<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1998
FILE NO. 33-91916
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4 /X/
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GLENBROOK LIFE AND ANNUITY COMPANY
(Exact Name of Registrant)
ILLINOIS 6311 35-1113325
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
3100 Sanders Road, Northbrook, Illinois 60062
(Address of Principal Executive Office)
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:
RICHARD T. CHOI, ESQUIRE JOHN R. HEDRICK, ESQUIRE
FREEDMAN, LEVY, KROLL & SIMONDS ALLSTATE LIFE FINANCIAL
1050 CONNECTICUT AVENUE, N. W., SERVICES, INC.
SUITE 825 3100 SANDERS ROAD
WASHINGTON, D.C. 20036-5366 NORTHBROOK, IL 60062
Approximate date of 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/
<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 six portfolios of the STI Classic
Variable Trust and one portfolio of the Federated Insurance Series (the
"Funds"). The STI Classic Variable Trust portfolios include: (1) Investment
Grade Bond; (2) Capital Growth; (3) Value Income Stock; (4) Mid-Cap Equity
(previously known as the Aggressive Growth portfolio); (5) International Equity;
and (6) Small Cap Equity. The Federated Insurance Series portfolio includes the
Federated Prime Money Fund II (previously known as the Prime Money Fund) which
invests exclusively in money market instruments. The Fixed Account Options
include a Standard Fixed Account, Dollar Cost Averaging Fixed Account and a
Guaranteed Maturity Amount Fixed Account.
This prospectus presents information you should know before 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, 1998 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, 1998.
<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
PAGE
Glossary
Highlights
Summary of Variable Account Expenses
Condensed Financial Information
Yield and Total Return Disclosure
Financial Statements
Glenbrook Life and Annuity Company and the Variable Account
Glenbrook Life and Annuity Company
The Variable Account
The Funds
The STI Classic Variable Trust
The Federated Prime Money Fund II, a
Portfolio of Federated Insurance Series
Investment Advisors for the Portfolios
Fixed Account Options
The Standard Fixed Account and the
Dollar Cost Averaging Fixed Account
The Guaranteed Maturity Amount Fixed Account
Example of Interest Crediting During the Guarantee Period
Withdrawals or Transfers
Market Value Adjustment
Purchase of the Contracts
Purchase Payment Limits
Free-Look Period
Crediting of Purchase Payments
Allocation of Purchase Payments
Accumulation Units
Accumulation Unit Value
Transfers Among Investment Alternatives
Dollar Cost Averaging
Automatic Portfolio Rebalancing
Benefits Under the Contract
Withdrawals
Payout Start Date for Income Payments
Amount of Variable Account Income Payments
Amount of Fixed Account Income Payments
Income Plans
Death Benefit Payable
Death Benefit Amount
Death Benefit Payment Provisions
Charges and Other Deductions
<PAGE>
Deductions from Purchase Payments
Withdrawal Charge (Contingent Deferred Sales Charge)
Contract Maintenance Charge
Administrative Expense Charge
Mortality and Expense Risk Charge
Premium Taxes
Transfer Charges
Fund Expenses
General Matters
Owner
Annuitant
Beneficiary
Assignments
Delay of Payments
Modification
Customer Inquiries
Federal Tax Matters
Introduction
Taxation of Annuities in General
Tax Deferral
Non-Natural Owners
Diversification Requirements
Ownership Treatment
Delayed Maturity Dates
Taxation of Partial and Full Withdrawals
Taxation of Annuity Payments
Taxation of Annuity Death Benefits
Penalty Tax on Premature Distributions
Aggregation of Annuity Contracts
Tax Qualified Contracts
Restrictions Under Section 403(b) Plans
Roth Individual Retirement Annuities
Income Tax Withholding
Distribution of the Contracts
Voting Rights
Selected Financial Data
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Competition
Employees
Properties
State and Federal Regulation
Executive Officers and Directors of the Company
Executive Compensation
Legal Proceedings
Experts
Legal Matters
Financial Statements F-1
Appendix A A-1
Statement of Additional Information: Table of Contents B-1
Order Form B-2
<PAGE>
GLOSSARY
ACCUMULATION UNIT -- A measure of your ownership interest in a Sub-account of
the Variable Account prior to the Payout Start Date. Analogous, though not
identical, to a share owned in a mutual fund.
ACCUMULATION UNIT VALUE -- The value of each Accumulation Unit which is
calculated each Valuation Date. Each Sub-account of the Variable Account has its
own distinct Accumulation Unit Value. Analogous, though not identical, to the
share price (net asset value) of a mutual fund.
ANNUITANT(S) -- The person or persons whose life determines the latest Payout
Start Date and the amount and duration of any income payments for Income Plan
options other than guaranteed payments for a specified period. Joint Annuitants
are only permitted on or after the Payout Start Date.
BENEFICIARY(IES) -- The person(s) to whom any benefits are due when a death
benefit is payable and there is no surviving Owner.
COMPANY("WE," "US") -- Glenbrook Life and Annuity Company.
CONTRACT -- The Glenbrook Life and Annuity Company Flexible Premium Deferred
Variable Annuity Contract, known as the "STI Classic Variable Annuity," that is
described in this prospectus.
CONTRACT ANNIVERSARY -- An anniversary of the date that the Contract was issued.
CONTRACT VALUE -- The value of all amounts accumulated under the Contract prior
to the Payout Start Date, equivalent to the Accumulation Units in each
Sub-account of the Variable Account multiplied by the respective Accumulation
Unit Value, plus the value in the Fixed Account Options.
CONTRACT YEAR -- A period of 12 months starting with the issue date or any
Contract Anniversary.
DEATH BENEFIT ANNIVERSARY -- Every seventh Contract Anniversary beginning on the
date that the Contract was issued. For example, the issue date, 7th and 14th
Contract Anniversaries are the first three Death Benefit Anniversaries.
ENHANCED DEATH BENEFIT -- An additional death benefit option which can be
selected at the time the Contract is purchased.
FIXED ACCOUNT OPTIONS -- The Standard Fixed Account, Dollar Cost Averaging Fixed
Account and the Guaranteed Maturity Amount Fixed Account.
GUARANTEE PERIOD -- A period of years for which a specified effective annual
interest rate is guaranteed by the Company.
GUARANTEED MATURITY AMOUNT FIXED SUB-ACCOUNTS -- These Sub-accounts are
distinguished by Guarantee Period(s) and the dates the period(s) begin. The
Guaranteed Maturity Amount Fixed Sub-accounts are established when purchase
payments are made, when previous Sub-accounts expire and a new Guarantee Period
is selected, and when transfers are made to a Guaranteed Maturity Amount Fixed
Sub-account.
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 seven Sub-accounts of the Variable Account and
the three Fixed Account Options constitute the nine Investment Alternatives.
MARKET VALUE ADJUSTMENT -- The Market Value Adjustment is the adjustment made to
the money distributed from a Sub-account of the Guaranteed Maturity Amount Fixed
Account prior to the end of the Guarantee Period under the Contract to reflect
the impact of changes in interest rates between the time the Sub-account of the
Guaranteed Maturity Amount Fixed Account was established and the time of
distribution.
OWNER(S)("YOU") -- The person or persons designated as the Owner in the
Contract.
PAYOUT START DATE -- The date money is applied to an Income Plan.
<PAGE>
SETTLEMENT VALUE -- The amount payable in the event of a full withdrawal of the
Contract Value.
VALUATION DATE -- Each day that the New York Stock Exchange is open for
business. The Valuation Date does not include such Federal and non-Federal
holidays as are observed by the New York Stock Exchange.
VALUATION PERIOD -- The period between successive Valuation Dates, commencing at
the close of regular trading on the New York Stock Exchange (which is currently
3:00pm Central Time) and ending as of the close of regular trading on the New
York Stock Exchange on the next succeeding Valuation Date.
VARIABLE ACCOUNT -- Glenbrook Life and Annuity Company Variable Annuity Account,
a separate investment account established by the Company to receive and invest
purchase payments paid under the Contracts.
VARIABLE SUB-ACCOUNT -- A portion of the Variable Account invested in shares of
a Fund's portfolios. The investment performance of each Variable Sub-account is
linked directly to the investment performance of the portfolios.
<PAGE>
HIGHLIGHTS
THE CONTRACT
This Contract is designed for long-term financial planning and retirement
planning. Money can be allocated to any combination of the Variable Sub-accounts
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) underlying the Variable Sub-accounts
you select. See "Accumulation Unit Value," page __ and "Amount of Variable
Account Income Payments," page __.
You will also bear the investment risk of adverse changes in interest rates in
the event amounts are prematurely withdrawn or transferred from Sub-accounts of
the Guaranteed Maturity Amount Fixed Account. See "The Guaranteed Maturity
Amount Fixed Account," page __.
FREE-LOOK
You may cancel the Contract any time within 20 days, or longer if required by
state law, after receipt of the Contract and receive a full refund of purchase
payments allocated to the Fixed Account Options. Unless a refund of purchase
payments is required by state or federal law, purchase payments allocated to the
Variable Account will be returned after an adjustment to reflect investment gain
or loss that occurred from the date of allocation through the date of
cancellation. See "Free-Look Period," page __.
HOW TO INVEST
Your first purchase payment must be at least $3,000 (for qualified contracts,
$2,000). Subsequent purchase payments must be at least $50, See "Purchase
Payment Limits," page __.
At the time of your application, you will allocate your purchase payment among
the Investment Alternatives. The allocation You specify on the application will
be effective immediately. All allocations must be in whole percents from 0% to
100% (total allocation equals 100%) or in whole dollars. Allocations may be
changed by notifying the Company in writing. See "Allocation of Purchase
Payments," page __.
INVESTMENT ALTERNATIVES
The Variable Account invests in shares of the STI Classic Variable Trust and the
Federated Prime Money Fund II (the "Funds"). Collectively, the Funds have a
total of seven 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, the International Equity portfolio, and the Small Cap 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 three
Fixed Account Options. See "Fixed Account Options," on page __.
TRANSFERS AMONG INVESTMENT ALTERNATIVES
Prior to the Payout Start Date, you may transfer amounts among the Investment
Alternatives. The Company reserves the right to assess a $10 charge on each
transfer in excess of 12 per Contract Year. The Company is presently waiving
this charge. Certain Fixed Account transfers may be restricted. See "Transfers
Among Portfolios," page __.
You may want to enroll in a Dollar Cost Averaging Program or an Automatic
Portfolio Rebalancing Program. See "Dollar Cost Averaging," page __, and
"Automatic Portfolio Rebalancing," page __.
CHARGES AND DEDUCTIONS
The charges under the Contract include: a contract maintenance charge ($30
annually), a mortality and expense risk charge (deducted daily, equal on an
annual basis to 1.25% of the Contract's daily net assets in the Variable
Account), and an administrative expense charge (deducted daily, equal on an
annual basis to .10% of the Contract's daily net assets in the Variable
Account). For Contracts with the Enhanced Death Benefit provision, the mortality
and expense risk charge will be deducted daily, at a rate equal on an annual
basis, to 1.35% of the daily net assets in the Variable Account. The assessment
of the additional .10% for the Enhanced Death Benefit is attributed to the
assumption of additional mortality risks. As noted above, the Company reserves
the right to assess a transfer charge ($10 on each transfer in excess of 12 per
Contract Year). Additional deductions may be made for certain taxes. See
"Contract
<PAGE>
Maintenance Charge," page __, "Mortality and Expense Risk Charge," page __,
"Administrative Expense Charge," page __, "Transfer Charges," page __, and
"Taxes," page __.
WITHDRAWALS
You may withdraw all or part of the Contract Value before the earlier of the
Payout Start Date or death of any Owner (the Annuitant if the Owner is not a
natural person). No withdrawal charges will be deducted on amounts withdrawn up
to 10% of the Contract Value on the date of the first withdrawal in a Contract
Year. Amounts withdrawn in excess of the 10% may be subject to a withdrawal
charge of 0% to 7% depending on how long the purchase payments have been
invested in the Contract. Amounts withdrawn from a Sub-account of the Guaranteed
Maturity Amount Fixed Account, except during the 30 day period after the
Guarantee Period expires, will be subject to a Market Value Adjustment.
Withdrawals may be subject to income tax and a 10% tax penalty. See
"Withdrawals," page __, "Withdrawals or Transfers," page __, and "Taxation of
Annuities in General," page __.
DEATH BENEFIT
The Company will pay a death benefit prior to the Payout Start Date on the death
of any Owner or, if the Owner is not a natural person, the death of the
Annuitant. See "Death Benefit Amount," page __.
INCOME PAYMENTS
You will receive periodic income payments beginning on the Payout Start Date.
You may choose among several Income Plans to fit your needs. Income payments may
be received for a specified period or for life (either single or joint life),
with or without a guaranteed number of payments. You can select income payments
that are fixed, variable or a combination of fixed and variable. See "Income
Plans," page __.
SUMMARY OF VARIABLE ACCOUNT EXPENSES
The following table illustrates all expenses and fees that you will incur. The
expenses and fees set forth in the table are based on charges under the
Contracts and on the expenses of the Variable Account and the underlying Funds.
OWNER TRANSACTION EXPENSES (ALL SUB-ACCOUNTS)
Sales Load Imposed on Purchases (as a percentage of purchase payments) . . .None
Contingent Deferred Sales Charge (as a percentage of purchase payments). . . *
<TABLE>
<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 Death Enhanced Death
Benefit Provision Benefit 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>
* Each Contract Year up to 10% of the Contract Value on the date of the first
withdrawal that year may be withdrawn without a contingent deferred sales
charge. However, any applicable Market Value Adjustment determined as of the
date of withdrawal will apply.
<PAGE>
** No charges will be imposed on the first 12 transfers in any Contract Year.
The Company reserves the right to assess a $10 charge for each transfer in
excess of 12 in any Contract Year, excluding transfers due to dollar cost
averaging and automatic portfolio rebalancing.
*** The annual Contract fee will be waived if total purchase payments as of a
Contract Anniversary or upon full withdrawal equal $25,000 or more, or if all
purchase payments are allocated to the Fixed Account Options.
PORTFOLIO EXPENSES (NET OF VOLUNTARY REDUCTIONS AND REIMBURSEMENTS)
(AS A PERCENTAGE OF FUND ASSETS)(1)
<TABLE>
<CAPTION>
Advisory Other Total Fund
Portfolio Fee Expenses Annual Expenses
- --------- --- -------- ---------------
<S> <C> <C> <C>
Federated Prime Money Fund II .30% .50% .80%
Investment Grade Bond .0% 75% .75%
Capital Growth .0% 1.15% 1.15%
Value Income Stock .52% .43% .95%
Mid-Cap Equity .53% .62% 1.15%
International Equity . 0% 1.60% 1.60%
Small Cap Equity (2) .0% 1.20% 1.20%
</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: Federated Prime Money Fund II -- .50%, .50% and 1.00%;
Investment Grade Bond Fund -- .74%, .84% and 1.58%; Capital Growth Fund --
1.15%, .45%, and 1.60%; Value Income Stock Fund -- .80%, .43%, and 1.23%;
Mid-Cap Equity Fund -- 1.15%, .62%, and 1.77%; International Equity Fund --
1.25%, 1.68% and 2.93%; and Small Cap Equity Fund--1.15%, 1.24%, 2.39%.
(2) Total expenses are based on estimated amounts for the current 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 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
Small Cap Equity . . . . . . . . . . . . . . . . . $81 $118 $158 $297
</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
Small Cap Equity . . . . . . . . . . . . . . . . . $82 $121 $163 $307
</TABLE>
<PAGE>
If you do not terminate your Contract 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
Small Cap Equity.. . . . . . . . . . . . . . . . . $27 $82 $140 $297
</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
Small Cap Equity . . . . . . . . . . . . . . . . . $28 $85 $145 $307
</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.
<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 1997
---- ---- ----
<S> <C> <C> <C>
FEDERATED PRIME MONEY FUND II SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.000 $ 10.052 $ 10.429
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 10.052 $ 10.429 $ 10.796
Number of Units Outstanding, End of Period. . . . . . . . . . . . 132,650 488,506 343,302
INVESTMENT GRADE BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.000 $ 10.336 $ 10.429
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 10.336 $ 10.429 $ 11.201
Number of Units Outstanding, End of Period. . . . . . . . . . . . 40,503 506,887 686,193
CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.000 $ 10.661 $ 13.105
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 10.661 $ 13.015 $ 17.533
Number of Units Outstanding, End of Period. . . . . . . . . . . . 103,697 1,680,419 2,788,987
VALUE INCOME STOCK SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.000 $ 10.696 $ 12.518
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 10.696 $ 12.518 $ 15.663
Number of Units Outstanding, End of Period. . . . . . . . . . . . 124,596 2,238,993 3,720,163
MID-CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.000 $ 10.285 $ 11.775
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 10.285 $ 11.775 $ 14.200
Number of Units Outstanding, End of Period. . . . . . . . . . . . 80,549 959,682 1,354,516
INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . -- $ 10.000 $ 10.150
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . -- $ 10.150 $ 11.699
Number of Units Outstanding, End of Period. . . . . . . . . . . . -- 97,975 734,936
SMALL CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . -- -- $ 10.000
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . -- -- $ 9.769
Number of Units Outstanding, End of Period. . . . . . . . . . . . -- -- 111,722
</TABLE>
All Sub-Accounts commenced operations on October 6, 1995 except for the
International Equity Sub-Account which commenced operations on November 7, 1996
and the Small Cap Equity Sub-Account which commenced operations on October 20,
1997. The Accumulation Unit Values in this table reflect a Mortality and
Expense Risk Charge of 1.25% and an Administrative Expense Charge of 0.10%.
<PAGE>
ACCUMULATION UNIT VALUE AND NUMBER
OF ACCUMULATION UNITS OUTSTANDING FOR
EACH SUB-ACCOUNT SINCE INCEPTION
WITH ENHANCED DEATH BENEFIT
<TABLE>
<CAPTION>
FOR THE
YEARS BEGINNING
JANUARY 1 AND
ENDING DECEMBER 31
1997
----
<S> <C>
FEDERATED PRIME MONEY FUND II SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.432
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 10.789
Number of Units Outstanding, End of Period. . . . . . . . . . . . 240,439
INVESTMENT GRADE BOND SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.432
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 11.193
Number of Units Outstanding, End of Period. . . . . . . . . . . . 187,787
CAPITAL GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 13.019
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 17.521
Number of Units Outstanding, End of Period. . . . . . . . . . . . 740,401
VALUE INCOME STOCK SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 12.522
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 15.652
Number of Units Outstanding, End of Period. . . . . . . . . . . . 924,002
MID-CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 11.779
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 14.190
Number of Units Outstanding, End of Period. . . . . . . . . . . . 329,187
INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.153
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 11.692
Number of Units Outstanding, End of Period. . . . . . . . . . . . 449,359
SMALL CAP EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period. . . . . . . . . . . $ 10.000
Accumulation Unit Value, End of Period. . . . . . . . . . . . . . $ 9.768
Number of Units Outstanding, End of Period. . . . . . . . . . . . 161,316
</TABLE>
The enhanced death benefit option was made available for each Sub-account
(except for the Small Cap Equity Sub-account) on May 1, 1997, and for the Small
Cap Equity Sub-Account on October 20, 1997. The Accumulation Unit Values in
this table reflect a Mortality and Expense Risk Charge of 1.35% and an
Administrative Expense Charge of .10%.
YIELD AND TOTAL RETURN DISCLOSURE
From time to time the Variable Account may advertise the yield and total return
investment performance of one or more of the Variable Sub-accounts. Yield and
standardized total return advertisements include charges and expenses
attributable to the Contracts. Including these fees has the effect of decreasing
the advertised performance of a Sub-account, so that a Sub-account's investment
performance will not be directly comparable to that of an ordinary mutual fund.
When a Variable Sub-account advertises its standardized total return it will be
calculated for one year, five years, and ten years or since inception if the
Sub-account has not been in existence for such periods. Total return is measured
by comparing the value of an investment in the Variable Sub-account at the end
of the relevant period to the value of the investment at the beginning of the
period.
<PAGE>
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- standardized total return
is measured in the same manner as the standardized total return described above,
except that the withdrawal charges under the Contract are not deducted.
Therefore, a non-standardized total return for a Sub-account can be higher than
a standardized total return for a Sub-account.
Certain Sub-accounts may advertise yield in addition to total return. The yield
will be computed in the following manner: the net investment income per unit
earned during a recent one month period is divided by the unit value on the last
day of the period, and then annualized. This figure reflects the recurring
charges at the Variable Account level.
The money market Sub-account (the Federated Prime Money Fund II) may advertise
its total return, yield or effective yield. Total return represents the change,
over a specified period of time, in the value of an investment in that
Sub-account after reinvesting all income distributions. The yield refers to the
income generated by an investment in that Sub-account over a seven-day period.
The income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized, the income earned by an investment in
the money market Sub-account (the Federated Prime Money Fund II) is assumed to
be reinvested at the end of each seven-day period. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment during a 52-week period.
The Variable Account may also disclose yield and total return for periods prior
to the date that the Variable Account commenced operations. For periods prior to
the date the Variable Account commenced operations, performance information for
the Sub-accounts will be calculated based on the performance of the 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 in which SunTrust Banks, Inc., through its banking subsidiaries,
conducts business. The Company's home office is located at 3100 Sanders Road,
Northbrook, Illinois, 60062.
The Company is a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), a stock life insurance company incorporated under the laws of
the State of Illinois. Allstate Life is a wholly owned subsidiary of Allstate
Insurance Company ("Allstate"), a stock property-liability insurance company
incorporated under the laws of Illinois. All of the outstanding capital stock of
Allstate is owned by The Allstate Corporation ("Corporation"). On June 30, 1995,
Sears, Roebuck and Co. ("Sears") distributed its 80.3% ownership in the
Corporation to Sears common shareholders through a tax-free dividend.
The Company and Allstate Life entered into a reinsurance agreement, effective
June 5, 1992, under which the Company reinsures substantially all of its
business with Allstate Life. Under the reinsurance agreement, Fixed Account
purchase payments are automatically transferred to Allstate Life and become
invested with the assets of Allstate Life and Allstate Life accepts 100% of the
liability under such contracts. However, the obligations of Allstate Life under
the reinsurance agreement are to the Company; the Company remains the sole
obligor under the Contract to the Owners.
THE VARIABLE ACCOUNT
Established on December 15, 1992, the Glenbrook Life and Annuity Company
Variable Annuity Account is a unit investment trust registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
However, such registration does not signify that the Commission supervises the
management or investment practices or policies of the Variable Account. The
investment
<PAGE>
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 seven 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 Company may also eliminate one or more
Sub-accounts if, in its sole discretion, marketing, tax or investment conditions
so warrant.
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 FUNDS
The Variable Account currently invest in shares of 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 their management, investment practices or policies by the
Securities and Exchange Commission. The Funds are designed to provide investment
vehicles for variable insurance contracts of various insurance companies, in
addition to the Contracts.
Shares of the portfolios of the Funds are not deposits, or obligations of, or
guaranteed or endorsed by any bank and the shares are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other agency.
THE STI CLASSIC VARIABLE TRUST
The STI Classic Variable Trust offers six portfolios for use under the Contract:
the Investment Grade Bond portfolio, the Capital Growth portfolio, the Value
Income Stock portfolio, the Mid-Cap Equity portfolio, the International Equity
portfolio and the Small 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.
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 Small Cap Equity portfolio seeks to provide capital appreciation with a
secondary goal of achieving current income by investing primarily in equity
securities of smaller companies (i.e., companies with market capitalizations of
less than $1 billion) which, in the advisor's opinion, are undervalued for
above-average capital growth.
THE 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.
<PAGE>
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, International
Equity and Small Cap Equity portfolios. STI Capital is an indirect wholly owned
subsidiary of SunTrust Banks, Inc. ("SunTrust"), a southeastern regional bank
holding company with assets of $67.4 billion as of December 31, 1997.
STI Capital, as advisor, makes the investment decisions for the assets of the
portfolios it advises and continuously reviews, supervises and administers the
respective 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 $120 billion as of December 31, 1997. 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 AND DOLLAR COST AVERAGING FIXED ACCOUNT
Monies allocated to the Standard Fixed Account and the Dollar Cost Averaging
("DCA") Fixed Account become part of the general account of the Company, which
supports insurance and annuity obligations. The general account consists of the
general assets of the Company other than those in segregated asset accounts.
Instead of you bearing the investment risk, as is the case for amounts in the
Variable Account or in other segregated asset accounts of the Company, we bear
the investment risk for all amounts in the Standard Fixed Account and the DCA
Fixed Account. We have sole discretion to invest the assets of the Standard
Fixed Account and DCA Fixed Account, subject to applicable law. We guarantee
that the amounts allocated to the Standard Fixed Account and DCA Fixed Account
will be credited interest at a net effective annual interest rate at least equal
to the minimum guaranteed rate found in the Contract. Currently, the amount of
interest credited in excess of the guaranteed rate will vary periodically at the
sole discretion of the Company. Any interest held in the Standard Fixed Account
and DCA Fixed Account does not entitle an Owner to share in the investment
experience of the general account.
Purchase payments and transfers allocated to the Standard Fixed Account earns
interest for a one year period at the current rate in effect at the time of
allocation. After the one year period, a renewal rate will be declared.
Subsequent renewal dates will be every twelve months for each payment or
transfer. The renewal interest rate will be guaranteed by us for a full year and
will not be less than the minimum guaranteed rate found in the Contract.
Purchase payments may be allocated to the DCA Fixed Account for the purpose of
establishing a DCA Program. Money allocated to the DCA Fixed Account earns
interest for up to a one year period at the current annual rate in effect at the
time of allocation. For each purchase payment, the minimum amount that may be
allocated to the DCA Fixed Account is $5,000. The Company reserves the right to
reduce the minimum allocation amount. Each purchase payment and all its
earnings must be transferred out of the DCA Fixed Account via Dollar Cost
Averaging within the selected program period. The number of monthly
installments must be no less than 3 or more than 12. If You discontinue the DCA
program before the end of the transfer period, the remaining balance in the DCA
Fixed Account will be transferred to the Standard Fixed Account. The DCA Fixed
Account may not be available in all states.
We may declare more than one interest rate for different monies based upon the
date of allocation to the Standard Fixed Account and the DCA Fixed Account. For
current interest rate information, please contact your sales representative or
the Company's customer support unit at 1-800/453-6038.
Amounts may be transferred from the Sub-accounts of the Variable Account to the
Standard Fixed Account, and prior to the Payout Start Date, amounts may also be
transferred from the Standard Fixed Account to any other Investment Alternative.
<PAGE>
The maximum amount in any Contract Year which may be transferred from the
Standard Fixed Account to any other Investment Alternative is limited to the
greater of (1) 25% of the value in the Standard Fixed Account as of the most
recent Contract Anniversary; if 25% of the value as of the most recent Contract
Anniversary is less than $1,000, then up to $1,000 may be transferred; or (2)
25% of the sum of all purchase payments and transfers to the Standard Fixed
Account as of the most recent Contract Anniversary.
After the Payout Start Date no transfers may be made from the Fixed Account
Options. Transfers from the Variable Account to the Standard Fixed Account may
not be made for six months after the Payout Start Date and may be made
thereafter only once every six months.
Full and partial withdrawals from the Standard Fixed Account and DCA Fixed
Account may be delayed for up to six months.
THE GUARANTEED MATURITY AMOUNT FIXED ACCOUNT
Purchase payments and transfers allocated to one or more of the Sub-accounts of
the Guaranteed Maturity Amount Fixed Account become part of the general account
of the Company. Each Sub-account offers a separate interest rate Guarantee
Period. Guarantee Periods will be offered at the Company's discretion and may
range from one to ten years. Presently, the Company offers Guarantee Periods of
three, five, seven and ten years. The Owner must select the Sub-account(s) in
which to allocate each purchase payment and transfer. No less than $50 may be
allocated to any one Sub-account. The Company reserves the right to limit the
number of additional purchase payments.
Interest is credited daily to each Sub-account at a rate which compounds to the
effective annual interest rate declared for each Sub-account's Guarantee Period
that has been selected. The effective annual interest rate will never be less
than the minimum guaranteed rate, as found in the Contract.
The following example illustrates how the Sub-account value for a Sub-account of
the Guaranteed Maturity Amount Fixed Account would grow given an assumed
purchase payment, Guarantee Period, and effective annual interest rate:
EXAMPLE OF INTEREST CREDITING DURING THE GUARANTEE PERIOD
<TABLE>
<CAPTION>
<S> <C>
Purchase Payment:. . . . . . . . . . . . . . . . . . . . . . $10,000.00
Guarantee Period:. . . . . . . . . . . . . . . . . . . . . . 5 years
Effective Annual Rate: . . . . . . . . . . . . . . . . . . . 4.50%
</TABLE>
<TABLE>
<CAPTION>
END OF CONTRACT YEAR:
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Beginning Sub-Account Value $10,000.00
X (1 + Effective Annual Rate) 1.0450
------
$10,450.00
Sub-Account Value at end of Contract $10,450.00
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.
<PAGE>
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
- receive a portion of the Sub-account value or the entire
Sub-account value through a partial or full withdrawal that is
not subject to a Market Value Adjustment. In this case, the
Sub-Account will be deemed to have been renewed for the same
Guarantee Period as the one that just expired with current
interest credited from the date the Guarantee Period expired.
The Automatic Laddering Program allows the Owner to choose, in advance, one
renewal Guarantee Period for all renewing Sub-accounts. The Owner can select the
Automatic Laddering Program at any time during the accumulation phase, including
on the issue date. The Automatic Laddering Program will continue until the Owner
gives written notice to the Company. The Company reserves the right to
discontinue this program. For additional information on the Automatic Laddering
Program, please call the Company's Customer Service unit at 1-800/453-6038.
WITHDRAWALS OR TRANSFERS
All withdrawals and transfers, from a Sub-account of the Guaranteed Maturity
Amount Fixed Account other than during the 30 day period after a Guarantee
Period expires are subject to a Market Value Adjustment.
The main component in determining the amount received by the Owner is the amount
which was requested; however, there may be adjustments to the requested amount.
A withdrawal charge may reduce the amount received. A Market Value Adjustment
may apply which would reduce or increase the amount received. Premium taxes and
federal income tax withholding and penalties may also apply, which would reduce
the amount received.
The amount received by the Owner under a withdrawal request equals the amount
requested, adjusted by any Market Value Adjustment, less any applicable
withdrawal charge (based upon the amount requested prior to any Market Value
Adjustment), less premium taxes and withholding (if applicable).
Amounts may be transferred from the Sub-accounts of the Variable Account to the
Guaranteed Maturity Amount Fixed Account, and prior to the Payout Start Date,
amounts may also be transferred from the Guaranteed Maturity Amount Fixed
Account to any other Investment Alternative.
After the Payout Start Date no transfers may be made from the Fixed Account
Options. Transfers from the Variable Account to the Guaranteed Maturity Amount
Fixed Account may not be made for six months after the Payout Start Date and may
be made thereafter only once every six months.
Full and partial withdrawals from the Guaranteed Maturity Amount Fixed Account
may be delayed for up to six months.
<PAGE>
MARKET VALUE ADJUSTMENT
The Market Value Adjustment reflects the relationship between (1) the current
effective annual interest rate for the time remaining in the Guarantee Period at
the time of the request for withdrawal or transfer, or when money is applied to
an Income Plan, and (2) the effective annual interest rate guaranteed for that
Sub-account. Since current interest rates are based, in part, upon investment
yields available at the time, the effect of the Market Value Adjustment will be
closely related to the levels of such yields. As such, the Owner bears some
investment risk under the Contract.
It is possible, therefore, that should investment yields increase significantly
from the time the purchase payment was made, the Market Value Adjustment,
withdrawal charge, premium taxes and withholding (if applicable), would reduce
the amount received by the Owner upon full withdrawal of the Contract Value to
an amount that is less than the purchase payment plus interest at the minimum
guaranteed interest rate under the Contract.
Generally, if the effective annual interest rate for the Guarantee Period is
lower than the applicable current effective annual interest rate (interest rate
for a period equal to the time remaining in the Sub-account), then the Market
Value Adjustment will result in a lower amount payable to the Owner. Similarly,
if the effective annual interest rate for the Guarantee Period is higher than
the applicable current effective annual interest rate, then the Market Value
Adjustment will result in a higher amount payable to the Owner.
For example, assume the Owner purchases a Contract and selects an initial
Guarantee Period of five years and the Company's effective annual rate for that
duration is 4.50%. Assume that at the end of 3 years, the Owner makes a partial
withdrawal. If, at that later time, the current interest rate for a 2 year
Guarantee Period is 4.00%, then the Market Value Adjustment will be positive,
which will result in an increase in the amount payable to the Owner. Similarly,
if the current interest rate for the 2 year Guarantee Period is 5.00%, then the
Market Value Adjustment will be negative, which will result in a decrease in the
amount payable to the Owner.
The formula for calculating the Market Value Adjustment is set forth in Appendix
A to this prospectus, which also contains additional illustrations of the
application of the Market Value Adjustment.
PURCHASE OF THE CONTRACTS
PURCHASE PAYMENT LIMITS
Your first purchase payment must be at least $3,000 unless the Contract is a
qualified Contract, in which case the first purchase payment must be at least
$2,000. All subsequent purchase payments must be $50 or more and may be made at
any time prior to the earlier of the Payout Start Date or your 86th birthday.
Subsequent purchase payments may also be made from your bank account by
automatic transfer.
We reserve the right to limit the amount of purchase payments we will accept.
FREE-LOOK PERIOD
You may cancel the Contract any time within 20 days after receipt of the
Contract, or longer if required by state law, and receive a full refund of
purchase payments allocated to any Fixed Account Option. Unless a refund of
purchase payments is required by state or federal law, purchase payments
allocated to the Variable Account will be returned after an adjustment to
reflect investment gain or loss that occurred from the date of allocation
through the date of cancellation.
CREDITING OF PURCHASE PAYMENTS
The initial purchase payment accompanied by a duly completed application will be
credited to the Contract within two business days of receipt by us at our home
office. If an application is not duly completed, we will credit the purchase
payments to the Contract within five business days or return it at that time
unless you specifically consent to us holding the purchase payment until the
application is complete. We reserve the right to reject any application.
Subsequent purchase payments will be credited to the Contract at the close of
the Valuation Period in which the purchase payment is received by the Company at
its home office.
ALLOCATION OF PURCHASE PAYMENTS
On the application, you instruct us how to allocate the purchase payment among
the 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. Any change in allocation
instructions will be effective at the time we receive the notice in good order.
<PAGE>
ACCUMULATION UNITS
Each purchase payment allocated to the Variable Account will be credited to the
Contract as Accumulation Units. For example, if a $10,000 purchase payment is
credited to the Contract when the Accumulation Unit value equals $10, then 1,000
Accumulation Units would be credited to the Contract. The Variable Account, in
turn, purchases shares of the corresponding portfolio.
For a brief summary of how purchase payments allocated to the Fixed Account are
credited to the Contract, see "Fixed Account Options" on page __.
ACCUMULATION UNIT VALUE
The Accumulation Units of the various Sub-accounts of the Variable Account are
valued separately. The value of Accumulation Units will change each Valuation
Period according to the investment performance of the shares purchased by each
Variable Sub-account and the deduction of certain expenses and charges.
The value of an Accumulation Unit in a Variable Sub-account for any Valuation
Period equals the value of the Accumulation Unit as of the immediately preceding
Valuation Period, multiplied by the Net Investment Factor for that Sub-account
for the current Valuation Period. The Net Investment Factor for a Valuation
Period is a number representing the change, since the last Valuation Date in the
value of Sub-account assets per Accumulation Unit due to investment income,
realized or unrealized capital gain or loss, deductions for taxes, if any, and
deductions for the mortality and expense risk charge and administrative expense
charge.
TRANSFERS AMONG INVESTMENT ALTERNATIVES
Prior to the Payout Start Date, you may transfer amounts among Investment
Alternatives. The Company reserves the right to assess a $10 charge on each
transfer in excess of 12 per Contract Year. Transfers to or from more than one
fund on the same day are treated as one transfer. The Company is presently
waiving this charge. Transfers among Variable Sub-accounts before the Payout
Start Date may be made at any time. See "Withdrawals or Transfers," page __ for
the requirements on transfers from the Fixed Account.
After the Payout Start Date, transfers among Sub-accounts of the Variable
Account, or from the Variable Account to a Fixed Account option may be made only
once every six months and may not be made during the first six months following
the Payout Start Date. After the Payout Start Date, transfers from the Fixed
Account Options are not allowed.
Transfers may be made pursuant to telephone instructions if the Owner completes
the telephone authorization form on the application or another form provided by
the Company. Telephone transfer requests will be accepted by the Company if
received at 1-800/453-6038 by 3:00 p.m., Central Time. Telephone transfer
requests received before 3:00 p.m., Central Time are effected at the Contract
Value next computed after receipt of the request. If telephone transfers are
not authorized, transfer requests must be in writing, on a form provided by the
Company. In the event that the New York Stock Exchange ("NYSE") closes early,
I.E., before 3:00 p.m. Central Time, or in the event that the NYSE closes early
for a period of time but then reopens for trading on the same day, telephone
transfer requests will be processed by the Company as of the close of the NYSE
on that particular day. Telephone requests received at any telephone number
other than the number that appears in this paragraph or received after the close
of trading on the NYSE will not be accepted by the Company.
The Company utilizes procedures which the Company believes will provide
reasonable assurance that telephone authorized transfers are genuine. Such
procedures include taping of telephone conversations with persons purporting to
authorize such transfers and requesting identifying information from such
persons. Accordingly, the Company disclaims any liability for losses resulting
from such transfers by reason of their allegedly not having been properly
authorized. However, if the Company does not take reasonable steps to help
ensure that such authorizations are valid, the Company may be liable for such
losses.
The Company reserves the right to waive the transfer restrictions.
DOLLAR COST AVERAGING
Transfers may be made automatically through Dollar Cost Averaging prior to the
Payout Start Date. Dollar Cost Averaging permits the Owner to transfer a
specified amount every month from any Sub-account of the Variable Account, the
Standard Fixed Account or the DCA Fixed Account, to any other Sub-account of the
Variable Account. Dollar Cost Averaging cannot be used to transfer amounts to a
Fixed Account option. Transfers made through Dollar Cost Averaging are not
assessed a $10 charge and are not counted towards the 12 free transfers per
Contract Year.
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.
<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 counted towards the 12 free transfers per Contract Year.
Any money allocated to a Fixed Account Option will not be included in the
Automatic Portfolio Rebalancing.
BENEFITS UNDER THE CONTRACT
WITHDRAWALS
You may withdraw all or part of the Contract Value at any time prior to the
earlier of the death of the Owner (the Annuitant if the Owner is not a natural
person) or the Payout Start Date. The amount payable for withdrawal is the
Contract Value next computed after the Company receives the request for a
withdrawal at its home office, adjusted by any Market Value Adjustment, less any
withdrawal charges, contract maintenance charges, income tax withholding,
penalty tax, and any premium taxes. Withdrawals from the Variable Account will
be paid within seven days of receipt of the request, subject to postponement in
certain circumstances. Full and partial withdrawals from the Fixed Account
options may be delayed for up to six months. See "Delay of Payments," page __.
Money can be withdrawn from the Variable Account or the Fixed Account Options.
To complete the partial withdrawal from the Variable Account, the Company will
cancel Accumulation Units in an amount equal to the withdrawal and any
applicable withdrawal charge and premium taxes. The Owner must name the
Investment Alternative from which the withdrawal is to be made. If none is
named, then the withdrawal request is incomplete and cannot be honored.
The minimum partial withdrawal is $50. If the Contract Value after a partial
withdrawal would be less than $2,000, then the Company will treat the request as
one for a termination of the Contract and the entire Contract Value, adjusted by
any Market Value Adjustment, less any charges and premium taxes, will be paid
out. The Company will, however, require confirmation of the withdrawal request
before terminating the Contract.
Partial withdrawals may also be taken automatically through Systematic
Withdrawals on a monthly, quarterly, semi-annual or annual basis. Systematic
Withdrawals of $50 or more may be requested at any time prior to the Payout
Start Date. At the Company's discretion, Systematic Withdrawals may not be
offered in conjunction with Dollar Cost Averaging or Automatic Portfolio
Rebalancing.
Withdrawals and surrenders may be subject to income tax and a 10% tax penalty,
which are explained in "Federal Tax Matters," on page __.
After the Payout Start Date, withdrawals are only permitted when payments from
the Variable Account are being made that do not involve life contingencies. In
that case, you may terminate the Variable Account portion of the income payments
at any time and receive a lump sum equal to the commuted balance of the
remaining variable payments due, less any applicable withdrawal charge.
PAYOUT START DATE FOR INCOME PAYMENTS
The Payout Start Date is the day that money is applied to an Income Plan. You
may change the Payout Start Date at any time by notifying the Company in writing
of the change at least 30 days before the scheduled Payout Start Date. The
Payout Start Date must be (a) at least one month after the Issue Date; and (b)
no later than the day the Annuitant reaches age 90, or the 10th Contract
Anniversary, if later.
AMOUNT OF VARIABLE ACCOUNT INCOME PAYMENTS
The amount of Variable Account income payments depends upon the investment
experience of the Sub-accounts selected by the Owner and any premium taxes, the
age and sex of the Annuitant, and the Income Plan chosen. The Company guarantees
that the amount of the income payment will not be affected by (1) actual
mortality experience and (2) the amount of the Company's administration
expenses.
<PAGE>
The total income payments received may be more or less than the total purchase
payments made because (a) Variable Account income payments vary with the
investment results of the underlying portfolios, and (b) Annuitants may not live
as long as, or may live longer than, expected.
If the actual net investment experience of the Variable Account is less than the
assumed investment rate, then the dollar amount of the income payments will
decrease. The dollar amount of the income payments will stay level if the net
investment experience equals the assumed investment rate and the dollar amount
of the income payments will increase if the net investment experience exceeds
the assumed investment rate. For purposes of the Variable Account income
payments, the assumed investment rate is 3 percent.
AMOUNT OF FIXED ACCOUNT INCOME PAYMENTS
Income payment amounts derived from any Fixed Account Option are guaranteed for
the duration of the Income Plan. The income payment based upon any Fixed Account
Option is calculated by applying the portion of the Contract Value in any Fixed
Account Option on the Payout Start Date, adjusted by any Market Value Adjustment
and less any applicable premium tax, to the greater of the appropriate value
from the income payment table selected or such other value as we are offering at
that time.
INCOME PLANS
The Contracts offered by this prospectus contain income payment tables that
provide for different benefit payments to men and women of the same age (except
in states which require unisex annuity tables). Nevertheless, in accordance with
the U.S. Supreme Court's decision in ARIZONA GOVERNING COMMITTEE V. NORRIS, in
certain employment-related situations, annuity tables that do not vary on the
basis of sex may be used. Accordingly, if the Contract is to be used in
connection with an employment-related retirement or benefit plan, consideration
should be given, in consultation with legal counsel, to the impact of NORRIS on
any such plan before making any contributions under these Contracts.
The Income Plan option selected will affect the dollar amount of each income
payment. For example, if an Income Plan Guaranteed for Life is chosen, the
income payments will be greater than income payments under an Income Plan for a
Minimum Specified Period and guaranteed thereafter for life.
You may elect income payments based on any Fixed Account Option and/or the
Variable Account. The Owner may change the Income Plan until 30 days before the
Payout Start Date. If an Income Plan is chosen which depends on the Annuitant or
Joint Annuitant's life, proof of age will be required before income payments
begin. Applicable premium taxes will be assessed. The Income Plans include:
INCOME PLAN 1 -- LIFE INCOME WITH GUARANTEED PAYMENTS
The Company will make payments for as long as the Annuitant lives. If the
Annuitant dies before the selected number of guaranteed payments have been
made, the Company will continue to pay the remainder of the guaranteed
payments.
INCOME PLAN 2 -- JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED PAYMENTS
The Company will make payments for as long as either the Annuitant or Joint
Annuitant, named at the time of Income Plan selection, is living. If both
the Annuitant and the Joint Annuitant die before the selected number of
guaranteed payments have been made, the Company will continue to pay the
remainder of the guaranteed payments.
INCOME PLAN 3 -- GUARANTEED PAYMENTS FOR A SPECIFIED PERIOD
The Company will make payments for a specified period beginning on the
Payout Start Date. These payments do not depend on the Annuitant's life.
The number of months guaranteed may be from 60 to 360. The mortality and expense
risk charge will be deducted from Variable Account payments even though the
Company does not bear any mortality risk under the Income Plan chosen. If Income
Plan 3 is chosen and the proceeds are derived from the Variable Account, you may
terminate the Contract at any time by notifying the Company in writing and you
will receive the Contract Value within seven days; however, a withdrawal charge
may apply if this occurs.
In the event that an Income Plan is not selected, the Company will make income
payments in accordance with Income Plan 1 with Guaranteed Payments for 120
Months. At the Company's discretion, other Income Plans may be available upon
request. The Company currently uses sex-distinct annuity tables. However, if
legislation is passed by Congress or the states, the Company reserves the right
to use income payment tables which do not distinguish on the basis of sex.
Special rules and limitations may apply to certain qualified contracts.
<PAGE>
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
(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:
<PAGE>
The greatest of the Anniversary Values as of the date we determine the
death benefit. The Anniversary Value is equal to the Contract Value on a
Contract Anniversary, increased by purchase payments made since that
anniversary and reduced by an adjustment for any partial withdrawals since
that anniversary.
The adjustment is equal to (a) divided by (b), and the result is multiplied
by (c) where:
(a) is the withdrawal amount.
(b) is the Contract Value immediately prior to the withdrawal.
(c) is the Contract Value on that Contract Anniversary adjusted by any
prior purchase payments and withdrawals since that Contract Anniversary.
Anniversary values will be calculated for each Contract Anniversary prior
to the oldest Owner's or the Annuitant's, if the Owner is not a natural
person, 80th birthday. The Enhanced Death Benefit Option will never be
greater than the maximum death benefit allowed by any non-forfeiture laws
which govern the Contract.
DEATH BENEFIT PAYMENT PROVISIONS
THE FOLLOWING INFORMATION IS APPLICABLE TO CONTRACTS ISSUED PRIOR TO MAY 1,
1997:
The Owner eligible to receive death benefits has the following options:
1. If the Owner eligible to receive the death benefit is not a natural person,
then the Owner must receive the death benefit in a lump sum within five years of
the Date of Death.
2. Otherwise, within 60 days of the date when the death benefit is calculated,
the Owner may elect to receive the death benefit under an Income Plan or in a
lump sum.
Payments from the Income Plan must begin within one-year of the Date of Death
and must be payable throughout:
- -the life of the Owner; or
-a period not to exceed the life expectancy of the Owner; or
-the life of the Owner with payments guaranteed for a period not to exceed
the life expectancy of the Owner.
Any death benefit payable in a lump sum must be paid within five years of the
date of death. If no election is made, funds will be distributed at the end of
the five year period.
3. If the surviving spouse of the deceased Owner is the new Owner, then the
spouse may elect one of the options listed above or may continue the Contract in
the accumulation phase as if the death had not occurred. If the Contract is
continued in the accumulation phase, the surviving spouse may make a single
withdrawal of any amount within one year of the date of death without incurring
a withdrawal charge. However, any applicable Market Value Adjustment, determined
as of the date of the withdrawal, will apply.
THE FOLLOWING INFORMATION IS APPLICABLE TO CONTRACTS ISSUED ON OR AFTER MAY 1,
1997:
A death benefit will be paid: 1) if the Owner elects to receive the death
benefit distributed in a single payment within 180 days of the date of death,
and 2) if the death benefit is paid as of the day the value of the death benefit
is determined. Otherwise, the Settlement Value will be paid. The Company is
currently waiving the 180 day limit. The Company reserves the right to enforce
the limitation in the future. In any event, the entire value of the Contract
must be distributed within five (5) years after the date of death unless an
Income Plan is elected or a surviving spouse continues the Contract in
accordance with the following provisions.
If the Owner eligible to receive the distribution upon death is not a natural
person, the Owner may elect to receive the distribution upon death in one or
more distributions.
If the Owner is a natural person, the Owner may elect to receive the
distribution upon death either in one or more distributions or by periodic
payments through an Income Plan. Payments from the Income Plan must begin within
one year of the date of death and must be payable throughout:
<PAGE>
- 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).
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE)
You may withdraw all or part of the Contract Value at any time prior to the
earlier of the death of the Owner (the Annuitant if the Owner is not a natural
person) or the Payout Start Date.
There are no withdrawal charges on amounts withdrawn up to 10% of the Contract
Value on the date of the first withdrawal in a Contract Year. Amounts withdrawn
in excess of this may be subject to a withdrawal charge. Amounts not subject to
a withdrawal charge and not withdrawn in a Contract Year are not carried over to
later Contract Years. Withdrawal charges, if applicable, will be deducted from
the amount paid.
Free withdrawals and other partial withdrawals will be allocated on a first in,
first out basis to purchase payments. For purposes of calculating the amount of
the withdrawal charge, withdrawals are assumed to come from purchase payments
first, beginning with the oldest payment. Withdrawals made after all purchase
payments have been withdrawn will not be subject to a withdrawal charge. For
partial withdrawals, the amount of payment received by the Owner less any market
value adjustment, any withdrawal charge, and any applicable taxes, will be
deducted from the Contract Value.
Withdrawal charges will be applied to amounts withdrawn in excess of 10% of the
Contract Value as set forth below:
<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.
In addition, federal and state income tax may be withheld from withdrawal
amounts. Certain terminations may also be subject to a federal tax penalty. See
"Federal Tax Matters," page __.
The Company will waive any withdrawal charge prior to the Payout Start Date if
at least 30 days after the Contract Date any Owner (or Annuitant if the Owner is
not a natural person) 1) is first confined to a long term care facility or
hospital for at least 90 consecutive days, confinement is prescribed by a
physician and is medically necessary, and the request for a withdrawal and
adequate written proof of confinement are received by the Company no later than
90 days after discharge; or, 2) is first diagnosed by a physician as having a
<PAGE>
terminal illness and a request for a withdrawal and adequate proof of diagnosis
are received by the Company. In addition, the withdrawal charge will be waived
on withdrawals taken to satisfy IRS Required Minimum Distribution Rules for this
Contract.
You may also request a one time waiver of withdrawal charges on a partial or
full withdrawal if (a) You become unemployed at least one year past the issue
date of the Contract; (b) You receive unemployment compensation for at least 30
straight days as a result of that unemployment; and (c) this benefit is
exercised within 180 days of Your initial receipt of unemployment compensation.
Please see Your Contract for additional details. This benefit may not be
available in all states.
CONTRACT MAINTENANCE CHARGE
A contract maintenance charge is deducted annually from the Contract Value to
reimburse the Company for its actual costs in maintaining each Contract and the
Variable Account. The Company guarantees that the amount of this charge will not
exceed $30 per Contract Year over the life of the Contract. This charge will be
waived if the total purchase payments are $25,000 or more or if all money is
allocated to the Fixed Account Options on the Contract Anniversary.
Maintenance costs include but are not limited to expenses incurred in billing
and collecting purchase payments; keeping records; processing death claims, cash
withdrawals, and policy changes; proxy statements; calculating Accumulation Unit
and Annuity Unit values; and issuing reports to Owners and regulatory agencies.
The contract maintenance charge will be deducted from the Contract Value
invested in each Sub-account of the Variable Account on each Contract
Anniversary prior to the Payout Start Date. The contract maintenance charge
will not be deducted from the Fixed Account options. The amount deducted for the
contract maintenance charge will be in the same proportion that the Owner's
value in each bears to the total value in all Sub-accounts of the Variable
Account. After the Payout Start Date, a pro rata share of the annual contract
maintenance charge will be deducted from each income payment. For example, 1/12
of the $30, or $2.50, will be deducted if there are twelve income payments
during the Contract Year. The portion of the contract maintenance charge
proportional to the part of the Contract Year elapsed will be deducted from the
amount paid upon termination of the Contract.
ADMINISTRATIVE EXPENSE CHARGE
The Company will deduct an administrative expense charge which is equal, on an
annual basis, to .10% of the daily net assets you have allocated to the
Sub-accounts of the Variable Account. This charge is designed to cover actual
administrative expenses which exceed the revenues from the contract maintenance
charge. There is no necessary relationship between the amount of administrative
charge imposed on a given Contract and the amount of expenses that may be
attributable to that Contract.
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct a mortality and expense risk charge which is equal, on
an annual basis, to 1.25% of the daily net assets you have allocated to the
Sub-accounts of the Variable Account. The Company estimates that .85% is
attributable to the assumption of mortality risks and .40% is attributable to
the assumption of expense risks. For Contracts with the Enhanced Death Benefit
provision, the mortality and expense risk charge will be deducted daily, at a
rate equal on an annual basis, to 1.35% of the daily net assets in the Variable
Account. The assessment of the additional .10% for the Enhanced Death Benefit is
attributed to the assumption of additional mortality risks. The Company
guarantees that the percentage for this charge will not increase over the life
of the Contract.
The mortality risk arises from the Company's guarantee to cover all death
benefits and to make income payments in accordance with the Income Plan selected
and the Income Payment Tables.
The expense risk arises from the possibility that the contract maintenance and
administrative expense charge, both of which are guaranteed not to increase,
will be insufficient to cover actual administrative expenses.
PREMIUM TAXES
The Company will deduct applicable state premium taxes or other similar
policyholder taxes relative to the Contract (collectively referred to as
"premium taxes") either at the Payout Start Date, or when a total withdrawal
occurs. Current premium tax rates range from 0 to 3.5%. The Company reserves the
right to deduct premium taxes from the purchase payments.
At the Payout Start Date, the charge for premium taxes will be deducted from
each Investment Alternative in the proportion that the Owner's value in the
Investment Alternative bears to the total Contract Value.
<PAGE>
TRANSFER CHARGES
The Company reserves the right to assess a $10 charge on each transfer in excess
of 12 per Contract Year, excluding transfers through Dollar Cost Averaging and
Automatic Portfolio Rebalancing. The Company is presently waiving this charge.
FUND EXPENSES
A complete description of the expenses and deductions from the portfolios in
each Fund is found in the prospectus for each Fund, which accompanies this
prospectus.
GENERAL MATTERS
OWNER
The Owner has the sole right to exercise all rights and privileges under the
Contract, except as otherwise provided in the Contract. The Contract cannot be
jointly owned by both a non-natural person and a natural person.
ANNUITANT
If the Owner is a natural person, the Owner may change the Annuitant prior to
the Payout Start Date. The Annuitant must be a natural person. If the Annuitant
dies prior to the Payout Start Date, the new Annuitant will be: a) the youngest
Owner, otherwise (b) the youngest Beneficiary.
BENEFICIARY
Subject to the terms of any irrevocable Beneficiary designation, the Owner may
change the Beneficiary at any time by notifying the Company in writing. Any
change will be effective at the time it is signed by the Owner, whether or not
the Annuitant is living when the change is received by the Company. The Company
will not, however, be liable as to any payment or settlement made prior to
receiving the written notice.
Unless otherwise provided in the Beneficiary designation, if any Beneficiary
predeceases the Owner, the new Beneficiary will be: the Owner's spouse if
living; otherwise, the Owner's children, equally, if living; otherwise, the
Owner's estate. Multiple Beneficiaries may be named. Unless otherwise provided
in the Beneficiary designation, if more than one Beneficiary survives the Owner,
the surviving Beneficiaries will share equally in any amounts due.
ASSIGNMENTS
The Company will not honor an assignment of an interest in a Contract as
collateral or security for a loan. Otherwise, the Owner may assign periodic
income payments under the Contract prior to the Payout Start Date. No
Beneficiary may assign benefits under the Contract until they are due. No
assignment will bind the Company unless it is signed by the Owner and filed with
the Company. The Company is not responsible for the validity of an assignment.
Federal law prohibits or restricts the assignment of benefits under many types
of retirement plans and the terms of such plans may themselves contain
restrictions on assignments.
DELAY OF PAYMENTS
Payment of any amounts due from the Variable Account under the Contract will
occur within seven days, unless:
1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the Securities and Exchange Commission; or
3. The Securities and Exchange Commission permits delay for the protection of
the Owners.
Payments or transfers from the Fixed Account Options may be delayed for up to 6
months. If payment or transfer is delayed for 30 days or more, the Company will
pay interest as required by applicable law.
<PAGE>
MODIFICATION
The Company may not modify the Contract without the consent of the Owner except
to make the Contract meet the requirements of the Investment Company Act of
1940, or to make the Contract comply with any changes in the Internal Revenue
Code or any changes required by the Code or by any other applicable law.
CUSTOMER INQUIRIES
The Owner or any persons interested in the Contract may make inquiries regarding
the Contract by calling or writing your representative or:
GLENBROOK LIFE AND ANNUITY COMPANY
3100 SANDERS ROAD
NORTHBROOK, ILLINOIS 60062
1-800/453-6038
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. THE
COMPANY MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or receipt of distributions under an annuity contract
depend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL
Generally, an annuity contract owner is not taxed on increases in the Contract
Value until a distribution occurs. This rule applies only where (1) the owner is
a natural person, (2) the investments of the Variable Account are "adequately
diversified" in accordance with Treasury Department regulations, and (3) the
issuing insurance company, instead of the annuity owner, is considered the owner
for federal income tax purposes of any separate account assets funding the
contract.
NON-NATURAL OWNERS
As a general rule, annuity contracts owned by non-natural persons are not
treated as annuity contracts for federal income tax purposes and the income on
such contracts is taxed as ordinary income received or accrued by the owner
during the taxable year. There are several exceptions to the general rule for
contracts owned by non-natural persons which are discussed in the Statement of
Additional Information.
DIVERSIFICATION REQUIREMENTS
For a Contract to be treated as an annuity for federal income tax purposes, the
investments in the Variable Account must be "adequately diversified" in
accordance with the standards provided in the Treasury regulations. If the
investments in the Variable Account are not adequately diversified, then the
Contract will not be treated as an annuity contract for federal income tax
purposes and the Owner will be taxed on the excess of the Contract Value over
the investment in the Contract. Although the Company does not have control over
the Funds or their investments, the Company expects the Funds to meet the
diversification requirements.
OWNERSHIP TREATMENT
In connection with the issuance of the regulations on the adequate
diversification standards, the Department of the Treasury announced that the
regulations do not provide guidance concerning the extent to which contract
owners may direct their investments among Sub-accounts of a variable account.
The Internal Revenue Service has previously stated in published rulings that a
variable contract owner will be considered the owner of separate account assets
if the owner possesses incidents of ownership in those assets such as the
ability to exercise investment control over the assets. At the time the
diversification regulations were issued, Treasury announced that guidance would
be issued in the future regarding the extent that owners could direct their
investments among Sub-accounts without being treated as owners of the underlying
assets of the Variable Account.
<PAGE>
The ownership rights under this contract are similar to, but different in
certain respects from, those described by the Service in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of this contract has the choice of more investment options to
which to allocate premiums and contract values, and may be able to transfer
among investment options more frequently than in such rulings. These differences
could result in the contract owner being treated as the owner of the assets of
the Variable Account. In those circumstances, income and gains from the Variable
Account assets would be includible in the Contract Owners' gross income. In
addition, the Company does not know what standards will be set forth in the
regulations or rulings which the Treasury Department has state it expects to
issue. It is possible that Treasury's position, when announced, may adversely
affect the tax treatment of existing contracts. The Company, therefore, reserves
the right to modify the Contract as necessary to attempt to prevent the Owner
from being considered the federal tax owner of the assets of the Variable
Account. However, the Company makes no guarantee that such modification to the
contract will be successful.
DELAYED MATURITY DATES
If the Contract's scheduled maturity date is at a time when the annuitant has
reached an advanced age, e.g., past age 85, it is possible that the contract
would not be treated as an annuity. In that event, the income and gains under
the contract could be currently includible in the owner's income.
TAXATION OF PARTIAL AND FULL WITHDRAWALS
In the case of a partial withdrawal under a non-qualified contract, amounts
received are taxable to the extent the contract value, without regard to any
surrender charge, before the withdrawal exceeds the investment in the contract.
The investment in the contract is the gross premium or other consideration paid
for the contract reduced by any amounts previously received from the contract to
the extent such amounts were properly excluded from the owner's gross income. In
the case of a partial withdrawal under a qualified contract, the portion of the
payment that bears the same ratio to the total payment that the investment in
the contract (i.e., nondeductible IRA contributions, after tax contributions to
qualified plans) bears to the contract value, can be excluded from income. In
the case of a full withdrawal under a non-qualified contract or a qualified
contract, the amount received will be taxable only to the extent it exceeds the
investment in the contract. If an individual transfers an annuity contract
without full and adequate consideration to a person other than the individual's
spouse (or to a former spouse incident to a divorce), the owner will be taxed on
the difference between the contract value and the investment in the contract at
the time of transfer. Other than in the case of certain qualified contracts, any
amount received as a loan under a contract, and any assignment or pledge (or
agreement to assign or pledge) of the contract value is treated as a withdrawal
of such amount or portion.
TAXATION OF ANNUITY PAYMENTS
Generally, the rule for income taxation of payments received from an annuity
contract provides for the return of the owner's investment in the contract in
equal tax-free amounts over the payment period. The balance of each payment
received is taxable. In the case of variable annuity payments, the amount
excluded from taxable income is determined by dividing the investment in the
contract by the total number of expected payments. In the case of fixed annuity
payments, the amount excluded from income is determined by multiplying the
payment by the ratio of the investment in the contract (adjusted for any refund
feature or period certain) to the total expected value of annuity payments for
the term of the contract. Once the total amount of the investment in the
contract is excluded using these ratios, the annuity payments will be fully
taxable. If annuity payments cease because of the death of the annuitant before
the total amount of the investment in the contract is recovered, the unrecovered
amount will be allowed as a deduction to the annuitant for his last taxable
year.
TAXATION OF ANNUITY DEATH BENEFITS
Amounts may be distributed from an annuity contract because of the death of an
owner or annuitant. Generally, such amounts are includible in income as follows:
(1) if distributed in a lump sum, the amounts are taxed in the same manner as a
full withdrawal or (2) if distributed under an annuity option, the amounts are
taxed in the same manner as an annuity payment.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
There is a 10% penalty tax on the taxable amount of any premature distribution
from a non-qualified annuity contract. The penalty tax generally applies to any
distribution made prior to the date the owner attains age 59 1/2. However, there
should be no penalty tax on distributions to owners (1) made on or after the
date the owner attains age 59 1/2; (2) made as a result of the owner's death or
disability; (3) made in substantially equal periodic payments over life or
distributions over life or life expectancy; (4) made under an immediate annuity;
or (5) attributable to an investment in the contract before August 14, 1982.
Similar rules apply for distributions from qualified contracts. Consult a
competent tax advisor for other possible exceptions to the penalty tax.
<PAGE>
AGGREGATION OF ANNUITY CONTRACTS
All non-qualified deferred annuity contracts issued by the Company (or its
affiliates) to the same owner during any calendar year will be aggregated and
treated as one annuity contract for purposes of determining the taxable amount
of a distribution.
TAX QUALIFIED CONTRACTS
Annuity contracts may be used as investments with certain tax qualified plans
such as: (1) Individual Retirement Annuities under Section 408(b) of the Code;
(2) Roth Individual Retirement Annuities under Section 408A of the Code; (3)
Simplified Employee Pension Plans under Section 408(k) of the Code; (4) Savings
Incentive Match Plans for Employees (SIMPLE) Plans under Section 408(p) of the
Code;(5) Tax Sheltered Annuities under Section 403(b) of the Code; (6) Corporate
and Self Employed Pension and Profit Sharing Plans; and (7) State and Local
Government and Tax-Exempt Organization Deferred Compensation Plans. In the case
of certain tax qualified plans, the terms of the plans may govern the right to
benefits, regardless of the terms of the contract.
RESTRICTIONS UNDER SECTION 403(B) PLANS
Section 403(b) of the Code provides for tax-deferred retirement savings plans
for employees of certain non-profit and educational organizations. In accordance
with the requirements of Section 403(b), any annuity contract used for a 403(b)
plan must provide that distributions attributable to salary reduction
contributions made after 12/31/88, and all earnings on salary reduction
contributions, may be made only on or after the date the employee attains age
59 1/2, separates from service, dies, becomes disabled or on the account of
hardship (earnings on salary reduction contributions may not be distributed on
the account of hardship).
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth Individual
Retirement Annuity. Roth Individual Retirement Annuities are subject to
limitations on the amount that can be contributed and on the time when
distributions may commence. "Qualified distributions" from Roth Individual
Retirement Annuities are not includible in gross income. "Qualified
distributions" are any distributions made more than five taxable years after the
taxable year of the first contribution to the Roth Individual Retirement
Annuity, and which are made on or after the date the individual attains age
59 1/2 , made to a beneficiary after the owner's death, attributable to the
owner being disabled or for a first time home purchase (first time home
purchases are subject to a lifetime limit of $10,000). "Nonqualified
distributions" are treated as made from contributions first and are includible
in gross income to the extent such distributions exceed the contributions made
to the Roth Individual Retirement Annuity. The taxable portion of a
"nonqualified distribution" may be subject to the 10% penalty tax on premature
distributions. Subject to certain limitations, a traditional Individual
Retirement Account or Annuity may be converted or "rolled over" to a Roth
Individual Retirement Annuity. The taxable portion of a conversion or rollover
distribution is includible in gross income, but is exempted from the 10% penalty
tax on premature distributions.
INCOME TAX WITHHOLDING
The Company is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless an individual elects to make a "direct
rollover" of such amounts to another qualified plan or Individual Retirement
Account or Annuity (IRA). Eligible rollover distributions generally include all
distributions from qualified contracts, excluding IRAs, with the exception of
(1) required minimum distributions, or (2) a series of substantially equal
periodic payments made over a period of at least 10 years, or the life (joint
lives) of the participant (and beneficiary). For any distributions from
non-qualified annuity contracts, or distributions from qualified contracts which
are not considered eligible rollover distributions, the Company may be required
to withhold federal and state income taxes unless the recipient elects not to
have taxes withheld and properly notifies the Company of such election.
DISTRIBUTION OF THE CONTRACTS
Allstate Life Financial Services, Inc. ("ALFS"), 3100 Sanders Road, Northbrook
Illinois, a wholly owned subsidiary of Allstate Life, acts as the principal
underwriter of the Contracts. ALFS is registered as a broker-dealer under the
Securities Exchange Act of 1934 and became a member of the National Association
of Securities Dealers, Inc. on June 30, 1993. Contracts are sold by registered
representatives of unaffiliated broker-dealers or bank employees who are
licensed insurance agents appointed by the Company, either individually or
through an incorporated insurance agency and who have entered into a selling
agreement with ALFS and the Company to sell the Contract. In some states,
Contracts may be sold by representatives or employees of banks which may be
acting as broker-dealers without separate registration under the Securities
Exchange Act of 1934, pursuant to legal and regulatory exceptions.
Commissions paid may vary, but in aggregate are not anticipated to exceed 6% of
any purchase payment. In addition, under certain circumstances, certain sellers
of the Contracts may be paid persistency bonuses which will take into account,
among other things, the length of time purchase payments have been held under a
Contract, and Contract Values. A persistency bonus is not expected to exceed
<PAGE>
0.25%, on an annual basis, of the Contract Values considered in connection with
the bonus. These commissions are intended to cover distribution expenses.
The underwriting agreement with ALFS provides for indemnification of ALFS by the
Company for liability to Owners arising out of services rendered or Contracts
issued.
VOTING RIGHTS
The Owner or anyone with a voting interest in the Sub-account of the Variable
Account may instruct the Company on how to vote at shareholder meetings of the
Funds. The Company will solicit and cast each vote according to the procedures
set up by the Funds and to the extent required by law. Fund shares as to which
no timely instructions are received will be voted in proportion to the voting
instructions which are received with respect to all Contracts participating in
that Sub-account. Voting instructions to abstain on any item to be voted upon
will be applied on a pro-rata basis to reduce the votes eligible to be cast. The
Company reserves the right to vote Fund shares in its own right, to the extent
permitted by the Investment Company Act of 1940, its regulations or
interpretations thereof.
Before the Payout Start Date, the Owner holds the voting interest in the
Sub-account of the Variable Account (the number of votes for the Owner will be
determined by dividing the Contract Value attributable to a Sub-account by the
net asset value per share of the applicable eligible portfolio).
After the Payout Start Date, the person receiving income payments has the voting
interest. After the Payout Start Date, the votes decrease as income payments are
made and as the reserves for the Contract decrease. That person's number of
votes will be determined by dividing the reserve for such Contract allocated to
the applicable Sub-account by the net asset value per share of the corresponding
eligible portfolio.
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the financial statements and notes thereto included in this
prospectus beginning on page F-1.
GLENBROOK LIFE AND ANNUITY COMPANY
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR-END FINANCIAL DATA 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
For The Years Ended December 31:
Income Before Income Tax Expense.. $ 8,764 $ 3,774 $ 4,455 $ 2,017 $ 836
Net Income........................ 5,686 2,435 2,879 1,294 529
As of December 31:
Total Assets...................... 3,351,541 2,404,527 1,409,705 750,245 169,361
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion highlights significant factors influencing
results of operations and changes in financial position of Glenbrook Life and
Annuity Company (the "Company"). It should be read in conjunction with the
financial statements and related notes.
The Company, a wholly owned subsidiary of Allstate Life Insurance
Company ("ALIC"), which is wholly owned by Allstate Insurance Company ("AIC"), a
wholly owned subsidiary of The Allstate Corporation, markets life insurance and
annuity products through banks and broker-dealers.
The Company issues flexible premium deferred variable annuity contracts
and variable life policies, the assets and liabilities of which are legally
segregated and reflected as Separate Account assets and liabilities. Separate
Account assets and liabilities are carried at fair value in the statements of
financial position. Certain of the Separate Account investment portfolios were
initially funded with a $10.0 million seed money contribution from the Company
in 1995. During 1997, the Company liquidated its funding in the Separate Account
investment portfolios. Investment income and realized gains and losses of the
Separate Accounts, other than the portion related to the Company's
participation, accrue directly to the contractholders (net of fees) and,
therefore, are not included in the Company's statements of operations.
Results of Operations
- ---------------------
($ in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net investment income $ 5,304 $ 3,774 $ 3,996
======= ======= =======
Realized capital gains and losses, after-tax $ 2,249 $ - $ 298
======= ======= =======
Net income $ 5,686 $ 2,435 $ 2,879
======= ======= =======
Investments $90,474 $50,676 $50,917
======= ======= =======
</TABLE>
The Company and ALIC entered into a reinsurance agreement effective
June 5, 1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers. The
Company's results of operations include only investment income and realized
capital gains and losses earned on the assets of the Company that are not
transferred to ALIC under the reinsurance agreement.
Net income increased $3.3 million in 1997 due to realized capital gains
arising primarily from the withdrawal of the seed money from the Separate
Account and the increase in net investment income. The $444 thousand decrease in
net income in 1996 reflects the decrease in net investment income and realized
capital gains.
Pretax net investment income in 1997 increased 40.5%, or $1.5 million,
to $5.3 million compared to $3.8 million in 1996. This higher net investment
income was caused by a significant increase in the level of investments
primarily arising from a $20.0 million capital contribution received from ALIC
in January 1997 and the liquidation of the Company's seed money investment in
the Separate Account, partially offset by an increase in investment expenses.
Net investment income decreased $222 thousand in 1996 due to the impact of the
Company's $10.0 million original investment in the variable funds of the
Separate Account, whose assets are invested predominantly in equity securities.
The dividend yield on the variable funds is significantly below the level of
interest earned on fixed income securities in which the $10.0 million was
invested prior to the fourth quarter of 1995. This decrease in
<PAGE>
income was partially offset by additional investment income earned on the
higher investment balances arising from positive cash flows from operating
activities in 1996.
Realized capital gains after tax of $2.2 million in 1997 were
associated primarily with the withdrawal of the investment in Separate Account
portfolios. Realized capital gains after tax of $298 thousand in 1995 were the
result of sales of investments to fund the Company's participation in the
Separate Accounts.
Financial Position
- ------------------
($ in thousands)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Fixed income securities (1) $ 86,243 $ 49,389
Short-term investments 4,231 1,287
------------ -----------
Total investments $ 90,474 $ 50,676
============ ===========
Reinsurance recoverable from ALIC $ 2,637,983 $ 2,060,419
============ ===========
Separate Account assets $ 620,535 $ 272,420
============ ===========
Contractholder funds $ 2,637,983 $ 2,060,419
============ ===========
Separate Account liabilities $ 620,535 $ 260,290
============ ===========
</TABLE>
(1) Fixed income securities are carried at fair value. Amortized
cost for these securities was $81,369 and $46,925 at December
31, 1997 and 1996, respectively.
The Company's fixed income securities portfolio consists of
mortgage-backed securities, U.S. government bonds, publicly traded corporate
bonds and tax-exempt municipal bonds. The Company generally holds its fixed
income securities for the long term, but has classified all of these securities
available for sale to allow maximum flexibility in portfolio management.
Investments grew $39.8 million, or 78.5%, during 1997. The increase in
investments is primarily due to the receipt of a $20.0 million capital
contribution from ALIC in January 1997 and liquidation of the seed money from
the Separate Account during 1997. In addition, at December 31, 1997, unrealized
net capital gains on the fixed income securities portfolio were $4.9 million
compared to $2.5 million as of December 31, 1996, primarily attributable to the
increase in the Company's fixed income securities portfolio during 1997.
At the end of 1997, all of the Company's fixed income securities
portfolio is rated investment grade, with a National Association of Insurance
Commissioners ("NAIC") rating of 1 or a Moody's rating of Aaa, Aa or A.
At December 31, 1997 and 1996, $31.9 million and $16.4 million,
respectively, of the fixed income securities portfolio were invested in
mortgage-backed securities ("MBS"). At December 31,
<PAGE>
1997, all of the MBS had underlying collateral that is guaranteed by U.S.
government entities, thus credit risk was minimal.
MBS, however, are subject to interest rate risk as the duration and
ultimate realized yield are affected by the rate of repayment of the underlying
mortgages. The Company attempts to limit interest rate risk by purchasing MBS
whose cost does not significantly exceed par value, and with repayment
protection to provide a more certain cash flow to the Company. At December 31,
1997, the amortized cost of the MBS portfolio was below par value by $417
thousand and over 31% of the MBS portfolio was invested in planned amortization
class bonds. This type of MBS is purchased to provide additional protection
against rising interest rates.
The Company closely monitors its fixed income securities portfolio for
declines in value that are other than temporary. Securities are placed on
non-accrual status when they are in default or when the receipt of interest
payments is in doubt.
The Company's short-term investment portfolio was $4.2 million and $1.3
million at December 31, 1997 and 1996, respectively. The Company invests
available cash balances primarily in taxable short-term securities having a
final maturity date or redemption date of one year or less.
During 1997, contractholder funds and amounts recoverable from ALIC
under the reinsurance agreement increased by $577.6 million. The increases
resulted from sales of the Company's single and flexible premium deferred
annuities, interest credited to contractholders, partially offset by surrenders,
withdrawals and benefits paid. Reinsurance recoverable from ALIC relates to
contract benefit obligations ceded to ALIC.
Separate Account assets increased by $348.1 million and Separate
Account liabilities increased by $360.2 million as compared with December 31,
1996. The increases were primarily attributable to increased sales of flexible
premium deferred variable annuity contracts and the favorable investment
performance of the Separate Account investment portfolios, partially offset by
variable annuity surrenders and withdrawals. Additionally, the Separate Account
asset was reduced by the Company's liquidation of its seed money investment
during 1997.
Market Risk
- -----------
Market risk is the risk that the Company will incur losses due to
adverse changes in market rates and prices. The Company's primary market risk
exposure is to changes in interest rates. Interest rate risk is the risk that
the Company will incur economic losses due to adverse changes in interest rates,
as the Company invests substantial funds in interest-sensitive assets.
One way to quantify this exposure is duration. Duration measures the
sensitivity of the fair value of assets to changes in interest rates. For
example, if interest rates increase 1%, the fair value of an asset with a
duration of 5 years is expected to decrease in value by approximately 5%. At
December 31, 1997, the Company's asset duration was approximately 5.3 years.
To calculate duration, the Company projects asset cash flows, and
discounts them to a net present value basis using a risk-free market rate
adjusted for credit quality, sector attributes, liquidity and other specific
risks. Duration is calculated by revaluing these cash flows at an alternative
level of interest rates, and determining the percentage change in fair value
from the base case. The projections include assumptions (based upon historical
market and Company specific experience) reflecting the impact of changing
interest rates on the prepayment and/or option features of instruments, where
applicable. Such
<PAGE>
assumptions relate primarily to mortgage-backed securities, collateralized
mortgage obligations, and municipal and corporate obligations.
Based upon the information and assumptions the Company uses in its
duration calculation and in effect at December 31, 1997, management estimates
that a 100 basis point immediate, parallel increase in interest rates ("rate
shock") would decrease the net fair value of its total investments by
approximately $4.5 million. The selection of a 100 basis point immediate rate
shock should not be construed as a prediction by the Company's management of
future market events; but rather, to illustrate the potential impact of such an
event.
To the extent that actual results differ from the assumptions utilized,
the Company's duration and rate shock measures could be significantly impacted.
Additionally, the Company's calculation assumes that the current relationship
between short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result, these calculations may not
fully capture the impact of non-parallel changes in the term structure of
interest rates and/or large changes in interest rates.
In formulating and implementing policies for investing new and existing
funds, AIC, as parent company of ALIC, administers and oversees investment risk
management processes primarily through three oversight bodies: the Boards of
Directors and Investment Committees of its operating subsidiaries, and the
Credit and Risk Management Committee ("CRMC"). The Boards of Directors and
Investment Committees provide executive oversight of investment activities. The
CRMC is a senior management committee consisting of the Chief Investment
Officer, the Investment Risk Manager, and other investment officers who are
responsible for the day-to-day management of market risk. The CRMC meets at
least monthly to provide detailed oversight of investment risk, including market
risk.
AIC has investment guidelines that define the overall framework for
managing market and other investment risks, including the accountabilities and
controls over these activities. In addition, AIC has specific investment
policies for each of its affiliates, including the Company, that delineate the
investment limits and strategies that are appropriate for the Company's
liquidity, surplus, product and regulatory requirements.
Liquidity and Capital Resources
- -------------------------------
In January 1997, a $20.0 million capital contribution that was accrued
at December 31, 1996 was received from ALIC.
Under the terms of reinsurance agreements, premiums and deposits on
universal life policies and investment contracts, excluding those relating to
Separate Accounts, are transferred to ALIC, which maintains the investment
portfolios supporting the Company's products. The Company continues to have
primary liability as a direct insurer for risks reinsured.
The NAIC has a standard for assessing the solvency of insurance
companies, which is referred to as risk-based capital ("RBC"). The requirement
consists of a formula for determining each insurer's RBC and a model law
specifying regulatory actions if an insurer's RBC falls below specified levels.
The RBC formula for life insurance companies establishes capital requirements
relating to insurance,
<PAGE>
business, asset and interest rate risks. At December 31, 1997, RBC for the
Company was significantly above a level that would require regulatory action.
Year 2000
- ---------
The Company is heavily dependent upon complex computer systems for all
phases of its operations, including customer service, and policy and contract
administration. Since many of the Company's older computer software programs
recognize only the last two digits of the year in any date, some software may
fail to operate properly in or after the year 1999, if the software is not
reprogrammed or replaced, ("Year 2000 Issue"). The Company believes that many of
its counterparties and suppliers also have Year 2000 Issues which could affect
the Company. In 1995, AIC commenced a plan intended to mitigate and/or prevent
the adverse effects of Year 2000 Issues. These strategies include normal
development and enhancement of new and existing systems, upgrades to operating
systems already covered by maintenance agreements and modifications to existing
systems to make them Year 2000 compliant. The plan also includes the Company
actively working with its major external counterparties and suppliers to assess
their compliance efforts and the Company's exposure to them. The Company
presently believes that it will resolve the Year 2000 Issue in a timely manner,
and the financial impact will not materially affect its results of operations,
liquidity or financial position. Year 2000 costs are and will be expensed as
incurred.
Pending Accounting Standards
- ----------------------------
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 requires the presentation of comprehensive
income in the financial statements. Comprehensive income is a measurement of all
changes in equity that result from transactions and other economic events other
than transactions with stockholders. The requirements of this statement will be
adopted effective January 1, 1998.
SFAS No. 131 redefines how segments are determined and requires
additional segment disclosures for both annual and quarterly reporting. Under
this statement, segments are determined using the "management approach" for
financial statement reporting. The management approach is based on the way an
enterprise makes operating decisions and assesses performance of its businesses.
The Company is currently reviewing the requirements of the SFAS and has yet to
determine its impact on its current reporting segments. The requirements of this
statement will be adopted effective December 31, 1998.
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP provides guidance concerning when to
recognize a liability for insurance-related assessments and how those
liabilities should be measured. Specifically, insurance-related assessments
should be recognized as liabilities when all of the following criteria have been
met: a) an assessment has been imposed or it is probable that an assessment will
be imposed, b) the event obligating an entity to pay an assessment has occurred
and c) the amount of the assessment can be reasonably estimated. The
requirements of this standard will be adopted in 1999 and are not expected to
have a material impact on the results of operations, cash flows or financial
position of the Company. The SOP is expected to be adopted in 1999.
In March 1998, the Accounting Standards Executive Committee of the
AICPA issued SOP 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." The SOP
<PAGE>
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. Specifically, certain external, payroll and payroll
related costs should be capitalized during the application development state of
a project and depreciated over the computer software's useful life. The Company
currently expenses these costs as incurred and is evaluating the effects of
this SOP on its accounting for internally developed software. The SOP is
expected to be adopted in 1998.
Forward-Looking Statements
- --------------------------
The statements contained in this Management's Discussion and Analysis
that are not historical information are forward-looking statements that are
based on management's estimates, assumptions and projections. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor under The
Securities Act of 1933 and The Securities Exchange Act of 1934 for
forward-looking statements.
<PAGE>
COMPETITION
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
competing in the sale of insurance and annuities. There are approximately 1,700
stock, mutual and other types of insurers in business in the United States.
Several independent rating agencies regularly evaluate life insurers'
claims-paying ability, quality of investments, and overall stability. A.M. Best
Company assigns A+ (Superior) to Allstate Life which automatically reinsures all
net business of the Company. A.M. Best Company also assigns the Company the
rating of A+(r) because the Company automatically reinsures all net business
with Allstate Life. Standard & Poor's Insurance Rating Services assigns AA+
(Excellent) to the Company's claims-paying ability and Moody's assigns an Aa2
(Excellent) financial strength rating to the Company. The Company shares the
same ratings of its parent, Allstate Life Insurance Company. These ratings do
not relate to the investment performance of the Variable Account.
EMPLOYEES
As of December 31, 1997, Glenbrook Life and Annuity Company had approximately
125 employees at its home office in Northbrook, Illinois.
<PAGE>
PROPERTIES
The Company occupies office space provided by Allstate Insurance Company in
Northbrook, Illinois. Expenses associated with these offices are allocated on a
direct and indirect basis to the Company.
STATE AND FEDERAL REGULATION
The insurance business of the Company is subject to comprehensive and detailed
regulation and supervision throughout the United States. The laws of the various
jurisdictions establish supervisory agencies with broad administrative powers
with respect to licensing to transact business, overseeing trade practices,
licensing agents, approving policy forms, establishing reserve requirements,
fixing maximum interest rates on life insurance policy loans and minimum rates
for accumulation of surrender values, prescribing the form and content of
required financial statements and regulating the type and amounts of investments
permitted. Each insurance company is required to file detailed annual reports
with supervisory agencies in each of the jurisdictions in which it does business
and its operations and accounts are subject to examination by such agencies at
regular intervals.
Under insurance guaranty fund law, in most states, insurers doing business
therein can be assessed up to prescribed limits for contract owner losses
incurred as a result of company insolvencies. The amount of any future
assessments on the Company under these laws cannot be reasonably estimated. Most
of these laws do provide, however, that an assessment may be excused or deferred
if it would threaten an insurer's own financial strength.
In addition, several states, including Illinois, regulate affiliated groups of
insurers, such as the Company and its affiliates, under insurance holding
company legislation. Under such laws, intercompany transfers of assets and
dividend payments from insurance subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in relation to
the financial positions of the companies.
Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures which may
significantly affect the insurance business include employee benefit regulation,
controls on medical care costs, removal of barriers preventing banks from
engaging in the securities and insurance business, tax law changes affecting the
taxation of insurance companies, the tax treatment of insurance products and its
impact on the relative desirability of various personal investment vehicles, and
proposed legislation to prohibit the use of gender in determining insurance and
pension rates and benefits.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers are listed below, together with information
as to their ages, dates of election and principal business occupations during
the last five years (if other than their present business occupations).
LOUIS G. LOWER, II, 52, Chief Executive Officer and Chairman of the Board
(1995)*
Also Director (1986-Present) and Senior Vice President (1995-Present) of
Allstate Insurance Company; Director (1991-Present) of Allstate Life Financial
Services, Inc.; Director (1986-Present) and President (1990-Present) Allstate
Life Insurance Company; Director (1983-Present) and Chairman of the Board
(1990-Present) of Allstate Life Insurance Company of New York; Director
(1990-1997), Chairman of the Board of Directors and Chief Executive Officer
(1995-1997), Chairman of the Board of Directors and President (1990-1995) of
Glenbrook Life Insurance Company; Director and Chairman of the Board
(1995-Present) of Laughlin Group Holdings, Inc.; Director and Chairman of the
Board of Directors and Chief Executive Officer (1989-Present) Lincoln Benefit
Life Company; Director (1986-Present), Chairman of the Board of Directors and
Chief Executive Officer (1995-Present) of Northbrook Life Insurance Company; and
Chairman of the Board of Directors and Chief Executive Officer (1995-Present)
Surety Life Insurance Company.
PETER H. HECKMAN, 52, President, Chief Operating Officer and Director (1996)*
Also Director and Vice President (1988-Present) of Allstate Life Insurance
Company; Director (1990-1996), Vice President (1989-Present), Allstate Life
Insurance Company of New York; Director (1990-1997), President and Chief
Operating Officer (1996-1997), and Vice President (1990-1996), Glenbrook Life
Insurance Company; Director (1995-Present) and Vice Chairman of the Board
(1996-Present) Laughlin Group Holdings, Inc.; Director (1990-Present) and Vice
Chairman of the Board (1996-Present) Lincoln Benefit Life Company; Director
(1988-Present) President and Chief Operating Officer (1996-Present), and was
Vice President (1989-1996), Northbrook Life Insurance Company; and Director
(1995-Present) and Vice Chairman of the Board (1996-Present) Surety Life
Insurance Company.
MICHAEL J. VELOTTA, 52, Vice President, Secretary, General Counsel, and Director
(1992)*
<PAGE>
Also Director and Secretary (1993-Present) of Allstate Life Financial Services,
Inc.; Director (1992-Present) Vice President, Secretary and General Counsel
(1993-Present) Allstate Life Insurance Company; Director (1992-Present) Vice
President, Secretary and General Counsel (1993-Present) Allstate Life Insurance
Company of New York; Director (1992-1997) Vice President, Secretary and General
Counsel (1993-1997) Glenbrook Life Insurance Company; Director and Secretary
(1995-Present) Laughlin Group Holdings, Inc.; Director (1992-Present) and
Assistant Secretary (1995-Present) Lincoln Benefit Life Company; Director
(1992-Present) Vice President, Secretary and General Counsel (1993-Present)
Northbrook Life Insurance Company; and Director and Assistant Secretary
(1995-Present) Surety Life Insurance Company.
JOHN R. HUNTER, 43, Director (1996)*
Also Assistant Vice President (1990-Present) Allstate Life Insurance Company;
Assistant Vice President (1996-Present) Allstate Life Insurance Company of New
York; President and Chief Operating Officer (1998-Present) Allstate Life
Financial Services Inc.; Director (1996-1997) Glenbrook Life Insurance Company;
and Director (1994-Present) and Assistant Vice President (1990-Present)
Northbrook Life Insurance Company.
G. CRAIG WHITEHEAD, 51, Senior Vice President and Director (1995)*
Also Assistant Vice President (1991-Present) Allstate Life Insurance Company;
Director (1994-1997) Assistant Vice President (1991-1997) Glenbrook Life
Insurance Company; Assistant Vice President (1992-Present) Secretary (1995)
Glenbrook Life and Annuity Company; Director (1995-Present) Laughlin Group
Holdings, Inc.
MARLA G. FRIEDMAN, 44, Vice President (1996)*
Also Director (1991-Present) and Vice President (1988-Present) Allstate Life
Insurance Company; Director (1993-1996) Allstate Life Financial Services, Inc.;
Director (1997-Present) and Assistant Vice President (1996-Present) Allstate
Life Insurance Company of New York; Director (1991-1996), President and Chief
Operating Officer (1995-1996) and Vice President (1990-1995) and (1996-1997)
Glenbrook Life Insurance Company; Director and Vice Chairman of the Board
(1995-1996) Laughlin Group Holdings, Inc.; and Director (1989-1996), President
and Chief Operating Officer (1995-1996) and Vice President (1996-Present)
Northbrook Life Insurance Company.
KEVIN R. SLAWIN, 40, Vice President (1996)*
Also Assistant Vice President and Assistant Treasurer (1995-1996) Allstate
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Allstate Life Financial Services, Inc.; Director and Vice President
(1996-Present) and Assistant Treasurer (1995-1996) Allstate Life Insurance
Company; Director and Vice President (1996-Present) and Assistant Treasurer
(1995-1996) Allstate Life Insurance Company of New York; Director and Vice
President (1996-1997) and Assistant Treasurer (1995-1996) Glenbrook Life
Insurance Company; Director (1996-Present) and Assistant Treasurer (1995-1996)
Laughlin Group Holdings, Inc.; Director (1996-Present) Lincoln Benefit Life
Company; Director and Vice President (1996-Present) and Assistant Treasurer
(1995-1996) Northbrook Life Insurance Company; Director (1996-Present) Surety
Life Insurance Company; and Assistant Treasurer and Director (1994-1995) Sears
Roebuck and Co.; and Treasurer and First Vice President (1986-1994) Sears
Mortgage Corporation.
CASEY J. SYLLA, 54, Chief Investment Officer (1995)*
Also Director (1995-Present ) Senior Vice President and Chief Investment Officer
(1995-Present) Allstate Insurance Company; Director (1995-Present) Chief
Investment Officer (1995-Present) Allstate Life Insurance Company; Chief
Investment Officer (1995-Present) Allstate Life Insurance Company of New York;
Chief Investment Officer (1995-1997) Glenbrook Life Insurance Company; and
Director and Chief Investment Officer (1995-Present) Northbrook Life Insurance
Company. Prior to 1995 he was Senior Vice President and Executive
Officer-Investments (1992-1995) of Northwestern Mutual Life Insurance Company.
JAMES P. ZILS, 47, Treasurer (1995)*
Also Vice President and Treasurer (1995-Present) Allstate Insurance Company;
Treasurer (1995-Present) Allstate Life Financial Services, Inc.; Treasurer
(1995-Present) Allstate Life Insurance Company; Treasurer (1995-Present)
Allstate Life Insurance Company of New York; Treasurer (1995-1997) Glenbrook
Life Insurance Company; Treasurer (1995-Present) Laughlin Group Holdings, Inc.;
and Treasurer (1995-Present) Northbrook Life Insurance Company. From 1993 to
1995, he was Vice President of Allstate Life Insurance Company.
* Date elected to current office.
<PAGE>
EXECUTIVE COMPENSATION
Executive officers of the Company also serve as officers of Allstate Life and
receive no compensation directly from the Company. Some of the officers also
serve as officers of other companies affiliated with the Company. Allocations
have been made as to each individual's time devoted to his or her duties as an
executive officer of the Company. However, no officer's compensation allocated
to the Company exceeded $100,000 in 1997. The allocated cash compensation of all
officers of the Company as a group for services rendered in all capacities to
the Company during 1997 totaled $214,774.75. Directors of the Company receive no
compensation in addition to their compensation as employees of the Company.
Shares of the Company and Allstate Life are not directly owned by any director
or officer of the Company. The percentage of shares of The Allstate Corporation
beneficially owned by any director, and by all directors and officers of the
Company as a group, does not exceed one percent of the class outstanding.
SUMMARY COMPENSATION TABLE
(ALLSTATE LIFE INSURANCE COMPANY)
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL COMPENSATION STOCK OPTIONS/ PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($) AWARD(S) SARS(#) ($) ($)
- -------- ---- ---------- --------- --- -------- ------- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis G. Lower, II 1997 $453,225 $500,000 $27,768 $280,589 $ 25,914 $570,068 $8,000(1)
Chief Executive Officer 1996 $436,800 $246,781 $10,246 $ 0 $ 18,258 $ 0 $5,250(1)
and Chairman of the 1995 $416,000 $286,650 $17,044 $ 0 $ 89,359 $411,122 $5,250(1)
Board of Directors
</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
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised the Company on
certain federal securities law matters. All matters of Illinois law pertaining
to the Contracts, including the validity of the Contracts and the Company's
right to issue such Contracts under Illinois insurance law, have been passed
upon by Michael J. Velotta, General Counsel of the Company.
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (the "Company") as of December 31, 1997 and 1996, and
the related Statements of Operations, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1997. Our audits also
included Schedule IV - Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 20, 1998
F-1
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
------------
($ in thousands) 1997 1996
---------- ---------
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $81,369 and $46,925) $ 86,243 $ 49,389
Short-term 4,231 1,287
--------------- ---------------
Total investments 90,474 50,676
Reinsurance recoverable from Allstate Life Insurance
Company 2,637,983 2,060,419
Net receivable from affiliates - 18,963
Other assets 2,549 2,049
Separate Accounts 620,535 272,420
--------------- ---------------
Total assets $ 3,351,541 $ 2,404,527
=============== ===============
LIABILITIES
Contractholder funds $ 2,637,983 $ 2,060,419
Income taxes payable 609 410
Deferred income taxes 1,772 1,528
Net payable to affiliates 2,698 -
Separate Accounts 620,535 260,290
--------------- ---------------
Total liabilities 3,263,597 2,322,647
=============== ===============
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 4,200 shares
authorized, issued, and outstanding 2,100 2,100
Additional capital paid-in 69,641 69,641
Unrealized net capital gains 3,168 2,790
Retained income 13,035 7,349
--------------- ---------------
Total shareholder's equity 87,944 81,880
--------------- ---------------
Total liabilities and shareholder's equity $ 3,351,541 $ 2,404,527
=============== ===============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
REVENUES
Net investment income $ 5,304 $ 3,774 $ 3,996
Realized capital gains and losses 3,460 - 459
---------------- --------------- ----------------
INCOME BEFORE INCOME TAX EXPENSE 8,764 3,774 4,455
INCOME TAX EXPENSE 3,078 1,339 1,576
---------------- --------------- ----------------
NET INCOME $ 5,686 $ 2,435 $ 2,879
================ =============== ================
</TABLE>
See notes to financial statements.
F-3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
COMMON STOCK $ 2,100 $ 2,100 $ 2,100
--------------- --------------- ---------------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year 69,641 49,641 49,641
Capital contributions - 20,000 -
--------------- --------------- ---------------
Balance, end of year 69,641 69,641 49,641
--------------- --------------- ---------------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year 2,790 3,357 (1,118)
Net change 378 (567) 4,475
--------------- --------------- ---------------
Balance, end of year 3,168 2,790 3,357
--------------- --------------- ---------------
RETAINED INCOME
Balance, beginning of year 7,349 4,914 2,035
Net income 5,686 2,435 2,879
--------------- --------------- ---------------
Balance, end of year 13,035 7,349 4,914
--------------- --------------- ---------------
Total shareholder's equity $ 87,944 $ 81,880 $ 60,012
=============== =============== ===============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
($ in thousands) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,686 $ 2,435 $ 2,879
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and other non-cash
items 29 - -
Realized capital gains and losses (3,460) - (459)
Change in deferred income taxes 41 4 (39)
Changes in other operating assets and liabilities 1,160 (510) 1,217
------------ ------------ ------------
Net cash provided by operating activities 3,456 1,929 3,598
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 1,405 - 7,836
Investment collections 14,217 2,891 1,568
Investment purchases (50,115) (5,667) (1,491)
Participation in Separate Accounts 13,981 (232) (10,069)
Change in short-term investments, net (2,944) 815 (1,178)
------------ ------------ ------------
Net cash used in investing activities (23,456) (2,193) (3,334)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 20,000 - -
------------ ------------ ------------
Net cash provided by financing activities 20,000 - -
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH - (264) 264
CASH AT BEGINNING OF YEAR - 264 -
------------ ------------ ------------
CASH AT END OF YEAR $ - $ - $ 264
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Noncash financing activity:
Capital contribution receivable from
Allstate Life Insurance Company $ - $ 20,000 $ -
============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). On June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed
its 80.3% ownership in the Corporation to Sears common shareholders through a
tax-free dividend (the "Distribution"). These financial statements have been
prepared in conformity with generally accepted accounting principles.
To conform with the 1997 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets life insurance and annuity products in the United States
through banks and broker-dealers. Life insurance includes both
interest-sensitive and variable life insurance products. Annuities include
deferred annuities, such as variable annuities and fixed rate flexible premium
annuities. The Company has entered into exclusive distribution arrangements with
management investment companies to market its variable annuity contracts.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary withdrawal or surrender by customers, subject to applicable
surrender charges. These policies and contracts are reinsured with ALIC (see
Note 3), which invests premiums and deposits to provide cash flows that will be
used to fund future benefits and expenses. In order to support competitive
crediting rates and limit interest rate risk, ALIC, as the Company's reinsurer,
adheres to a basic philosophy of matching assets with related liabilities while
maintaining adequate liquidity and a prudent and diversified level of credit
risk.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be new and proposed federal
and state regulation and legislation that would allow banks greater
participation in the securities and insurance businesses, which will present an
increased level of competition for sales of the Company's life and annuity
products. Furthermore, the market for deferred annuities and interest-sensitive
life insurance is enhanced by the tax incentives available under current law.
Any legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
Although the Company currently benefits from agreements with financial services
entities who market and distribute its products, consolidation within that
industry and specifically, a change in control of those entities with which the
Company partners, could affect the Company's sales.
F-6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; (2) increasing competition in capital
markets; and (3) reopening stock/mutual company disagreements related to such
issues as taxation disparity between mutual and stock insurance companies.
The Company is authorized to sell life and annuity products in all states except
New York, as well as in the District of Columbia. The Company is also authorized
to sell variable annuities in Puerto Rico. The top geographic locations for
statutory premiums and deposits earned by the Company are Florida, Pennsylvania,
California, Texas and Michigan for the year ended December 31, 1997. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits. All
premiums and contract charges are ceded to ALIC under reinsurance agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ( "available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost which approximates fair value.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on the estimated principal repayments. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
REINSURANCE
The Company and ALIC entered into a reinsurance agreement effective June 5,
1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers.
Contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such cessions in the statements of
operations. The amounts shown in the Company's statements of operations relate
to the investment of those assets of the Company that are not transferred to
ALIC under the reinsurance agreements. Reinsurance recoverable and
contractholder funds are reported separately in the statements of financial
position. The Company continues to have primary liability as the direct insurer
for risks reinsured.
RECOGNITION OF PREMIUM REVENUE AND CONTRACT CHARGES
Revenues on interest-sensitive life insurance policies are comprised of
contract charges and fees, and are recognized when assessed against the
policyholder account balance. Revenues on annuities, which are
considered investment contracts, include contract charges and fees for
contract administration and surrenders. These revenues are recognized
when levied against the contract balance.
F-7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred tax
assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted tax
rates, and reflect the impact of reinsurance agreements. Deferred income taxes
arise primarily from unrealized capital gains and losses on fixed income
securities carried at fair value.
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity contracts and
single premium variable life policies, the assets and liabilities of which are
legally segregated and reflected in the accompanying statements of financial
position as assets and liabilities of the Separate Accounts (Glenbrook Life and
Annuity Company Variable Annuity Account, Glenbrook Life and Annuity Company
Separate Account A, Glenbrook Life Multi-Manager Variable Account and Glenbrook
Life Variable Life Separate Account A, unit investment trusts registered with
the Securities and Exchange Commission).
Assets of the Separate Accounts, including the Company's ownership interest
("Participation"), are carried at fair value. Unrealized gains and losses on the
Company's Participation, net of deferred income taxes, are shown as a component
of shareholder's equity. Investment income and realized capital gains and losses
arising from the Participation are included in the Company's statements of
operations. The Company liquidated its Participation during 1997, resulting in a
realized capital gain of $3,515. At December 31, 1996, the Participation
amounted to $12,130.
Investment income and realized capital gains and losses of the Separate
Accounts, other than the portion related to the Participation, accrue directly
to the contractholders and, therefore, are not included in the Company's
statements of operations. Revenues to the Company from the Separate Accounts
consist of contract maintenance fees, administrative fees, mortality and expense
risk charges, cost of insurance charges and tax expense charges, all of which
are ceded to ALIC.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most annuities and
universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the customer less withdrawals, mortality charges and
administrative expenses. During 1997, credited interest rates on contractholder
funds ranged from 3.55% to 7.45% for those contracts with fixed interest rates
and from 3.70% to 7.85% for those with flexible rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
3. RELATED PARTY TRANSACTIONS
REINSURANCE
Contract charges ceded to ALIC were $11,641, $4,254 and $1,523 in 1997, 1996 and
1995, respectively. Credited interest, policy benefits and expenses ceded to
ALIC amounted to $179,954, $113,703 and $71,905 in 1997, 1996 and 1995,
respectively. Investment income earned on the assets which support
contractholder funds is not included in the Company's financial statements as
those assets are owned and managed by ALIC under the terms of reinsurance
agreements.
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. The
cost to the Company is determined by various allocation methods and is primarily
related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $5,959, $759 and $348 in 1997, 1996 and 1995, respectively. Of these costs,
the Company retains investment related expenses. All other costs are ceded to
ALIC under reinsurance agreements.
LAUGHLIN GROUP
Laughlin Group, Inc. ("Laughlin") is an indirect wholly owned subsidiary of
ALIC. Laughlin markets certain of the Company's flexible premium deferred
variable annuity contracts and flexible premium deferred fixed annuity
contracts. Sales commissions paid to Laughlin, for which the related cost was
ceded to ALIC, were $945 and $8,623 during 1997 and 1996, respectively. The
Company had a receivable of $850 from Laughlin at December 31, 1996, which is
included in net receivable from affiliates in the statements of financial
position.
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value
--------- ----- ------ -----
<S> <C> <C> <C> <C>
At December 31, 1997
U.S. government and agencies $ 24,419 $ 2,961 $ - $ 27,380
Municipal 656 17 - 673
Corporate 25,476 840 - 26,316
Mortgage-backed securities 30,818 1,056 - 31,874
-------- ------- --------- --------
Total fixed income securities $ 81,369 $ 4,874 $ - $ 86,243
======== ======= ========= ========
At December 31, 1996
U.S. government and agencies $ 24,265 $ 1,722 $ (3) $ 25,984
Corporate 6,970 96 (15) 7,051
Mortgage-backed securities 15,690 664 - 16,354
-------- ------- --------- --------
Total fixed income securities $ 46,925 $ 2,482 $ (18) $ 49,389
======== ======= ========= ========
</TABLE>
F-9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at December
31, 1997:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
Due in one year or less $ 400 $ 400
Due after one year through five years 3,838 3,877
Due after five years through ten years 33,245 35,102
Due after ten years 13,068 14,990
----------- ------------
50,551 54,369
Mortgage-backed securities 30,818 31,874
----------- ------------
Total $ 81,369 $ 86,243
=========== ============
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 5,014 $ 3,478 $ 3,850
Short-term investments 231 126 113
Participation in Separate Accounts 161 232 69
-------------- -------------- --------------
Investment income, before expense 5,406 3,836 4,032
Investment expense 102 62 36
-------------- -------------- --------------
Net investment income $ 5,304 $ 3,774 $ 3,996
============== ============== ==============
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ (61) $ - $ 459
Short-term investments 6 - -
Participation in Separate Accounts 3,515 - -
------------- ------------- -------------
Realized capital gains and losses 3,460 - 459
Income taxes (1,211) - (161)
------------- ------------- -------------
Realized capital gains and losses,
after tax $ 2,249 $ - $ 298
============= ============= =============
</TABLE>
Excluding calls and prepayments, gross losses of $61 and gross gains of $459
were realized on sales of fixed income securities during 1997 and 1995,
respectively.
F-10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Cost/ Unrealized
Amortized Fair Net
Cost Value Gains
--------- ----- -----------
<S> <C> <C> <C>
Fixed income securities $ 81,369 $ 86,243 $ 4,874
Deferred income taxes ======== ======== (1,706)
-------
Unrealized net capital gains $ 3,168
=======
</TABLE>
CHANGE IN UNREALIZED NET CAPITAL GAINS
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 2,410 $ (2,239) $ 6,423
Participation in Separate Accounts (1,829) 1,368 461
Deferred income taxes (203) 304 (2,409)
------------- ------------- -------------
Increase (decrease) in unrealized net capital gains $ 378 $ (567) $ 4,475
============= ============== =============
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1997, fixed income securities with a carrying value of
$10,108 were on deposit with regulatory authorities as required by law.
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable) and liabilities (including deferred income
taxes) are not considered financial instruments and are not carried at fair
value. Other assets and liabilities considered financial instruments, such as
accrued investment income, are generally of a short-term nature. It is assumed
that their carrying value approximates fair value.
F-11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Fixed income securities $ 86,243 $ 86,243 $ 49,389 $ 49,389
Short-term investments 4,231 4,231 1,287 1,287
Separate Accounts 620,535 620,535 272,420 272,420
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying value approximates fair value.
Separate Accounts assets are carried in the statements of financial position at
fair value.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $ 2,636,331 $ 2,492,095 $ 2,059,642 $ 1,949,329
Separate Accounts 620,535 620,535 260,290 260,290
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
6. INCOME TAXES
For 1996 and 1995, the Company filed a separate federal income tax return. The
Company will join the Corporation and its other eligible domestic subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate Group")
for 1997 and is party to a federal income tax allocation agreement (the "Tax
Sharing Agreement"). Under the Tax Sharing Agreement, the Company paid to or
received from the Corporation the amount, if any, by which the Allstate Group's
federal income tax liability was affected by virtue of inclusion of the Company
in the consolidated federal income tax return. Effectively, this results in the
Company's annual income tax provision being computed, with adjustments, as if
the Company filed a separate return.
F-12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Prior to the Distribution, the Corporation and all of its eligible domestic
subsidiaries, including the Company, joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Sears Tax Sharing Agreement"). Under the Sears Tax
Sharing Agreement, the Company, through the Corporation, paid to or received
from the Sears Group the amount, if any, by which the Sears Tax Group's federal
income tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed as if the Allstate Group
filed a separate consolidated return, except that items such as net operating
losses, capital losses or similar items, which might not be recognized in a
separate return, were allocated according to the Sears Tax Sharing Agreement.
The Allstate Group and Sears Group have entered into an agreement which governs
their respective rights and obligations with respect to federal income taxes for
all periods prior to the Distribution ("Consolidated Tax Years"). The agreement
provides that all Consolidated Tax Years will continue to be governed by the
Sears Tax Sharing Agreement with respect to the Allstate Group's federal income
tax liability.
The components of the deferred income tax liability at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Unrealized net capital gains on fixed income securities $ 1,706 $ 1,503
Difference in tax bases of investments 66 25
------------- -------------
Total deferred liability $ 1,772 $ 1,528
============= =============
</TABLE>
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 3,037 $ 1,335 $ 1,615
Deferred 41 4 (39)
------- ------- -------
Total income tax expense $ 3,078 $ 1,339 $ 1,576
======= ======= =======
</TABLE>
The Company paid income taxes of $2,839, $2,446 and $866 in 1997, 1996 and 1995,
respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other .1 .5 .4
---- ---- ----
Effective federal income tax rate 35.1% 35.5% 35.4%
==== ==== ====
</TABLE>
F-13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
7. STATUTORY FINANCIAL INFORMATION
The following tables reconcile net income for the year ended December 31, and
shareholder's equity at December 31, as reported herein in conformity with
generally accepted accounting principles with statutory net income and capital
and surplus, determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities:
<TABLE>
<CAPTION>
Net Income
----------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance per generally accepted accounting principles $ 5,686 $ 2,435 $ 2,879
Deferred income taxes 41 4 (39)
Unrealized gain on participation in
Separate Accounts (1,829) 1,368 -
Statutory investment reserves 93 35 (279)
Other (354) (85) 108
----------- ------------ ------------
Balance per statutory accounting practices $ 3,637 $ 3,757 $ 2,669
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Shareholder's Equity
--------------------
1997 1996
---- ----
<S> <C> <C>
Balance per generally accepted accounting principles $ 87,944 $ 81,880
Deferred income taxes 1,772 1,528
Unrealized gain/loss on fixed income securities (4,874) (2,464)
Non-admitted assets (86) (850)
Statutory investment reserves 958 (2,282)
Other (3,114) (2,118)
---------- ------------
Balance per statutory accounting practices $ 82,600 $ 75,694
========== ============
</TABLE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Illinois
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a material effect on statutory surplus, statutory net income
or risk-based capital.
Final approval of the NAIC's proposed "Comprehensive Guide" on statutory
accounting principles is expected in early 1998. The requirements may be
effective as early as January 1, 1999, and are not expected to have a material
impact on statutory surplus of the Company.
F-14
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by insurance companies without the prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1998 without prior approval of the Illinois Department of Insurance is
$8,050.
F-15
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ in thousands)
<TABLE>
<CAPTION>
Gross Net
Year Ended December 31, 1997 amount Ceded amount
- ---------------------------- --------- ------------ --------
<S> <C> <C> <C>
Life insurance in force $ 4,095 $ 4,095 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 11,641 $ 11,641 $ -
================== ================== ==================
Gross Net
Year Ended December 31, 1996 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 2,436 $ 2,436 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 4,254 $ 4,254 $ -
================== =================== ==================
Gross Net
Year Ended December 31, 1995 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 1,250 $ 1,250 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 6,571 $ 6,571 $ -
================== ================== ==================
</TABLE>
F-16
<PAGE>
APPENDIX A
MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I = the Interest Crediting Rate for that Sub-account
N = the number of whole and partial years from the date we receive the transfer,
withdrawal, or death benefit request, or from the Payout Start Date to the end
of the Sub-account's Guarantee Period; and
J = the current interest crediting rate offered for a Guarantee Period or length
N on the date we determine the Market Value Adjustment.
J will be determined by a linear interpolation between the current interest
rates for the next higher and lower integral years. For purposes of
interpolation, current interest rates for Guarantee Periods not available
under this Contract will be calculated in a manner consistent with those
which are available.
The Market Value Adjustment factor is determined from the following formula:
.9 X (I--J)* N
Any transfer, withdrawal, or death benefit paid or amount applied to an Income
Plan from a Sub-account of the Guaranteed Maturity Amount Fixed Account will be
multiplied by the Market Value Adjustment factor to determine the Market Value
Adjustment.
ILLUSTRATION
EXAMPLE OF MARKET VALUE ADJUSTMENT
Purchase Payment: $10,000
Guarantee Period: 5 years
Interest Rate: 4.50%
Full Surrender: End of Contract Year 3
NOTE: This illustration assumes that premium taxes are not applicable.
EXAMPLE 1: (Assumes declining interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.0450)(3) = $11,411.66
Step 2: Calculate the Free Withdrawal Amount
= .10 X 11,411.66 = $1,141.17
Step 3: Calculate the Withdrawal Charge:
= .05 X (10,000.00 - 1,141.17) = $442.94
Step 4: Calculate the Market Value Adjustment:
I = 4.5%
J = 4.2%
730 Days
--------
N = 365 days = 2
Market Value Adjustment Factor: .9 X (I-J) X N
= .9 X (.045 - .042) X 730/365 = .0054
A-1
<PAGE>
Market Value Adjustment = Factor X Amount Subject to Market Value Adjustment:
= .0054 X 11,411.66 = $61.62
Step 5: Calculate The Amount Received by Customers as a Result of Full
Withdrawal at the end of Contract Year 3:
= 11,411.66 - 442.94 + 61.62 = $11,030.34
EXAMPLE 2: (Assumes rising interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.045)(3) = $11,411.66
Step 2: Calculate the Free Withdrawal Amount:
= .10 X (11,411.66) = $1,141.17
Step 3: Calculate the Withdrawal Charge:
= .05 X (10,000.00 - 1,141.17) = $442.94
Step 4: Calculate the Market Value Adjustment:
I = 4.5%
J = 4.8%
730 days
--------
N = 365 days = 2
Market Value Adjustment Factor: .9 X (I-J) X N
= .9 X (.045 - .048) X (730/365) = -.0054
Market Value Adjustment = Factor X Amount Subject to Market Value Adjustment
= -.0054 X 11,411.66 = - $61.62
Step 5: Calculate The Amount Received by Customers as a Result of Full
Withdrawal at the end of Contract Year 3:
= 11,411.66 - 442.94 - 61.62 = $10,907.10
A-2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
----
Additions, Deletions or Substitutions of Investments 3
Reinvestment 3
The Contract 3
Purchase of Contracts 3
Performance Data 3
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers) 5
Premium Taxes 5
Tax Reserves 6
Income Payments 6
Calculation of Variable Annuity Unit Values 6
General Matters 6
Incontestability 6
Settlements 6
Safekeeping of the Variable Account's Assets 6
Federal Tax Matters 6
Introduction 6
Taxation of Glenbrook Life and Annuity Company 6
Exceptions to the Non-Natural Owner Rule 7
IRS Required Distribution at Death Rules 7
Qualified Plans 7
Types of Qualified Plans 7
Variable Account Financial Statements F-1
B-1
<PAGE>
ORDER FORM
Please send me a copy of the most recent Statement of Additional Information for
the Glenbrook Life and Annuity Company Variable Annuity Account.
(Date) (NAME)
(STREET ADDRESS)
(City) (State) (Zip Code)
Send to: Glenbrook Life and Annuity Company Post Office Box 94042
Palatine, Illinois 60094 Attention: VA Customer Service Unit
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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 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
(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, 1998.
**** Previously filed and incorporated by reference to Form S-1 Post Effective
Amendment No.1, Registration Statement No. 33-91916, dated April 10, 1996.
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.
<PAGE>
(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.
EXHIBIT LIST
The following exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(23)(a) Consent of Independent Public Accountants
(b) Consent of Attorneys
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant, has
duly caused this amended registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, and its seal to be hereunto affixed
and attested, all in the Township of Northfield, State of Illinois, on the 1st
day of April, 1998.
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 amended
registration statement has been duly signed below by the following Directors and
Officers of Glenbrook Life and Annuity Company on the 1st day of April, 1998.
*/LOUIS G. LOWER, II Chairman of the Board of Directors and
- -------------------- Chief Executive Officer
Louis G. Lower, II (Principal Executive Officer)
/S/MICHAEL J. VELOTTA Vice President, Secretary,
- --------------------- General Counsel and Director
Michael J. Velotta
*/PETER H. HECKMAN President, Chief Operating Officer
- -------------------- and Director
Peter H. Heckman
*/JOHN R. HUNTER Director
- --------------------
John R. Hunter
*/KEVIN R. SLAWIN Vice President
- -------------------- (Principal Financial Officer)
Kevin R. Slawin
*/MARLA G. FRIEDMAN Vice President
- --------------------
Marla G. Friedman
*/G. CRAIG WHITEHEAD Senior Vice President and Director
- --------------------
G. Craig Whitehead
*/JAMES P. ZILS Treasurer
- --------------------
James P. Zils
*/CASEY J. SYLLA Chief Investment Officer
- ---------------------
Casey J. Sylla
*/KEITH A. HAUSCHILDT Assistant Vice President and Controller
- --------------------- (Principal Accounting Officer)
Keith A. Hauschildt
*/ By Michael J. Velotta, pursuant to Power of Attorney, previously filed.
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 4 to Registration
Statement No. 033-91916 of Glenbrook Life and Annuity Company on Form S-1 of our
report dated February 20, 1998 relating to the financial statements and
financial statement schedule of Glenbrook Life and Annuity Company, appearing in
the Prospectus, and our report dated February 20, 1998 relating to the financial
statements of Glenbrook Life and Annuity Company Variable Annuity Account
contained in the Statement of Additional Information (which is incorporated by
reference in the Prospectus of Glenbrook Life and Annuity Company) 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
March 30, 1998
<PAGE>
EXHIBIT 23(B)
CONSENT OF ATTORNEYS
<PAGE>
Freedman, Levy, Kroll & Simonds
CONSENT OF
FREEDMAN, LEVY, KROLL & SIMONDS
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the prospectus contained in Post-Effective Amendment No. 4 to the
Form S-1 Registration Statement of Glenbrook Life and Annuity Company (File No.
33-91916).
FREEDMAN, LEVY, KROLL & SIMONDS
Washington, D.C.
March 27, 1998
