Period is higher than
the applicable current effective annual interest rate, then the Market Value
Adjustment will result in a higher amount payable to the Owner.
16
<PAGE>
For example, assume the Owner purchases a Contract and selects an initial
Guarantee Period of five years and the Company's effective annual rate for that
duration is 4.50%. Assume that at the end of 3 years, the Owner makes a partial
withdrawal. If, at that later time, the current interest rate for a 2 year
Guarantee Period is 4.00%, then the Market Value Adjustment will be positive,
which will result in an increase in the amount payable to the Owner. Similarly,
if the current interest rate for the 2 year Guarantee Period is 5.00%, then the
Market Value Adjustment will be negative, which will result in a decrease in the
amount payable to the Owner.
The formula for calculating the Market Value Adjustment is set forth in Appendix
A to this prospectus which also contains additional illustrations of the
application of the Market Value Adjustment.
PURCHASE OF THE CONTRACTS
PURCHASE PAYMENT LIMITS
Your first purchase payment must be at least $3,000 unless the Contract is a
qualified Contract, in which case the first purchase payment must be at least
$2,000. All subsequent purchase payments must be $50 or more and may be made at
any time prior to the earlier of the Payout Start Date or your 86th birthday.
Subsequent purchase payments may also be made from your bank account by
automatic transfer.
We reserve the right to limit the amount of purchase payments we will accept.
FREE-LOOK PERIOD
You may cancel the Contract any time within 20 days after receipt of the
Contract and receive a full refund of purchase payments allocated to any Fixed
Account Option. Unless a refund of purchase payments is required by state or
federal law, purchase payments allocated to the Variable Account will be
returned after an adjustment to reflect investment gain or loss that occurred
from the date of allocation through the date of cancellation.
CREDITING OF PURCHASE PAYMENTS
The initial purchase payment accompanied by a duly completed application will be
credited to the Contract within two business days of receipt by us at our home
office. If an application is not duly completed, we will credit the purchase
payments to the Contract within five business days or return it at that time
unless you specifically consent to us holding the purchase payment until the
application is complete. We reserve the right to reject any application.
Subsequent purchase payments will be credited to the Contract at the close of
the Valuation Period in which the purchase payment is received.
ALLOCATION OF PURCHASE PAYMENTS
On the application, you instruct us how to allocate the purchase payment among
the seven Investment Alternatives. Purchase payments may be allocated in whole
percents, from 0% to 100% (total allocation equals 100%) or in exact dollar
amounts, to any Investment Alternative. Unless you notify us in writing
otherwise, subsequent purchase payments are allocated according to the
allocation for the previous purchase payment.
ACCUMULATION UNITS
Each purchase payment allocated to the Variable Account will be credited to the
Contract as Accumulation Units. For example, if a $10,000 purchase payment is
credited to the Contract when the Accumulation Unit value equals $10, then 1,000
Accumulation Units would be credited to the Contract. The Variable Account, in
turn, purchases shares of the corresponding portfolio.
For a brief summary of how purchase payments allocated to the Fixed Account are
credited to the Contract, see "Fixed Account Options" on page 13.
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<PAGE>
ACCUMULATION UNIT VALUE
The Accumulation Units in each Sub-account of the Variable Account are valued
separately. The value of Accumulation Units will change each Valuation Period
according to the investment performance of the shares purchased by each Variable
Sub-account and the deduction of certain expenses and charges.
The value of an Accumulation Unit in a Variable Sub-account for any Valuation
Period equals the value of the Accumulation Unit as of the immediately preceding
Valuation Period, multiplied by the Net Investment Factor for that Sub-account
for the current Valuation Period. The Net Investment Factor for a Valuation
Period is a number representing the change, since the last Valuation Date in the
value of Sub-account assets per Accumulation Unit due to investment income,
realized or unrealized capital gain or loss, deductions for taxes, if any, and
deductions for the mortality and expense risk charge and administrative expense
charge.
TRANSFERS AMONG PORTFOLIOS
Prior to the Payout Start Date, you may transfer amounts among Investment
Alternatives. The Company reserves the right to assess a $10 charge on each
transfer in excess of 12 per Contract Year. Transfers to or from more than one
fund on the same day are treated as one transfer. The Company is presently
waiving this charge. Transfers among Variable Sub-accounts before the Payout
Start Date may be made at any time. See "Withdrawals or Transfers," page 16 for
the requirements on transfers from the Fixed Account.
After the Payout Start Date, transfers among Sub-accounts of the Variable
Account, or from the Variable Account to the Fixed Account may be made only once
every six months and may not be made during the first six months following the
Payout Start Date. After the Payout Start Date, transfers from the Fixed Account
Options are not allowed.
Transfers may be made pursuant to telephone instructions if the Owner completes
the telephone authorization form on the application or another form provided by
the Company. Telephone transfer requests will be accepted by the Company if
received at 1-800/453-6038 by 3:00 p.m., Central Time. Telephone transfer
requests received at any other telephone number or after 3:00 p.m., Central Time
will not be accepted by the Company. Telephone transfer requests received before
3:00 p.m., Central Time are effected at the next computed value. If telephone
transfers are not authorized, transfer requests must be in writing, on a form
provided by the Company. The Company utilizes procedures which the Company
believes will provide reasonable assurance that telephone authorized transfers
are genuine. Such procedures include taping of telephone conversations with
persons purporting to authorize such transfers and requesting identifying
information from such persons. Accordingly, the Company disclaims any liability
for losses resulting from such transfers by reason of their allegedly not having
been properly authorized. However, if the Company does not take reasonable steps
to help ensure that such authorizations are valid, the Company may be liable for
such losses.
The Company reserves the right to waive the transfer restrictions.
DOLLAR COST AVERAGING
Transfers may be made automatically through Dollar Cost Averaging prior to the
Payout Start Date. Dollar Cost Averaging permits the Owner to transfer a
specified amount every month from any Sub-account of the Variable Account or
from the Standard Fixed Account, to any other Sub-account of the Variable
Account. Dollar Cost Averaging cannot be used to transfer amounts to the Fixed
Account. Transfers made through Dollar Cost Averaging are not assessed a $10
charge and are not included in the 12 free transfers per Contract Year.
The theory of Dollar Cost Averaging is that, if purchases of equal dollar
amounts are made at fluctuating prices, the aggregate average cost per unit will
be less than the average of the unit prices on the same purchase dates. However,
participation in the Dollar Cost Averaging program does not assure you of a
greater profit from your purchases under the program; nor will it prevent or
alleviate losses in a declining market.
18
<PAGE>
AUTOMATIC PORTFOLIO REBALANCING
Transfers may be made automatically through Automatic Portfolio Rebalancing
prior to the Payout Start Date. By electing Automatic Portfolio Rebalancing, all
of the money allocated to Sub-accounts of the Variable Account will be
rebalanced to the desired allocation on a quarterly basis, determined from the
first date that you decide to rebalance. Each quarter, money will be transferred
among Sub-accounts of the Variable Account to achieve the desired allocation.
The desired allocation will be the allocation initially selected, unless
subsequently changed. You may change the allocation at any time by giving us
written notice. The new allocation will be effective with the first rebalancing
that occurs after we receive the written request. We are not responsible for
rebalancing that occurs prior to receipt of the written request.
Transfers made through Automatic Portfolio Rebalancing are not assessed a $10
charge and are not included in the 12 free transfers per Contract Year.
Any money allocated to a Fixed Account Option will not be included in the
rebalancing.
BENEFITS UNDER THE CONTRACT
WITHDRAWALS
You may withdraw all or part of the Contract Value at any time prior to the
earlier of the death of the Owner (the Annuitant if the Owner is not a natural
person) or the Payout Start Date. The amount available for withdrawal is the
Contract Value next computed after the Company receives the request for a
withdrawal at its home office, adjusted by any Market Value Adjustment, less any
withdrawal charges, contract maintenance charges and any premium taxes.
Withdrawals from the Variable Account will be paid within seven days of receipt
of the request, subject to postponement in certain circumstances. See "Delay of
Payments," page 26.
Money can be withdrawn from the Variable Account or the Fixed Account Options.
To complete the partial withdrawal from the Variable Account, the Company will
cancel Accumulation Units in an amount equal to the withdrawal and any
applicable withdrawal charge and premium taxes. The Owner must name the
Investment Alternative from which the withdrawal is to be made. If none is
named, then the withdrawal request is incomplete and cannot be honored.
The minimum partial withdrawal is $50. If the Contract Value after a partial
withdrawal would be less than $2,000, then the Company will treat the request as
one for a termination of the Contract and the entire Contract Value, adjusted by
any Market Value Adjustment, less any charges and premium taxes, will be paid
out. The Company will, however, require confirmation of the withdrawal request
before terminating the Contract.
Partial withdrawals may also be taken automatically through Systematic
Withdrawals on a monthly, quarterly, semi-annual or annual basis. Systematic
Withdrawals of $50 or more may be requested at any time prior to the Payout
Start Date. At the Company's discretion, Systematic Withdrawals may not be
offered in conjunction with Dollar Cost Averaging or Automatic Portfolio
Rebalancing.
Withdrawals and surrenders may be subject to income tax and a 10% tax penalty.
This tax is explained in "Federal Tax Matters," on page 27.
After the Payout Start Date, withdrawals are only permitted when payments from
the Variable Account are being made that do not involve life contingencies. In
that case, you may terminate the Variable Account portion of the income payments
at any time.
PAYOUT START DATE FOR INCOME PAYMENTS
The Payout Start Date is the day that income payments will start under the
Contract. You may change the Payout Start Date at any time by notifying the
Company in writing of the change at least 30 days before the scheduled Payout
Start Date. The Payout Start Date must be (a) at least one month after the Issue
Date; and (b) no later than the day the Annuitant reaches age 90, or the 10th
Contract Anniversary, if later.
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AMOUNT OF VARIABLE ACCOUNT INCOME PAYMENTS
The amount of Variable Account income payments depends upon the investment
experience of the Sub-accounts selected by the Owner and any premium taxes, the
age and sex of the Annuitant, and the Income Plan chosen. The Company guarantees
that the amount of the income payment will not be affected by (1) actual
mortality experience and (2) the amount of the Company's administration
expenses.
The total income payments received may be more or less than the total purchase
payments made because (a) Variable Account income payments vary with the
investment results of the underlying portfolios, and (b) Annuitants may not live
as long as expected.
If the actual net investment experience of the Variable Account is less than the
assumed investment rate, then the dollar amount of the income payments will
decrease. The dollar amount of the income payments will stay level if the net
investment experience equals the assumed investment rate and the dollar amount
of the income payments will increase if the net investment experience exceeds
the assumed investment rate. For purposes of the Variable Account income
payments, the assumed investment rate is 3 percent.
AMOUNT OF FIXED ACCOUNT INCOME PAYMENTS
Income payment amounts derived from any Fixed Account Option are guaranteed for
the duration of the Income Plan. The income payment based upon any Fixed Account
Option is calculated by applying the portion of the Contract Value in any Fixed
Account Option on the Payout Start Date, adjusted by any Market Value Adjustment
and less any applicable premium tax, to the greater of the appropriate value
from the income payment table selected or such other value as we are offering at
that time.
INCOME PLANS
The Contracts offered by this prospectus contain income payment tables that
provide for different benefit payments to men and women of the same age (except
in states which require unisex annuity tables). Nevertheless, in accordance with
the U.S. Supreme Court's decision in ARIZONA GOVERNING COMMITTEE V. NORRIS, in
certain employment-related situations, annuity tables that do not vary on the
basis of sex may be used. Accordingly, if the Contract is to be used in
connection with an employment-related retirement or benefit plan, consideration
should be given, in consultation with legal counsel, to the impact of NORRIS on
any such plan before making any contributions under these Contracts.
The Income Plan option selected will affect the dollar amount of each income
payment. For example, if an Income Plan Guaranteed for Life is chosen, the
income payments will be greater than income payments under an Income Plan for a
Minimum Specified Period and guaranteed thereafter for life.
You may elect income payments based on any Fixed Account Option and/or the
Variable Account. The Owner may change the Income Plan until 30 days before the
Payout Start Date. If an Income Plan is chosen which depends on the Annuitant or
Joint Annuitant's life, proof of age will be required before income payments
begin. Applicable premium taxes will be assessed. The Income Plans include:
INCOME PLAN 1 -- LIFE INCOME WITH GUARANTEED PAYMENTS
The Company will make payments for as long as the Annuitant lives. If the
Annuitant dies before the selected number of guaranteed payments have been
made, the Company will continue to pay the remainder of the guaranteed
payments.
INCOME PLAN 2 -- JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS
The Company will make payments for as long as either the Annuitant or Joint
Annuitant, named at the time of Income Plan selection, is living. If both the
Annuitant and the Joint Annuitant die before the selected number of
guaranteed payments have been made, the Company will continue to pay the
remainder of the guaranteed payments.
INCOME PLAN 3 -- GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD
The Company will make payments for a specified period beginning on the Payout
Start Date. These payments do not depend on the Annuitant's life.
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The number of months guaranteed may be from 60 to 360. The mortality and expense
risk charge will be deducted from Variable Account payments even though the
Company does not bear any mortality risk under the Income Plan chosen. If Income
Plan 3 is chosen and the proceeds are derived from the Variable Account, you may
terminate the Contract at any time by notifying the Company in writing and you
will receive the Contract Value within seven days; however, a withdrawal charge
may apply if this occurs.
In the event that an Income Plan is not selected, the Company will make income
payments in accordance with Income Plan 1 with Guaranteed Payments for 120
Months. At the Company's discretion, other Income Plans may be available upon
request. The Company currently uses sex-distinct annuity tables. However, if
legislation is passed by Congress or the states, the Company reserves the right
to use income payment tables which do not distinguish on the basis of sex.
Special rules and limitations may apply to certain qualified contracts.
If the Contract Value to be applied to an Income Plan is less than $2,000, or if
the monthly payments determined under the Income Plan are less than $20, the
Company may pay the Contract Value adjusted by any Market Value Adjustment less
any applicable taxes in a lump sum or change the payment frequency to an
interval which results in income payments of at least $20.
DEATH BENEFIT PAYABLE
We will pay a death benefit prior to the Payout Start Date on the death of any
Owner or, if the Owner is not a natural person, the death of the Annuitant. The
death benefit is paid to the Owner as determined immediately after the death.
This would be a surviving joint Owner or, if none, the Beneficiary.
If the Annuitant and Joint Annuitant, if applicable, die after the Payout Start
Date, the Company will continue to pay the remainder of any guaranteed payments
to the Owner.
DEATH BENEFIT AMOUNT
THE FOLLOWING INFORMATION IS APPLICABLE TO CONTRACTS ISSUED PRIOR TO MAY 1,
1997:
Prior to the Payout Start Date, the death benefit before any Market Value
Adjustment is equal to the greater of:
(a) the Contract Value as of the date the Company receives a complete request
for payment of the death benefit, or
(b) for each previous Death Benefit Anniversary, the Contract Value at that
anniversary; plus any purchase payments made since that anniversary; minus any
amounts the Company paid the Owner (including income tax we withheld from you)
since that anniversary.
A Death Benefit Anniversary is every seventh Contract Anniversary beginning with
the issue date. For example, the issue date, 7th and 14th Contract Anniversaries
are the first three Death Benefit Anniversaries.
The death benefit will be adjusted by any applicable Market Value Adjustment as
of the date the Company determines the death benefit. The death benefit will
never be less than the sum of all purchase payments less any amounts previously
paid to the Owner (including income tax withholding).
THE FOLLOWING INFORMATION IS APPLICABLE TO CONTRACTS ISSUED ON OR AFTER MAY 1,
1997:
Prior to the Payout Start Date, the death benefit is equal to the greatest of:
(a)the Contract Value as of the date the Company receives a complete request
for payment of the death benefit, or
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(b)the Settlement Value on the date the Company receives a complete request
for payment of the death benefit, or
(c)the Contract Value on each Death Benefit Anniversary prior to the date
the Company receives a complete request for payment of the death benefit,
increased by purchase payments made since that Death Benefit Anniversary
and reduced by an adjustment for any partial withdrawals since that Death
Benefit Anniversary.
The adjustment is equal to (a) divided by (b) and the result multiplied by
(c) where:
(a) is the withdrawal amount
(b) is the Contract Value immediately prior to the withdrawal, and
(c) is the Contract Value on the Death Benefit Anniversary adjusted by
any prior purchase payments or withdrawals made since that
Anniversary.
A Death Benefit Anniversary is every seventh Contract Anniversary beginning
with the issue date. For example, the issue date, 7th and 14th Contract
Anniversaries are the first three Death Benefit Anniversaries. Death Benefit
Anniversary values will be calculated until the oldest Owner, or the
Annuitant if the Owner is not a natural person, attains age 80.
For Contracts with the Enhanced Death Benefit option, the death benefit will be
the greatest of (a) through (c) above, or
(d) the Enhanced Death Benefit.
The Enhanced Death Benefit option is:
The greatest of the Anniversary Values as of the date we determine the
death benefit. The Anniversary Value is equal to the Contract Value on a
Contract Anniversary, increased by purchase payments made since that
anniversary and reduced by an adjustment for any partial withdrawals
since that anniversary.
The adjustment is equal to (a) divided by (b), and the result is
multiplied by (c) where:
(a) is the withdrawal amount.
(b) is the Contract Value immediately prior to the withdrawal.
(c) is the Contract Value on that Contract Anniversary adjusted by any
prior purchase payments and withdrawals since that Contract
Anniversary.
Anniversary values will be calculated for each Contract Anniversary prior
to the oldest Owner's or the Annuitant's, if the Owner is not a natural
person, 80th birthday. The Enhanced Death Benefit Option will never be
greater than the maximum death benefit allowed by any non-forfeiture laws
which govern the Contract.
DEATH BENEFIT PAYMENT PROVISIONS
THE FOLLOWING INFORMATION IS APPLICABLE TO CONTRACTS ISSUED PRIOR TO MAY 1,
1997:
The Owner eligible to receive death benefits has the following options:
1. If the Owner eligible to receive the death benefit is not a natural person,
then the Owner must receive the death benefit in a lump sum within five
years of the Date of Death.
2. Otherwise, within 60 days of the date when the death benefit is calculated,
the Owner may elect to receive the death benefit under an Income Plan or in
a lump sum.
Payments from the Income Plan must begin within one-year of the Date of Death
and must be payable throughout:
-the life of the Owner; or
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-a period not to exceed the life expectancy of the Owner; or
-the life of the Owner with payments guaranteed for a period not to exceed
the life expectancy of the Owner.
Any death benefit payable in a lump sum must be paid within five years of the
date of death. If no election is made, funds will be distributed at the end of
the five year period.
3. If the surviving spouse of the deceased Owner is the new Owner, then the
spouse may elect one of the options listed above or may continue the
Contract in the accumulation phase as if the death had not occurred. If the
Contract is continued in the accumulation phase, the surviving spouse may
make a single withdrawal of any amount within one year of the date of death
without incurring a withdrawal charge. However, any applicable Market Value
Adjustment, determined as of the date of the withdrawal, will apply.
THE FOLLOWING INFORMATION IS APPLICABLE TO CONTRACTS ISSUED ON OR AFTER MAY 1,
1997:
A distribution upon death may be paid to the Owner determined immediately after
the death if, prior to the Payout Start Date:
-any Owner dies; or
-the Annuitant dies and the Owner is not a natural person.
If the Owner eligible to receive the distribution upon death is not a natural
person, the Owner may elect to receive the distribution upon death in one or
more distributions. Otherwise, if the Owner is a natural person, the Owner may
elect to receive the distribution upon death either in one or more distributions
or by periodic payments through an Income Plan.
A death benefit will be paid: 1) if the Owner elects to receive the death
benefit distributed in a single payment within 180 days of the date of death,
and 2) if the death benefit is paid as of the day the value of the death benefit
is determined. Otherwise, the Settlement Value will be paid. In any event, the
entire value of the Contract must be distributed within five (5) years after the
date of death unless an Income Plan is elected or a surviving spouse continues
the Contract in accordance with the following provisions.
Payments from the Income Plan must begin within one year of the date of death
and must be payable throughout:
-the life of the Owner; or
-a period not to exceed the life expectancy of the Owner; or
-the life of the Owner with payments guaranteed to a period not to exceed
the life expectancy of the Owner.
If the surviving spouse of the deceased Owner is the new Owner, then the spouse
may elect one of the options listed above or may continue the Contract in the
Accumulation Phase as if the death had not occurred. If the Contract is
continued in the Accumulation Phase, the surviving spouse may make a single
withdrawal of any amount within one year of the date of death without incurring
a withdrawal charge. However, any applicable Market Value Adjustment, determined
as of the date of the withdrawal, will apply.
CHARGES AND OTHER DEDUCTIONS
DEDUCTIONS FROM PURCHASE PAYMENTS
No deductions are made from purchase payments. Therefore, the full amount of
every purchase payment is invested in the Investment Alternative(s).
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WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE)
You may withdraw the Contract Value at any time before the earliest of the
Payout Start Date, the death of any Owner or, if the Owner is not a natural
person, the death of the Annuitant.
There are no withdrawal charges on amounts withdrawn up to 10% of the Contract
Value on the date of the first withdrawal in a Contract Year. Amounts withdrawn
in excess of this may be subject to a withdrawal charge. Amounts not subject to
a withdrawal charge and not withdrawn in a Contract Year are not carried over to
later Contract Years. Withdrawal charges, if applicable, will be deducted from
the amount paid.
Free withdrawals and other partial withdrawals will be allocated on a first in,
first out basis to purchase payments. For purposes of calculating the amount of
the withdrawal charge, withdrawals are assumed to come from purchase payments
first, beginning with the oldest payment. Withdrawals made after all purchase
payments have been withdrawn, will not be subject to a withdrawal charge. For
partial withdrawals, the amount of payment received by the Owner, any withdrawal
charge, any applicable taxes and any Market Value Adjustment, will be deducted
from the Contract Value.
Withdrawal charges will be applied to amounts withdrawn in excess of 10% of the
Contract Value as set forth below:
<TABLE>
<CAPTION>
COMPLETE YEARS SINCE APPLICABLE
PURCHASE PAYMENT BEING WITHDRAWAL
WITHDRAWN WAS MADE CHARGE PERCENTAGE
- ---------------------------------------------- --------------------
<S> <C>
0 years.......................................................... 7%
1 year........................................................... 6%
2 years.......................................................... 5%
3 years.......................................................... 4%
4 years.......................................................... 3%
5 years.......................................................... 2%
6 years.......................................................... 1%
7 Years or more.................................................. 0%
</TABLE>
Withdrawal charges will be used to pay sales commissions and other promotional
or distribution expenses associated with the marketing of the Contracts. The
Company does not anticipate that the withdrawal charges will cover all
distribution expenses in connection with the Contract.
In addition, federal and state income tax may be withheld from withdrawal
amounts. Certain terminations may also be subject to a federal tax penalty. See
"Federal Tax Matters," page 27.
The Company will waive any withdrawal charge prior to the Payout Start Date if
at least 30 days after the Contract Date any Owner (or Annuitant if the Owner is
not a natural person) 1) is first confined to a long term care facility or
hospital for at least 90 consecutive days, confinement is prescribed by a
physician and is medically necessary, and the request for a withdrawal and
adequate written proof of confinement are received by us no later than 90 days
after discharge; or, 2) is first diagnosed by a physician as having a terminal
illness and a request for a withdrawal and adequate proof of diagnosis are
received by us. In addition, the withdrawal charge will be waived on withdrawals
taken to satisfy IRS Required Minimum Distribution Rules for this Contract.
You may also request a one time waiver of withdrawal charges on a partial or
full withdrawal if (a) You become unemployed at least one year past the issue
date of the Contract; (b) You receive unemployment compensation for at least 30
straight days as a result of that unemployment; and (c) this benefit is
exercised within 180 days of Your initial receipt of unemployment compensation.
Please see Your Contract for additional details. This benefit may not be
available in all states.
CONTRACT MAINTENANCE CHARGE
A contract maintenance charge is deducted annually from the Contract Value to
reimburse the Company for its actual costs in maintaining each Contract and the
Variable Account. The Company guarantees that the amount of this charge will not
exceed $30 per Contract Year over the life of the Contract. This charge
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will be waived if the total purchase payments are $25,000 or more or if all
money is allocated to the Fixed Account Options on the Contract Anniversary.
Maintenance costs include but are not limited to expenses incurred in billing
and collecting purchase payments; keeping records; processing death claims, cash
withdrawals, and policy changes; proxy statements; calculating Accumulation Unit
and Annuity Unit values; and issuing reports to Owners and regulatory agencies.
Prior to the Payout Start Date, on each Contract Anniversary, the contract
maintenance charge will be deducted from each Sub-account of the Variable
Account in the same proportion that the Owner's value in each bears to the total
value in all Sub-accounts of the Variable Account. After the Payout Start Date,
a pro rata share of the annual contract maintenance charge will be deducted from
each income payment. For example, 1/12 of the $30, or $2.50, will be deducted if
there are twelve income payments during the Contract Year. The portion of the
contract maintenance charge proportional to the part of the Contract Year
elapsed will be deducted from the amount paid upon termination of the Contract.
ADMINISTRATIVE EXPENSE CHARGE
The Company will deduct an administrative expense charge which is equal, on an
annual basis, to .10% of the daily net assets you have allocated to the
Sub-accounts of the Variable Account. This charge is designed to cover actual
administrative expenses which exceed the revenues from the contract maintenance
charge. There is no necessary relationship between the amount of administrative
charge imposed on a given Contract and the amount of expenses that may be
attributable to that Contract.
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct a mortality and expense risk charge which is equal, on
an annual basis, to 1.25% of the daily net assets you have allocated to the
Sub-accounts of the Variable Account. The Company estimates that .85% is
attributable to the assumption of mortality risks and .40% is attributable to
the assumption of expense risks. For Contracts with the Enhanced Death Benefit
provision, the mortality and expense risk charge will be deducted daily, at a
rate equal on an annual basis, to 1.35% of the daily net assets in the Variable
Account. The assessment of the additional .10% for the Enhanced Death Benefit is
attributed to the assumption of additional mortality risks. The Company
guarantees that the percentage for this charge will not increase over the life
of the Contract.
The mortality risk arises from the Company's guarantee to cover all death
benefits and to make income payments in accordance with the Income Plan selected
and the Income Payment Tables.
The expense risk arises from the possibility that the contract maintenance and
administrative expense charge, both of which are guaranteed not to increase,
will be insufficient to cover actual administrative expenses.
TAXES
The Company will deduct applicable state premium taxes or other similar
policyholder taxes relative to the Contract (collectively referred to as
"premium taxes") either at the Payout Start Date, or when a total withdrawal
occurs. Current premium tax rates range from 0 to 3.5%. The Company reserves the
right to deduct premium taxes from the purchase payments.
At the Payout Start Date, the charge for premium taxes will be deducted from
each Investment Alternative in the proportion that the Owner's value in the
Investment Alternative bears to the total Contract Value.
TRANSFER CHARGES
The Company reserves the right to assess a $10 charge on each transfer in excess
of 12 per Contract Year, excluding transfers through Dollar Cost Averaging and
Automatic Portfolio Rebalancing. The Company is presently waiving this charge.
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FUND EXPENSES
A complete description of the expenses and deductions from the portfolios in
each Fund is found in the prospectus for each Fund. This prospectus is
accompanied by the prospectus for each Fund.
GENERAL MATTERS
OWNER
The Owner has the sole right to exercise all rights and privileges under the
Contract, except as otherwise provided in the Contract. The Contract cannot be
jointly owned by both a non-natural person and a natural person.
ANNUITANT
If the Owner is a natural person, the Owner may change the Annuitant prior to
the Payout Start Date. The Annuitant must be a natural person. If the Annuitant
dies prior to the Payout Start Date, the new Annuitant will be: a) the youngest
Owner, otherwise (b) the youngest Beneficiary.
BENEFICIARY
Subject to the terms of any irrevocable Beneficiary designation, the Owner may
change the Beneficiary at any time by notifying the Company in writing. Any
change will be effective at the time it is signed by the Owner, whether or not
the Annuitant is living when the change is received by the Company. The Company
will not, however, be liable as to any payment or settlement made prior to
receiving the written notice.
Unless otherwise provided in the Beneficiary designation, if any Beneficiary
predeceases the Owner, the new Beneficiary will be: the Owner's spouse if
living; otherwise, the Owner's children, equally, if living; otherwise, the
Owner's estate. Multiple Beneficiaries may be named. Unless otherwise provided
in the Beneficiary designation, if more than one Beneficiary survives the Owner,
the surviving Beneficiaries will share equally in any amounts due.
ASSIGNMENTS
The Owner may not assign an interest in a Contract as collateral or security for
a loan. Otherwise, the Owner may assign periodic income payments under the
Contract prior to the Payout Start Date. No Beneficiary may assign benefits
under the Contract until they are due. No assignment will bind the Company
unless it is signed by the Owner and filed with the Company. The Company is not
responsible for the validity of an assignment.
DELAY OF PAYMENTS
Payment of any amounts due from the Variable Account under the Contract will
occur within seven days, unless:
1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the Securities and Exchange Commission; or
3. The Securities and Exchange Commission permits delay for the protection of
the Owners.
Payments or transfers from the Fixed Account Options may be delayed for up to 6
months.
MODIFICATION
The Company may not modify the Contract without the consent of the Owner except
to make the Contract meet the requirements of the Investment Company Act of
1940, or to make the Contract comply with any changes in the Internal Revenue
Code or any changes required by the Code or by any other applicable law.
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CUSTOMER INQUIRIES
The Owner or any persons interested in the Contract may make inquiries regarding
the Contract by calling or writing your representative or:
GLENBROOK LIFE AND ANNUITY COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
1-800/453-6038
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or receipt of distributions under an annuity contract
depend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL
Generally, an annuity contract owner is not taxed on increases in the Contract
Value until a distribution occurs. This rule applies only where (1) the owner is
a natural person, (2) the investments of the Variable Account are "adequately
diversified" in accordance with Treasury Department regulations, and (3) the
issuing insurance company, instead of the annuity owner, is considered the owner
for federal income tax purposes of any separate account assets funding the
contract.
NON-NATURAL OWNERS
As a general rule, annuity contracts owned by non-natural persons are not
treated as annuity contracts for federal income tax purposes and the income on
such contracts is taxed as ordinary income received or accrued by the owner
during the taxable year. There are several exceptions to the general rule for
contracts owned by non-natural persons which are discussed in the Statement of
Additional Information.
DIVERSIFICATION REQUIREMENTS
For a Contract to be treated as an annuity for federal income tax purposes, the
investments in the Variable Account must be "adequately diversified" in
accordance with the standards provided in the Treasury regulations. If the
investments in the Variable Account are not adequately diversified, then the
Contract will not be treated as an annuity contract for federal income tax
purposes and the Owner will be taxed on the excess of the Contract Value over
the investment in the Contract. Although the Company does not have control over
the Funds or their investments, the Company expects the Funds to meet the
diversification requirements.
OWNERSHIP TREATMENT
In connection with the issuance of the regulations on the adequate
diversification standards, the Department of the Treasury announced that the
regulations do not provide guidance concerning the extent to which contract
owners may direct their investments among Sub-accounts of a variable account.
The Internal Revenue Service has previously stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the owner possesses incidents of ownership in those assets such as the
ability to exercise investment control over the assets. At the time the
diversification regulations were issued, Treasury announced that guidance would
be issued in the future regarding the
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<PAGE>
extent that owners could direct their investments among Sub-accounts without
being treated as owners of the underlying assets of the Variable Account. As of
the date of this prospectus, no such guidance has been issued.
The ownership rights under this contract are similar to, but different in
certain respects from, those described by the Service in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of this contract has the choice of more investment options to
which to allocate premiums and contract values, and may be able to transfer
among investment options more frequently than in such rulings. These differences
could result in the contract owner being treated as the owner of the assets of
the Variable Account. In those circumstances, income and gains from the Variable
Account assets would be includible in the Contract Owners' gross income. In
addition, the Company does not know what standards will be set forth in the
regulations or rulings which the Treasury Department has state it expects to
issue. It is possible that Treasury's position, when announced, may adversely
affect the tax treatment of existing contracts. The Company, therefore, reserves
the right to modify the Contract as necessary to attempt to prevent the Owner
from being considered the federal tax owner of the assets of the Variable
Account. However, the Company makes no guarantee that such modification to the
contract will be successful.
DELAYED MATURITY DATES
If the Contract's scheduled maturity date is at a time when the annuitant has
reached an advanced age, e.g., past age 85, it is possible that the contract
would not be treated as an annuity. In that event, the income and gains under
the contract could be currently includible in the owner's income.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal under a non-qualified contract, amounts
received are taxable to the extent the contract value, without regard to any
surrender charge, before the withdrawal exceeds the investment in the contract.
In the case of a partial withdrawal under a qualified contract, the portion of
the payment that bears the same ratio to the total payment that the investment
in the contract bears to the contract value, can be excluded from income. In the
case of a full withdrawal under a non-qualified contract or a qualified
contract, the amount received will be taxable only to the extent it exceeds the
investment in the contract. If an individual transfers an annuity contract
without full and adequate consideration to a person other than the individual's
spouse (or to a former spouse incident to a divorce), the owner will be taxed on
the difference between the contract value and the investment in the contract at
the time of transfer. Other than in the case of certain qualified contracts, any
amount received as a loan under a contract, and any assignment or pledge (or
agreement to assign or pledge) of the contract value is treated as a withdrawal
of such amount or portion.
TAXATION OF ANNUITY PAYMENTS
Generally, the rule for income taxation of payments received from an annuity
contract provides for the return of the owner's investment in the contract in
equal tax-free amounts over the payment period. The balance of each payment
received is taxable. In the case of variable annuity payments, the amount
excluded from taxable income is determined by dividing the investment in the
contract by the total number of expected payments. In the case of fixed annuity
payments, the amount excluded from income is determined by multiplying the
payment by the ratio of the investment in the contract (adjusted for any refund
feature or period certain) to the total expected value of annuity payments for
the term of the contract.
TAXATION OF ANNUITY DEATH BENEFITS
Amounts may be distributed from an annuity contract because of the death of an
owner or annuitant. Generally, such amounts are includible in income as follows:
(1) if distributed in a lump sum, the amounts are taxed in the same manner as a
full withdrawal or (2) if distributed under an annuity option, the amounts are
taxed in the same manner as an annuity payment.
28
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PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any premature distribution
from a non-qualified annuity contract. The penalty tax generally applies to any
distribution made prior to the owner attaining age 59 1/2. However, there should
be no penalty tax on distributions to owners (1) made on or after the owner
attains age 59 1/2; (2) made as a result of the owner's death or disability; (3)
made in substantially equal periodic payments over life or distributions over
life or life expectancy; (4) made under an immediate annuity; or (5)
attributable to an investment in the contract before August 14, 1982. Similar
rules apply for distributions from qualified contracts. Please see the Statement
of Additional Information for a discussion of other situations in which the
penalty tax may not apply.
AGGREGATION OF ANNUITY CONTRACTS
All non-qualified annuity contracts issued by the Company (or its affiliates) to
the same owner during any calendar year will be aggregated and treated as one
annuity contract for purposes of determining the taxable amount of a
distribution.
TAX QUALIFIED CONTRACTS
Annuity contracts may be used as investments with certain tax qualified plans
such as: (1) Individual Retirement Annuities under Section 408(b) of the Code;
(2) Simplified Employee Pension Plans under Section 408(k) of the Code; (3)
Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section 408(p)
of the Code;(4) Tax Sheltered Annuities under Section 403(b) of the Code; (5)
Corporate and Self Employed Pension and Profit Sharing Plans; and (6) State and
Local Government and Tax-Exempt Organization Deferred Compensation Plans. In the
case of certain tax qualified plans, the terms of the plans may govern the right
to benefits, regardless of the terms of the contract.
RESTRICTIONS UNDER SECTION 403(B) PLANS
Section 403(b) of the Code provides for tax-deferred retirement savings plans
for employees of certain non-profit and educational organizations. In accordance
with the requirements of Section 403(b), any annuity contract used for a 403(b)
plan must provide that distributions attributable to salary reduction
contributions made after 12/31/88, and all earnings on salary reduction
contributions, may be made only after the employee attains age 59 1/2, separates
from service, dies, becomes disabled or on the account of hardship (earnings on
salary reduction contributions may not be distributed on the account of
hardship).
INCOME TAX WITHHOLDING
The Company is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless an individual elects to make a "direct
rollover" of such amounts to another qualified plan or Individual Retirement
Account or Annuity (IRA). Eligible rollover distributions generally include all
distributions from qualified contracts, excluding IRAs, with the exception of
(1) required minimum distributions, or (2) a series of substantially equal
periodic payments made over a period of at least 10 years, or the life (joint
lives) of the participant (and beneficiary). For any distributions from
non-qualified annuity contracts, or distributions from qualified contracts which
are not considered eligible rollover distributions, the Company may be required
to withhold federal and state income taxes unless the recipient elects not to
have taxes withheld and properly notifies the Company of such election.
DISTRIBUTION OF THE CONTRACTS
Allstate Life Financial Services, Inc. ("ALFS"), 3100 Sanders Road, Northbrook
Illinois, a wholly owned subsidiary of Allstate Life, acts as the principal
underwriter of the Contracts. ALFS is registered as a broker-dealer under the
Securities Act of 1934 and became a member of the National Association of
Securities Dealers, Inc. on June 30, 1993. Contracts are sold by registered
representatives of broker-dealers or bank employees who are licensed insurance
agents appointed by the Company, either individually or through an incorporated
insurance agency. In some states, Contracts may be sold by representatives or
29
<PAGE>
employees of banks which may be acting as broker-dealers without separate
registration under the Securities Exchange Act of 1934, pursuant to legal and
regulatory exceptions.
Commissions paid to registered representatives may vary, but in aggregate are
not anticipated to exceed 6% of any purchase payment. In addition, under certain
circumstances, certain sellers of the Contracts may be paid persistency bonuses
which will take into account, among other things, the length of time purchase
payments have been held under a Contract, and Contract Values. A persistency
bonus is not expected to exceed 0.25%, on an annual basis, of the Contract
Values considered in connection with the bonus. These commissions are intended
to cover distribution expenses.
The underwriting agreement with ALFS provides for indemnification by the
Company, to the principal underwriter, for liability to Owners arising out of
services rendered or Contracts issued.
VOTING RIGHTS
The Owner or anyone with a voting interest in the Sub-account of the Variable
Account may instruct the Company on how to vote at shareholder meetings of the
Funds. The Company will solicit and cast each vote according to the procedures
set up by the Funds and to the extent required by law. The Company reserves the
right to vote the eligible shares in its own right, if subsequently permitted by
the Investment Company Act of 1940, its regulations or interpretations thereof.
Fund shares as to which no timely instructions are received will be voted in
proportion to the voting instructions which are received with respect to all
Contracts participating in that Sub-account. Voting instructions to abstain on
any item to be voted upon will be applied on a pro-rata basis to reduce the
votes eligible to be cast.
Before the Payout Start Date, the Owner holds the voting interest in the
Sub-account of the Variable Account (the number of votes for the Owner will be
determined by dividing the Contract Value attributable to a Sub-account by the
net asset value per share of the applicable eligible portfolio).
After the Payout Start Date, the person receiving income payments has the voting
interest. After the Payout Start Date, the votes decrease as income payments are
made and as the reserves for the Contract decrease. That person's number of
votes will be determined by dividing the reserve for such Contract allocated to
the applicable Sub-account by the net asset value per share of the corresponding
eligible portfolio.
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the financial statements and notes thereto included in this
prospectus beginning on page F-1.
GLENBROOK LIFE AND ANNUITY COMPANY
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR-END FINANCIAL DATA 1996 1995 1994 1993 1992(1)
- -------------------------------------------------- ------------ ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For The Years Ended December 31:
Income Before Income Tax Expense................ $ 3,774 $ 4,455 $ 2,017 $ 836 $ 337
Net Income...................................... 2,435 2,879 1,294 529 212
As of December 31:
Total Assets.................................... 2,404,770 1,409,705 750,245 169,361 12,183
</TABLE>
- ------------
(1) For the period from April 1, 1992 (date of acquisition) to December 31,
1992.
30
<PAGE>
Effective December 31, 1993 the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Under SFAS No. 115, fixed income securities
classified as available for sale are carried at fair value. The net effect of
adoption of this SFAS increased shareholder's equity at December 31, 1993 by
$693 thousand and did not have a material impact on net income.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights significant factors influencing results of
operations and financial position of Glenbrook Life and Annuity Company (the
"Company"). It should be read in conjunction with the financial statements and
related notes.
The Company, which is wholly owned by Allstate Life Insurance Company ("ALIC"),
markets life insurance contracts and annuity products through banks and
broker-dealers.
The Company and ALIC entered into a reinsurance agreement effective on June 5,
1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers. The
Company's results of operations relate to the investment of those assets of the
Company that are not transferred to ALIC under the reinsurance agreement.
Separate Account assets and liabilities are carried at fair value in the
statements of financial position. The Separate Account investment portfolios
were initially funded with a $10.0 million seed money contribution from the
Company in 1995. Investment income and realized gains and losses of the Separate
Accounts, other than the portion related to the Company's participation, accrue
directly to the contractholders and, therefore, are not included in the
Company's statements of operations.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
Net investment income............................................................ $ 3,774 $ 3,996 $ 2,017
--------- --------- ---------
Realized capital gains, after tax................................................ $ -- $ 298 $ --
--------- --------- ---------
Net income....................................................................... $ 2,435 $ 2,879 $ 1,294
--------- --------- ---------
Fixed income securities, at amortized cost....................................... $ 46,925 $ 44,112 $ 51,527
--------- --------- ---------
</TABLE>
Net income decreased by $444 thousand or 15.4% in 1996 to $2.4 million due to
decreases in net investment income and realized capital gains. The $1.6 million
increase in net income in 1995 reflects the increase in net investment income
and realized capital gains.
As a result of the reinsurance agreement, the Company's results of operations
include only investment income earned on its investment portfolio. Net
investment income in 1996 decreased 5.6% or $222 thousand to $3.8 million
compared to $4.0 million in 1995. The decrease reflects the impact of the
Company's $10.0 million original investment in the variable funds of the
Separate Account, whose assets are invested predominantly in equity securities.
The dividend yield on the variable funds is significantly below the level of
interest earned on fixed income securities in which the $10.0 million was
invested prior to the fourth quarter of 1995. This decrease in income was
partially offset by additional investment income earned on the higher base of
investments arising from positive cash flows from operating activities in 1996.
Net investment income increased $2.0 million in 1995 due to an increased level
of investments and a $40.0 million capital contribution received from ALIC in
the third quarter of 1994.
Realized capital gains after tax of $298 thousand in 1995 were the result of
sales of investments to fund the Company's participation in the Separate
Accounts.
31
<PAGE>
FINANCIAL POSITION
<TABLE>
<CAPTION>
1996 1995
------------ ------------
($ IN THOUSANDS)
<S> <C> <C>
Fixed income securities, at fair value................................................ $ 49,389 $ 48,815
------------ ------------
Short-term investments................................................................ $ 1,287 $ 2,102
------------ ------------
Separate Account assets............................................................... $ 272,420 $ 15,578
------------ ------------
Contractholder funds.................................................................. $ 2,060,419 $ 1,340,925
------------ ------------
Reinsurance recoverable from ALIC..................................................... $ 2,060,419 $ 1,340,925
------------ ------------
Separate Account liabilities.......................................................... $ 260,290 $ 5,048
------------ ------------
</TABLE>
The Company's fixed income securities portfolio consists of publicly traded
corporate bonds, mortgage-backed securities and U.S. government bonds. The
Company generally holds its fixed income securities for the long term, but has
classified all of these securities as available for sale to allow maximum
flexibility in portfolio management. At December 31, 1996, net unrealized
capital gains on the fixed income securities portfolio totaled $4.3 million
compared to $5.2 million as of December 31, 1995. The decrease in the unrealized
gain position is primarily attributable to rising interest rates, partially
offset by an increase in unrealized gains on the Company's participation in the
Separate Account.
All of the Company's fixed income securities portfolio is rated investment
grade, with a National Association of Insurance Commissioners ("NAIC") rating of
1 or a Moody's rating of Aaa, Aa or A.
At December 31, 1996 and 1995, $16.4 million and $19.2 million, respectively, of
the fixed income portfolio were invested in mortgage-backed securities ("MBS").
At December 31, 1996, all of the MBS were investment grade and have underlying
collateral that is guaranteed by U.S. government entities.
MBS, however, are subject to interest rate risk as the duration and ultimate
realized yield are affected by the rate of repayment of the underlying
mortgages. The Company attempts to limit interest rate risk by purchasing MBS
whose cost does not significantly exceed par value, and with repayment
protection to provide a more certain cash flow to the Company. At December 31,
1996, the amortized cost of the MBS portfolio was below par value by $402
thousand.
The Company closely monitors its fixed income portfolio for declines in value
that are other than temporary. Securities are placed on non-accrual status when
they are in default or when the receipt of interest payments is in doubt.
The Company's short-term investment portfolio was $1.3 million and $2.1 million
at December 31, 1996 and 1995, respectively. The Company invests all available
cash balances in taxable and tax-exempt short-term securities having a final
maturity date or redemption date of one year or less.
During 1996, contractholder funds and amounts recoverable from ALIC under the
reinsurance agreement increased by $719.5 million. The increases resulted from
sales of the Company's flexible premium deferred annuities, interest credited to
contractholders, and sales of single premium life insurance policies, partially
offset by surrenders, withdrawals and death benefits. Reinsurance recoverable
from ALIC relates to contract benefit obligations ceded to ALIC.
Separate Account assets increased by $256.8 million and Separate Account
liabilities increased by $255.2 million as compared with December 31, 1995. The
increases were attributable to increased sales of flexible premium deferred
variable annuity contracts and the favorable investment performance of the
Separate Account investment portfolios, partially offset by variable annuity
contract charges, surrenders and withdrawals.
32
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
ALIC authorized a $20.0 million capital contribution to the Company in 1996,
which the Company received in January 1997.
Under the terms of intercompany reinsurance agreements, assets of the Company
that relate to insurance in force, excluding Separate Account assets, are
transferred to ALIC, which maintains the investment portfolios supporting the
Company's products.
The NAIC has a standard for assessing the solvency of insurance companies, which
is referred to as risk-based capital ("RBC"). The requirement consists of a
formula for determining each insurer's RBC and a model law specifying regulatory
actions if an insurer's RBC falls below specified levels. The RBC formula for
life insurance companies establishes capital requirements relating to insurance
risk, business risk, asset risk and interest rate risk. At December 31, 1996,
RBC for the Company was significantly above a level that would require
regulatory action.
PENDING ACCOUNTING STANDARD
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers of Financial
Assets and Extinguishments of Liabilities." This standard distinguishes between
transfers of financial assets as sales versus financing transactions based upon
relinquishment of control and addresses the accounting for securitizations,
securities lending, repurchase agreements and insubstance defeasance
transactions. The requirements of this statement that were effective on January
1, 1997 were adopted and are not expected to have a material impact on the
results of operations or financial position of the Company.
COMPETITION
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
competing in the sale of insurance and annuities. There are approximately 1,700
stock, mutual and other types of insurers in business in the United States.
Several independent rating agencies regularly evaluate life insurers'
claims-paying ability, quality of investments, and overall stability. A.M. Best
Company assigns A+ (Superior) to Allstate Life which automatically reinsures all
net business of the Company. A.M. Best Company also assigns the Company the
rating of A+(r) because the Company automatically reinsures all business with
Allstate Life. Standard & Poor's Insurance Rating Services assigns AA+
(Excellent) to the Company's claims-paying ability and Moody's assigns an Aa3
(Excellent) financial stability rating to the Company. The Company shares the
same ratings of its parent, Allstate Life Insurance Company. These ratings do
not relate to the investment performance of the Variable Account.
EMPLOYEES
As of December 31, 1996, Glenbrook Life and Annuity Company had approximately
123 employees at its home office in Northbrook, Illinois.
PROPERTIES
The Company occupies office space provided by Allstate Insurance Company in
Northbrook, Illinois. Expenses associated with these offices are allocated on a
direct and indirect basis to the Company.
STATE AND FEDERAL REGULATION
The insurance business of the Company is subject to comprehensive and detailed
regulation and supervision throughout the United States.
33
<PAGE>
The laws of the various jurisdictions establish supervisory agencies with broad
administrative powers with respect to licensing to transact business, overseeing
trade practices, licensing agents, approving policy forms, establishing reserve
requirements, fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, prescribing the form and
content of required financial statements and regulating the type and amounts of
investments permitted. Each insurance company is required to file detailed
annual reports with supervisory agencies in each of the jurisdictions in which
it does business and its operations and accounts are subject to examination by
such agencies at regular intervals.
Under insurance guaranty fund law, in most states, insurers doing business
therein can be assessed up to prescribed limits for contract owner losses
incurred as a result of company insolvencies. The amount of any future
assessments on the Company under these laws cannot be reasonably estimated. Most
of these laws do provide, however, that an assessment may be excused or deferred
if it would threaten an insurer's own financial strength.
In addition, several states, including Illinois, regulate affiliated groups of
insurers, such as the Company and its affiliates, under insurance holding
company legislation. Under such laws, intercompany transfers of assets and
dividend payments from insurance subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in relation to
the financial positions of the companies.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
controls on medical care costs, removal of barriers preventing banks from
engaging in the securities and insurance business, tax law changes affecting the
taxation of insurance companies, the tax treatment of insurance products and its
impact on the relative desirability of various personal investment vehicles, and
proposed legislation to prohibit the use of gender in determining insurance and
pension rates and benefits.
34
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers are listed below, together with information
as to their ages, dates of election and principal business occupations during
the last five years (if other than their present business occupations).
LOUIS G. LOWER, II, 51, Chief Executive Officer and Chairman of the Board
(1995)*
Also Director (1986-Present) and Senior Vice President (1995-Present) of
Allstate Insurance Company; Director (1991-Present) of Allstate Life Financial
Services, Inc.; Director (1986-Present) and President (1990-Present) Allstate
Life Insurance Company; Director (1983-Present) and Chairman of the Board
(1990-Present) of Allstate Life Insurance Company of New York; Director
(1990-Present), Chairman of the Board of Directors and Chief Executive Officer
(1995-Present), Chairman of the Board of Directors and President (1990-1995) of
Glenbrook Life Insurance Company; Director and Chairman of the Board
(1995-Present) of Laughlin Group Holdings, Inc.; Director and Chairman of the
Board of Directors and Chief Executive Officer (1989-Present) Lincoln Benefit
Life Company; Director (1986-Present), Chairman of the Board of Directors and
Chief Executive Officer (1995-Present) of Northbrook Life Insurance Company; and
Chairman of the Board of Directors and Chief Executive Officer (1995-Present)
Surety Life Insurance Company.
PETER H. HECKMAN, 51, President, Chief Operating Officer and Director (1996)*
Also Director and Vice President (1988-Present) of Allstate Life Insurance
Company; Director (1990-1996), Vice President (1989-Present), Allstate Life
Insurance Company of New York; Director (1991-1993) of Allstate Life Financial
Services, Inc.; Director (1990-Present), President and Chief Operating Officer
(1996-Present), and Vice President (1990-1996), Glenbrook Life Insurance
Company; Director (1995-Present) and Vice Chairman of the Board (1996-Present)
Laughlin Group Holdings, Inc.; Director (1990-Present) and Vice Chairman of the
Board (1996-Present) Lincoln Benefit Life Company; Director (1988-Present)
President and Chief Operating Officer (1996-Present), and was Vice President
(1989-1996), Northbrook Life Insurance Company; and Director (1995-Present) and
Vice Chairman of the Board (1996-Present) Surety Life Insurance Company.
MICHAEL J. VELOTTA, 51, Vice President, Secretary, General Counsel, and Director
(1992)*
Also Director and Secretary (1993-Present) of Allstate Life Financial Services,
Inc.; Director (1992-Present) Vice President, Secretary and General Counsel
(1993-Present) Allstate Life Insurance Company; Director (1992-Present) Vice
President, Secretary and General Counsel (1993-Present) Allstate Life Insurance
Company of New York; Director (1992-Present) Vice President, Secretary and
General Counsel (1993-Present) Glenbrook Life Insurance Company; Director and
Secretary (1995-Present) Laughlin Group Holdings, Inc.; Director (1992-Present)
and Assistant Secretary (1995-Present) Lincoln Benefit Life Company; Director
(1992-Present) Vice President, Secretary and General Counsel (1993-Present)
Northbrook Life Insurance Company; and Director and Assistant Secretary
(1995-Present) Surety Life Insurance Company.
JOHN R. HUNTER, 41, Director (1996)*
Also Assistant Vice President (1990-Present) Allstate Life Insurance Company;
Assistant Vice President (1996-Present) Allstate Life Insurance Company of New
York; Director (1996-Present) Glenbrook Life Insurance Company; and Director
(1994-Present) and Assistant Vice President (1990-Present) Northbrook Life
Insurance Company.
G. CRAIG WHITEHEAD, 50, Senior Vice President and Director (1995)*
Also Assistant Vice President (1991-Present) Allstate Life Insurance Company;
Director (1994-Present) Assistant Vice President (1991-Present) Glenbrook Life
Insurance Company; Assistant Vice President (1992-Present) Secretary (1995)
Glenbrook Life and Annuity Company; Director (1995-Present) Laughlin Group
Holdings, Inc.
MARLA G. FRIEDMAN, 43, Vice President (1996)*
Also Director (1991-Present) and Vice President (1988-Present) Allstate Life
Insurance Company; Director (1993-1996) Allstate Life Financial Services, Inc.;
Assistant Vice President (1996-Present) Allstate Life Insurance Company of New
York; Director (1991-1996), President and Chief Operating Officer
35
<PAGE>
(1995-1996) and Vice President (1990-1995) and (1996-Present) Glenbrook Life
Insurance Company; Director and Vice Chairman of the Board (1995-1996) Laughlin
Group Holdings, Inc.; and Director (1989-1996), President and Chief Operating
Officer (1995-1996) and Vice President (1996-Present) Northbrook Life Insurance
Company.
KEVIN R. SLAWIN, 39, Vice President (1996)*
Also Assistant Vice President and Assistant Treasurer (1995-1996) Allstate
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Allstate Life Financial Services, Inc.; Director and Vice President
(1996-Present) and Assistant Treasurer (1995-1996) Allstate Life Insurance
Company; Director and Vice President (1996-Present) and Assistant Treasurer
(1995-1996) Allstate Life Insurance Company of New York; Director and Vice
President (1996-Present) and Assistant Treasurer (1995-1996) Glenbrook Life
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Laughlin Group Holdings, Inc.; Director (1996-Present) Lincoln Benefit Life
Company; Director and Vice President (1996-Present) and Assistant Treasurer
(1995-1996) Northbrook Life Insurance Company; Director (1996-Present) Surety
Life Insurance Company; and Assistant Treasurer and Director (1994-1995) Sears
Roebuck and Co.; and Treasurer and First Vice President (1986-1994) Sears
Mortgage Corporation.
CASEY J. SYLLA, 53, Chief Investment Officer (1995)*
Also Director (1995-Present ) Senior Vice President and Chief Investment Officer
(1995-Present) Allstate Insurance Company; Director (1995-Present) Chief
Investment Officer (1995-Present) Allstate Life Insurance Company; Chief
Investment Officer (1995-Present) Allstate Life Insurance Company of New York;
Chief Investment Officer (1995-Present) Glenbrook Life Insurance Company; and
Director and Chief Investment Officer (1995-Present) Northbrook Life Insurance
Company. Prior to 1995 he was Senior Vice President and Executive
Officer-Investments (1992-1995) of Northwestern Mutual Life Insurance Company.
JAMES P. ZILS, 46, Treasurer (1995)*
Also Vice President and Treasurer (1995-Present) Allstate Insurance Company;
Treasurer (1995-Present) Allstate Life Financial Services, Inc.; Treasurer
(1995-Present) Allstate Life Insurance Company; Treasurer (1995-Present)
Allstate Life Insurance Company of New York; Treasurer (1995-Present) Glenbrook
Life Insurance Company; Treasurer (1995-Present) Laughlin Group Holdings, Inc.;
and Treasurer (1995-Present) Northbrook Life Insurance Company. From 1993 to
1995, he was Vice President of Allstate Life Insurance Company. Prior to 1993,
he held various management positions.
* Date elected to current office.
36
<PAGE>
EXECUTIVE COMPENSATION
Executive officers of the Company also serve as officers of Allstate Life and
receive no compensation directly from the Company. Some of the officers also
serve as officers of other companies affiliated with the Company. Allocations
have been made as to each individual's time devoted to his or her duties as an
executive officer of the Company. However, no officer's compensation allocated
to the Company exceeded $100,000 in 1996. The allocated cash compensation of all
officers of the Company as a group for services rendered in all capacities to
the Company during 1996 totaled $3,965.52. Directors of the Company receive no
compensation in addition to their compensation as employees of the Company.
Shares of the Company and Allstate Life are not directly owned by any director
or officer of the Company. The percentage of shares of The Allstate Corporation
beneficially owned by any director, and by all directors and officers of the
Company as a group, does not exceed one percent of the class outstanding.
SUMMARY COMPENSATION TABLE
(ALLSTATE LIFE INSURANCE COMPANY)
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------------------
AWARDS
------------------------ PAYOUTS
ANNUAL COMPENSATION (G) ------------------------
----------------------------------- SECURITIES
(E) (F) UNDERLYING (H) (I)
(A) (C) (D) OTHER ANNUAL RESTRICTED OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL (B) SALARY BONUS COMPENSATION STOCK SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) $ AWARD(S) (#) ($) ($)
- --------------------- --------- --------- --------- ------------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis G. Lower, II... 1996 $ 436,800 $ 246,781 $ 10,246 0 $ 18,258 0 $ 5,250(1)
Chief Executive
Officer and 1995 $ 416,000 $ 266,175 $ 17,044 $ 199,890 $ 131,997 $ 411,122 $ 5,250(1)
Chairman 1994 $ 389,050 $ 43,973 $ 26,990 $ 170,660 N/A 0 $ 1,890(1)
</TABLE>
- ---------------
(1) Amount received by Mr. Lower which represents the value allocated to his
account from employer contributions under The Savings and Profit Sharing
Fund of Allstate Employees and prior to 1996, The Profit Sharing Fund and
to its predecessor, The Savings and Profit Sharing Fund of Sears employees.
LEGAL PROCEEDINGS
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. Management, after consultation with legal counsel, does not anticipate
the ultimate liability arising from such pending or threatened litigation to
have a material effect on the financial condition of the Company.
EXPERTS
The financial statements of the Variable Account incorporated by reference in
this prospectus, and the financial statements and financial statement schedule
of the Company included in this prospectus have been audited by Deloitte &
Touche LLP, Two Prudential Plaza, 180 North Stetson Avenue, Chicago, Illinois
60601-6779, independent auditors, as stated in their reports appearing herein
and incorporated by reference in this prospectus, and are included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the federal securities laws applicable to the
issue and sale of the Contracts have been passed upon by Routier and Johnson,
P.C., of Washington, D.C. All matters of Illinois law pertaining to the
Contracts, including the validity of the Contracts and the Company's right to
issue such Contracts under Illinois insurance law, have been passed upon by
Michael J. Velotta, General Counsel of the Company.
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (the "Company") as of December 31, 1996 and 1995, and
the related Statements of Operations, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1996. 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 Glenbrook Life and Annuity Company as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 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 21, 1997
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value (amortized cost $46,925 and $44,112)....... $ 49,389 $ 48,815
Short-term........................................................................ 1,287 2,102
------------ ------------
Total investments............................................................. 50,676 50,917
Reinsurance recoverable from Allstate Life Insurance Company........................ 2,060,419 1,340,925
Cash................................................................................ -- 264
Net receivable from affiliates...................................................... 19,206 --
Other assets........................................................................ 2,049 2,021
Separate Accounts................................................................... 272,420 15,578
------------ ------------
Total assets.................................................................. $ 2,404,770 $ 1,409,705
------------ ------------
------------ ------------
LIABILITIES
Contractholder funds................................................................ $ 2,060,419 $ 1,340,925
Income taxes payable................................................................ 653 1,637
Deferred income taxes............................................................... 1,528 1,828
Net payable to affiliates........................................................... -- 255
Separate Accounts................................................................... 260,290 5,048
------------ ------------
Total liabilities............................................................. 2,322,890 1,349,693
------------ ------------
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 49,641
Unrealized net capital gains........................................................ 2,790 3,357
Retained income..................................................................... 7,349 4,914
------------ ------------
Total shareholder's equity.................................................... 81,880 60,012
------------ ------------
Total liabilities and shareholder's equity.................................... $ 2,404,770 $ 1,409,705
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Net investment income........................................................... $ 3,774 $ 3,996 $ 2,017
Realized capital gains and losses............................................... -- 459 --
--------- --------- ---------
INCOME BEFORE INCOME TAX EXPENSE.................................................. 3,774 4,455 2,017
INCOME TAX EXPENSE................................................................ 1,339 1,576 723
--------- --------- ---------
NET INCOME........................................................................ $ 2,435 $ 2,879 $ 1,294
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
COMMON STOCK..................................................................... $ 2,100 $ 2,100 $ 2,100
--------- --------- ---------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year....................................................... 49,641 49,641 9,641
Capital contributions.......................................................... 20,000 -- 40,000
--------- --------- ---------
Balance, end of year............................................................. 69,641 49,641 49,641
--------- --------- ---------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year....................................................... 3,357 (1,118) 693
Net (decrease) increase........................................................ (567) 4,475 (1,811)
--------- --------- ---------
Balance, end of year............................................................. 2,790 3,357 (1,118)
--------- --------- ---------
RETAINED INCOME
Balance, beginning of year....................................................... 4,914 2,035 741
Net income..................................................................... 2,435 2,879 1,294
--------- --------- ---------
Balance, end of year............................................................. 7,349 4,914 2,035
--------- --------- ---------
Total shareholder's equity................................................... $ 81,880 $ 60,012 $ 52,658
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................. $ 2,435 $ 2,879 $ 1,294
Adjustments to reconcile net income to net cash provided by operating
activities
Change in deferred income taxes........................................... 4 (39) 71
Realized capital gains and losses......................................... -- (459) --
Changes in other operating assets and liabilities......................... (510) 1,217 (251)
---------- ---------- ----------
Net cash provided by operating activities............................... 1,929 3,598 1,114
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales....................................................... -- 7,836 --
Investment collections.................................................... 2,891 1,568 649
Investment purchases...................................................... (5,667) (1,491) (42,729)
Participation in Separate Accounts.......................................... (232) (10,069) --
Change in short-term investments, net....................................... 815 (1,178) 667
---------- ---------- ----------
Net cash used in investing activities................................... (2,193) (3,334) (41,413)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution........................................................ -- -- 40,000
---------- ---------- ----------
Net cash provided by financing activities............................... -- -- 40,000
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH............................................... (264) 264 (299)
CASH AT BEGINNING OF YEAR..................................................... 264 -- 299
---------- ---------- ----------
CASH AT END OF YEAR........................................................... $ -- $ 264 $ --
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash financing activity:
Capital contribution receivable from Allstate Life Insurance Company........ $ 20,000 $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). On June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed
its 80.3% ownership in the Corporation to Sears common shareholders through a
tax-free dividend (the "Distribution"). These financial statements have been
prepared in conformity with generally accepted accounting principles.
To conform with the 1996 presentation, certain items in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets interest-sensitive life insurance and various annuity
products in the United States through banks and broker-dealers. Annuities
include deferred annuities, such as variable annuities and fixed rate flexible
premium annuities. The Company has entered into exclusive distribution
arrangements with management investment companies to market its variable annuity
contracts.
Annuity and life insurance contracts issued by the Company are subject to
discretionary withdrawal or surrender by the contractholder, subject to
applicable surrender charges. These contracts are reinsured with ALIC (see Note
3), which invests premiums and deposits to create cash flows that will fund
future benefits and expenses. In order to support competitive credited rates,
ALIC adheres to a basic philosophy of matching assets with related liabilities
to limit interest rate risk, while maintaining adequate liquidity and a prudent
and diversified level of credit risk.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal
legislation and regulation which would allow banks greater participation in
securities and insurance businesses, which could present an increased level of
competition for sales of the Company's annuity contracts. 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 market for these
products.
The Company is authorized to sell life and annuity products in all states except
New York, as well as the District of Columbia. The top geographic locations for
statutory premiums earned are Florida, California, Pennsylvania, Michigan,
Oregon, Texas and Georgia for the year ended December 31, 1996. No other
jurisdiction accounted for more than 5% of statutory premiums. All premiums and
contract charges are ceded to ALIC under reinsurance agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
F-6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses.
Short-term investments are carried at cost which approximates fair value.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on the estimated principal repayments. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
RECOGNITION OF PREMIUM REVENUE AND CONTRACT CHARGES
Revenues on interest-sensitive life insurance contracts are comprised of
contract charges and fees, and are recognized when assessed against the
policyholder account balance. Revenues on annuities, which are considered
investment contracts, include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balances.
REINSURANCE
The Company and ALIC entered into a reinsurance agreement effective on June 5,
1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers.
Contract charges and credited interest are ceded and shown net of such cessions
in the statements of operations. Under the reinsurance agreement with ALIC, all
premiums and deposits are transferred to ALIC. The amounts shown in the
Company's statements of operations relate to the investment of those assets of
the Company that are not transferred to ALIC under the reinsurance agreement.
Reinsurance recoverable and contractholder funds are reported separately in the
statements of financial position. The Company continues to have primary
liability as the direct insurer for risks reinsured.
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred tax
assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities and the enacted tax
regulations. Deferred income taxes also arise from unrealized capital gains or
losses on fixed income securities carried at fair value.
SEPARATE ACCOUNTS
During 1995, the Company began issuing flexible premium deferred variable
annuity contracts, the assets and liabilities of which are legally segregated
and shown in the accompanying statements of financial position as assets and
liabilities of the Separate Accounts (Glenbrook Life and Annuity Company
Variable Annuity Account and Glenbrook Life and Annuity Company Separate Account
A), unit investment trusts registered with the Securities and Exchange
Commission.
Assets of the Separate Accounts, including the Company's ownership interest
("Participation"), are invested in funds of management investment companies and
are carried at fair value. Unrealized gains and losses on the Company's
Participation, net of deferred income taxes, is shown as a component of
F-7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shareholder's equity. Investment income and realized capital gains and losses
arising from the Participation are included in the Company's statements of
operations. At December 31, 1996 and 1995, the Participation amounted to $12,130
and $10,530, respectively. The Company intends to liquidate its Participation
during 1997.
Investment income and realized capital gains and losses of the Separate
Accounts, other than the portion related to the Participation, accrue directly
to the contractholders and, therefore, are not included in the accompanying
statements of operations. Revenues to the Company from the Separate Accounts
consist of contract maintenance fees, administrative fees and mortality and
expense risk charges, which are ceded to ALIC.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group contracts
that include an investment component, including most annuities and
interest-sensitive life insurance. 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. Credited interest
rates on contractholder funds ranged from 3.15% to 7.45% for those contracts
with fixed interest rates and from 4.25% to 7.90% for those with flexible rates
during 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
REINSURANCE
Contract charges ceded to ALIC under reinsurance agreements were $4,254, $1,523
and $409 in 1996, 1995, and 1994, respectively. Credited interest, policy
benefits and expenses ceded to ALIC amounted to $113,703, $71,905, and $26,177
in 1996, 1995, and 1994, respectively. Investment income earned on the assets
which support contractholder funds is not included in the Company's financial
statements as those assets are owned and managed by ALIC under the terms of the
reinsurance agreements.
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. The
cost to the Company is determined by various allocation methods and is primarily
related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $759, $348 and $271 in 1996, 1995 and 1994, respectively. Of these costs,
the Company retains investment related expenses. All other costs are ceded to
ALIC under reinsurance agreements.
F-8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
LAUGHLIN GROUP
Laughlin Group, Inc. ("Laughlin") is an indirect wholly owned subsidiary of
ALIC. Laughlin markets certain of the Company's flexible premium deferred
variable annuity contracts and flexible premium deferred fixed annuity
contracts. Sales commissions paid to Laughlin and ceded to ALIC were $8,623
during 1996 and $3,439 subsequent to the Laughlin acquisition in September 1995.
The Company had a receivable of $850 from Laughlin at December 31, 1996, which
is included in net receivable from affiliates in the statements of financial
position.
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------------- FAIR
COST GAINS (LOSSES) VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1996
U.S. government and agencies........................................... $ 24,265 $ 1,722 $ (3) $ 25,984
Corporate.............................................................. 6,970 96 (15) 7,051
Mortgage-backed securities............................................. 15,690 664 -- 16,354
----------- --------- --- ---------
Total................................................................ $ 46,925 $ 2,482 $ (18) $ 49,389
----------- --------- --- ---------
----------- --------- --- ---------
AT DECEMBER 31, 1995
U.S. government and agencies........................................... $ 24,722 $ 3,470 $ -- $ 28,192
Corporate.............................................................. 1,304 120 -- 1,424
Mortgage-backed securities............................................. 18,086 1,113 -- 19,199
----------- --------- --- ---------
Total................................................................ $ 44,112 $ 4,703 $ -- $ 48,815
----------- --------- --- ---------
----------- --------- --- ---------
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- ---------
<S> <C> <C>
Due in one year or less.................................................................... $ -- $ --
Due after one year through five years...................................................... -- --
Due after five years through ten years..................................................... 22,395 23,325
Due after ten years........................................................................ 8,840 9,710
----------- ---------
31,235 33,035
Mortgage-backed securities................................................................. 15,690 16,354
----------- ---------
Total.................................................................................... $ 46,925 $ 49,389
----------- ---------
----------- ---------
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
F-9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
4. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed income securities.............................................................. $ 3,478 $ 3,850 $ 1,984
Short-term........................................................................... 126 113 48
Participation in Separate Accounts................................................... 232 69 --
--------- --------- ---------
Investment income, before expense.................................................... 3,836 4,032 2,032
Investment expense................................................................... 62 36 15
--------- --------- ---------
Net investment income................................................................ $ 3,774 $ 3,996 $ 2,017
--------- --------- ---------
--------- --------- ---------
</TABLE>
PROCEEDS FROM SALES OF FIXED INCOME SECURITIES AND REALIZED CAPITAL GAINS
There were no sales of investments in 1996 or 1994. In 1995, proceeds from sales
of investments in fixed income securities were $7,836. These sales resulted in
gross realized gains of $459 and related income taxes of $161.
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital gains and losses on fixed income securities and the
Company's participation in the Separate Accounts included in shareholder's
equity at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR UNREALIZED
COST VALUE NET GAINS
----------- --------- -----------
<S> <C> <C> <C>
Fixed income securities........................................................ $ 46,925 $ 49,389 $ 2,464
Participation in Separate Accounts............................................. 10,301 12,130 1,829
----------- --------- -----------
Total........................................................................ $ 57,226 $ 61,519 4,293
----------- ---------
----------- ---------
Deferred income taxes.......................................................... (1,503)
-----------
Unrealized net capital gains................................................... $ 2,790
-----------
-----------
</TABLE>
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed income securities........................................................... $ (2,239) $ 6,423 $ (2,786)
Participation in Separate Accounts................................................ 1,368 461 --
Deferred income taxes............................................................. 304 (2,409) 975
--------- --------- ---------
Change in unrealized net capital gains and losses................................. $ (567) $ 4,475 $ (1,811)
--------- --------- ---------
--------- --------- ---------
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1996, fixed income securities with a carrying value of $9,105
were on deposit with regulatory authorities as required by law.
F-10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments 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 assets (including reinsurance recoverable) and
liabilities (including deferred income taxes) are not considered financial
instruments and are not carried at fair value. Other assets and liabilities
considered financial instruments, including accrued investment income and cash,
are generally of a short-term nature. It is assumed that their carrying value
approximates fair value.
FINANCIAL ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
1996 1995
---------------------- --------------------
CARRYING CARRYING FAIR
VALUE FAIR VALUE VALUE VALUE
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Fixed income securities............................................ $ 49,389 $ 49,389 $ 48,815 $ 48,815
Short-term investments............................................. 1,287 1,287 2,102 2,102
Separate Accounts.................................................. 272,420 272,420 15,578 15,578
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying value approximates fair value. Assets of the
Separate Accounts are carried in the statements of financial position at fair
value.
FINANCIAL LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1996 1995
-------------------------- --------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contractholder funds on investment contracts............. $ 2,059,642 $ 1,949,329 $ 1,340,925 $ 1,282,248
Separate Accounts........................................ 260,290 260,290 5,048 5,048
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Account liabilities are carried at the fair value of the underlying assets.
6. INCOME TAXES
The Company will file a separate federal income tax return and is not a party to
any tax sharing agreements in the current tax year.
Prior to the Distribution, the Corporation and all of its domestic subsidiaries
including the Company (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,
F-11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
6. INCOME TAXES (CONTINUED)
through the Corporation, paid to or received from the Sears Group the amount, if
any, by which the Sears Tax Group's federal income tax liability was affected by
virtue of inclusion of the Company in the consolidated federal income tax
return. Effectively, this resulted in the Company's annual income tax provision
being computed as if the Company filed a separate return, except that items such
as net operating losses, capital losses or similar items, which might not be
recognized in a separate return, were allocated according to the Tax Sharing
Agreement.
The Allstate Group and Sears Group have entered into an agreement which governs
their respective rights and obligations with respect to federal income taxes for
all periods prior to the Distribution ("Consolidated Tax Years"). The agreement
provides that all Consolidated Tax Years will continue to be governed by the Tax
Sharing Agreement with respect to the Company's federal income tax liability.
The Company will be eligible for inclusion in the consolidated federal income
tax return of the Corporation and its subsidiaries in 1997.
The components of the deferred income tax liability at December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Unrealized net capital gains on fixed income securities........................................ $ 1,503 $ 1,807
Difference in tax bases of investments......................................................... 25 21
--------- ---------
Total deferred liability..................................................................... $ 1,528 $ 1,828
--------- ---------
--------- ---------
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current................................................................................ $ 1,335 $ 1,615 $ 652
Deferred............................................................................... 4 (39) 71
--------- --------- ---------
Total income tax expense............................................................. $ 1,339 $ 1,576 $ 723
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company paid income taxes of $2,597, $874 and $57 in 1996, 1995 and 1994,
respectively. The Company had income taxes payable of $653 and $1,637 at
December 31, 1996 and 1995, respectively.
F-12
<PAGE>
6. INCOME TAXES (CONTINUED)
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
($ IN THOUSANDS)
7. STATUTORY FINANCIAL INFORMATION
The following tables reconcile net income and shareholder's equity as reported
herein in conformity with generally accepted accounting principles with
statutory net income and capital and surplus, determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities:
<TABLE>
<CAPTION>
NET INCOME
-------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance per generally accepted accounting principles................................. $ 2,435 $ 2,879 $ 1,294
Deferred income taxes.............................................................. 4 (39) 71
Unrealized gain on participation in Separate Accounts.............................. 1,368 -- --
Non-admitted assets and statutory reserves......................................... (50) (171) (80)
--------- --------- ---------
Balance per statutory accounting practices........................................... $ 3,757 $ 2,669 $ 1,285
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER'S EQUITY
--------------------
AT DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Balance per generally accepted accounting principles........................................ $ 81,880 $ 60,012
Deferred income taxes..................................................................... 1,528 1,828
Unrealized gain/loss on fixed income securities........................................... (2,464) (4,703)
Non-admitted assets and statutory reserves................................................ (3,751) (1,419)
Other..................................................................................... (1,499) (1,413)
--------- ---------
Balance per statutory accounting practices.................................................. $ 75,694 $ 54,305
--------- ---------
--------- ---------
</TABLE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Illinois
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners,
as well as state laws, regulations, and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed. The Company does not follow any permitted statutory accounting
practices that have a material effect on statutory surplus or risk-based
capital.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by insurance companies without the prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1997 without prior approval of the Illinois Department of Insurance is
$7,359.
F-13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Life insurance in force.............................................................. $ 2,436 $ 2,436 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life and annuities................................................................. $ 4,254 $ 4,254 $ --
--------- --------- ---------
--------- --------- ---------
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Life insurance in force.............................................................. $ 1,250 $ 1,250 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life and annuities................................................................. $ 6,571 $ 6,571 $ --
--------- --------- ---------
--------- --------- ---------
<CAPTION>
GROSS NET
AMOUNT CEDED AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Life insurance in force.............................................................. $ 1,250 $ 1,250 $ --
--------- --------- ---------
--------- --------- ---------
Premiums and contract charges:
Life and annuities................................................................. $ 409 $ 409 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
APPENDIX A
MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I = the Interest Crediting Rate for that Sub-account
N = the number of whole and partial years from the date we receive the transfer,
withdrawal, or death benefit request, or from the Payout Start Date to the
end of the Sub-account's Guarantee Period; and
J = the current interest crediting rate offered for a Guarantee Period or
length N on the date we determine the Market Value Adjustment.
J will be determined by a linear interpolation between the current interest
rates for the next higher and lower integral years. For purposes of
interpolation, current interest rates for Guarantee Periods not available
under this Contract will be calculated in a manner consistent with those
which are available.
The Market Value Adjustment factor is determined from the following formula:
.9 X (I--J)* N
Any transfer, withdrawal, or death benefit paid from a Sub-account of the
Guaranteed Maturity Amount Fixed Account will be multiplied by the Market Value
Adjustment factor to determine the Market Value Adjustment.
ILLUSTRATION
EXAMPLE OF MARKET VALUE ADJUSTMENT
<TABLE>
<S> <C>
Purchase Payment: $10,000
Guarantee Period: 5 years
Interest Rate: 4.50%
Full Surrender: End of Contract Year 3
</TABLE>
NOTE: This illustration assumes that premium taxes were not applicable.
Example 1: (Assumes declining interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.0450)3 = $11,411.66
Step 2: Calculate the Free Withdrawal Amount
= .10 X 11,411.66 = $1,141.17
Step 3: Calculate the Withdrawal Charge:
= .05 X (10,000.00 - 1,141.17) = $442.94
A-1
<PAGE>
Step 4: Calculate the Market Value Adjustment:
<TABLE>
<S> <C> <C> <C>
I = 4.5%
J = 4.2%
730 days
N = 365 days = 2
</TABLE>
Market Value Adjustment Factor: .9 X (I-J) X N
= .9 X (.045 - .042) X 730/365 = .0054
Market Value Adjustment = Factor X Amount Subject to Market Value Adjustment:
= .0054 X 11,411.66 = $61.62
Step 4: Calculate The Amount Received by Customers as a Result of Full
Withdrawal at the end of Contract Year 3:
= 11,411.66 - 442.94 + 61.62 = $11,030.34
Example 2: (Assumes rising interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.045)3 = $11,411.66
Step 2: Calculate the Free Withdrawal Amount:
= .10 X (11,411.66) = $1,141.17
Step 3: Calculate the Withdrawal Charge:
= .05 X (10,000.00 - 1,141.17) = $442.94
Step 4: Calculate the Market Value Adjustment:
<TABLE>
<S> <C> <C> <C>
I = 4.5%
J = 4.8%
730 days
N = 365 days = 2
</TABLE>
Market Value Adjustment Factor: .9 X (I-J) X N
= .9 X (.045 - .048) X (730/365) = -.0054
Market Value Adjustment = Factor X Amount Subject to Market Value Adjustment
= -.0054 X $11,411.66 = - $61.62
Step 4: Calculate The Amount Received by Customers as a Result of Full
Withdrawal at the end of Contract Year 3:
= 11,411.66 - 442.94 - 61.62 = $10,907.10
A-2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Additions, Deletions or Substitutions of
Investments................................. 3
Reinvestment.................................. 3
The Contract.................................. 4
Purchase of Contracts....................... 4
Performance Data............................ 4
Tax-free Exchanges (1035 Exchanges,
Rollovers and Transfers).................. 6
Premium Taxes............................... 6
Tax Reserves................................ 7
Income Payments............................... 7
Calculation of Annuity Unit Values.......... 7
General Matters............................... 8
Incontestability............................ 8
Settlements................................. 8
<CAPTION>
PAGE
-----
<S> <C>
Safekeeping of the Variable Account's
Assets.................................... 8
Federal Tax Matters........................... 8
Introduction................................ 8
Taxation of Glenbrook Life and Annuity
Company................................... 8
Exceptions to the Non-Natural Owner Rule.... 9
IRS Required Distribution at Death Rules.... 9
Qualified Plans............................. 10
Types of Qualified Plans.................... 10
Sales Commissions............................. 12
Variable Account Financial Statements......... F-1
</TABLE>
B-1
<PAGE>
ORDER FORM
Please send me a copy of the most recent Statement of Additional Information for
the Glenbrook Life and Annuity Company Variable Annuity Account.
<TABLE>
<S> <C> <C>
- ------------------- --------------------------------------
(Date) (Name)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
</TABLE>
Send to: Glenbrook Life and Annuity Company
Post Office Box 94042
Palatine, Illinois 60094
Attention: VA Customer Service Unit
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Incorporated by reference to the previously filed Form S-1 Registration
Statement of Glenbrook Life and Annuity Company, File No. 33-91916.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-Laws of Glenbrook Life and Annuity Company ("Registrant") which
are incorporated herein by reference as Exhibit (3), provide that Registrant
will indemnify its officers and directors for certain damages and expenses that
my be incurred in the performance of their duty to Registrant. No
indemnification is provided, however, when such person is adjudged to be liable
for negligence or misconduct in the performance of his or her duty, unless
indemnification is deemed appropriate by the court upon application.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No. Description
----------- -----------
(1) Form of Underwriting Agreement*
(2) None
(3)(i) Articles of Incorporation*
(ii) By-Laws*
(4) Glenbrook Life and Annuity Flexible Premium Deferred
Variable Annuity Contract**
(5) Opinion of General Counsel re: Legality*
(6) Not Applicable
(7) None
(8) None
(9) None
(10) Reinsurance Agreement*
(11) None
(12) None
(14) None
(15) None
(16) None
(22) None
(23)(a) Consent of Independent Public Accountants
(23)(b) Consent of Attorneys*
(24) Powers of Attorney**
(25) None
(26) None
(27) Financial Data Schedule***
(99) Form of Resolution of Board of Directors****
* Previously filed and incorporated by reference to Form S-1 Registration
Statement No. 333-07275 dated June 28, 1996.
** Previously filed and incorporated by reference to Form S-1 Registration
Statement No. 033-91916 dated February 25, 1997.
*** Previously filed in Registrant's Form 10-K, filed March 31, 1997.
**** Previously filed and incorporated by reference to Form S-1 Post Effective
Amendment No.1, Registration Statement No. 33-91916, dated April 10, 1996.
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit ore proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed herewith:
(1) Form of Underwriting Agreement*
(2) None
(3) Articles of Incorporation, By-Laws*
(4) Glenbrook Life and Annuity Flexible Premium Deferred
Variable Annuity Contract**
(5) Opinion of General Counsel re: Legality*
(6) None
(7) None
(8) None
(9) None
(10) Reinsurance Agreement*
(11) None
(12) None
(14) None
(15) None
(16) None
(22) None
(23)(a) Consent of Independent Public Accountants
(23)(b) Consent of Attorneys*
(24) Powers of Attorney**
(25) None
(26) None
(27) Financial Data Schedule***
(99) Form of Resolution of Board of Directors****
Financial Statements
* Previously filed and incorporated by reference to Form S-1 Registration
Statement No. 333-07275 dated June 28, 1996.
** Previously filed and incorporated by reference to Form S-1 Registration
Statement No. 033-91916, dated February 25, 1997.
*** Previously filed in Registrant's Form 10-K, filed March 31, 1997.
**** Previously filed and incorporated by reference to Form S-1 Post Effective
Amendment No.1, Registration Statement No. 33-91916, dated April 10, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the Township of Northfield, State of Illinois, on the 28th day
of April, 1997.
GLENBROOK LIFE AND ANNUITY COMPANY
(SEAL)
Attest: /S/BRENDA D. SNEED By: /S/MICHAEL J. VELOTTA
------------------ ---------------------
Brenda D. Sneed Michael J. Velotta
Assistant Secretary Vice President, Secretary
And Assistant General Counsel and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been duly signed below by the following Directors and Officers of
Glenbrook Life and Annuity Company on the 28th day of April, 1997.
*/LOUIS G. LOWER, II Chairman of the Board of Directors and
- --------------------- Chief Executive Officer
Louis G. Lower, II (Principal Executive Officer)
/S/MICHAEL J. VELOTTA Vice President, Secretary, General
- --------------------- Counsel and Director
Michael J. Velotta
*/PETER H. HECKMAN President, Chief Operating Officer
- --------------------- and Director
Peter H. Heckman
*/JOHN R. HUNTER Director
- ---------------------
John R. Hunter
*/KEVIN R. SLAWIN Vice President
- --------------------- (Principal Financial Officer)
Kevin R. Slawin
*/MARLA G. FRIEDMAN Vice President
- ---------------------
Marla G. Friedman
*/G. CRAIG WHITEHEAD Senior Vice President and Director
- ---------------------
G. Craig Whitehead
*/JAMES P. ZILS Treasurer
- ---------------------
James P. Zils
*/CASEY J. SYLLA Chief Investment Officer
- ---------------------
Casey J. Sylla
*/KEITH A. HAUSCHILDT Assistant Vice President and Controller
- --------------------- (Principal Accounting Officer)
Keith A. Hauschildt
*/ By Michael J. Velotta, pursuant to Power of Attorney, previously filed.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 3 to Registration
Statement No. 033-91916 of Glenbrook Life and Annuity Company on Form S-1 of
our report dated February 21, 1997 relating to the financial statements and
financial statement schedule of Glenbrook Life and Annuity Company, appearing
in the Prospectus, and our report dated February 21, 1997 relating to the
financial statements of Glenbrook Life and Annuity Company Variable Annuity
Account contained in the Statement of Additional Information (which is
incorporated by reference in the Prospectus of Glenbrook Life and Annuity
Company) which is part of such Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Chicago, Illinois
April 29, 1997
