GLENBROOK LIFE MULTI-MANAGER VARIABLE ACCOUNT
OFFERED BY
GLENBROOK LIFE AND ANNUITY COMPANY
POST OFFICE BOX 94042
PALATINE, ILLINOIS 60094-4042
1-(800) 755-5275
INDIVIDUAL AND GROUP FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACTS
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This prospectus describes the "Glenbrook Provider Variable Annuity," a 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 Multi-Manager Variable Account ("Variable Account") and/or to a
Fixed Account option(s) funded through the Company's general account.
The Contracts are issued as individual Contracts or as group Contracts. In
states where the Contracts are available only as group Contracts, a certificate
is issued that summarizes the provisions of the group Contract. In certain
states, certificates are issued under group contracts issued to the Financial
Services Group Insurance Trust, an Illinois Trust. For convenience, this
prospectus refers to both Contracts and certificates as "Contracts."
The Variable Account will invest in shares of one or more managed investment
companies ("Funds") each of which will have multiple investment Portfolios. All
of the Funds and/or Portfolios which are described in this prospectus may not be
available with your Contract. Your annuity application will list all available
Portfolios. Presently, the Variable Account will invest in shares of the
following Funds:
- - AIM Variable Insurance Funds, Inc. ("AIM Fund")
- - American Century Variable Portfolios (VP), Inc. ("American Century Funds")
- - Dreyfus Variable Investment Fund (VIF), The Dreyfus Socially Responsible
Growth Fund, Inc. and Dreyfus Stock Index Fund (collectively the
"Dreyfus Funds")
- - Fidelity Variable Insurance Products Fund (VIP) and Fidelity
Variable Insurance Products Fund II (VIPII) (collectively the "Fidelity
VIP Funds")
- - Goldman Sachs Variable Insurance Trust ("Goldman Sachs VIT Fund")
- - Morgan Stanley Universal Funds, Inc. ("Morgan Stanley Fund")
- - MFS(R) Variable Insurance TrustSM ("MFS Fund")
- - Neuberger & Berman Advisers Management Trust ("Neuberger & Berman AMT")
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).
<PAGE>
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.
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This prospectus presents information You should know before making a decision to
invest in the Contract and the available Investment Alternatives.
The Contract Value will vary daily as a function of the investment performance
of the Sub-accounts of our Variable Account and any interest credited to the
Fixed Account. The Company does not guarantee any minimum Contract Value for
amounts allocated to the Variable Account. Benefits provided by this Contract,
when based on the Guaranteed Maturity Fixed Account, are subject to a Market
Value Adjustment, the operation of which may result in upward or downward
adjustments in withdrawal benefits, death benefits, settlement values, transfers
to other Sub-accounts, or periodic income payments.
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 OR ENDORSED BY ANY BANK, AND THE FUNDS' SHARES ARE
NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT
IN THE CONTRACTS INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE CONTRACTS ARE NOT FDIC INSURED.
The Company has prepared and filed a Statement of Additional Information dated
November 10, 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-1
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 Funds.
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 November 10, 1998.
<PAGE>
TABLE OF CONTENTS
Page
Glossary......................................... 4
Highlights....................................... 5
Summary of Variable Account Expenses............. 7
Condensed Financial Information.................. 13
Yield and Total Return Disclosure............. 13
Financial Statements.......................... 13
Glenbrook Life and Annuity Company and
the Variable Account.......................... 13
Glenbrook Life and Annuity Company.......... 13
The Variable Account........................ 14
The Funds........................................ 14
The Fixed Account................................ 18
Dollar Cost Averaging Fixed Account........... 18
Short Term Dollar Cost Averaging Fixed
Account..................................... 19
Guaranteed Maturity Fixed Account............. 19
Example of Interest Crediting During the
Guarantee Period......................... 19
Withdrawals................................. 21
Market Value Adjustment..................... 21
Purchase of the Contracts........................ 21
Purchase Payment Limits....................... 21
Free-Look Period.............................. 21
Crediting of Purchase Payments................ 22
Allocation of Purchase Payments............... 22
Accumulation Units............................ 22
Accumulation Unit Value....................... 22
Transfers Among Investment Alternatives....... 22
Dollar Cost Averaging......................... 23
Automatic Portfolio Rebalancing............... 23
Benefits Under the Contract...................... 23
Withdrawals................................... 23
Death Benefits................................... 24
Distribution Upon Death Payment
Provisions.................................. 24
Death Benefit Amount.......................... 24
Income Payments.................................. 25
Payout Start Date for Income Payments......... 25
Variable Account Income Payments.............. 25
Fixed Amount Income Payments.................. 26
Income Plans.................................. 26
Enhanced Income Benefit....................... 26
Charges and Other Deductions..................... 27
Deductions from Purchase Payments............. 27
Withdrawal Charge (Contingent Deferred
Sales Charge)............................... 27
Contract Maintenance Charge................... 27
Administrative Expense Charge................. 28
Mortality and Expense Risk Charge............. 28
Premium Taxes................................. 28
Transfer Charges.............................. 28
Fund Expenses................................. 28
General Matters.................................. 29
Owner ........................................ 29
Beneficiary................................... 29
Assignments................................... 29
Delay of Payments............................. 29
Modification.................................. 29
Customer Inquiries............................ 29
Federal Tax Matters.............................. 29
Introduction.................................. 29
Taxation of Annuities in General.............. 29
Tax Deferral................................ 29
Non-Natural Owners.......................... 30
Diversification Requirements................ 30
Ownership Treatment......................... 30
Delayed Maturity Date....................... 30
Taxation of Partial and Full
Withdrawals.............................. 30
Taxation of Annuity Payments................ 31
Taxation of Annuity Death Benefits.......... 31
Penalty Tax on Premature Distributions...... 31
Aggregation of Annuity Contracts............ 31
Tax Qualified Contracts....................... 31
Restrictions Under Section 403(b) Plans..... 31
Roth Individual Retirement Annuities........ 32
Income Tax Withholding........................ 32
Distribution of the Contracts.................... 32
Voting Rights.................................... 32
Selected Financial Data.......................... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 33
Competition...................................... 38
Employees........................................ 39
Properties....................................... 39
State and Federal Regulation..................... 39
Executive Officers and Directors of the
Company....................................... 39
Executive Compensation........................... 41
Legal Proceedings................................ 41
Experts 41
Legal Matters.................................... 41
Financial Statements............................. F-1
Appendix A-- Market Value Adjustment............. A-1
Statement of Additional Information: Table of
Contents...................................... B-1
Order Form....................................... B-1
<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 "Glenbrook Provider 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.
Dollar Cost Averaging Fixed Account -- Purchase payments may be allocated to the
Dollar Cost Averaging Fixed Account for the purpose of establishing a Dollar
Cost Averaging Program.
Fixed Account -- All of the assets of the Company that are not in separate
accounts. Contributions to the Fixed Account are invested in the general account
of the Company.
Guaranteed Maturity Fixed Account -- The Guaranteed Maturity Fixed Account is
divided into Sub-accounts. These Sub-accounts are distinguished by Guarantee
Period(s) and and the dates the period(s) begin. The Fixed Sub-accounts are
established when purchase payments are allocated to the Guaranteed Maturity
Fixed Account; when previous Sub-accounts expire and new Guarantee Periods are
selected; and when You transfer an amount to the Guaranteed Maturity Fixed
Account. Also known as the "Guaranteed Maturity Account."
Guarantee Period -- A period of years for which a specified effective annual
interest rate is guaranteed by the Company.
Income Plan -- One of several ways in which a series of payments are made after
the Payout Start Date. Income payment amounts may vary based on any Sub-account
of the Variable Account and/or may be fixed for the duration of the Income Plan.
Investment Alternatives -- The Sub-accounts of the Variable Account and the
Fixed Account options.
Market Value Adjustment -- The adjustment made to the money distributed from a
Sub-account of the Guaranteed Maturity Fixed Account, prior to the end of the
Guarantee Period, to reflect the impact of changes in interest rates between the
time the Sub-account of the Guaranteed Maturity Fixed Account was established
and the time of distribution.
Non-Qualified Contracts -- Contracts other than Qualified Contracts.
Owner(s)("You") -- With respect to individual Contracts, the person or persons
designated as the Owner in the Contract. With respect to group Contracts, an
individual participant(s) under the Contract.
Payout Start Date -- The date money is applied to an income plan.
Portfolios -- The mutual fund Portfolios of the Funds.
Qualified Contracts -- Contracts issued under plans that qualify for special
federal income tax treatment under Sections 401(a), 403(a), 403(b) and 408 of
the Internal Revenue Code.
Short Term Dollar Cost Averaging Fixed Account -- Purchase payments may be
allocated to the Short Term Dollar Cost Averaging Fixed Account for the purpose
of establishing a Dollar Cost Averaging Program with a transfer period no less
than 3 months nor more than 12 months.
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 normally
3:00 pm 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 Multi-Manager Variable 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 corresponding Portfolio. The investment performance of each Variable
Sub-account is linked directly to the investment performance of its
corresponding Portfolio.
<PAGE>
HIGHLIGHTS
The Contracts
The Contracts are designed for long-term financial planning and retirement
planning. Money can be allocated to any combination of Variable Sub-accounts and
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 22 and "Income Payments," page 25. 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 Fixed Account. See "Market Value Adjustment," page 21.
Free-Look
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 the Fixed Account options. 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, unless a refund of purchase payments is
required by state or federal law.
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. The minimum amount
you can allocate to the Short Term Dollar Cost Averaging Fixed Account is
$5,000. Purchase payments may also be made pursuant to an Automatic Addition
Program. See "Purchase Payment Limits," page 21. 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 (total allocation equals entire
dollar amount of purchase payment). Allocations may be changed by notifying the
Company in writing. See "Allocation of Purchase Payments," page 22.
Investment Alternatives
Presently, the Variable Account invests in shares of the following Funds:
AIM Fund
American Century Funds
Dreyfus Funds
Fidelity VIP Funds
Goldman Sachs VIT Fund
Morgan Stanley Fund
MFS Fund
Neuberger & Berman AMT
The AIM FUND has ten available Portfolios
AIM V.I. Balanced Fund
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Global Utilities Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. Growth and Income Fund
AIM V.I. High Yield Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
The AMERICAN CENTURY FUND has two available Portfolios
American Century VP Balanced
American Century VP International
The DREYFUS FUNDS have five available Portfolios
VIF Growth and Income Portfolio
<PAGE>
VIF Money Market Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
VIF Small Company Stock Portfolio
Dreyfus Stock Index Fund
The FIDELITY VIP FUNDS have four available Portfolios
VIP II Contrafund
VIP Growth
VIP High Income
VIP Equity-Income
The MFS FUND has three available Portfolios
MFS Emerging Growth Series
MFS Growth with Income Series
MFS New Discovery Series
The GOLDMAN SACHS VIT FUND has eight available Portfolios
Growth and Income Fund
CORE U.S. Equity Fund
CORE Large Cap Growth Fund
CORE Small Cap Equity Fund
Capital Growth Fund
Mid Cap Equity Fund
International Equity Fund
Global Income Fund
The MORGAN STANLEY FUND has seven available Portfolios
Fixed Income
Equity Growth
Value
Mid Cap Value
U.S. Real Estate
Global Equity
International Magnum
The NEUBERGER & BERMAN AMT has three available Portfolios
Partners
Guardian
Mid-Cap Growth
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 to the Fixed Account options. See "The Fixed Account,"
on page 18.
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. Transfers to the Guaranteed Maturity Fixed Account must be at least
$50. Certain Fixed Account transfers may be restricted. See "Transfers Among
Investment Alternatives," page 22. You may want to enroll in a Dollar Cost
Averaging Program or an Automatic Portfolio Rebalancing Program. See "Dollar
Cost Averaging," page 23, and "Automatic Portfolio Rebalancing," page 23.
Charges and Deductions
The costs of the Contract include: 1) a contract maintenance charge ($35
annually); 2) a mortality and expense risk charge deducted daily, equal on an
annual basis to 1.05% of the Contract's daily net assets of the Variable
Account; for Contracts with the optional Enhanced Death Benefit Rider, an
additional mortality and expense risk charge of .22% is assessed bringing the
total mortality and expense risk charge to 1.27%; and, for Contracts with the
optional Enhanced Death Benefit and Income Benefit Combination Rider an
additional mortality and expense risk charge of .44% is assessed bringing the
total mortality and expense risk charge to 1.49%; and 3) an administrative
expense charge deducted daily, equal on an annual basis to .10% of the
Contract's daily net assets of the Variable Account. The Company reserves the
right to assess a transfer charge ($10 on each transfer in excess of twelve per
Contract Year). Additional deductions may be made for certain taxes. See
"Contract Maintenance Charge," page 27, "Mortality and Expense Risk Charge,"
page 28, "Administrative Expense Charge," page 28, "Transfer Charges," page 32,
and "Premium Taxes," page 32.
<PAGE>
Withdrawals
You may withdraw all or part of the Contract Value at any time prior to the
earlier of the death of the Owner (or the Annuitant if the Owner is not a
natural person) or the Payout Start Date. Each Contract Year, no withdrawal
charges or Market Value Adjustments will be applied to amounts withdrawn up to
15% of the amount of purchase payments. Amounts withdrawn in excess of the 15%
may be subject to a withdrawal charge of 0% to 6% depending on how long purchase
payments have been invested in the Contract. Amounts withdrawn from a
Sub-account of the Guaranteed Maturity Fixed Account, in excess of the 15%,
except during the 30 day period after the Guarantee Period expires, will be
subject to a Market Value Adjustment. Withdrawals may also be subject to income
tax and a 10% tax penalty. Once the total amount of withdrawals exceed the total
amount of purchase payments, future withdrawals will not be subject to a
withdrawal charge. See "Withdrawals," page 23, "Taxation of Annuities in
General," page 29 and "Withdrawal Charge," page 27.
Death Benefit
The Company will pay a death benefit prior to the Payout Start Date on the death
of any Owner or, if the Owner is not a natural person, the death of the
Annuitant. See "Death Benefit Amount," page 24.
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
Payments," page 25.
<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 Contract
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
Withdrawal Charge (as a percentage of purchase *
payments).........................................
Applicable
Number of Complete Years Withdrawal
Since Purchase Charge as
Payment was Made Percentage
---------------- ----------
0 year................................. 6%
1 year................................. 6%
2 years................................ 5%
3 years................................ 5%
4 years................................ 4%
5 years................................ 3%
6 years or more........................ 0%
Transfer Fee................................ **
Contract Maintenance Charge................. $ 35***
Variable Account Annual Expenses (As a percentage of the
Contract's Average Net Assets in the Variable Account)
With
Optional
Without With Enhanced
Optional Optional Death and
Enhanced Enhanced Income
Death Death Benefit
Benefit Benefit Combination
Rider Rider Rider
-------- -------- -----------
Mortality And Expense
Risk Charge........... 1.05% 1.27% 1.49%
Administrative Expense
Charge................ 0.10% 0.10% 0.10%
Total Variable Account
Annual Expenses....... 1.15% 1.37% 1.59%
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* Each Contract Year up to 15% of the amount of purchase payments may be
withdrawn without a withdrawal charge or a Market Value Adjustment.
** 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 Contract Maintenance Charge will be waived if total purchase payments
as of a Contract Anniversary or upon a full withdrawal equals $50,000 or
more or if all monies are allocated to the Fixed Account options on the
Contract Anniversary.
Portfolio Expenses (Net of Voluntary Reductions
and Reimbursements)
(as a percentage of Portfolio assets)
Total
Fund
Management Other Annual
Portfolio Fees Expenses Expenses
- --------- ---------- -------- --------
AIM V.I. Balanced
Fund(1, 2)............... 0.75% 0.44% 1.19%
AIM V.I. Capital
Appreciation Fund(1)..... 0.63% 0.05% 0.68%
AIM V.I. Diversified Income
Fund(1).................. 0.60% 0.20% 0.80%
AIM V.I. Global Utilities
Fund(1).................. 0.65% 0.63% 1.28%
AIM V.I. Government
Securities Fund(1)....... 0.50% 0.37% 0.87%
AIM V.I. Growth Fund(1).... 0.65% 0.08% 0.73%
AIM V.I. Growth and Income
Fund(1).................. 0.63% 0.06% 0.69%
AIM V.I. High Yield(1, 2).. 0.63% 0.48% 1.11%
AIM V.I. International
Equity Fund(1)........... 0.75% 0.18% 0.93%
AIM V.I. Value Fund(1)..... 0.62% 0.08% 0.70%
American Century VP
International(3)......... 1.50% 0.00% 1.50%
American Century VP
Balanced(3).............. 0.90% 0.00% 0.90%
<PAGE>
Total
Fund
Management Other Annual
Portfolio Fees Expenses Expenses
- --------- ---------- -------- --------
Dreyfus Socially Responsible
Growth(4)............... 0.75% 0.07% 0.82%
Dreyfus Stock Index(4).... 0.25% 0.03% 0.28%
Dreyfus VIF Small Company
Stock(4)................ 0.75% 0.37% 1.12%
Dreyfus VIF Growth and
Income(4)............... 0.75% 0.05% 0.80%
Dreyfus VIF Money
Market(4)............... 0.50% 0.11% 0.61%
Fidelity VIP Growth(5).... 0.60% 0.09% 0.69%
Fidelity VIP II
Contrafund(5)........... 0.60% 0.11% 0.71%
Fidelity VIP High Income(5) 0.59% 0.12% 0.71%
Fidelity VIP Equity-
Income(5)............... 0.50% 0.08% 0.58%
Goldman Sachs Growth and
Income Fund(6).......... 0.75% 0.15% 0.90%
Goldman Sachs CORE U.S.
Equity Fund(6).......... 0.70% 0.10% 0.80%
Goldman Sachs CORE Large
Cap Growth Fund(6)...... 0.70% 0.10% 0.80%
Goldman Sachs CORE Small
Cap Equity Fund(6)...... 0.75% 0.15% 0.90%
Goldman Sachs Capital
Growth Fund(6).......... 0.75% 0.15% 0.90%
Goldman Sachs Mid Cap
Equity Fund(6).......... 0.80% 0.15% 0.95%
Goldman Sachs International
Equity Fund(6).......... 1.00% 0.25% 1.25%
Goldman Sachs Global
Income Fund(6).......... 0.90% 0.15% 1.05%
Morgan Stanley Fixed
Income(7)............... 0.00% 0.70% 0.70%
Morgan Stanley Equity
Growth(7)............... 0.00% 0.85% 0.85%
Morgan Stanley Value(7)... 0.00% 0.85% 0.85%
Morgan Stanley Mid Cap
Value(7)................ 0.00% 1.05% 1.05%
Morgan Stanley U.S. Real
Estate(7)............... 0.00% 1.10% 1.10%
Morgan Stanley Global
Equity(7)............... 0.00% 1.15% 1.15%
Morgan Stanley International
Magnum(7)............... 0.00% 1.15% 1.15%
MFS Emerging Growth
Series(8)............... 0.75% 0.12% 0.87%
MFS Growth with Income
Series(8, 9)............ 0.75% 0.25% 1.00%
MFS New Discovery
Series(8, 9)............ 0.90% 0.25% 1.15%
Neuberger & Berman AMT
Guardian(10, 11)........ 0.60% 0.40% 1.00%
Neuberger & Berman AMT
Mid-Cap Growth(10, 11).. 0.60% 0.40% 1.00%
Neuberger & Berman AMT
Partners(10)............ 0.80% 0.06% 0.86%
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(1) A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its respective fees. Effective May 1, 1998, the Funds reimburse AIM
in an amount up to 0.25% of the average net asset value of each Fund, for
expenses incurred in providing, or assuring that participating insurance
companies provide, certain administrative services. Currently, the fee only
applies to the average net asset value of each Fund in excess of the net
asset value of each Fund as calculated on April 30, 1998.
(2) The fees and expenses are based on estimated expenses for the current
fiscal year.
(3) American Century will voluntarily waive a portion of the management fee
charged to the VP International and VP Balanced Funds based on the average
net assets within the fund. VP International pays an annual management fee
of 1.50% of the first $500 million of average net assets, .95% of the next
$500 million of average net assets, and .90% of average net assets over $1
billion. VP Balanced pays an annual management fee of .90% of the first
$250 million of average net assets, .85% of the next $250 million of
average net assets, and .80% of average net assets over $500 million.
<PAGE>
(4) The portfolio expenses listed are from the portfolios most recent year.
Actual expenses incurred in the future may be greater or less than those
indicated.
(5) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table would
have been:
Initial
Fund Class
---- -----
VIP Equity-Income Portfolio................... .57%
VIP Growth Portfolio.......................... .67%
VIP II Contrafund Portfolio................... .68%
(6) Estimated for the current fiscal year based on current average asset
levels. Each Portfolio's investment advisor has voluntarily agreed to
reduce or limit certain Other Expenses (excluding management fees, taxes,
interest and brokerage fees and litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed .15%, .10%,
.10%, .15%, .15%, .15%, .25% and .15%, respectively, of average daily net
assets of Goldman Sachs Growth and Income Fund, Goldman Sachs CORE U.S.
Equity Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs Small
Cap Equity Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs Mid Cap
Equity Fund, Goldman Sachs International Equity Fund and Goldman Sachs
Global Income Fund. Without such reduction, the estimated Other Expenses
for the current fiscal year would have been 2.67%, 2.29%, 2.03%, 2.67%,
4.49%, 5.34%, 1.97% and 2.34% for the Goldman Sachs Growth and Income Fund,
Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth
Fund, Goldman Sachs Small Cap Equity Fund, Goldman Sachs Capital Growth
Fund, Goldman Sachs Mid Cap Equity Fund, Goldman Sachs International Equity
Fund and Goldman Sachs Global Income Fund, respectively.
(7) The management fee has been reduced to reflect the voluntary waiver of a
portion or all of the management fee and the reimbursement by advisers to
the extent "Total Fund Annual Expenses" exceed the percentages set forth
above. The advisers can terminate this voluntary waiver at any time in
their sole discretion. Absent such reductions, "Management Fees", "Other
Expenses" and "Total Annual Expenses", respectively, would be as follows:
Fixed Income Portfolio--0.40%, 1.31%, 1.71%; Equity Growth
Portfolio--0.55%, 1.50%, 2.05%; Value--0.55%, 1.32%, 1.87%; Mid-Cap
Value--0.75%, 1.38%, 2.13%; U.S. Real Estate Portfolio--0.80%, 1.52%,
2.32%; Global Equity Portfolio--0.80%, 1.63%, 2.43%; International Magnum
Portfolio--0.80%, 1.98%, 2.78%.
(8) Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses."
(9) The adviser has agreed to bear expenses for these Series, subject to
reimbursement by these Series, such that each such Series' "Other Expenses"
shall not exceed 0.25% of the average daily net assets of the Series during
the current fiscal year. See "Information Concerning Share of Each
Series--Expenses." Otherwise, "Other Expenses" and "Total Operating
Expenses" for each such Series would be:
<PAGE>
"Total
"Other Operating
Expenses" Expenses"
Without Without
Expense Expenses
Series Limitation Limitations
------ ---------- -----------
Growth With Income........... 0.35% 1.10%
New Discovery (estimate)..... 0.47% 1.37%
(10) Neuberger & Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("series") of Advisors Management Trust. The figures
reported under "Management Fees" include the aggregate of the
administration fees paid by the Portfolio and the management fees paid by
its corresponding Series. Similarly, "Other Expenses" includes all other
expenses of the Portfolio and its corresponding Series.
(11) Expenses reflect expense reimbursement. Neuberger & Berman Management Inc.
("NBMI") has undertaken to reimburse the Guardian and Mid-Cap Growth
Portfolios for certain operating expenses, including the compensation of
NMBI and excluding taxes, interest, extraordinary expenses, brokerage
commissions and transaction costs, that exceed, in the aggregate, 1% of the
Guardian and Mid-Cap Growth Portfolios' average daily net asset value.
Absent the reimbursement, the Total Annual Expenses for the year ended
December 31, 1997 would be 1.25% for the Guardian Portfolio and 1.25% for
the Mid-Cap Growth Portfolio. The expense reimbursement policies are
subject to terminate upon 60 days written notice, and there can be no
assurance that these policies will be continued thereafter.
<PAGE>
Example
You 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:
(With enhanced death
benefit rider)
1 3 5 10
Portfolio Year Years Years Years
- --------- ---- ----- ----- -----
AIM V.I. Balanced Fund.......... $ 78 $ 125 $ 167 $ 299
AIM V.I. Capital Appreciation $ 73 $ 110 $ 140 $ 246
Fund............................
AIM V.I. Diversified Income Fund $ 74 $ 113 $ 147 $ 259
AIM V.I. Global Utilities Fund.. $ 79 $ 128 $ 171 $ 308
AIM V.I. Government Securities $ 75 $ 115 $ 150 $ 266
Fund............................
AIM V.I. Growth Fund............ $ 73 $ 111 $ 143 $ 252
AIM V.I. Growth and Income Fund. $ 73 $ 110 $ 141 $ 247
AIM V.I. High Yield Fund........ $ 73 $ 110 $ 141 $ 247
AIM V.I. International Equity $ 75 $ 117 $ 153 $ 272
Fund............................
AIM V.I. Value Fund............. $ 73 $ 110 $ 141 $ 248
American Century VP International $ 81 $ 135 $ 182 $ 329
American Century VP Balanced.... $ 76 $ 119 $ 157 $ 279
Dreyfus Socially Responsible $ 74 $ 114 $ 148 $ 261
Growth..........................
Dreyfus Stock Index............. $ 69 $ 97 $ 119 $ 203
Dreyfus VIF Small Company Stock. $ 77 $ 123 $ 163 $ 292
Dreyfus VIF Growth and Income... $ 74 $ 113 $ 147 $ 259
Dreyfus VIF Money Market........ $ 72 $ 107 $ 137 $ 239
Fidelity VIP Growth............. $ 73 $ 110 $ 141 $ 247
Fidelity VIP II Contrafund...... $ 73 $ 110 $ 142 $ 249
Fidelity VIP High Income........ $ 73 $ 110 $ 142 $ 249
Fidelity VIP Equity-Income...... $ 72 $ 106 $ 135 $ 236
Goldman Sachs Growth and Income
Fund.......................... $ 75 $ 116 $ 152 $ 269
Goldman Sachs CORE U.S. Equity
Fund.......................... $ 74 $ 113 $ 147 $ 259
Goldman Sachs CORE Large Cap
Growth Fund................... $ 74 $ 113 $ 147 $ 259
Goldman Sachs CORE Small Cap
Equity Fund................... $ 75 $ 116 $ 152 $ 269
Goldman Sachs Capital Growth Fund $ 75 $ 116 $ 152 $ 269
Goldman Sachs Mid Cap Equity Fund $ 76 $ 118 $ 154 $ 274
Goldman Sachs International
Equity $ 79 $ 127 $ 170 $ 305
Fund..........................
Goldman Sachs Global Income Fund $ 77 $ 121 $ 159 $ 285
Morgan Stanley Fixed Income..... $ 73 $ 110 $ 141 $ 248
Morgan Stanley Equity Growth.... $ 74 $ 115 $ 149 $ 264
Morgan Stanley Value............ $ 74 $ 115 $ 149 $ 264
Morgan Stanley Mid Cap Value.... $ 77 $ 121 $ 159 $ 285
Morgan Stanley U.S. Real Estate. $ 77 $ 122 $ 162 $ 290
Morgan Stanley Global Equity.... $ 78 $ 124 $ 164 $ 295
Morgan Stanley International $ 78 $ 124 $ 164 $ 295
Magnum..........................
MFS Emerging Growth............. $ 75 $ 115 $ 150 $ 266
MFS Growth with Income.......... $ 76 $ 119 $ 157 $ 279
MFS New Discovery............... $ 78 $ 124 $ 164 $ 295
Neuberger & Berman AMT Guardian. $ 76 $ 119 $ 157 $ 279
Neuberger & Berman AMT Partners. $ 75 $ 115 $ 150 $ 265
Neuberger & Berman AMT Mid-Cap
Growth........................ $ 76 $ 119 $ 157 $ 279
<PAGE>
(Without enhanced death
benefit rider)
1 3 5 10
Portfolio Year Years Years Years
- --------- ---- ----- ----- -----
AIM V.I. Balanced Fund........... $ 76 $ 118 $ 155 $ 276
AIM V.I. Capital Appreciation Fund $ 70 $ 103 $ 129 $ 223
AIM V.I. Diversified Income Fund. $ 72 $ 106 $ 135 $ 236
AIM V.I. Global Utilities Fund... $ 77 $ 121 $ 160 $ 286
AIM V.I. Government Securities Fund $ 72 $ 109 $ 139 $ 243
AIM V.I. Growth Fund............. $ 71 $ 104 $ 131 $ 228
AIM V.I. Growth and Income Fund.. $ 71 $ 103 $ 129 $ 224
AIM V.I. High Yield Fund......... $ 71 $ 103 $ 129 $ 224
AIM V.I. International Equity Fund $ 73 $ 110 $ 142 $ 249
AIM V.I. Value Fund ............. $ 71 $ 103 $ 130 $ 225
American Century VP International $ 79 $ 128 $ 171 $ 308
American Century VP Balanced..... $ 74 $ 113 $ 146 $ 257
Dreyfus Socially Responsible Growth $ 72 $ 107 $ 136 $ 238
Dreyfus Stock Index.............. $ 66 $ 90 $ 108 $ 179
Dreyfus VIF Small Company Stock.. $ 75 $ 116 $ 152 $ 269
Dreyfus VIF Growth and Income.... $ 72 $ 106 $ 135 $ 236
Dreyfus VIF Money Market ........ $ 70 $ 101 $ 125 $ 215
Fidelity VIP Growth.............. $ 71 $ 103 $ 129 $ 224
Fidelity VIP II Contrafund....... $ 71 $ 104 $ 130 $ 226
Fidelity VIP High Income......... $ 71 $ 104 $ 130 $ 226
Fidelity VIP Equity-Income....... $ 69 $ 100 $ 124 $ 212
Goldman Sachs Growth and Income
Fund........................... $ 73 $ 110 $ 140 $ 246
Goldman Sachs CORE U.S. Equity
Fund........................... $ 72 $ 106 $ 135 $ 236
Goldman Sachs CORE LargeCap
Growth Fund.................... $ 72 $ 106 $ 135 $ 236
Goldman Sachs CORE Small Cap
Equity Fund.................... $ 73 $ 110 $ 140 $ 246
Goldman Sachs Capital Growth Fund $ 73 $ 110 $ 140 $ 246
Goldman Sachs Mid Cap Equity Fund $ 73 $ 111 $ 143 $ 252
Goldman Sachs International Equity
Fund........................... $ 76 $ 120 $ 158 $ 283
Goldman Sachs Global Income Fund. $ 74 $ 114 $ 148 $ 262
Morgan Stanley Fixed Income...... $ 71 $ 103 $ 130 $ 225
Morgan Stanley Equity Growth..... $ 72 $ 108 $ 138 $ 241
Morgan Stanley Value............. $ 72 $ 108 $ 138 $ 241
Morgan Stanley Mid Cap Value..... $ 74 $ 114 $ 148 $ 262
Morgan Stanley U.S. Real Estate.. $ 75 $ 116 $ 151 $ 267
Morgan Stanley Global Equity..... $ 75 $ 117 $ 153 $ 272
Morgan Stanley International Magnum $ 75 $ 117 $ 153 $ 272
MFS Emerging Growth.............. $ 72 $ 109 $ 139 $ 243
MFS Growth with Income........... $ 74 $ 113 $ 146 $ 257
MFS New Discovery................ $ 75 $ 117 $ 153 $ 272
Neuberger & Berman AMT Guardian.. $ 74 $ 113 $ 146 $ 257
Neuberger & Berman AMT Partners.. $ 72 $ 108 $ 138 $ 242
Neuberger & Berman AMT Mid-Cap
Growth......................... $ 74 $ 113 $ 146 $ 257
<PAGE>
(With enhanced death and income benefit
combination rider)
1 3 5 10
Portfolio Year Years Years Years
- --------- ---- ----- ----- -----
AIM V.I. Balanced Fund.......... $ 80 $ 132 $ 178 $ 320
AIM V.I. Capital Appreciation $ 75 $ 116 $ 152 $ 269
Fund............................
AIM V.I. Diversified Income Fund $ 76 $ 120 $ 158 $ 282
AIM V.I. Global Utilities Fund.. $ 81 $ 135 $ 182 $ 329
AIM V.I. Government Securities $ 77 $ 122 $ 161 $ 289
Fund............................
AIM V.I. Growth Fund............ $ 76 $ 118 $ 154 $ 274
AIM V.I. Growth and Income Fund. $ 75 $ 117 $ 152 $ 270
AIM V.I. High Yield Fund........ $ 75 $ 117 $ 152 $ 270
AIM V.I. International Equity $ 78 $ 124 $ 164 $ 295
Fund............................
AIM V.I. Value Fund............. $ 75 $ 117 $ 153 $ 271
American Century VP International $ 83 $ 141 $ 193 $ 350
American Century VP Balanced.... $ 78 $ 126 $ 168 $ 302
Dreyfus Socially Responsible $ 76 $ 121 $ 159 $ 284
Growth..........................
Dreyfus Stock Index............. $ 71 $ 104 $ 131 $ 227
Dreyfus VIF Small Company Stock. $ 80 $ 130 $ 174 $ 314
Dreyfus VIF Growth and Income... $ 76 $ 120 $ 158 $ 282
Dreyfus VIF Money Market........ $ 74 $ 114 $ 148 $ 262
Fidelity VIP Growth............. $ 75 $ 117 $ 152 $ 270
Fidelity VIP II Contrafund...... $ 75 $ 117 $ 153 $ 272
Fidelity VIP High Income........ $ 75 $ 117 $ 153 $ 272
Fidelity VIP Equity-Income...... $ 74 $ 113 $ 174 $ 259
Goldman Sachs Growth and Income
Fund.......................... $ 77 $ 123 $ 163 $ 292
Goldman Sachs CORE U.S. Equity
Fund.......................... $ 76 $ 120 $ 158 $ 282
Goldman Sachs CORE Large Cap
Growth Fund................... $ 76 $ 120 $ 158 $ 282
Goldman Sachs CORE Small Cap
Equity Fund................... $ 77 $ 123 $ 163 $ 292
Goldman Sachs Capital Growth Fund $ 77 $ 123 $ 163 $ 292
Goldman Sachs Mid Cap Equity Fund $ 78 $ 125 $ 166 $ 297
Goldman Sachs International
Equity $ 81 $ 134 $ 181 $ 326
Fund..........................
Goldman Sachs Global Income Fund $ 79 $ 128 $ 171 $ 307
Morgan Stanley Fixed Income..... $ 75 $ 117 $ 153 $ 271
Morgan Stanley Equity Growth.... $ 77 $ 122 $ 160 $ 287
Morgan Stanley Value............ $ 77 $ 122 $ 160 $ 287
Morgan Stanley Mid Cap Value.... $ 79 $ 128 $ 171 $ 307
Morgan Stanley U.S. Real Estate. $ 79 $ 129 $ 173 $ 312
Morgan Stanley Global Equity.... $ 80 $ 131 $ 176 $ 317
Morgan Stanley International $ 80 $ 131 $ 176 $ 317
Magnum..........................
MFS Emerging Growth............. $ 77 $ 122 $ 161 $ 289
MFS Growth with Income.......... $ 78 $ 126 $ 168 $ 302
MFS New Discovery............... $ 80 $ 131 $ 176 $ 317
Neuberger & Berman AMT Guardian. $ 78 $ 126 $ 168 $ 302
Neuberger & Berman AMT Partners. $ 77 $ 122 $ 161 $ 288
Neuberger & Berman AMT Mid-Cap
Growth........................ $ 78 $ 126 $ 168 $ 302
<PAGE>
If You do not terminate your Contract at the end of the applicable time period:
(With enhanced death
benefit rider)
1 3 5 10
Portfolio Year Years Years Years
- --------- ---- ----- ----- -----
AIM V.I. Balanced Fund......... $ 27 $ 83 $ 141 $ 299
AIM V.I. Capital Appreciation $ 22 $ 67 $ 115 $ 246
Fund...........................
AIM V.I. Diversified Income Fund $ 23 $ 71 $ 121 $ 259
AIM V.I. Global Utilities Fund. $ 28 $ 85 $ 146 $ 308
AIM V.I. Government Securities $ 24 $ 73 $ 125 $ 266
Fund...........................
AIM V.I. Growth Fund........... $ 22 $ 69 $ 117 $ 252
AIM V.I. Growth and Income Fund $ 22 $ 67 $ 115 $ 247
AIM V.I. High Yield Fund....... $ 22 $ 67 $ 115 $ 247
AIM V.I. International Equity $ 24 $ 75 $ 128 $ 272
Fund...........................
AIM V.I. Value Fund............ $ 22 $ 68 $ 116 $ 248
American Century VP International $ 30 $ 92 $ 157 $ 329
American Century VP Balanced... $ 25 $ 77 $ 131 $ 279
Dreyfus Socially Responsible $ 23 $ 71 $ 122 $ 261
Growth.........................
Dreyfus Stock Index............ $ 18 $ 55 $ 94 $ 203
Dreyfus VIF Small Company Stock $ 26 $ 81 $ 137 $ 292
Dreyfus VIF Growth and Income.. $ 23 $ 71 $ 121 $ 259
Dreyfus VIF Money Market....... $ 21 $ 65 $ 111 $ 239
Fidelity VIP Growth............ $ 22 $ 67 $ 115 $ 247
Fidelity VIP II Contrafund..... $ 22 $ 68 $ 116 $ 249
Fidelity VIP High Income....... $ 22 $ 68 $ 116 $ 249
Fidelity VIP Equity-Income..... $ 21 $ 64 $ 110 $ 236
Goldman Sachs Growth and Income
Fund......................... $ 24 $ 74 $ 126 $ 269
Goldman Sachs CORE U.S. Equity
Fund......................... $ 23 $ 71 $ 121 $ 259
Goldman Sachs CORE Large Cap
Growth Fund.................. $ 23 $ 71 $ 121 $ 259
Goldman Sachs CORE Small Cap
Equity Fund.................. $ 24 $ 74 $ 126 $ 269
Goldman Sachs Capital Growth Fund $ 24 $ 74 $ 126 $ 269
Goldman Sachs Mid Cap Equity Fund $ 25 $ 75 $ 129 $ 274
Goldman Sachs International
Equity $ 28 $ 85 $ 144 $ 305
Fund.........................
Goldman Sachs Global Income Fund $ 26 $ 78 $ 134 $ 285
Morgan Stanley Fixed Income.... $ 22 $ 68 $ 116 $ 248
Morgan Stanley Equity Growth... $ 23 $ 72 $ 124 $ 264
Morgan Stanley Value........... $ 23 $ 72 $ 124 $ 264
Morgan Stanley Mid Cap Value... $ 26 $ 78 $ 134 $ 285
Morgan Stanley U.S. Real Estate $ 26 $ 80 $ 136 $ 290
Morgan Stanley Global Equity... $ 27 $ 82 $ 139 $ 295
Morgan Stanley International $ 27 $ 82 $ 139 $ 295
Magnum.........................
MFS Emerging Growth............ $ 24 $ 73 $ 125 $ 266
MFS Growth with Income......... $ 25 $ 77 $ 131 $ 279
MFS New Discovery.............. $ 27 $ 82 $ 139 $ 295
Neuberger & Berman AMT Guardian $ 25 $ 77 $ 131 $ 279
Neuberger & Berman AMT Partners $ 24 $ 73 $ 124 $ 265
Neuberger & Berman AMT Mid-Cap
Growth....................... $ 25 $ 77 $ 131 $ 279
<PAGE>
(Without enhanced death
benefit rider)
1 3 5 10
Portfolio Year Years Years Years
AIM V.I. Balanced Fund.......... $ 25 $ 76 $ 130 $ 276
AIM V.I. Capital Appreciation $ 19 $ 60 $ 103 $ 223
Fund............................
AIM V.I. Diversified Income Fund $ 21 $ 64 $ 110 $ 236
AIM V.I. Global Utilities Fund.. $ 26 $ 79 $ 134 $ 286
AIM V.I. Government Securities $ 21 $ 66 $ 113 $ 243
Fund............................
AIM V.I. Growth Fund............ $ 20 $ 62 $ 106 $ 228
AIM V.I. Growth and Income Fund. $ 20 $ 61 $ 104 $ 224
AIM V.I. High Yield Fund........ $ 20 $ 61 $ 104 $ 224
AIM V.I. International Equity $ 22 $ 68 $ 116 $ 249
Fund............................
AIM V.I. Value Fund............. $ 20 $ 61 $ 104 $ 225
American Century VP International $ 28 $ 85 $ 146 $ 308
American Century VP Balanced.... $ 23 $ 70 $ 120 $ 257
Dreyfus Socially Responsible $ 21 $ 65 $ 111 $ 238
Growth..........................
Dreyfus Stock Index............. $ 15 $ 48 $ 82 $ 179
Dreyfus VIF Small Company Stock. $ 24 $ 74 $ 126 $ 269
Dreyfus VIF Growth and Income... $ 21 $ 64 $ 110 $ 236
Dreyfus VIF Money Market........ $ 19 $ 58 $ 100 $ 215
Fidelity VIP Growth............. $ 20 $ 61 $ 104 $ 224
Fidelity VIP II Contrafund...... $ 20 $ 61 $ 105 $ 226
Fidelity VIP High Income........ $ 20 $ 61 $ 105 $ 226
Fidelity VIP Equity-Income...... $ 18 $ 57 $ 98 $ 212
Goldman Sachs Growth and Income
Fund.......................... $ 22 $ 67 $ 115 $ 246
Goldman Sachs CORE U.S. Equity
Fund.......................... $ 21 $ 64 $ 110 $ 236
Goldman Sachs CORE Large Cap
Growth Fund................... $ 21 $ 64 $ 110 $ 236
Goldman Sachs CORE Small Cap
Equity Fund................... $ 22 $ 67 $ 115 $ 246
Goldman Sachs Capital Growth Fund $ 22 $ 67 $ 115 $ 246
Goldman Sachs Mid Cap Equity Fund $ 22 $ 69 $ 117 $ 252
Goldman Sachs International
Equity $ 25 $ 78 $ 133 $ 283
Fund..........................
Goldman Sachs Global Income Fund $ 23 $ 72 $ 123 $ 262
Morgan Stanley Fixed Income..... $ 20 $ 61 $ 104 $ 225
Morgan Stanley Equity Growth.... $ 21 $ 65 $ 112 $ 241
Morgan Stanley Value............ $ 21 $ 65 $ 112 $ 241
Morgan Stanley Mid Cap Value.... $ 23 $ 72 $ 123 $ 262
Morgan Stanley U.S. Real Estate. $ 24 $ 73 $ 125 $ 267
Morgan Stanley Global Equity.... $ 24 $ 75 $ 128 $ 272
Morgan Stanley International $ 24 $ 75 $ 128 $ 272
Magnum..........................
MFS Emerging Growth............. $ 21 $ 66 $ 113 $ 243
MFS Growth with Income.......... $ 23 $ 70 $ 120 $ 257
MFS New Discovery............... $ 24 $ 75 $ 128 $ 272
Neuberger & Berman AMT Guardian. $ 23 $ 70 $ 120 $ 257
Neuberger & Berman AMT Partners. $ 21 $ 66 $ 113 $ 242
Neuberger & Berman AMT Mid-Cap
Growth........................ $ 23 $ 70 $ 120 $ 257
<PAGE>
(With enhanced death and income benefit
combination rider)
1 3 5 10
Portfolio Year Years Years Years
- --------- ---- ----- ----- -----
AIM V.I. Balanced Fund.......... $ 29 $ 89 $ 152 $ 320
AIM V.I. Capital Appreciation $ 24 $ 74 $ 126 $ 269
Fund............................
AIM V.I. Diversified Income Fund $ 25 $ 78 $ 132 $ 282
AIM V.I. Global Utilities Fund.. $ 30 $ 92 $ 157 $ 329
AIM V.I. Government Securities $ 26 $ 80 $ 136 $ 289
Fund............................
AIM V.I. Growth Fund............ $ 25 $ 75 $ 129 $ 274
AIM V.I. Growth and Income Fund. $ 24 $ 74 $ 127 $ 270
AIM V.I. High Yield Fund........ $ 24 $ 74 $ 127 $ 270
AIM V.I. International Equity $ 27 $ 82 $ 139 $ 295
Fund............................
AIM V.I. Value Fund............. $ 24 $ 74 $ 127 $ 271
American Century VP International $ 32 $ 99 $ 168 $ 350
American Century VP Balanced.... $ 27 $ 84 $ 143 $ 302
Dreyfus Socially Responsible $ 25 $ 78 $ 133 $ 284
Growth..........................
Dreyfus Stock Index............. $ 20 $ 61 $ 105 $ 227
Dreyfus VIF Small Company Stock. $ 29 $ 87 $ 149 $ 314
Dreyfus VIF Growth and Income... $ 25 $ 78 $ 132 $ 282
Dreyfus VIF Money Market........ $ 23 $ 72 $ 123 $ 262
Fidelity VIP Growth............. $ 24 $ 74 $ 127 $ 270
Fidelity VIP II Contrafund...... $ 24 $ 75 $ 128 $ 272
Fidelity VIP High Income........ $ 24 $ 75 $ 128 $ 272
Fidelity VIP Equity-Income...... $ 23 $ 71 $ 121 $ 259
Goldman Sachs Growth and Income
Fund.......................... $ 26 $ 81 $ 137 $ 292
Goldman Sachs CORE U.S. Equity
Fund.......................... $ 25 $ 78 $ 132 $ 282
Goldman Sachs CORE Large Cap
Growth Fund................... $ 25 $ 78 $ 132 $ 282
Goldman Sachs CORE Small Cap
Equity Fund................... $ 26 $ 81 $ 137 $ 292
Goldman Sachs Capital Growth Fund $ 26 $ 81 $ 137 $ 292
Goldman Sachs Mid Cap Equity Fund $ 27 $ 82 $ 140 $ 297
Goldman Sachs International
Equity $ 30 $ 91 $ 155 $ 326
Fund..........................
Goldman Sachs Global Income Fund $ 28 $ 85 $ 145 $ 307
Morgan Stanley Fixed Income..... $ 24 $ 74 $ 127 $ 271
Morgan Stanley Equity Growth.... $ 26 $ 79 $ 135 $ 287
Morgan Stanley Value............ $ 26 $ 79 $ 135 $ 287
Morgan Stanley Mid Cap Value.... $ 28 $ 85 $ 145 $ 307
Morgan Stanley U.S. Real Estate. $ 28 $ 87 $ 148 $ 312
Morgan Stanley Global Equity.... $ 29 $ 88 $ 150 $ 317
Morgan Stanley International $ 29 $ 88 $ 150 $ 317
Magnum..........................
MFS Emerging Growth............. $ 26 $ 80 $ 136 $ 289
MFS Growth with Income.......... $ 27 $ 84 $ 143 $ 302
MFS New Discovery............... $ 29 $ 88 $ 150 $ 317
Neuberger & Berman AMT Guardian. $ 27 $ 84 $ 143 $ 302
Neuberger & Berman AMT Partners. $ 26 $ 79 $ 135 $ 288
Neuberger & Berman AMT Mid-Cap
Growth........................ $ 27 $ 84 $ 143 $ 302
<PAGE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the table 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.
CONDENSED FINANCIAL INFORMATION
The Variable Account had no material operations for the period ended December
31, 1997. Accordingly, no financial information for that period is included
herein.
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 Sub-accounts. Yield and standardized total
return advertisements include all charges and expenses attributable to the
Contracts. Including these fees has the effect of decreasing the advertised
performance of a Sub-account, so that a Sub-account's investment performance
will not be directly comparable to that of an ordinary mutual fund.
When a Sub-account advertises its standardized total return it will be
calculated for one year, five years, and ten years or since inception if the
Sub-account has not been in existence for such periods. Total return is measured
by comparing the value of an investment in the Sub-account at the end of the
relevant period to the value of the investment at the beginning of the period.
In addition to the standardized total return, the Sub-account may advertise a
non-standardized total return. This figure may 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. Except in
the case of the Money Market Sub-account, 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 separate
account level.
The Money Market Sub-account may advertise, in addition to the total return,
either yield or the effective yield. The yield in this case refers to the income
generated by an investment in that Sub-account over a seven-day period net of
recurring charges at the separate account level. 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 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
Portfolios and the assumption that the Sub-accounts were in existence for the
same periods as those of the underlying Portfolios, with a level of charges
equal to those currently assessed against the Sub-accounts.
Please refer to the Statement of Additional Information for a further
description of the method used to calculate a Sub-account's yield and total
return.
FINANCIAL STATEMENTS
The financial statements of Glenbrook Life and Annuity Company begin on page F-1
of this prospectus. The financial statements and notes of the Company as of June
30, 1998 and for the three-month and six-month periods ended June 30, 1998 and
1997 are unaudited. See "Experts" below. The financial statements of the
Variable Account are not included in the Statement of Additional Information
because it had no material operations for the year ended December 31, 1997.
<PAGE>
GLENBROOK LIFE AND ANNUITY
COMPANY AND THE VARIABLE ACCOUNT
Glenbrook Life and Annuity
Company
The Company is the issuer of the Contract. The Company is a stock life insurance
company which was organized under the 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." As of the date of this prospectus, the Company is
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. 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 January 15, 1996, the Variable Account is a unit investment trust
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940. However, such registration does not signify that the
Commission supervises the management or investment practices or policies of the
Variable Account. The investment performance of the Variable Account is entirely
independent of both the investment performance of the Company's general account
and the performance of any other separate account.
The Variable Account is divided into multiple Sub-accounts, each of which
invests solely in its corresponding Portfolio. 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.
<PAGE>
THE FUNDS
The Variable Account will invest in shares of one or more Funds. The Funds are
registered with the Securities and Exchange Commission as open-end, 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' Portfolios are designed to provide investment
vehicles for variable insurance contracts of various insurance companies, in
addition to Contracts funded by the Variable Account.
The investment objectives and policies of certain Funds are similar to the
investment objectives and policies of other portfolios that may be managed by
the same investment adviser or manager. The investment results of the Funds,
however, may be higher or lower than the results of such other portfolios. There
can be no assurance, and no representation is made, that the investment results
of any of the Funds will be comparable to the investment results of any other
portfolio, even if the other portfolio has the same investment adviser or
manager.
The Funds available for investment by the Variable Account as of the date of
this Prospectus are listed below:
I. AIM Fund
- - AIM V.I. Balanced Fund--is a diversified Portfolio which seeks to achieve
as high a total return as possible, consistent with preservation of
capital, by investing in a broadly diversified portfolio of high-yielding
securities, including common stocks, preferred stocks, convertible
securities and bonds.
- - AIM V.I. Capital Appreciation Fund--is a diversified Portfolio which seeks
to provide capital appreciation through investments in common stocks, with
emphasis on medium-sized and smaller emerging growth companies.
- - AIM V.I. Diversified Income Fund--is a diversified Portfolio which seeks to
achieve a high level of current income primarily by investing in a
diversified portfolio of foreign government securities, foreign and
domestic corporate debt securities, U.S. government and lower rated or
unrated high yield debt securities (commonly known as "junk bonds"). The
risks of investing in junk bonds are described in the accompanying
prospectus for the Portfolio, which should be read carefully before
investing.
- - AIM V.I. Global Utilities Fund--is a non-diversified Portfolio which seeks
to achieve a high level of current income and, as a secondary objective, to
achieve capital appreciation, by investing primarily in common and
preferred stocks of public utility companies (either domestic or foreign).
<PAGE>
- - AIM V.I. Government Securities Fund--is a diversified Portfolio which seeks
to achieve a high level of current income consistent with reasonable
concern for safety of principal by investing in debt securities issued,
guaranteed or otherwise backed by the U.S. Government.
- - AIM V.I. Growth Fund--is a diversified Portfolio which seeks to provide
growth of capital through investments primarily in common stocks of
seasoned and better capitalized companies considered by A I M Advisors,
Inc. ("AIM") to have strong earnings momentum.
- - AIM V.I. Growth and Income Fund--is a diversified Portfolio which seeks to
provide growth of capital, with current income as a secondary objective by
investing primarily in dividend paying common stocks which have prospects
for both growth of capital and dividend income.
- - AIM V.I. High Yield Fund--is a diversified Portfolio which seeks to achieve
a high level of current income by investing primarily in publicly traded
non-investment grade debt securities. Debt securities of less than
investment grade are considered "high risk" securities, commonly referred
to as "junk bonds." The Portfolio may also invest in preferred stocks. The
securities held by the Portfolio may be subject to greater risk of loss of
income and principal and are more speculative in nature. The risks of
investing in junk bonds are described in the accompanying prospectus for
the Fund Series, which should be read carefully before investing.
- - AIM V.I. International Equity Fund--is a diversified Portfolio which seeks
to provide long-term growth of capital by investing in international equity
securities, the issuers of which are considered by AIM to have strong
earnings momentum.
- - AIM V.I. Value Fund--is a diversified Portfolio which seeks to achieve
long-term growth of capital by investing primarily in equity securities
judged by AIM to be undervalued relative to the current or projected
earnings of the companies issuing the securities, or relative to current
market values of assets owned by the companies issuing the securities or
relative to the equity market generally. Income is a secondary objective.
AIM serves as the investment advisor to the AIM Fund. AIM was organized in 1976
and, together with its domestic subsidiaries, manages or advises approximately
90 investment company portfolios (including the Portfolios listed above)
encompassing a broad range of investment objectives. AIM is a wholly owned
subsidiary of A I M Management Group Inc. Its principal place of business is 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173.
<PAGE>
II. American Century Funds
- - American Century VP Balanced--the investment objective of American Century
VP Balanced is capital growth and current income. It will seek to achieve
its investment objective by maintaining approximately 60% of the assets of
American Century VP Balanced in common stocks that are considered by
management to have better-than-average prospects for appreciation and the
remaining assets in bonds and other fixed income securities.
- - American Century VP International--the invest-ment objective of American
Century VP International is Capital Growth. It will seek to achieve its
investment objective by investing primarily in an internationally
diversified portfolio of common stocks that are considered by management to
have prospects for appreciation. The Fund will invest primarily in
securities of issuers located in developed markets.
American Century Investment Management, Inc. serves as the investment manager of
American Century Variable Portfolios, Inc. Its principal place of business is
American Century Investments, 4500 Main Street, Kansas City, Missouri 64111.
III. Dreyfus Funds
- - VIF Growth and Income Portfolio--20 seeks to provide long-term capital
growth, current income and growth of income, consistent with reasonable
investment risk.
- - VIF Money Market Portfolio--seeks to provide as high a level of current
income as is consistent with the preservation of capital and the
maintenance of liquidity.
- - The Dreyfus Socially Responsible Growth Fund, Inc.--seeks to provide
capital growth. Current income is a secondary goal. Invests principally in
common stocks, or securities convertible into common stock, of companies
which, in the opinion of the Fund's management, not only meet traditional
investment standards, but also show evidence that they conduct their
business in a manner that contributes to the enhancement of the quality of
life in America.
- - VIF Small Company Stock Portfolio--seeks to provide investment results that
are greater than the total return performance of publicly-traded common
stocks in the aggregate, as represented by the Russell 2500(TM) Index.
Invests primarily in a portfolio of equity securities of small- to
medium-sized domestic issuers, while attempting to maintain volatility and
diversification similar to that of the Russell 2500(TM) Index.
- - Dreyfus Stock Index Fund--seeks to provide investment results that
correspond to the price and yield performance of publicly traded common
stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index.
An investment in the Dreyfus VIF Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government. There can be no assurance that the Money
Market Portfolio will be able to maintain a stable net asset value of $1.00 per
share.
<PAGE>
The Dreyfus Corporation, 200 Park Avenue, New York, New York 10166, was formed
in 1947 and serves as the Funds' investment manager. The Dreyfus Corporation is
a wholly owned subsidiary of Mellon Bank, N.A., which is a wholly owned
subsidiary of Mellon Bank Corporation. NCM Capital Management Group, Inc., 103
West Main Street, Durham, North Carolina 27705-3638, serves as sub-investment
adviser to The Dreyfus Socially Responsible Growth Fund, Inc. Mellon Equity
Associates, an affiliate of Dreyfus, located at 500 Grant Street, Pittsburgh, PA
15258, serves as the index fund manager to Dreyfus Stock Index Fund.
IV. Fidelity VIP Funds
- - VIP II Contrafund Portfolio--seeks capital appreciation by investing in
securities of companies whose value Fidelity Management & Research Company
("FMR") believes is not fully recognized by the public.
- - VIP Growth Portfolio--seeks capital appreciation by investing primarily in
common stocks. The fund may also pursue capital appreciation through the
purchase of bonds and preferred stocks.
- - VIP High Income Portfolio--seeks high current income by investing primarily
in all types of income-producing debt securities, preferred stocks, and
convertible securities.
- - VIP Equity-Income Portfolio--seeks reasonable income by investing primarily
in income-producing equity securities. When choosing the Portfolio's
investments, Fidelity Management & Research Company also considers the
potential for capital appreciation. The Portfolio seeks to achieve a yield
that exceeds the yield on the securities comprising the S&P 500. Fidelity
Management & Research Company, 82 Devonshire Street, Boston, Massachusetts,
is the Investment Manager of the Funds.
V. MFS Fund
- - MFS Emerging Growth Series--seeks to provide long-term growth of capital.
- - MFS Growth With Income Series-- seeks to provide reasonable current income
and long-term growth of capital and income.
- - MFS New Discovery Series--seeks capital appreciation.
<PAGE>
MFS manages each Portfolio pursuant to an Investment Advisory Agreement with the
MFS Fund on behalf of each Portfolio. MFS provides the Series with overall
investment advisory and administrative services, as well as general office
facilities. Its principal place of business is 500 Boylston Street, Boston,
Massachusetts 02116.
VI. Goldman Sachs VIT Fund
- - Growth and Income Fund--Seeks long-term growth of capital and growth of
income through investments in equity securities that are considered to have
favorable prospects for capital appreciation and/or dividend paying
ability.
- - CORE U.S. Equity Fund--Seeks long-term growth of capital and dividend
income through a broadly diversified portfolio of large cap and blue chip
equity securities representing all major sectors of the U.S. economy.
- - CORE Large Cap Growth Fund--Seeks long-term growth of capital through a
broadly diversified portfolio of equity securities of large cap U.S.
issuers that are expected to have better prospects for earnings growth than
the growth rate of the general domestic economy. Dividend income is a
secondary consideration.
- - CORE Small Cap Equity Fund--Seeks long-term growth of capital through a
broadly diversified portfolio of equity securities of U.S. insurers which
are included in the Russell 2000 Index at the time of investment.
- - Capital Growth Fund--Seeks long-term growth of capital through diversified
investments in equity securities of companies that are considered to have
long-term capital appreciation potential.
- - Mid Cap Equity Fund--Seeks long-term capital appreciation primarily through
investments in equity securities of companies with public stock market
capitalization within the range of the market capitalization of companies
constituting the Russell Mid Cap Index at the time of investment (currently
between $400 million and $16 billion).
- - International Equity Fund--seeks long-term capital appreciation through
investments in equity securities of companies that are organized outside
the U.S. or whose securities are principally traded outside the U.S.
- - Global Income Fund--Seeks a high total return, emphasizing current income
and, to a lesser extent, providing opportunities for capital appreciation.
The Fund invests primarily in a portfolio of high quality fixed-income
securities of U.S. and foreign issuers and foreign currencies.
Goldman Sachs Asset Management ("GSAM"), One New York Plaza, New York, New York
10004, a separate operating division of Goldman Sachs, serves as the investment
adviser to the CORE Large Cap Growth, CORE Small Cap Equity, CORE U.S. Equity,
Growth and Income, Capital Growth and Mid Cap Equity Funds. Goldman Sachs Asset
Management International ("GSAMI"), 133 Peterborough Court, London EC4A 2BB,
England, an affiliate of Goldman Sachs, serves as the investment adviser to the
International Equity and Global Income Funds.
<PAGE>
VII Morgan Stanley Fund
- - Fixed Income--Seeks above-average total return over a market cycle of three
to five years by investing primarily in a diversified portfolio of U.S.
governments and agencies, corporate bonds, MBS's, foreign bonds and other
fixed income securities and derivatives.
- - Equity Growth--seeks long-term capital appreciation by investing primarily
in equity securities of medium and large capitalization companies that, in
MSAM's judgment, provide above-average potential for capital growth.
- - Value--Seeks above-average total return over a market cycle of three to
five years by investing primarily in a diversified portfolio of common
stocks and other equity securities that are deemed by MAS to be relatively
undervalued based on various measures such as price/earnings ratios and
price/book ratios.
- - Mid Cap Value--seeks above-average total return over a market cycle of
three to five years by investing in common stocks and other equity
securities of issuers with equity capitalizations in the range of the
companies represented in the S&P MidCap 400 Index.
- - U.S. Real Estate--Seeks above-average current income and long-term capital
appreciation by investing primarily in equity securities of U.S. and
non-U.S. companies principally engaged in the U.S. real estate industry,
including real estate investment trusts ("REITs").
- - Global Equity--Seeks long term capital appreciation by investing primarily
in equity securities of issuers throughout the world, including U.S.
issuers, using an approach that is oriented to the selection of individual
stocks that MSAM believes are undervalued.
- - International Magnum--Seeks long-term capital appreciation by investing
primarily in equity securities of non-U.S. issuers domiciled in EAFE
countries.
Morgan Stanley Asset Management Inc. ("MSAM"), serves as the Adviser for the
International Magnum, Global Equity, U.S. Real Estate and Equity Growth
Portfolios. MSAM has its principal offices at 1221 Avenue of the Americas, New
York, New York 10020. Miller Anderson & Sherred, LLP ("MAS") serves as the
Adviser for the Fixed Income, Mid-Cap Value and Value Portfolios. MAS has its
principal offices at One Tower Bridge, West Conshohocken, Pennsylvania 19428.
<PAGE>
VIII. Neuberger & Berman AMT
- - Partners--the Portfolio invests principally in common stocks of medium to
large capitalization established companies, using the value-oriented
investment approach. The Portfolio seeks capital growth through an
investment approach that is designed to increase capital with reasonable
risk.
- - Guardian--the investment objective of the Portfolio is to seek capital
appreciation and, secondarily, current income. Using the value-oriented
investment approach, the Portfolio invests primarily in common stocks of
long-established, high quality companies.
- - Mid-Cap Growth--the investment objective is to seek capital appreciation.
The Portfolio invests in a diversified portfolio of common stocks believed
by Neuberger & Berman Management Inc. ("NBMI") to have the maximum
potential for long-term above-average capital appreciation.
NBMI, with the assistance of Neuberger & Berman, LLC as sub-adviser, selects
investments for all series. The investments for the Portfolios are managed by
the same portfolio manager(s) who manage one or more other mutual funds that
have similar names, investment objectives and investment styles as the
Portfolios. You should be aware that the Portfolios are likely to differ from
the other mutual funds in size, cash flow pattern and tax matters. Accordingly,
the holdings and performance of the Portfolios can be expected to vary from
those of the other mutual funds. Its principal place of business is 605 Third
Avenue, 2nd Floor, New York, New York 10158-0180.
Shares 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.
All dividends and capital gains distributions from the Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value.
There is no assurance that the Portfolios will attain their respective stated
objectives. Additional information concerning the investment objectives and
policies of the Portfolios can be found in the current prospectuses for the
Funds accompanying this prospectus.
You will find more complete information about the Portfolios, including the
risks associated with each Portfolio, in the accompanying prospectuses. You
should read the prospectuses for the Portfolios in conjunction with this
prospectus.
THE FUND PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF PURCHASE PAYMENTS TO A PARTICULAR VARIABLE
SUB-ACCOUNT.
<PAGE>
THE FIXED ACCOUNT
Purchase payments allocated to the 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 Fixed Account. We have sole
discretion to invest the assets of the Fixed, subject to applicable law. We
guarantee that the amounts allocated to the 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.
Any interest held in the Fixed Account does not entitle an Owner to share in the
investment experience of the general account.
Surrenders and withdrawals from the Fixed Account may be delayed for up to six
months.
Interests in the Fixed Account are not registered with the Securities and
Exchange Commission ("SEC") and the SEC does not review disclosure related to or
supervise the operations of this account. The Fixed Account options described
below may not be available in all states. Please consult your sales
representative for additional information.
Dollar Cost Averaging Fixed Account
Money allocated to the Dollar Cost Averaging 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 12 months for each payment. The renewal interest rate will be
guaranteed by us for a full year and will not be less than the minimum
guaranteed rate found in the Contract. We may declare more than one interest
rate for different monies based upon the date of allocation to the Dollar Cost
Averaging Fixed Account. Any interest credited to amounts allocated to the
Dollar Cost Averaging Fixed Account in excess of the guaranteed rate found in
the Contract will be determined at the sole discretion of the Company.
Purchase payments may be allocated to the Dollar Cost Averaging Fixed Account
for the purpose of establishing a Dollar Cost Averaging Program. Each purchase
payment and all its earnings must be transferred out of the Dollar Cost
Averaging Fixed Account via Dollar Cost Averaging within 36 months of the
payment. At the end of 36 months, any remaining payment and associated earnings
will be transferred to the Money Market Sub-account. No transfers are permitted
into the Dollar Cost Averaging Fixed Account.
Short Term Dollar Cost Averaging Fixed Account
Purchase payments allocated to the Short Term Dollar Cost Averaging Fixed
Account will earn interest at the annual rate in effect at the time of
allocation to the Short Term Dollar Cost Averaging Fixed Account. Each purchase
payment and associated earnings in the Short Term Dollar Cost Averaging Fixed
Account must be transferred to one or more Sub-accounts of the Variable Account
in equal monthly installments within the selected transfer period. We will offer
at our discretion a transfer period no less than 3 months or more than 12
months. If you discontinue the Dollar Cost Averaging Program before the end of
the transfer period, the remaining balance in the Short Term Dollar Cost
Averaging Fixed Account will be transferred to the Money Market Sub-account
unless you request a different Investment Alternative. No transfers are
permitted into the Short Term Dollar Cost Averaging Fixed Account.
<PAGE>
Guaranteed Maturity Fixed Account
Purchase payments and transfers allocated to one or more of the Sub-accounts of
the Guaranteed Maturity 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 one, three,
five, seven and ten years. The Owner must select the Sub-account(s) to 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 following example illustrates how the Sub-account value for a Sub-account of
the Guaranteed Maturity Fixed Account would grow given an assumed purchase
payment, Guarantee Period, and effective annual interest rate:
Example of Interest Crediting
During the Guarantee Period:
Purchase Payment............................ $10,000.00
Guarantee Period............................ 5 years
Effective Annual Rate....................... 4.50%
End of Contract Year:
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Beginning Sub-Account Value.............................. $10,000.00
X (1 + Effective Annual Rate).................... 1.045
$10,450.00
Sub-Account Value at end of Contract..................... $10,450.00
year 1 X (1 + Effective Annual Rate)............. 1.045
$10,920.25
Sub-Account Value at end of Contract..................... $10,920.25
year 2 X (1 + Effective Annual Rate)............. 1.045
$11,411.66
Sub-Account Value at end of Contract..................... $11,411.66
year 3 X (1 + Effective Annual Rate)............. 1.045
$11,925.19
Sub-Account Value at end of Contract $11,925.19
year 4 X (1 + Effective Annual Rate)............. 1.045
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 withdrawal charge and a Market Value Adjustment may
apply to any amount withdrawn in excess of 15% of the amount of purchase
payments. The hypothetical interest rate is for illustrative purposes only and
is not intended to predict future interest rates to be declared under 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) 526-4827.
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 as of
the day the previous Guarantee Period expired; or
- - notify the Company to apply the Sub-account value to a new Guarantee Period
or periods to be established as of the day the previous Guarantee Period
expired; or
- - notify the Company to apply the Sub-account value to any Sub-account 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 amount withdrawn will be deemed to have been
renewed at the shortest Guarantee Period then being offered 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 asking to discontinue the program. The
Company reserves the right to discontinue this Program. For additional
information on the Automatic Laddering Program, please call the Company's
Customer Support Unit at 1(800)526-4827.
Withdrawals
Withdrawals in excess of the free withdrawal amount and transfers paid from a
Sub-account of the Guaranteed Maturity Fixed Account other than during the 30
day period after a Guarantee Period expires are subject to a Market Value
Adjustment. See "Market Value Adjustment" section below.
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), less any
applicable transfer fee.
Market Value Adjustment
The Market Value Adjustment reflects the relationship between (1) the Treasury
Rate for the original Guarantee Period at the time the Sub-account was
established, and (2) the Treasury Rate for the original Guarantee Period at the
time of the request for withdrawal or transfer, or at the time money is applied
to an Income Plan. As such, the Owner bears some investment risk under the
Contract. Treasury Rate means the U.S. Treasury Note Constant Maturity yield for
the preceding week as reported in Federal Reserve Bulletin Release H.15.
<PAGE>
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 Treasury Rate at the time the Sub-account was established is
higher than the applicable current Treasury Rate, then the Market Value
Adjustment will result in a higher amount payable to the Owner or transferred.
Similarly, if the Treasury Rate at the time the Sub-account was established is
lower than the applicable current Treasury Rate (interest rate for a period
equal to the original Guarantee Period), then the Market Value Adjustment will
result in a lower amount payable to the Owner or transferred.
For example, assume the Owner purchases a Contract and selects an initial
Guarantee Period of five years and the five year Treasury 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 five year Treasury Rate is
4.20%, 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 five
year Treasury Rate is 4.80%, 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 Payout Start Date. The minimum amount you can allocate to
the Short Term Dollar Cost Averaging Fixed Account is $5,000. We may limit your
ability to make subsequent purchase payments in order to comply with the laws of
the state where the Contract is delivered. Subsequent purchase payments may also
be made from your bank account through Automatic Additions. Please consult with
your sales representative for detailed information about Automatic Additions.
The minimum purchase payment for allocation to the Dollar Cost Averaging Fixed
Account or any Sub-account of the Guaranteed Maturity Fixed Account is $50.
We reserve the right to limit the maximum 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 the Fixed Account Options. 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 unless a refund of purchase payments is
required by state or federal law.
<PAGE>
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% of the purchase
payment), or in whole dollar amounts (total allocation equals the purchase
payment), 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.
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.
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
Amounts may be transferred among Investment Alternatives, subject to the
following restrictions.
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. Transfers
to or from more than one Investment Alternative on the same day are treated as
one transfer.
Transfers among Investment Alternatives before the Payout Start Date may be made
at any time. After the Payout Start Date, if the Income Plan depends on any
person's life, transfers among Sub-accounts of the Variable Account or from a
variable amount income payment to a fixed amount income payment may be made only
once every six months and may not be made during the first six months following
the Payout Start Date. After the Payout Start Date, if the Income Plan does not
depend on any person's life, transfers among Sub-accounts of the Variable
Account or from a variable amount income payment to a fixed amount income
payment may be made immediately. After the Payout Start Date, transfers from a
fixed amount income payment are not allowed.
<PAGE>
Telephone transfer requests will be accepted by the Company if received at
1(800)526-4827 by 3:00 p.m., Central Time. Telephone transfer requests received
at any other telephone number or after 3:00 p.m., Central Time will not be
accepted by the Company. Telephone transfer requests received before 3:00 p.m.,
Central Time are effected at the Sub-account value next computed. 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 minimum amount that may be transferred into a Sub-account of the Guaranteed
Maturity Fixed Account is $50. No transfers are allowed into the Dollar Cost
Averaging Fixed Account or the Short Term Dollar Cost Averaging Fixed Account.
Any transfer from a Sub-account of the Guaranteed Maturity Fixed Account at a
time other than during the 30 day period after a Guarantee Period expires will
be subject to a Market Value Adjustment.
The Company reserves the right to waive 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 the Short Term Dollar Cost Averaging Fixed
Account, the Dollar Cost Averaging Fixed Account or the Money Market
Sub-account, to any Sub-account of the Variable Account. Dollar Cost Averaging
cannot be used to transfer amounts to the Guaranteed Maturity Fixed Account.
There are no additional charges imposed upon participants in the Dollar Cost
Averaging program. In addition, such transfers 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.
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 the Fixed Account Options will not be included in the
Automatic Portfolio Rebalancing.
<PAGE>
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 (or 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 applicable Market Value
Adjustment, less any applicable withdrawal charges, contract maintenance
charges, income tax withholding, penalty tax and premium taxes. Withdrawals from
the Variable Account will be paid within seven days of receipt of the request,
subject to postponement in certain circumstances. Surrenders and withdrawals
from the Fixed Account may be delayed for up to six months. See "Delay of
Payments," page 29.
Money can be withdrawn from the Variable Account or the Fixed Account. To
complete the partial withdrawal from the Variable Account, the Company will
redeem 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 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.
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.
Partial and full withdrawals may be subject to income tax and a 10% tax penalty,
which is explained in "Federal Tax Matters," on page 29.
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.
DEATH BENEFITS
Distribution Upon Death Payment Provisions
A distribution upon death may be paid to the Owner determined immediately after
the death if, prior to the Payout Start Date:
- any Owner dies; or
- the Annuitant dies and the Owner is not a natural person.
If the Owner eligible to receive a distribution upon death is not a natural
person, then the Owner may elect to receive the distribution upon death in one
or more distributions, as long as all distributions are completed within 5 years
of death. Otherwise, if the Owner is a natural person, the Owner may elect to
receive a distribution upon death in one or more distributions or periodic
payments through an Income Plan.
A death benefit will be paid: 1) if the Owner elects to receive the death
benefit in a single payment distributed 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. The settlement value is the same amount that would
be paid in the event of withdrawal of the Contract Value. The Company will
calculate the settlement value at the end of the Valuation Period coinciding
with the requested distribution date for payment or on the mandatory
distribution date of 5 years after the date of death. In any event, the entire
distribution upon death must be distributed within five years after the date of
death unless a surviving spouse continues the Contract or an Income Plan is
selected in accordance with the following rules:
<PAGE>
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.
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. The Company will only
permit the Contract to be continued once. 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. A Market Value Adjustment will not apply. If the survivng spouse is
under age 59 1/2, a 10% penalty tax may apply to the withdrawal.
Death Benefit Amount
Prior to the Payout Start Date, the standard death benefit is equal to the
greatest of:
(a) the Contract Value on the date the Company determines the value of the
death benefit; or
(b) the settlement value on the date the Company determines the value of
the death benefit; or
(c) the Contract Value on each Death Benefit Anniversary prior to the date
the Company determines the death benefit adjusted by any purchase
payments and any withdrawals* made between such Death Benefit
Anniversary and the date the Company determines the death benefit. 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 value of the death benefit will be determined at the end of the Valuation
Period during which the Company receives a complete request for payment of the
death benefit, which includes due proof of death. The Company will not settle
any death claim until it receives due proof of death.
For Contracts with the optional Enhanced Death Benefit rider, the death benefit
will be the greater of the standard death benefit described above, or the
Enhanced Death Benefit described below:
Prior to the Payout Start Date, the Enhanced Death Benefit is equal to the
greater of the Enhanced Death Benefit A or Enhanced Death Benefit B.
<PAGE>
Enhanced Death Benefit A
At issue, Enhanced Death Benefit A is equal to the initial purchase payment.
After issue, the Enhanced Death Benefit A is recalculated on each Contract
Anniversary, or when a purchase payment or withdrawal is made, as follows:
- On each Contract anniversary, the Enhanced Death Benefit A is equal to
the greater of the Contract Value on that date or the most recently
calculated Enhanced Death Benefit A.
- For purchase payments, the Enhanced Death Benefit A is equal to the
most recently calculated Enhanced Death Benefit A plus the purchase
payment.
- For withdrawals, the Enhanced Death Benefit A is equal to the most
recently calculated Enhanced Death Benefit A reduced by the withdrawal
adjustment, as defined below.
In the absence of any withdrawals or purchase payments, the Enhanced Death
Benefit A will be the greatest of all Contract anniversary Contract Values on or
prior to the date the Company calculates the Death Benefit.
The Enhanced Death Benefit A will be recalculated for purchase payments,
withdrawals, and, on Contract Anniversaries until the oldest Owner or, if the
Owner is not a natural person, the Annuitant, attains age 85. After age 85, the
Enhanced Death Benefit A will be recalculated only for purchase payments and
withdrawals.
Enhanced Death Benefit B
The Enhanced Death Benefit B is equal to total purchase payments made reduced by
a withdrawal adjustment. Each purchase payment and each withdrawal adjustment
will accumulate daily at a rate equivalent to 5% per year until the earlier of
the date the Company determines the Death Benefit or the first day of the month
following the oldest Owner's or, if the Owner is not a living individual, the
Annuitant's 85th birthday.
The Enhanced Death Benefit will never be greater than the maximum death benefit
allowed by any nonforfeiture laws which govern the Contract.
*The adjustment for withdrawals is equal to the Contract Value on a Death
Benefit Anniversary or Contract Anniversary multiplied by the ratio of the
withdrawal amount to the Contract Value immediately prior to the withdrawal.
INCOME PAYMENTS
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 anniversary of
the issue date, if later.
<PAGE>
Variable Account Income Payments
The amount of Variable Account income payments depends upon the investment
experience of the Sub-accounts selected by the Owner and any premium taxes, the
age and sex of the Annuitant, and the Income Plan chosen. The Company guarantees
that the amount of the income payment will not be affected by (1) actual
mortality experience and (2) the amount of the Company's administration
expenses.
The 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 will be used.
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.
The Income Plan option selected will affect the dollar amount of each income
payment. For example, if an Income Plan for a Life Income is chosen, the income
payments will be greater than income payments under an Income Plan for a Life
Income with Guaranteed Payments.
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. For more detailed
information as to how Variable Account income payments are determined, see the
Statement of Additional Information.
Fixed Amount Income Payments
Income payment amounts derived from any monies allocated to any Fixed Account
Option are guaranteed for the duration of the Income Plan. The income payment
based upon any fixed amount income payment is calculated by applying the portion
of the Contract Value in any Fixed Account Option on the Payout Start Date,
adjusted by any Market Value Adjustment and less any applicable premium tax, to
the greater of the appropriate value from the income payment table selected or
such other value as we are offering at that time.
<PAGE>
Income Plans
The 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 Number of Payments
The Company will make payments for a specified number of months beginning
on the Payout Start Date. These payments do not depend on the Annuitant's
life. The number of months guaranteed may be from 60 to 360. The mortality
and expense risk charge will be deducted from Variable Account assets
supporting these payments even though the Company may not bear any
mortality risk. Income payments for less than 120 months may be subject to
a withdrawal charge.
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.
In the event that an Income Plan is not selected, the Company will make income
payments in accordance with Income Plan 1 with Guaranteed Payments for 120
Months. At the Company's discretion, other Income Plans may be available upon
request. The Company currently uses sex-distinct annuity tables. However, if
legislation is passed by Congress or the states, the Company reserves the right
to use income payment tables which do not distinguish on the basis of sex.
Special rules and limitations may apply to certain qualified contracts.
If the Contract Value to be applied to an Income Plan is less than $2,000, or if
the monthly payments determined under the Income Plan are less than $20, the
Company may pay the Contract Value adjusted by any Market Value Adjustment and
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.
Enhanced Income Benefit
You may choose an Enhanced Income Benefit in conjunction with the Enhanced Death
Benefit Rider. To exercise your Enhanced Income Benefit, you must annuitize your
Contract. The Enhanced Income Benefit defines a minimum amount applied to the
payout phase. This minimum amount is equal to what the value of the Enhanced
Death Benefit would be on the Payout Start Date. The Enhanced Income Benefit
will apply if the Owner elects a Payout Start Date that: is on or after the
tenth Contract Anniversary; and is prior to the Annuitant's age 90. On the
Payout Start Date of the Contract, the Contract Value or the Enhanced Income
Benefit will apply, whichever is greater. No Market Value Adjustment will be
applied to the Enhanced Income Benefit amount. The Enhanced Income Benefit will
only apply if the income plan selected provides payments guaranteed for either
single or joint life with a period certain of at least: (a) 10 years, if the
youngest Annuitant's age is 80 or less on the date the amount is applied; or (b)
5 years, if the youngest Annuitant's age is greater than 80 on the date the
amount is applied. If, however, the amount applied to the income plan selected
is the Contract Value and not the Enhanced Income Benefit, then you may select
any income plan then offered by the Company.
<PAGE>
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 (or 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 15% of the amount of
purchase payments each 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.
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 Contract Value will
be adjusted to reflect the amount of payment requested by the Owner, any
withdrawal charge, any applicable taxes and any Market Value Adjustment.
Withdrawal charges may also be applicable during the annuity payout period.
Withdrawals in excess of the free withdrawal amount will be subject to a
withdrawal charge as set forth below:
Applicable
Withdrawal
Complete Years Since Charge
Purchase Payment was Made Percentage
- ------------------------- ----------
0 YEARS..................................... 6%
1 YEAR...................................... 6%
2 YEARS..................................... 5%
3 YEARS..................................... 5%
4 YEARS..................................... 4%
5 YEARS..................................... 3%
6 YEARS OR MORE ............................ 0%
Withdrawal charges will be used to pay sales commissions and other promotional
or distribution expenses associated with the marketing of the Contracts. In
addition, federal and state income tax may be withheld from withdrawal amounts.
Certain terminations may also be subject to a federal tax penalty. See "Federal
Tax Matters," page 29.
The Company will waive any withdrawal charge prior to the Payout Start Date if:
1) at least 30 days after the Contract Date any Owner (or Annuitant if the
Owner is not a natural person) is first confined to a long term care
facility or hospital for at least 90 consecutive days, confinement is
prescribed by a physician and is medically necessary, and the request for a
withdrawal and adequate written proof of confinement are received by us no
later than 90 days after discharge; or
2) at least 30 days after the Contract Date any Owner (or Annuitant if the
Owner is not a natural person) is first diagnosed with a terminal illness;
or
3) the Owner, or, if the Owner is not a living individual, the Annuitant,
becomes unemployed at least one year after the Contract Date; the Owner,
or, if the Owner is not a living individual, the Annuitant, receives at
least 30 consecutive days of Unemployment Compensation as defined in the
Contract, for that unemployment; and the Owner, or if the Owner is not a
living individual, the Annuitant, request the waiver within 180 days of the
Owner's, or, if the Owner is not a living individual, the Annuitant's,
initial receipt of Unemployment Compensation, as defined in the Contract.
The laws of your state may limit the availability of these waivers and may also
change certain terms and/or benefits available under the waivers. Such
withdrawals will not be subject to a Market Value Adjustment.
The withdrawal charge will also be waived on withdrawals taken to satisfy IRS
required minimum distribution rules. This waiver is permitted only for
withdrawals which satisfy distributions resulting from this Contract.
<PAGE>
Contract Maintenance Charge
A contract maintenance charge is deducted annually from the Contract Value to
reimburse the Company for its costs in maintaining each Contract and the
Variable Account. The Company guarantees that the amount of this charge will not
exceed $35 per Contract Year over the life of the Contract. Prior to the Payout
Start Date, this charge will be waived if the total purchase payments are
$50,000 or more on a Contract Anniversary or if all money is allocated to the
Fixed Account on the Contract Anniversary. After the Payout Start Date, this
charge will be waived if total purchase payments are $50,000 or more or if all
payments are Fixed Amount Income Payments as of the Payout Start Date.
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 Owner's 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 $35, or $2.92, will be deducted if there are twelve income
payments during the Contract Year. A pro-rated contract maintenance charge will
be deducted if the Contract is terminated on any date other than a Contract
Anniversary.
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 the Owner has 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 1.05% of the daily net assets you have allocated to the
Sub-accounts of the Variable Account. For Contracts with the optional Enhanced
Death Benefit Rider, the mortality and expense risk charge will be deducted
daily, at a rate equal on an annual basis to 1.27% of the daily net assets in
the Variable Account. For Contracts with the optional Enhanced Death and Income
Benefit Combination Rider, the mortality and expense risk charge will be
deducted daily, at a rate equal on an annual basis to 1.49% of the daily net
assets in the Variable Account. 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 in Your Contract.
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.
The Company expects to make a profit from this charge, which it may use to pay
for, among other things, expenses associated with the distribution of the
Contracts.
<PAGE>
Premium Taxes
The Company will deduct applicable state premium taxes or other similar
policyholder taxes relative to the Contract (collectively referred to as
"premium taxes") either at the Payout Start Date, or when a total withdrawal
occurs. Current premium tax rates range from 0 to 3.5%. The Company reserves the
right to deduct premium taxes from the purchase payments.
At the Payout Start Date, the charge for premium taxes will be deducted from
each Investment Alternative in the proportion that the Owner's value in the
Investment Alternative bears to the total Contract Value.
Transfer Charges
The Company reserves the right to assess a $10 charge on each transfer in excess
of 12 per Contract Year, excluding transfers through Dollar Cost Averaging and
Automatic Portfolio Rebalancing. The Company is presently waiving this charge.
Fund Expenses
Complete descriptions of the expenses and deductions from the Portfolios are
found in the prospectuses for the Funds.
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.
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 a Beneficiary
predeceases the Owner and there are no other surviving beneficiaries or if the
Owner does not name a Beneficiary, 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 benefits
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 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 to make 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 the Company at:
GLENBROOK LIFE AND ANNUITY COMPANY
POST OFFICE BOX 94042
PALATINE, ILLINOIS 60094-4042
1-(800) 526-4827
<PAGE>
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," (see "Non-Natural Owners" below for exception) (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 such as
corporations, trusts, or other entities 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 Portfolios or their investments, the Company expects the Portfolios 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.
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 stated it expects to
issue. It is possible that the 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 a pro rata
share of the assets of the Variable Account. However, the Company makes no
guarantee that such modification to the contract will be successful.
<PAGE>
Delayed Maturity Date
If the contract's scheduled maturity date is at a time when the annuitant has
reached an advanced age, 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, exceeds the investment in the contract. The contract value is
the sum of all account values. No matter which account a withdrawal is made
from, all account values are combined and the total contract value is used to
determine the amount of taxable income. 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. There is no definitive guidance
on the proper tax treatment of Market Value Adjustments, and you should contact
a competent tax advisor with respect to the potential tax consequences of Market
Value Adjustments. 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. The
contract provides a death benefit that in certain circumstances may exceed the
greater of the payments and the contract value. As described elsewhere in the
prospectus, the Company imposes certain charges with respect to the death
benefit. It is possible that some portion of those charges could be treated for
federal tax purposes as a partial withdrawal from the contract.
<PAGE>
Taxation of Annuity Payments
Generally, the rule for income taxation of payments received from an annuity
contract provides for the return of the owner's investment in the contract in
equal tax-free amounts over the payment period. The balance of each payment
received is taxable. In the case of variable annuity payments, the amount
excluded from taxable income is determined by dividing the investment in the
contract by the total number of expected payments. In the case of fixed annuity
payments, the amount excluded from income is determined by multiplying the
payment by the ratio of the investment in the contract (adjusted for any refund
feature or period certain) to the total expected value of annuity payments for
the term of the contract. Once the total amount of the investment in the
contract is excluded using these ratios, the annuity payments will be fully
taxable. If annuity payments cease because of the death of the annuitant before
the total amount of the investment in the contract is recovered, the unrecovered
amount generally 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 owner attaining 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 an owner's death or
disability; (3) made in substantially equal periodic payments 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. A competent tax advisor should be
consulted to determine if any other exceptions to the penalty apply to your
specific circumstances.
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 408 A 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; (7)
Corporate and Self Employed Pension and Profit Sharing Plans; and (8) 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 account
of hardship (earnings on salary reduction contributions may not be distributed
on the account of hardship). These limitations do not apply to withdrawals where
the Company is directed to transfer some or all of the contract value to another
Section 403(b) plans.
<PAGE>
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 is a member of the National Association of
Securities Dealers, Inc. 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 8.00%
of any purchase payment. In addition, under certain circumstances, certain
sellers of the Contracts may be paid persistency bonuses which will take into
account, among other things, the length of time purchase payments have been held
under a Contract, and Contract Values. A persistency bonus is not expected to
exceed 0.25%, on an annual basis, of the Contract Values considered in
connection with the bonus. These commissions are intended to cover distribution
expenses. The underwriting agreement with ALFS provides for indemnification of
ALFS by the Company for liability to Owners arising out of services rendered or
Contracts issued.
<PAGE>
VOTING RIGHTS
The Owner or anyone with a voting interest in the Sub-account of the Variable
Account may instruct the Company on how to vote at shareholder meetings of each
Fund. The Company will solicit and cast each vote according to the procedures
set up by the Fund and to the extent required by law. Fund shares as to which no
timely instructions are received will be voted in proportion to the voting
instructions which are received with respect to all Contracts participating in
that Sub-account. Voting instructions to abstain on any item to be voted upon
will be applied on a pro-rata basis to reduce the votes eligible to be cast. The
Company reserves the right to vote Fund shares in its own right, to the extent
permitted by the Investment Company Act of 1940, its regulations or
interpretations thereof.
Before the Payout Start Date, the Owner holds the voting interest in the
Sub-account of the Variable Account. (The number of votes for the Owner will be
determined by dividing the Contract Value attributable to a Sub-account by the
net asset value per share of the applicable eligible Portfolio.)
After the Payout Start Date, the person receiving income payments has the voting
interest. After the Payout Start Date, the votes decrease as income payments are
made and as the reserves for the Contract decrease. That person's number of
votes will be determined by dividing the reserve for such Contract allocated to
the applicable Sub-account by the net asset value per share of the corresponding
eligible Portfolio.
SELECTED FINANCIAL DATA
The following selected financial data for the Company should be read in
conjunction with the financial statements and notes thereto included in this
prospectus beginning on page F-1.
Glenbrook Life and Annuity Company
Selected Financial Data
(in Thousands)
Year-End
Financial Data 1997 1996 1995 1994 1993
- -------------- ---- ---- ---- ---- ----
For The Years
Ended
December 31:
Income Before Income
Tax Expense.. $ 8,764 $ 3,774 $ 4,455 $ 2,017 $ 836
Net Income 5,686 2,435 2,879 1,294 529
As of December 31:
Total Assets.. 3,351,541 2,404,527 1,409,705 750,245 169,361
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the Year Ended December 31, 1997.
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
1997 1996 1995
------ ------ -----
Net investment income..... $ 5,304 $ 3,774 $ 3,996
======= ======= =======
Realized capital gains and
losses,
after-tax ............. $ 2,249 $ -- $ 298
======= ======= =======
Net income................ $ 5,686 $ 2,435 $ 2,879
======= ======= =======
Investments .............. $90,474 $50,676 $50,917
======= ======= =======
The Company and ALIC entered into a reinsurance agreement effective June 5,
1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers. The
Company's results of operations include only investment income and realized
capital gains and losses earned on the assets of the Company that are not
transferred to ALIC under the reinsurance agreement.
Net income increased $3.3 million in 1997 due to realized capital gains arising
primarily from the withdrawal of the seed money from the Separate Account and
the increase in net investment income. The $444 thousand decrease in net income
in 1996 reflects the decrease in net investment income and realized capital
gains.
Pretax net investment income in 1997 increased 40.5%, or $1.5 million, to $5.3
million compared to $3.8 million in 1996. This higher net investment income was
caused by a significant increase in the level of investments primarily arising
from a $20.0 million capital contribution received from ALIC in January 1997 and
the liquidation of the Company's seed money investment in the Separate Account,
partially offset by an increase in investment expenses. Net investment income
decreased $222 thousand in 1996 due to the impact of the Company's $10.0 million
original investment in the variable funds of the Separate Account, whose assets
are invested predominantly in equity securities. The dividend yield on the
variable funds is significantly below the level of interest earned on fixed
income securities in which the $10.0 million was invested prior to the fourth
quarter of 1995. This decrease in income was partially offset by additional
investment income earned on the higher investment balances arising from positive
cash flows from operating activities in 1996.
Realized capital gains after tax of $2.2 million in 1997 were associated
primarily with the withdrawal of the investment in Separate Account portfolios.
Realized capital gains after tax of $298 thousand in 1995 were the result of
sales of investments to fund the Company's participation in the Separate
Accounts.
Financial Position
1997 1996
---- ----
($ in thousands)
Fixed income securities(1)......... $ 86,243 $ 49,389
Short-term investments............. 4,231 1,287
Total investments................ $ 90,474 $ 50,676
========== ==========
Reinsurance recoverable from ALIC.. $2,637,983 $2,060,419
========== ==========
Separate Account assets............ $ 620,535 $ 272,420
========== ==========
Contractholder funds............... $2,637,983 $2,060,419
========== ==========
Separate Account liabilities....... $ 620,535 $ 260,290
========== ==========
- ------------------
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $81,369 and $46,925 at December 31, 1997 and 1996,
respectively.
The Company's fixed income securities portfolio consists of mortgage-backed
securities, U.S. government bonds, publicly traded corporate bonds and
tax-exempt municipal bonds. The Company generally holds its fixed income
securities for the long term, but has classified all of these securities
available for sale to allow maximum flexibility in portfolio management.
Investments grew $39.8 million, or 78.5%, during 1997. The increase in
investments is primarily due to the receipt of a $20.0 million capital
contribution from ALIC in January 1997 and liquidation of the seed money from
the Separate Account during 1997. In addition, at December 31, 1997, unrealized
net capital gains on the fixed income securities portfolio were $4.9 million
compared to $2.5 million as of December 31, 1996, primarily attributable to the
increase in the Company's fixed income securities portfolio during 1997.
At the end of 1997, all of the Company's fixed income securities portfolio is
rated investment grade, with a National Association of Insurance Commissioners
("NAIC") rating of 1 or a Moody's rating of Aaa, Aa or A.
At December 31, 1997 and 1996, $31.9 million and $16.4 million, respectively, of
the fixed income securities portfolio were invested in mortgage-backed
securities ("MBS"). At December 31, 1997, all of the MBS had underlying
collateral that is guaranteed by U.S. government entities, thus credit risk was
minimal.
MBS, however, are subject to interest rate risk as the duration and ultimate
realized yield are affected by the rate of repayment of the underlying
mortgages. The Company attempts to limit interest rate risk by purchasing MBS
whose cost does not significantly exceed par value, and with repayment
protection to provide a more certain cash flow to the Company. At December 31,
1997, the amortized cost of the MBS portfolio was below par value by $417
thousand and over 31% of the MBS portfolio was invested in planned amortization
class bonds. This type of MBS is purchased to provide additional protection
against rising interest rates.
The Company closely monitors its fixed income securities portfolio for declines
in value that are other than temporary. Securities are placed on non-accrual
status when they are in default or when the receipt of interest payments is in
doubt.
The Company's short-term investment portfolio was $4.2 million and $1.3 million
at December 31, 1997 and 1996, respectively. The Company invests available cash
balances primarily in taxable short-term securities having a final maturity date
or redemption date of one year or less.
During 1997, contractholder funds and amounts recoverable from ALIC under the
reinsurance agreement increased by $577.6 million. The increases resulted from
sales of the Company's single and flexible premium deferred annuities, interest
credited to contractholders, partially offset by surrenders, withdrawals and
benefits paid. Reinsurance recoverable from ALIC relates to contract benefit
obligations ceded to ALIC.
Separate Account assets increased by $348.1 million and Separate Account
liabilities increased by $360.2 million as compared with December 31, 1996. The
increases were primarily attributable to increased sales of flexible premium
deferred variable annuity contracts and the favorable investment performance of
the Separate Account investment portfolios, partially offset by variable annuity
surrenders and withdrawals. Additionally, the Separate Account asset was reduced
by the Company's liquidation of its seed money investment during 1997.
<PAGE>
Market Risk
Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. The Company's primary market risk exposure
is to changes in interest rates. Interest rate risk is the risk that the Company
will incur economic losses due to adverse changes in interest rates, as the
Company invests substantial funds in interest-sensitive assets. One way to
quantify this exposure is duration. Duration measures the sensitivity of the
fair value of assets to changes in interest rates. For example, if interest
rates increase 1%, the fair value of an asset with a duration of 5 years is
expected to decrease in value by approximately 5%. At December 31, 1997, the
Company's asset duration was approximately 5.3 years.
To calculate duration, the Company projects asset cash flows, and discounts them
to a net present value basis using a risk-free market rate adjusted for credit
quality, sector attributes, liquidity and other specific risks. Duration is
calculated by revaluing these cash flows at an alternative level of interest
rates, and determining the percentage change in fair value from the base case.
The projections include assumptions (based upon historical market and Company
specific experience) reflecting the impact of changing interest rates on the
prepayment and/or option features of instruments, where applicable. Such
assumptions relate primarily to mortgage-backed securities, collateralized
mortgage obligations, and municipal and corporate obligations.
Based upon the information and assumptions the Company uses in its duration
calculation and in effect at December 31, 1997, management estimates that a 100
basis point immediate, parallel increase in interest rates ("rate shock") would
decrease the net fair value of its total investments by approximately $4.5
million. The selection of a 100 basis point immediate rate shock should not be
construed as a prediction by the Company's management of future market events;
but rather, to illustrate the potential impact of such an event.
To the extent that actual results differ from the assumptions utilized, the
Company's duration and rate shock measures could be significantly impacted.
Additionally, the Company's calculation assumes that the current relationship
between short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result, these calculations may not
fully capture the impact of non-parallel changes in the term structure of
interest rates and/or large changes in interest rates.
In formulating and implementing policies for investing new and existing funds,
AIC, as parent company of ALIC, administers and oversees investment risk
management processes primarily through three oversight bodies: the Boards of
Directors and Investment Committees of its operating subsidiaries, and the
Credit and Risk Management Committee ("CRMC"). The Boards of Directors and
Investment Committees provide executive oversight of investment activities. The
CRMC is a senior management committee consisting of the Chief Investment
Officer, the Investment Risk Manager, and other investment officers who are
responsible for the day-to-day management of market risk. The CRMC meets at
least monthly to provide detailed oversight of investment risk, including market
risk.
AIC has investment guidelines that define the overall framework for managing
market and other investment risks, including the accountabilities and controls
over these activities. In addition, AIC has specific investment policies for
each of its affiliates, including the Company, that delineate the investment
limits and strategies that are appropriate for the Company's liquidity, surplus,
product and regulatory requirements.
Liquidity and Capital Resources
In January 1997, a $20.0 million capital contribution that was accrued at
December 31, 1996 was received from ALIC.
Under the terms of reinsurance agreements, premiums and deposits on universal
life policies and investment contracts, excluding those relating to Separate
Accounts, are transferred to ALIC, which maintains the investment portfolios
supporting the Company's products. The Company continues to have primary
liability as a direct insurer for risks reinsured.
The NAIC has a standard for assessing the solvency of insurance companies, which
is referred to as risk-based capital ("RBC"). The requirement consists of a
formula for determining each insurer's RBC and a model law specifying regulatory
actions if an insurer's RBC falls below specified levels. The RBC formula for
life insurance companies establishes capital requirements relating to insurance,
business, asset and interest rate risks. At December 31, 1997, RBC for the
Company was significantly above a level that would require regulatory action.
Year 2000
The Company is heavily dependent upon complex computer systems for all phases of
its operations, including customer service, and policy and contract
administration. Since many of the Company's older computer software programs
recognize only the last two digits of the year in any date, some software may
fail to operate properly in or after the year 1999, if the software is not
reprogrammed or replaced, ("Year 2000 Issue"). The Company believes that many of
its counterparties and suppliers also have Year 2000 Issues which could affect
the Company. In 1995, AIC commenced a plan intended to mitigate and/or prevent
the adverse effects of Year 2000 Issues. These strategies include normal
development and enhancement of new and existing systems, upgrades to operating
systems already covered by maintenance agreements and modifications to existing
systems to make them Year 2000 compliant. The plan also includes the Company
actively working with its major external counterparties and suppliers to assess
their compliance efforts and the Company's exposure to them. The Company
presently believes that it will resolve the Year 2000 Issue in a timely manner,
and the financial impact will not materially affect its results of operations,
liquidity or financial position. Year 2000 costs are and will be expensed as
incurred.
Pending Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 130 requires the presentation of comprehensive income in
the financial statements. Comprehensive income is a measurement of all changes
in equity that result from transactions and other economic events other than
transactions with stockholders.
The requirements of this statement will be adopted effective January 1, 1998.
SFAS No. 131 redefines how segments are determined and requires additional
segment disclosures for both annual and quarterly reporting. Under this
statement, segments are determined using the "management approach" for financial
statement reporting. The management approach is based on the way an enterprise
makes operating decisions and assesses performance of its businesses. The
Company is currently reviewing the requirements of the SFAS and has yet to
determine its impact on its current reporting segments. The requirements of this
statement will be adopted effective December 31, 1998.
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP provides guidance concerning when to
recognize a liability for insurance-related assessments and how those
liabilities should be measured. Specifically, insurance-related assessments
should be recognized as liabilities when all of the following criteria have been
met: a) an assessment has been imposed or it is probable that an assessment will
be imposed, b) the event obligating an entity to pay an assessment has occurred
and c) the amount of the assessment can be reasonably estimated. The
requirements of this standard will be adopted in 1999 and are not expected to
have a material impact on the results of operations, cash flows or financial
position of the Company. The SOP is expected to be adopted in 1999.
In March 1998, the Accounting Standards Executive Committee of the AICPA issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." The SOP provides guidance on accounting for the costs of
computer software developed or obtained for internal use. Specifically, certain
external, payroll and payroll related costs should be capitalized during the
application development state of a project and depreciated over the computer
software's useful life. The Company currently expenses these costs as incurred
and is evaluating the effects of this SOP on its accounting for internally
developed software. The SOP is expected to be adopted in 1998.
Forward-Looking Statements
The statements contained in this Management's Discussion and Analysis that are
not historical information are forward-looking statements that are based on
management's estimates, assumptions and projections. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of
1933 and the Securities Exchange Act of 1934 for forward-looking statements.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the Six Month Period Ended June 30, 1998
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"), 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 $10.0 million seed money contribution from the Company
in 1995. During 1997, the Company liquidated its funding in the Separate Account
investment portfolios. Investment income and realized gains and losses of the
Separate Accounts, other than the portion which related to the Company's
participation, accrue directly to the contractholders (net of fees) and,
therefore, are not included in the Company's statements of operations.
Results of Operations
Three months Six months
ended June 30, ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
($ in thousands)
Net investment
income............... $ 1,541 $ 1,292 $ 3,127 $ 2,534
======= ======= ======= =======
Realized capital gains
and losses, after-
tax.................. $ -- $ 766 $ -- $ 770
======= ======= ======= =======
Net income.............. $ 999 $ 1,603 $ 2,062 $ 2,411
======= ======= ======= =======
Investments............. $94,147 $72,544 $94,147 $72,544
======= ======== ======= =======
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 for the three-month and six-month periods ended June 30, 1998
decreased $604 thousand and $349 thousand, respectively, compared with the same
periods in 1997. Increased investment income was more than offset by decreased
realized capital gains in both periods. Realized capital gains in 1997 were
associated primarily with the withdrawal of the Company's seed money investment
in Separate Account portfolios.
Pretax net investment income increased 19.3% and 23.4% in the second quarter and
the first six months of 1998, respectively, from the comparable 1997 periods.
Additional investment income was earned on higher investment balances arising
from positive cash flows from operating activities.
Financial Position
June 30, December 31,
1998 1997
---- ----
($ in thousands)
Fixed income securities (1)........ $ 93,021 $ 86,243
Short-term investments............. 1,126 4,231
---------- ----------
Total investments.............. $ 94,147 $ 90,474
---------- ----------
Reinsurance recoverable from
ALIC........................... $2,843,210 $2,637,983
---------- ----------
Separate Account assets and
liabilities.................... $ 849,776 $ 620,535
========== ==========
Contractholder funds............... $2,843,210 $2,637,983
========== ==========
-----------------
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $87,553 and $81,369 at June 30, 1998 and December 31, 1997,
respectively.
The Company's fixed income securities portfolio consists of mortgage-backed
securities, publicly traded corporate bonds, U.S. government 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 as
available for sale to allow maximum flexibility in portfolio management.
Total investments increased to $94.1 million at June 30, 1998 from $90.5 million
at December 31, 1997. The increase in investments is primarily due to amounts
invested from positive cash flows generated from operations and an increase in
unrealized net capital gains on the fixed income securities portfolio. At June
30, 1998, unrealized net capital gains on fixed income securities were $5.5
million compared to $4.9 million at December 31, 1997.
At June 30, 1998, all of the Company's fixed income securities portfolio is
rated investment grade, with a National Association of Insurance Commissioners
rating of 1 or 2 or a Moody's rating of Aaa, Aa, A, or Baa, or a comparable
Company internal rating.
The Company's short-term investment portfolio was $1.1 million and $4.2 million
at June 30, 1998 and December 31, 1997, 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 1998, contractholder funds and amounts recoverable from ALIC under the
reinsurance agreement increased by $205.2 million. The increases resulted from
sales of the Company's single and flexible premium deferred annuities and
interest credited to contractholders, partially offset by surrenders,
withdrawals and benefits paid. Reinsurance recoverable from ALIC relates to
contract benefit obligations ceded to ALIC.
<PAGE>
Separate Account assets and liabilities increased by $229.2 million as compared
with December 31, 1997. The increases were primarily attributable to 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.
Liquidity and Capital Resources
Under the terms of reinsurance agreements, premiums and deposits on universal
life policies and annuity 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.
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, remediated 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. The Company is working closely with its
business partners, counterparties and suppliers in an effort to bring all
communications, facilities, software and systems into Year 2000 compliance. Year
2000 costs are expensed as incurred.
Pending Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 redefines how segments are
determined and requires additional segment disclosures for both annual and
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 Statement and has not determined the impact on its current
reporting. 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: 1) an assessment has been imposed or it is probable that an assessment will
be imposed, 2) the event obligating an entity to pay an assessment has occurred
and 3) the amount of the assessment can be reasonably estimated. The
requirements of this Statement are expected to 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.
Forward-Looking Statements
The statements contained in this Management's Discussion and Analysis that are
not historical information are forward-looking statements that are based on
management's estimates, assumptions and projections. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and The Securities Exchange Act of 1934 for forward-looking statements.
COMPETITION
The Company is engaged in a business that is highly competitive because of the
large number of stock and mutual life insurance companies and other entities
competing in the sale of insurance and annuities. There are approximately 2,000
stock, mutual and other types of insurers in business in the United States.
Several independent rating agencies regularly evaluate life insurer's
claims-paying ability, quality of investments and overall stability. A.M. Best
Company assigns 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 Glenbrook Life's claims-paying ability and Moody's assigns an Aa2
(Excellent) financial strength rating to Glenbrook Life. These ratings do not
relate to the investment performance of the Variable Account.
EMPLOYEES
As of December 31, 1997, the Company had approximately 125 employees at its home
office in Northbrook, Illinois.
PROPERTIES
The Company occupies office space provided by Allstate Insurance Company, in
Northbrook, Illinois. Expenses associated with these offices are allocated on a
direct and indirect basis to the Company.
STATE AND FEDERAL REGULATION
The insurance business of the Company is subject to comprehensive and detailed
regulation and supervision throughout the United States. 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, 53, Chief Executive Officer and Chairman of the Board and
Director (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.
<PAGE>
PETER H. HECKMAN, 53, President, Chief Operating Officer and Director (1996)*
Also Director and Vice President (1988-Present) of Allstate Life Insurance
Company; Director (1990-1996), Vice President (1989-Present), Allstate Life
Insurance Company of New York; Director (1990-1997), President and Chief
Operating Officer (1996-1997), and Vice President (1990-1996), Glenbrook Life
Insurance Company; Director (1995-Present) and Vice Chairman of the Board
(1996-Present) Laughlin Group Holdings, Inc.; Director (1990-Present) and Vice
Chairman of the Board (1996-Present) Lincoln Benefit Life Company; Director
(1988-Present) President and Chief Operating Officer (1996-Present), and was
Vice President (1989-1996), Northbrook Life Insurance Company; and Director
(1995-Present) and Vice Chairman of the Board (1996-Present) Surety Life
Insurance Company.
MICHAEL J. VELOTTA, 52, Vice President, Secretary, General Counsel, and Director
(1992)* Also Director and Secretary (1993-Present) of Allstate Life Financial
Services, Inc.; Director (1992-Present) Vice President, Secretary and General
Counsel (1993-Present) Allstate Life Insurance Company; Director (1992-Present)
Vice President, Secretary and General Counsel (1993-Present) Allstate Life
Insurance Company of New York; Director (1992-1997) Vice President, Secretary
and General Counsel (1993-1997) Glenbrook Life Insurance Company; Director and
Secretary (1995-Present) Laughlin Group Holdings, Inc.; Director (1992-Present)
and Assistant Secretary (1995-Present) Lincoln Benefit Life Company; Director
(1992-Present) Vice President, Secretary and General Counsel (1993-Present)
Northbrook Life Insurance Company; and Director and Assistant Secretary
(1995-Present) Surety Life Insurance Company.
JOHN R. HUNTER, 43, Senior Vice President (1997) and 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 Executive 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, 52, 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); Vice President
(1997-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) and Director (1998)*
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, 55, 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.
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 $214,774.75. Directors of the Company receive no
compensation in addition to their compensation as employees of the Company.
Shares of the Company and Allstate Life are not directly owned by any director
or officer of the Company. The percentage of shares of The Allstate Corporation
beneficially owned by any director, and by all directors and officers of the
Company as a group, does not exceed one percent of the class outstanding.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
(Allstate Life Insurance Company)
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Restricted Underlying LTIP All Other
Name and Principal Salary Bonus Other Annual Stock Options/SARS Payouts Compensation
Position Year ($) ($) Compensation $Award(s) (#) ($) ($)
-------- ---- --- --- ------------ --------- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis G. Lower, II......... 1997 $ 453,225 $ 500,000 $27,768 $280,589 $25,914 $ 570,068 $ 8,000(1)
Chief Executive Officer 1996 $ 436,800 $ 246,781 $10,246 $ 0 $18,258 $ 0 $ 5,250(1)
and Chairman of the 1995 $ 416,000 $ 286,650 $17,044 $ 0 $89,359 $ 411,122 $ 5,250(1)
Board of Directors
- ------------------
(1)Amount received by Mr. Lower which represents the value allocated to his
account from employer contributions under The Savings and Profit Sharing Fund
of Allstate Employees and prior to 1996, The Profit Sharing Fund and to its
predecessor, The Savings and Profit Sharing Fund of Sears employees.
</TABLE>
<PAGE>
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 December 31, 1997 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 report appearing herein,
and are included in reliance upon the report 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.
Enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; (2) increasing competition in capital
markets; and (3) reopening stock/mutual company disagreements related to such
issues as taxation disparity between mutual and stock insurance companies.
The Company is authorized to sell life and annuity products in all states except
New York, as well as in the District of Columbia. The Company is also authorized
to sell variable annuities in Puerto Rico. The top geographic locations for
statutory premiums and deposits earned by the Company are Florida, Pennsylvania,
California, Texas and Michigan for the year ended December 31, 1997. No other
jurisdiction accounted for more than 5% of statutory premiums and deposits. All
premiums and contract charges are ceded to ALIC under reinsurance agreements.
2. Summary of Significant Accounting Policies
Investments
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ( "available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost which approximates fair value.
F-6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgage-backed securities is determined on
the effective yield method, based on the estimated principal repayments. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
Reinsurance
The Company and ALIC entered into a reinsurance agreement effective June 5,
1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers.
Contract charges, credited interest, policy benefits and certain expenses are
ceded to ALIC and reflected net of such cessions in the statements of
operations. The amounts shown in the Company's statements of operations relate
to the investment of those assets of the Company that are not transferred to
ALIC under the reinsurance agreements. Reinsurance recoverable and
contractholder funds are reported separately in the statements of financial
position. The Company continues to have primary liability as the direct insurer
for risks reinsured.
Recognition of premium revenue and contract charges
Revenues on interest-sensitive life insurance policies are comprised of contract
charges and fees, and are recognized when assessed against the policyholder
account balance. Revenues on annuities, which are considered investment
contracts, include contract charges and fees for contract administration and
surrenders. These revenues are recognized when levied against the contract
balance.
Income taxes
The income tax provision is calculated under the liability method. Deferred tax
assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted tax
rates, and reflect the impact of reinsurance agreements. Deferred income taxes
arise primarily from unrealized capital gains and losses on fixed income
securities carried at fair value.
Separate Accounts
The Company issues flexible premium deferred variable annuity contracts and
single premium variable life policies, the assets and liabilities of which are
legally segregated and reflected in the accompanying statements of financial
position as assets and liabilities of the Separate Accounts (Glenbrook Life and
Annuity Company Variable Annuity Account, Glenbrook Life and Annuity Company
Separate Account A, Glenbrook Life Multi-Manager Variable Account and Glenbrook
Life Variable Life Separate Account A, unit investment trusts registered with
the Securities and Exchange Commission).
Assets of the Separate Accounts, including the Company's ownership interest
("Participation"), are carried at fair value. Unrealized gains and losses on the
Company's Participation, net of deferred income taxes, are shown as a component
of shareholder's equity. Investment income and realized capital gains and losses
arising from the Participation are included in the Company's statements of
operations. The Company liquidated its Participation during 1997, resulting in a
realized capital gain of $3,515. At December 31, 1996, the Participation
amounted to $12,130.
Investment income and realized capital gains and losses of the Separate
Accounts, other than the portion related to the Participation, accrue directly
to the contractholders and, therefore, are not included in the Company's
statements of operations. Revenues to the Company from the Separate Accounts
consist of contract maintenance fees, administrative fees, mortality and expense
risk charges, cost of insurance charges and tax expense charges, all of which
are ceded to ALIC.
Contractholder funds
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most annuities and
universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the customer less withdrawals, mortality charges and
administrative expenses. During 1997, credited interest rates on contractholder
funds ranged from 3.55% to 7.45% for those contracts with fixed interest rates
and from 3.70% to 7.85% for those with flexible rates.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
3. Related Party Transactions
Reinsurance
Contract charges ceded to ALIC were $11,641, $4,254 and $1,523 in 1997, 1996 and
1995, respectively. Credited interest, policy benefits and expenses ceded to
ALIC amounted to $179,954, $113,703 and $71,905 in 1997, 1996 and 1995,
respectively. Investment income earned on the assets which support
contractholder funds is not included in the Company's financial statements as
those assets are owned and managed by ALIC under the terms of reinsurance
agreements.
Business operations
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. The
cost to the Company is determined by various allocation methods and is primarily
related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $5,959, $759 and $348 in 1997, 1996 and 1995, respectively. Of these costs,
the Company retains investment related expenses. All other costs are ceded to
ALIC under reinsurance agreements.
Laughlin Group
Laughlin Group, Inc. ("Laughlin") is an indirect wholly owned subsidiary of
ALIC. Laughlin markets certain of the Company's flexible premium deferred
variable annuity contracts and flexible premium deferred fixed annuity
contracts. Sales commissions paid to Laughlin, for which the related cost was
ceded to ALIC, were $945 and $8,623 during 1997 and 1996, respectively. The
Company had a receivable of $850 from Laughlin at December 31, 1996, which is
included in net receivable from affiliates in the statements of financial
position.
4. Investments
Fair values
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
Gross Unrealized
----------------
Amortized Fair
Cost Gains Losses Value
--------- ----- ------ -----
<S> <C> <C> <C> <C>
At December 31, 1997
U.S. government and agencies $ 24,419 $ 2,961 $ - $ 27,380
Municipal 656 17 - 673
Corporate 25,476 840 - 26,316
Mortgage-backed securities 30,818 1,056 - 31,874
-------- ------- --------- --------
Total fixed income securities $ 81,369 $ 4,874 $ - $ 86,243
======== ======= ========= ========
At December 31, 1996
U.S. government and agencies $ 24,265 $ 1,722 $ (3) $ 25,984
Corporate 6,970 96 (15) 7,051
Mortgage-backed securities 15,690 664 - 16,354
-------- ------- --------- --------
Total fixed income securities $ 46,925 $ 2,482 $ (18) $ 49,389
======== ======= ========= ========
</TABLE>
F-8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Scheduled maturities
The scheduled maturities for fixed income securities are as follows at December
31, 1997:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
Due in one year or less $ 400 $ 400
Due after one year through five years 3,838 3,877
Due after five years through ten years 33,245 35,102
Due after ten years 13,068 14,990
----------- ------------
50,551 54,369
Mortgage-backed securities 30,818 31,874
----------- ------------
Total $ 81,369 $ 86,243
=========== ============
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
<TABLE>
<CAPTION>
Net investment income
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 5,014 $ 3,478 $ 3,850
Short-term investments 231 126 113
Participation in Separate Accounts 161 232 69
-------------- -------------- --------------
Investment income, before expense 5,406 3,836 4,032
Investment expense 102 62 36
-------------- -------------- --------------
Net investment income $ 5,304 $ 3,774 $ 3,996
============== ============== ==============
</TABLE>
Realized capital gains and losses
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ (61) $ - $ 459
Short-term investments 6 - -
Participation in Separate Accounts 3,515 - -
------------- ------------- -------------
Realized capital gains and losses 3,460 - 459
Income taxes (1,211) - (161)
------------- ------------- -------------
Realized capital gains and losses,
after tax $ 2,249 $ - $ 298
============= ============= =============
</TABLE>
Excluding calls and prepayments, gross losses of $61 and gross gains of $459
were realized on sales of fixed income securities during 1997 and 1995,
respectively.
F-9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Unrealized net capital gains
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Cost/ Unrealized
Amortized Fair Net
Cost Value Gains
--------- ----- -----------
<S> <C> <C> <C>
Fixed income securities $ 81,369 $ 86,243 $ 4,874
Deferred income taxes ======== ======== (1,706)
-------
Unrealized net capital gains $ 3,168
=======
</TABLE>
Change in unrealized net capital gains
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 2,410 $ (2,239) $ 6,423
Participation in Separate Accounts (1,829) 1,368 461
Deferred income taxes (203) 304 (2,409)
------------- ------------- -------------
Increase (decrease) in unrealized net capital gains $ 378 $ (567) $ 4,475
============= ============== =============
</TABLE>
Securities on deposit
At December 31, 1997, fixed income securities with a carrying value of
$10,108 were on deposit with regulatory authorities as required by law.
5. Financial Instruments
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable) and liabilities (including deferred income
taxes) are not considered financial instruments and are not carried at fair
value. Other assets and liabilities considered financial instruments, such as
accrued investment income, are generally of a short-term nature. It is assumed
that their carrying value approximates fair value.
F-10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Financial assets
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Fixed income securities $ 86,243 $ 86,243 $ 49,389 $ 49,389
Short-term investments 4,231 4,231 1,287 1,287
Separate Accounts 620,535 620,535 272,420 272,420
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Short-term investments are highly liquid investments with maturities of less
than one year whose carrying value approximates fair value.
Separate Accounts assets are carried in the statements of financial position at
fair value.
Financial liabilities
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $ 2,636,331 $ 2,492,095 $ 2,059,642 $ 1,949,329
Separate Accounts 620,535 620,535 260,290 260,290
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
F-11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
6. Income Taxes
For 1996 and 1995, the Company filed a separate federal income tax return. The
Company will join the Corporation and its other eligible domestic subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate Group")
for 1997 and is party to a federal income tax allocation agreement (the "Tax
Sharing Agreement"). Under the Tax Sharing Agreement, the Company paid to or
received from the Corporation the amount, if any, by which the Allstate Group's
federal income tax liability was affected by virtue of inclusion of the Company
in the consolidated federal income tax return. Effectively, this results in the
Company's annual income tax provision being computed, with adjustments, as if
the Company filed a separate return.
Prior to the Distribution, the Corporation and all of its eligible domestic
subsidiaries, including the Company, joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Sears Tax Sharing Agreement"). Under the Sears Tax
Sharing Agreement, the Company, through the Corporation, paid to or received
from the Sears Group the amount, if any, by which the Sears Tax Group's federal
income tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed as if the Allstate Group
filed a separate consolidated return, except that items such as net operating
losses, capital losses or similar items, which might not be recognized in a
separate return, were allocated according to the Sears Tax Sharing Agreement.
The Allstate Group and Sears Group have entered into an agreement which governs
their respective rights and obligations with respect to federal income taxes for
all periods prior to the Distribution ("Consolidated Tax Years"). The agreement
provides that all Consolidated Tax Years will continue to be governed by the
Sears Tax Sharing Agreement with respect to the Allstate Group's federal income
tax liability.
The components of the deferred income tax liability at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Unrealized net capital gains on fixed income securities $ 1,706 $ 1,503
Difference in tax bases of investments 66 25
------------- -------------
Total deferred liability $ 1,772 $ 1,528
============= =============
</TABLE>
F-12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 3,037 $ 1,335 $ 1,615
Deferred 41 4 (39)
------- ------- -------
Total income tax expense $ 3,078 $ 1,339 $ 1,576
======= ======= =======
</TABLE>
The Company paid income taxes of $2,839, $2,446 and $866 in 1997, 1996 and 1995,
respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other .1 .5 .4
---- ---- ----
Effective federal income tax rate 35.1% 35.5% 35.4%
==== ==== ====
</TABLE>
F-13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ in thousands)
7. Statutory Financial Information
The following tables reconcile net income for the year ended December 31, and
shareholder's equity at December 31, as reported herein in conformity with
generally accepted accounting principles with statutory net income and capital
and surplus, determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities:
<TABLE>
<CAPTION>
Net Income
----------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance per generally accepted accounting principles $ 5,686 $ 2,435 $ 2,879
Deferred income taxes 41 4 (39)
Unrealized gain on participation in
Separate Accounts (1,829) 1,368 -
Statutory investment reserves 93 35 (279)
Other (354) (85) 108
----------- ------------ ------------
Balance per statutory accounting practices $ 3,637 $ 3,757 $ 2,669
=========== ============ ============
Shareholder's Equity
--------------------
1997 1996
---- ----
Balance per generally accepted accounting principles $ 87,944 $ 81,880
Deferred income taxes 1,772 1,528
Unrealized gain/loss on fixed income securities (4,874) (2,464)
Non-admitted assets (86) (850)
Statutory investment reserves 958 (2,282)
Other (3,114) (2,118)
---------- ------------
Balance per statutory accounting practices $ 82,600 $ 75,694
========== ============
</TABLE>
Permitted statutory accounting practices
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Illinois
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a material effect on statutory surplus, statutory net income
or risk-based capital.
Final approval of the NAIC's proposed "Comprehensive Guide" on statutory
accounting principles is expected in early 1998. The requirements may be
effective as early as January 1, 1999, and are not expected to have a material
impact on statutory surplus of the Company.
Dividends
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by insurance companies without the prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1998 without prior approval of the Illinois Department of Insurance is
$8,050.
F-14
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ in thousands)
<TABLE>
<CAPTION>
Gross Net
Year Ended December 31, 1997 amount Ceded amount
- ---------------------------- --------- ------------ --------
<S> <C> <C> <C>
Life insurance in force $ 4,095 $ 4,095 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 11,641 $ 11,641 $ -
================== ================== ==================
Gross Net
Year Ended December 31, 1996 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 2,436 $ 2,436 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 4,254 $ 4,254 $ -
================== =================== ==================
Gross Net
Year Ended December 31, 1995 amount Ceded amount
- ---------------------------- --------- ------------ --------
Life insurance in force $ 1,250 $ 1,250 $ -
================== ================== ==================
Premiums and contract charges:
Life and annuities $ 6,571 $ 6,571 $ -
================== ================== ==================
</TABLE>
F-15
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report. The page
number, if any, listed opposite a document indicates the page number in the
sequential numbering system in the manually signed original of this Report where
such document can be found.
(1) The financial statements filed as part of this Report are listed
in Item 8.
(2) Financial Statement Schedules
Schedule IV - Reinsurance page F-15
(3) Exhibits
Financial Data Schedule
F-16
<PAGE>
Appendix A
Market Value Adjustment
The Market Value Adjustment is based on the following:
I = the Treasury Rate for a maturity equal to the Sub-account's
Guarantee Period for the week preceding the establishment of the
Sub-account.
N = the number of whole and partial years from the date we receive the
withdrawal, transfer, or death benefit request, or from the Payout
Start Date to the end of the Sub-account's Guarantee Period.
J = the Treasury Rate for a maturity equal to the Sub-account's
Guarantee Period for the week preceding the receipt of the withdrawal
request, transfer request, death benefit request, or income payment
request. If a Note with a maturity of the original guarantee period is
not available, a weighted average will be used.
Treasury Rate means the U.S. Treasury Note Constant Maturity yield as
reported in Federal Reserve Bulletin Release H.15.
The Market Value Adjustment factor is determined from the following
formula:
.9 X (I - J) X N
Any transfer, withdrawal in excess of the free withdrawal amount, death
benefit or amount applied to an Income Plan from a Sub-account of the Guaranteed
Maturity 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 Withdrawal: End of Contract Year 3
NOTE: This illustration assumes that premium taxes were not applicable.
EXAMPLE 1: (Assumes declining interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.045) = $11,411.66
Step 2: Calculate the Free Withdrawal Amount:
= .15 X (10,000.00) = $1,500.00
Step 3: Calculate the Withdrawal Charge:
= .05 X (10,000.00 - 1,500.00) = $425.00
Step 4: Calculate the Market Value Adjustment:
I = 4.50%
J = 4.20%
N = 730 days = 2
------------
365 days
Market Value Adjustment factor: .9 X (I - J) X N
=.9 X (.045 - .042) X 2 = .0054
Market Value Adjustment = Factor X Amount Subject to Market Value
Adjustment:
= .0054 X (11,411.66 - 1,500) = $53.52
Step 5: Calculate The Amount Received by Customers as a Result of a Full
Withdrawal at the end of Contract Year 3:
= 11,411.66 - 425.00 + 53.52 = $11,040.18
EXAMPLE 2: (Assumes rising interest rates)
Step 1: Calculate Account Value at End of Contract Year 3:
= 10,000.00 X (1.045) = $11,411.66
Step 2: Calculate the Free Withdrawal Amount:
= .15 X (10,000.00) = $1,500.00
Step 3: Calculate the Withdrawal Charge:
= .06 X (10,000.00 - 1,500.00) = $425.00
Step 4: Calculate the Market Value Adjustment:
I = 4.5%
J = 4.8%
N = 730 days = 2
------------
365 days
Market Value Adjustment factor: .9 X (I-J) X N
= .9 X (.045 - .048) X (2) = -.0054
Market Value Adjustment = Factor X Amount Subject to Market Value
Adjustment:
= - .0054 X (11,411.66 - 1,500) = - 53.52
Step 5: Calculate The Net Withdrawal Value at End of Contract Year 3:
= 11,411.66 - 425.00 - 53.52 = $10,933.14
<PAGE>
B-1
<PAGE>
Statement of Additional Information: Table of Contents
Additions, Deletions or Substitutions of Investments.....................
Reinvestment.............................................................
The Contract.............................................................
Purchase of Contracts....................................................
Performance Data.........................................................
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers..............
Premium Taxes............................................................
Tax Reserves.............................................................
Income Payments..........................................................
Calculation of Variable Annuity Unit Values..............................
General Matters..........................................................
Incontestability.........................................................
Settlements..............................................................
Safekeeping of the Variable Account's Assets.............................
Federal Tax Matters......................................................
Introduction.............................................................
Taxation of Glenbrook Life and Annuity Company...........................
Exceptions to the Non-Natural Owner Rule.................................
IRS Required Distribution at Death Rules.................................
Qualified Plans..........................................................
Types of Qualified Plans.................................................
Variable Account Financial Statements....................................
- - -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
Order Form
Please send me a copy of the most recent Statement of Additional
Information for the Glenbrook Provider Variable Annuity.
- ---------------------------------------------------------------
(Date)
- -------------------------------------------------------------
(Name)
- -------------------------------------------------------------
(Street Address)
- -------------------------------------------------------------
(City) (State) (Zip Code)
Send to: Glenbrook Life and Annuity Company, Post Office Box 94042,
Palatine, Illinois 60094-4042, Attention: Customer Service Unit
GLG257
