AIM LIFETIME ENHANCED CHOICE(SM) VARIABLE ANNUITY
Glenbrook Life and Annuity Company Prospectus dated June 9, 2000
Post Office Box 94039
Palatine, IL 60094-4039
Telephone Number: 1-800-776-6978
Glenbrook Life and Annuity Company ("Glenbrook") is offering the AIM Lifetime
Enhanced Choice(SM) Variable Annuity, an individual and group flexible premium
deferred variable annuity contract ("Contract"). This prospectus contains
information about the Contract that you should know before investing. Please
keep it for future reference.
The Contract currently offers 19 investment alternatives ("investment
alternatives"). The investment alternatives include 2 fixed account options
("Fixed Account Options") and 17 variable sub-accounts ("Variable Sub-
Accounts") of the Glenbrook Life and Annuity Company Separate Account A
("Variable Account"). Each Variable Sub-Account invests exclusively in shares of
one of the following funds ("Funds") of AIM Variable Insurance Funds.
<TABLE>
<CAPTION>
<S> <C>
. AIM V.I. Aggressive Growth Fund . AIM V.I. Global Utilities Fund
. AIM V.I. Balanced Fund . AIM V.I. Government Securities Fund
. AIM V.I. Blue Chip Fund . AIM V.I. Growth Fund
. AIM V.I. Capital Appreciation Fund . AIM V.I. Growth and Income Fund
. AIM V.I. Capital Development Fund . AIM V.I. High Yield Fund
. AIM V.I. Dent Demographic Trends Fund . AIM V.I. International Equity Fund
. AIM V.I. Diversified Income Fund . AIM V.I. Money Market Fund
. AIM V.I. Global Growth and Income Fund . AIM V.I. Telecommunications and Technology Fund*
. AIM V.I. Value Fund
</TABLE>
*Effective May 1, 2000, the Fund changed its name from AIM V.I.
Telecommunications Fund to AIM V.I. Telecommunications and Technology Fund to
reflect changes in its investment policies. We have made a corresponding change
in the name of the Variable Sub-Account that invests in that Fund.
Each time you make a purchase payment, we will add to your Contract value
("Contract Value") a credit enhancement ("Credit Enhancement"). There are two
Credit Enhancement options available under the Contract. Under Credit
Enhancement option 1, we will add to your Contract Value a Credit Enhancement
equal to 4% of your purchase payments ("Credit Enhancement Option 1"). Under
Credit Enhancement option 2, we will add to your Contract Value a Credit
Enhancement equal to 2% of your purchase payments ("Credit Enhancement Option
2"). In addition, under Credit Enhancement Option 2, on every 5th Contract
anniversary ("Contract Anniversary") during the Accumulation Phase, we will add
to your Contract Value a Credit Enhancement equal to 2% of your Contract Value
as of such Contract Anniversary. Expenses for this Contract may be higher than a
contract without the Credit Enhancement. Over time, the amount of the Credit
Enhancement may be more than offset by the fees associated with the Credit
Enhancement.
We ("Glenbrook") have filed a Statement of Additional Information, dated June 9,
2000, with the Securities and Exchange Commission ("SEC"). It contains more
information about the Contract and is incorporated herein by reference, which
means it is legally a part of this prospectus. Its table of contents appears on
page 48 of this prospectus. For a free copy, please write or call us at the
address or telephone number above, or go to the SEC's Web site
(http://www.sec.gov). You can find other information and documents about us,
including documents that are legally part of this prospectus, at the SEC's Web
site.
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The Securities and Exchange Commission has not approved or
disapproved the securities described in this prospectus, nor
has it passed on the accuracy or the adequacy of this
prospectus. Anyone who tells you otherwise is committing a
federal crime.
IMPORTANT
NOTICES
The Contracts may be distributed through broker-dealers that
have relationships with banks or other financial institutions
or by employees of such banks. However, the Contracts are not
deposits, or obligations of, or guaranteed by such
institutions or any federal regulatory agency. Investment in
the Contracts involves investment risks, including possible
loss of principal.
The Contracts are not FDIC insured.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Important Terms............................................... 4
The Contract at a Glance...................................... 5
How the Contract Works........................................ 7
Expense Table................................................. 8
Financial Information......................................... 11
Overview
The Contract.................................................. 12
Purchases..................................................... 14
Contract Value................................................ 16
Investment Alternatives:
The Variable Sub-Accounts................................... 17
The Fixed Account Options................................... 18
Transfers................................................... 21
Expenses...................................................... 24
Access To Your Money.......................................... 27
Income Payments............................................... 29
Death Benefits................................................ 32
Contract
Features
More Information:
Glenbrook................................................... 35
The Variable Account........................................ 35
The Funds................................................... 36
The Contract................................................ 36
Qualified Plans............................................. 37
Legal Matters............................................... 37
Year 2000................................................... 37
Taxes......................................................... 39
Annual Reports and Other Documents............................ 43
Performance Information....................................... 44
Experts....................................................... 45
Appendix A--Market Value Adjustment Examples.................. 46
Statement of Additional Information Table of Contents......... 48
Other
Information
</TABLE>
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IMPORTANT TERMS
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This prospectus uses a number of important terms that you may not be familiar
with. The index below identifies the page that describes each term. The first
use of each term in this prospectus appears in highlights.
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Accumulation Phase..................................................... 7
Accumulation Unit...................................................... 11,16
Accumulation Unit Value................................................ 11,16
Annuitant.............................................................. 12
Automatic Additions Program............................................ 14
Automatic Fund Rebalancing Program..................................... 22
Beneficiary............................................................ 12
Cancellation Period.................................................... 5
*Contract.............................................................. 12
Contract Anniversary................................................... 6
Contract Owner ("You")................................................. 12
Contract Value......................................................... 16
Contract Year.......................................................... 6
Credit Enhancement..................................................... 14-15
Death Benefit Anniversary.............................................. 32
Dollar Cost Averaging Program.......................................... 22
Due Proof of Death..................................................... 32
Enhanced Death Benefit Rider........................................... 32-33
Fixed Account Options.................................................. 18
Free Withdrawal Amount................................................. 25
Funds.................................................................. 1,17
Glenbrook ("We")....................................................... 1
Guarantee Periods...................................................... 18
Income Plan............................................................ 29
Investment Alternatives................................................ 1,17
Issue Date............................................................. 7
Market Value Adjustment................................................ 20
Payout Phase........................................................... 7
Payout Start Date...................................................... 29
Qualified Contract..................................................... 37
Right to Cancel........................................................ 15
SEC.................................................................... 1
Settlement Value....................................................... 32
Systematic Withdrawal Program.......................................... 27
Treasury Rate.......................................................... 20
Valuation Date......................................................... 14
Variable Account....................................................... 35-36
Variable Sub-Account................................................... 17
</TABLE>
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*If you purchase a group Contract, we will issue you a certificate that
represents your ownership and that summarizes the provisions of the group
Contract. References to "Contract" in this prospectus include certificates,
unless the context requires otherwise. In certain states, the Contract is
available only as a group Contract.
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THE CONTRACT AT A GLANCE
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The following is a snapshot of the Contract. Please read the remainder of this
prospectus for more information.
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Flexible Payments You can purchase a Contract with as little as
$10,000. You can add to your Contract as often
and as much as you like, but each payment must
be at least $500 ($100 for automatic purchase
payments to the variable investment options).
You must maintain a minimum account size of
$1,000.
Each time you make a purchase payment, if you choose
Credit Enhancement Option 1, we will add to your
Contract Value ("Contract Value") a Credit
Enhancement equal to 4% of such purchase payment (2%
if you choose Credit Enhancement Option 2).
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Right to Cancel You may cancel your Contract within 20 days of
receipt or any longer period as your state may
require ("Cancellation Period"). Upon
cancellation we will return your purchase
payments adjusted, to the extent applicable law
permits, to reflect the investment experience
of any amounts allocated to the Variable
Account. If you exercise your Right to Cancel
the Contract, the amount we refund to you will
not include any Credit Enhancement. See "Right
to Cancel" for details.
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Expenses You will bear the following expenses:
. Total Variable Account annual fees equal to 1.50%
of average daily net assets (1.70% if you select
the Enhanced Death Benefit Rider)
. Annual contract maintenance charge of $35
(with certain exceptions)
. Withdrawal charges ranging from 0% to 8% of
purchase payments withdrawn (with certain
exceptions)
. Transfer fee of $10 after 12th transfer in
any Contract Year (fee currently waived)
. State premium tax (if your state imposes one)
In addition, each Fund pays expenses that you will
bear indirectly if you invest in a Variable Sub-
Account.
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Investment Alternatives The Contract offers 19 investment
alternatives including:
. 2 Fixed Account Options (which credit
interest at rates we guarantee)
. 17 Variable Sub-Accounts investing in Funds
offering professional money management by A I M
Advisors, Inc.
To find out current rates being paid on the Fixed
Account Options, or to find out how the Variable
Sub-Accounts have performed, please call us at 1-
800-776-6978.
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Special Services For your convenience, we offer these
special services:
.Automatic Fund Rebalancing Program
.Automatic Additions Program
.Dollar Cost Averaging Program
.Systematic Withdrawal Program
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Income Payments You can choose fixed income payments,
variable income payments, or a combination of the
two. You can receive your income payments in one of
the following ways:
. life income with guaranteed payments
. a joint and survivor life income with
guaranteed payments
. guaranteed payments for a specified period (5
to 30 years)
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Death Benefits If you die before the Payout Start Date, we
will pay the death benefit described in the
Contract. We also offer an Enhanced Death Benefit
Rider.
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Transfers Before the Payout Start Date, you may transfer your
Contract value ("Contract Value") among the
investment alternatives, with certain restrictions.
No minimum applies to the amount you transfer.
We do not currently impose a fee upon transfers.
However, we reserve the right to charge $10 per
transfer after the 12th transfer in each "Contract
Year," which we measure from the date we issue your
contract or a Contract Anniversary.
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Withdrawals You may withdraw some or all of your Contract
Value at any time prior to the date income
payments begin, and, under limited circumstances,
during the Payout Phase. In general, you must
withdraw at least $50 at a time. A 10% federal tax
penalty may apply if you withdraw before you are
59 1/2 years old. A withdrawal charge and Market
Value Adjustment also may apply.
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HOW THE CONTRACT WORKS
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The Contract basically works in two ways.
First, the Contract can help you (we assume you are the Contract owner) save for
retirement because you can invest in up to 19 investment alternatives and pay no
federal income taxes on any earnings until you withdraw them. You do this during
what we call the "Accumulation Phase" of the Contract. The Accumulation Phase
begins on the date we issue your Contract (we call that date the "Issue Date")
and continues until the Payout Start Date, which is the date we apply your money
to provide income payments. During the Accumulation Phase, you may allocate your
purchase payments to any combination of the Variable Sub- Accounts and/or Fixed
Account Options. If you invest in the Fixed Account Options, you will earn a
fixed rate of interest that we declare periodically. If you invest in any of the
Variable Sub-Accounts, your investment return will vary up or down depending on
the performance of the corresponding Funds.
Second, the Contract can help you plan for retirement because you can use it to
receive retirement income for life and/or for a pre-set number of years, by
selecting one of the income payment options (we call these "Income Plans")
described on page 29. You receive income payments during what we call the
"Payout Phase" of the Contract, which begins on the Payout Start Date and
continues until we make the last payment required by the Income Plan you select.
During the Payout Phase, if you select a fixed income payment option, we
guarantee the amount of your payments, which will remain fixed. If you select a
variable income payment option, based on one or more of the Variable
Sub-Accounts, the amount of your payments will vary up or down depending on the
performance of the corresponding Funds. The amount of money you accumulate under
your Contract during the Accumulation Phase and apply to an Income Plan will
determine the amount of your income payments during the Payout Phase.
The timeline below illustrates how you might use your Contract.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Issue Payout Start
Date Accumulation Phase Date Payout Phase
-------------------------------------------------------------------------------------------------------------------- >
| | |
You save for retirement
You buy You elect to receive You can receive Or you can
a Contract income payments or receive income payments receive income
a lump sum payment for a set period payments for life
</TABLE>
As the Contract owner, you exercise all of the rights and privileges provided by
the Contract. If you die, any surviving Contract owner, or if there is none, the
Beneficiary will exercise the rights and privileges provided by the Contract.
See "The Contract." In addition, if you die before the Payout Start Date, we
will pay a death benefit to any surviving Contract owner, or if there is none,
to your Beneficiary. See "Death Benefits."
Please call us at 1-800-776-6978 if you have any question about how the Contract
works.
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<PAGE>
EXPENSE TABLE
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The table below lists the expenses that you will bear directly or indirectly
when you buy a Contract. The table and the examples that follow do not reflect
premium taxes imposed by the state where you reside. For more information about
Variable Account expenses, see "Expenses" below. For more information about Fund
expenses, please refer to the accompanying fund prospectus.
CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years Since We Received the Purchase
Payment Being Withdrawn: 0 1 2 3 4 5 6 7 8
Applicable Charge:..................... 8% 8% 7% 7% 6% 5% 4% 3% 0%
Annual Contract Maintenance Charge.......... $35.00**
Transfer Fee................................ $10.00***
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* Each Contract Year, you may withdraw up to 15% of the Contract Value as of
the beginning of the Contract Year (15% of the initial purchase payment
during the first Contract Year) without incurring a withdrawal charge or
Market Value Adjustment. See "Free Withdrawal Amount" for details.
** We will waive this charge in certain cases. See "Expenses."
*** Applies solely to the thirteenth and subsequent transfers within a Contract
Year, excluding transfers due to dollar cost averaging and automatic fund
rebalancing. We are currently waiving the transfer fee.
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily net asset value deducted from each Variable
Sub-Account)
Mortality and Expense Risk Charge..................................... 1.40%*
Administrative Expense Charge......................................... 0.10%
Total Variable Account Annual Expenses................................ 1.50%
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* If you select the Enhanced Death Benefit Rider, the mortality and expense
risk charge will be equal to 1.60% of your Contract's average daily net
assets in the Variable Account.
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FUND ANNUAL EXPENSES
(After Voluntary Reductions and Reimbursements)
(as a percentage of Fund average daily net assets)(1)
Management Other Total Annual
Fund Fee Expenses Fund Expenses
---- ---------- -------- -------------
AIM V.I. Aggressive Growth Fund (2).......... 0.00% 1.19% 1.19%
AIM V.I. Balanced Fund (2)................... 0.65% 0.56% 1.21%
AIM V.I. Blue Chip Fund...................... 0.75% 0.55% 1.30%
AIM V.I. Capital Appreciation Fund........... 0.62% 0.11% 0.73%
AIM V.I. Capital Development Fund (2)........ 0.00% 1.23% 1.23%
AIM V.I. Dent Demographic Trends Fund........ 0.85% 0.55% 1.40%
AIM V.I. Diversified Income Fund............. 0.60% 0.23% 0.83%
AIM V.I. Global Growth and Income Fund (2)... 0.97% 0.37% 1.34%
AIM V.I. Global Utilities Fund............... 0.65% 0.49% 1.14%
AIM V.I. Government Securities Fund.......... 0.50% 0.40% 0.90%
AIM V.I. Growth Fund......................... 0.63% 0.10% 0.73%
AIM V.I. Growth and Income Fund.............. 0.61% 0.16% 0.77%
AIM V.I. High Yield Fund (2)................. 0.35% 0.79% 1.14%
AIM V.I. International Equity Fund........... 0.75% 0.22% 0.97%
AIM V.I. Money Market Fund................... 0.40% 0.20% 0.60%
AIM V.I. Telecommunications and Technology
Fund........................................ 1.00% 0.27% 1.27%
AIM V.I. Value Fund.......................... 0.61% 0.15% 0.76%
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(1) Figures shown in the table are for the year ended December 31, 1999, except
for the AIM V.I. Blue Chip, Dent Demographic Trends, Global Growth and
Income, and Telecommunications and Technology Funds which commenced
operations on December 29, 1999, December 29, 1999, October 15, 1999 and
October 15, 1999 respectively. For these Funds, the management fee, other
expenses and total annual fund operating expenses are based on estimates for
the Funds' first full fiscal year.
(2) Absent voluntary reductions and reimbursements for certain Funds, management
fees, other expenses, and total annual fund expenses expressed as a
percentage of average net assets of the Funds would have been as follows:
Management Other Total Annual
Fund Fee Expenses Fund Expenses
---- ---------- -------- -------------
AIM V.I. Aggressive Growth Fund............ 0.80% 1.62% 2.42%
AIM V.I. Balanced Fund..................... 0.75% 0.56% 1.31%
AIM V.I. Capital Development Fund.......... 0.75% 2.67% 3.42%
AIM V.I. Global Growth and Income Fund..... 1.00% 0.37% 1.37%
AIM V.I. High Yield Fund................... 0.63% 0.79% 1.42%
EXAMPLE 1
The example below shows the dollar amount of expenses that you would bear
directly or indirectly if you:
. invested $1,000 in a Variable Sub-Account,
. earned a 5% annual return on your investment, and
. surrendered your Contract, or you began receiving income payments for a
specified period of less than 120 months, at the end of each time period.
. elected the Enhanced Death Benefit Option
The example does not include any taxes or tax penalties you may be required to
pay if you surrender your Contract.
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SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
AIM V.I. Aggressive Growth...................... $111 $190 $270 $442
AIM V.I. Balanced............................... $101 $159 $219 $341
AIM V.I. Blue Chip.............................. $101 $159 $218 $340
AIM V.I. Capital Appreciation................... $ 95 $142 $191 $284
AIM V.I. Capital Development.................... $121 $218 $314 $523
AIM V.I. Dent Demographic Trends................ $102 $162 $224 $352
AIM V.I. Diversified Income..................... $ 96 $145 $196 $294
AIM V.I. Global Growth and Income............... $101 $161 $222 $347
AIM V.I. Global Utilities....................... $ 99 $154 $211 $325
AIM V.I. Government Securities.................. $ 97 $147 $199 $301
AIM V.I. Growth................................. $ 95 $142 $191 $284
AIM V.I. Growth and Income...................... $ 96 $143 $193 $288
AIM V.I. High Yield............................. $102 $162 $224 $352
AIM V.I. International Equity................... $ 97 $149 $203 $308
AIM V.I. Money Market........................... $ 94 $138 $185 $271
AIM V.I. Telecommunications and Technology...... $100 $158 $217 $337
AIM V.I. Value.................................. $ 95 $143 $193 $287
EXAMPLE 2
Same assumptions as Example 1 above, except that you decided not to surrender
your Contract, or you began receiving income payments (for at least 120 months
if under an Income Plan for a specified period), at the end of each period.
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
AIM V.I. Aggressive Growth...................... $43 $129 $217 $442
AIM V.I. Balanced............................... $31 $ 96 $163 $341
AIM V.I. Blue Chip.............................. $31 $ 96 $162 $340
AIM V.I. Capital Appreciation................... $25 $ 78 $134 $284
AIM V.I. Capital Development.................... $53 $159 $264 $523
AIM V.I. Dent Demographic Trends................ $32 $ 99 $168 $352
AIM V.I. Diversified Income..................... $26 $ 81 $139 $294
AIM V.I. Global Growth and Income............... $32 $ 98 $166 $347
AIM V.I. Global Utilities....................... $30 $ 91 $154 $325
AIM V.I. Government Securities.................. $27 $ 83 $142 $301
AIM V.I. Growth................................. $25 $ 78 $134 $284
AIM V.I. Growth and Income...................... $26 $ 79 $136 $288
AIM V.I. High Yield............................. $33 $ 99 $168 $352
AIM V.I. International Equity................... $28 $ 86 $146 $308
AIM V.I. Money Market........................... $24 $ 74 $127 $271
AIM V.I. Telecommunications and Technology...... $31 $ 95 $161 $337
AIM V.I. Value.................................. $26 $ 79 $135 $287
Please remember that you are looking at examples and not a representation of
past or future expenses. Your actual expenses may be lower or greater than those
shown above. Similarly, your rate of return may be lower or greater than 5%,
which is not guaranteed. The above examples assume the election of the Enhanced
Death Benefit Rider with a mortality and expense risk charge of 1.60%. If that
option were not elected, the example figures shown above would be slightly
lower. To reflect the contract maintenance charge in the examples, we estimated
an equivalent percentage charge, based on an assumed average Contract size of
$50,000.
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FINANCIAL INFORMATION
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To measure the value of your investment in the Variable Sub-Accounts during the
Accumulation Phase, we use a unit of measure we call the "Accumulation Unit."
Each Variable Sub-Account has a separate value for its Accumulation Units we
call "Accumulation Unit Value." Accumulation Unit Value is analogous to, but not
the same as, the share price of a mutual fund.
There are no Accumulation Unit Values to report because the Contracts were first
offered as of the date of this prospectus.
The financial statements of the Variable Account and Glenbrook appear in the
Statement of Additional Information.
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THE CONTRACT
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CONTRACT OWNER
The AIM Lifetime Enhanced Choice(SM) Variable Annuity is a contract between you,
the Contract owner, and Glenbrook, a life insurance company. As the Contract
owner, you may exercise all of the rights and privileges provided to you by the
Contract. That means it is up to you to select or change (to the extent
permitted):
. the investment alternatives during the Accumulation and Payout Phases,
. the amount and timing of your purchase payments and withdrawals,
. the programs you want to use to invest or withdraw money,
. the income payment plan you want to use to receive retirement income,
. the Annuitant (either yourself or someone else) on whose life the income
payments will be based,
. the Beneficiary or Beneficiaries who will receive the benefits that the
Contract provides when the last surviving Contract owner dies, and
. any other rights that the Contract provides.
If you die, any surviving Contract owner or, if none, the Beneficiary may
exercise the rights and privileges provided to them by the Contract.
The Contract cannot be jointly owned by both a non-natural person and a natural
person. The maximum age of either owner, or annuitant if the owner is a non-
natural person, cannot exceed age 80 at the time the contract is purchased.
You can use the Contract with or without a qualified plan. A qualified plan is a
personal retirement savings plan, such as an IRA or tax-sheltered annuity, that
meets the requirements of the Internal Revenue Code. Qualified plans may limit
or modify your rights and privileges under the Contract. We use the term
"Qualified Contract" to refer to a Contract issued with a qualified plan. See
"Qualified Plans" on page 37.
ANNUITANT
The Annuitant is the individual whose age determines the latest Payout Start
Date and whose life determines the amount and duration of income payments (other
than under Income Plans with guaranteed payments for a specified period). You
initially designate an Annuitant in your application. If the Contract owner is a
natural person, you may change the Annuitant prior to the Payout Start Date.
Prior to the Payout Start Date, you may designate a joint Annuitant, who is a
second person on whose life income payments depend under an Income Plan. In our
discretion, we may permit you to designate a joint Annuitant prior to the Payout
Start Date.
If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be:
. the youngest Contract owner if living, otherwise
. the youngest Beneficiary.
BENEFICIARY
The Beneficiary is the person who may elect to receive the death benefit or
become the new Contract owner if the sole surviving Contract owner dies before
the Payout Start Date. If the sole surviving Contract owner dies after the
Payout Start Date, the Beneficiary will receive any guaranteed income payments
scheduled to continue.
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You may name one or more Beneficiaries when you apply for a Contract. You may
change or add Beneficiaries at any time by writing to us unless you have
designated an irrevocable Beneficiary. We will provide a change of Beneficiary
form to be signed and filed with us. Any change will be effective at the time
you sign the written notice, whether or not the Annuitant is living when we
receive the notice. Until we receive your written notice to change a
Beneficiary, we are entitled to rely on the most recent Beneficiary information
in our files. We will not be liable as to any payment or settlement made prior
to receiving the written notice. Accordingly, if you wish to change your
Beneficiary, you should deliver your written notice to us promptly.
If you did not name a Beneficiary or if the named Beneficiary is no longer
living and there are no other surviving Beneficiaries, the new Beneficiary will
be:
. your spouse or, if he or she is no longer alive,
. your surviving children equally, or if you have no surviving children,
. your estate.
If more than one Beneficiary survives you (or the Annuitant if the Contract
owner is not a natural person), we will divide the death benefit among your
Beneficiaries according to your most recent written instructions. If you have
not given us written instructions, we will pay the death benefit in equal
amounts to the surviving Beneficiaries.
MODIFICATION OF THE CONTRACT
Only a Glenbrook officer may approve a change in or waive any provision of the
Contract. Any change or waiver must be in writing. None of our agents has the
authority to change or waive the provisions of the Contract. We may not change
the terms of the Contract without your consent, except to conform the Contract
to applicable law or changes in the law. If a provision of the Contract is
inconsistent with state law, we will follow state law.
ASSIGNMENT
We will not honor an assignment of an interest in a Contract as collateral or
security for a loan. However, you may assign periodic income payments under the
Contract prior to the Payout Start Date. No Beneficiary may assign benefits
under the Contract until they are due. We will not be bound by any assignment
until the assignor signs it and files it with us. We are not responsible for the
validity of any assignment. Federal law prohibits or restricts the assignment of
benefits under many types of retirement plans and the terms of such plans may
themselves contain restrictions on assignments. An assignment may also result in
taxes or tax penalties. You should consult with an attorney before trying to
assign your Contract.
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PURCHASES
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MINIMUM PURCHASE PAYMENTS
Your initial purchase payment must be at least $10,000. All subsequent purchase
payments must be $500 or more. You may make purchase payments at any time prior
to the Payout Start Date. We may limit the amount of each purchase payment that
we will accept to a minimum of $500 and a maximum of $1,000,000. We also reserve
the right to reject any application.
AUTOMATIC ADDITIONS PROGRAM
You may make subsequent purchase payments of $100 or more per month by
automatically transferring money from your bank account. Please consult with
your sales representative for detailed information.
ALLOCATION OF PURCHASE PAYMENTS
At the time you apply for a Contract, you must decide how to allocate your
purchase payments among the investment alternatives. The allocation you specify
on your application will be effective immediately. All allocations must be in
whole percents that total 100% or in whole dollars. You can change your
allocations by notifying us in writing. We reserve the right to limit the
availability of the investment alternatives.
We will allocate your purchase payments to the investment alternatives according
to your most recent instructions on file with us. Unless you notify us in
writing otherwise, we will allocate subsequent purchase payments according to
the allocation for the previous purchase payment. We will effect any change in
allocation instructions at the time we receive written notice of the change in
good order.
We will credit the initial purchase payment that accompanies your completed
application to your Contract within 2 business days after we receive the payment
at our headquarters. If your application is incomplete, we will ask you to
complete your application within 5 business days. If you do so, we will credit
your initial purchase payment to your Contract within that 5 business day
period. If you do not, we will return your purchase payment at the end of the 5
business day period unless you expressly allow us to hold it until you complete
the application. We will credit subsequent purchase payments to the Contract at
the close of the business day on which we receive the purchase payment at our
headquarters.
We use the term "business day" to refer to each day Monday through Friday that
the New York Stock Exchange is open for business. We also refer to these days as
"Valuation Dates." Our business day closes when the New York Stock Exchange
closes, usually 4 p.m. Eastern Time (3 p.m. Central Time). If we receive your
purchase payment after 3 p.m. Central Time on any Valuation Date, we will credit
your purchase payment using the Accumulation Unit Values computed on the next
Valuation Date.
CREDIT ENHANCEMENT
There are two Credit Enhancement options available under the Contract. You
select one of these options in your application.
Option 1
Each time you make a purchase payment, we will add to your Contract Value a
Credit Enhancement equal to 4% of the purchase payment.
Option 2
Each time you make a purchase payment, we will add to your Contract Value a
Credit Enhancement equal to 2% of the purchase payment. And, on every 5th
Contract Anniversary during the Accumulation Phase, we will add to your Contract
Value a Credit Enhancement equal to 2% of your Contract Value as of such
Contract Anniversary.
14
<PAGE>
We will allocate any Credit Enhancements to the investment alternatives
according to the allocation instructions you have on file with us at the time we
receive your purchase payment. We will allocate each Credit Enhancement among
the investment alternatives in the same proportions as the corresponding
purchase payment (except that any portion of the Credit Enhancement
corresponding to the value in any Fixed Account Option will instead be allocated
to the Money Market Variable Sub-account). Thereafter you may instruct us to
allocate these funds to any investment alternative you choose. We do not
consider Credit Enhancements to be investments in the Contract for income tax
purposes.
We use a portion of the withdrawal charge and mortality and expense risk charge
to help recover the cost of providing the Credit Enhancement under the Contract.
See "Expenses." Under certain circumstances (such as a period of poor market
performance) the cost associated with the Credit Enhancement may exceed the sum
of the Credit Enhancement and any related earnings. You should consider this
possibility before purchasing the Contract.
RIGHT TO CANCEL
You may cancel the Contract by returning it to us within the Cancellation
Period, which is the 20 day period after you receive the Contract, or such
longer period that your state may require. You may return it by delivering it or
mailing it to us. If you exercise this "Right to Cancel," the Contract
terminates and we will pay you the full amount of your purchase payments
allocated to the Fixed Account. We also will return your purchase payments
allocated to the Variable Account adjusted, to the extent state law permits, to
reflect investment gain or loss that occurred from the date of allocation
through the date of cancellation. Some states may require us to return a greater
amount to you.
We are applying for regulatory relief to enable us to recover the amount of any
Credit Enhancement applied to Contracts that are cancelled during the
Cancellation Period. Until we receive such relief, we will return, upon
cancellation, the amount you would have received had there been no Credit
Enhancement. If we receive the requested regulatory relief, the amount we return
to you upon exercise of this Right to Cancel will not include any Credit
Enhancement or the amount of charges deducted prior to cancellation but will
reflect, except in states where we are required to return the amount of your
purchase payments, any investment gain or loss associated with your Variable
Account purchase payments and with the Credit Enhancement.
15
<PAGE>
CONTRACT VALUE
--------------------------------------------------------------------------------
On the Issue Date, the Contract Value is equal to the initial purchase payment
plus the Credit Enhancement. Thereafter, your Contract Value at any time during
the Accumulation Phase is equal to the sum of the value of your Accumulation
Units in the Variable Sub-Accounts you have selected, plus the value of your
interest in the Fixed Account Options.
ACCUMULATION UNITS
To determine the number of Accumulation Units of each Variable Sub-Account to
allocate to your Contract, we divide (i) the amount of the purchase payment or
transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation
Unit Value of that Variable Sub-Account next computed after we receive your
payment or transfer. For example, if we receive a $10,000 purchase payment
allocated to a Variable Sub-Account when the Accumulation Unit Value for the
Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable
Sub-Account to your Contract. If you select Credit Enhancement Option 1, we also
would credit an additional 40 Accumulation Units of that Variable Sub-Account to
your Contract to reflect the 4% Credit Enhancement on your purchase payment (20
additional Units under Option 2, and additional Units every 5th Contract
Anniversary if applicable). See "Credit Enhancement." Withdrawals and transfers
from a Variable Sub-Account would, of course, reduce the number of Accumulation
Units of that Sub-Account allocated to your Contract.
ACCUMULATION UNIT VALUE
As a general matter, the Accumulation Unit Value for each Variable Sub-Account
will rise or fall to reflect:
. changes in the share price of the Fund in which the Variable Sub-Account
invests, and
. the deduction of amounts reflecting the mortality and expense risk charge,
administrative expense charge, and any provision for taxes that have accrued
since we last calculated the Accumulation Unit Value.
We determine contract maintenance charges, withdrawal charges, and transfer fees
(currently waived) separately for each Contract. They do not affect the
Accumulation Unit Value. Instead, we obtain payment of those charges and fees by
redeeming Accumulation Units. For details on how we compute Accumulation Unit
Value, please refer to the Statement of Additional Information.
We determine a separate Accumulation Unit Value for each Variable Sub-Account on
each Valuation Date. We also determine a separate set of Accumulation Unit
Values reflecting the cost of the Enhanced Death Benefit Rider described on
pages 32, 33 and 34 below.
You should refer to the prospectus for the Funds that accompanies this
prospectus for a description of how the assets of each Fund are valued, since
that determination directly bears on the Accumulation Unit Value of the
corresponding Variable Sub-Account and, therefore, your Contract Value.
16
<PAGE>
INVESTMENT ALTERNATIVES: The Variable Sub-Accounts
--------------------------------------------------------------------------------
You may allocate your purchase payments to up to 17 Variable Sub-Accounts. Each
Variable Sub-Account invests in the shares of a corresponding Fund. Each Fund
has its own investment objective(s) and policies. We briefly describe the Funds
below.
For more complete information about each Fund, including expenses and risks
associated with the Fund, please refer to the accompanying prospectus for the
Fund. You should carefully review the Fund prospectus before allocating amounts
to the Variable Sub-Accounts. A I M Advisors, Inc. serves as the investment
advisor to each Fund.
<TABLE>
<CAPTION>
Fund: Each Fund Seeks:*
----- -----------------
<S> <C>
AIM V.I. Aggressive
Growth Fund**.......... Long-term growth of capital.
AIM V.I. Balanced Fund.. As high a total return as possible, consistent
with preservation of capital.
AIM V.I. Blue Chip Fund. Long-term growth of capital with a
secondary objective of current income.
AIM V.I. Capital
Appreciation Fund...... Growth of capital.
AIM V.I. Capital
Development Fund....... Long-term growth of capital.
AIM V.I. Dent
Demographic Trends
Fund................... Long-term growth of capital.
AIM V.I. Diversified
Income Fund............ High level of current income.
AIM V.I. Global Growth Long-term growth of capital together with
and Income Fund........ current income.
AIM V.I. Global
Utilities Fund......... High total return.
AIM V.I. Government High level of current income consistent with
Securities Fund........ reasonable concern for safety of principal.
AIM V.I. Growth Fund.... Growth of capital.
AIM V.I. Growth and Growth of capital with a secondary objective
Income Fund............ of current income.
AIM V.I. High Yield
Fund................... High level of current income.
AIM V.I. International
Equity Fund............ Long-term growth of capital.
AIM V.I. Money Market As high a level of current income as is
Fund................... consistent with the preservation of capital and liquidity.
AIM V.I.
Telecommunications and
Technology Fund........ Long-term growth of capital.
AIM V.I. Value Fund..... Long-term growth of capital. Income is a
secondary objective.
</TABLE>
----------------
* A Fund's investment objective may be changed by the Fund's Board of
Trustees without shareholders approval.
** Due to the sometime limited availability of common stocks of small-cap
companies that meet the investment criteria for AIM V.I. Aggressive Growth
Fund, the Fund may periodically suspend or limit the offering of its
shares. The Fund will be closed to new participants when Fund assets reach
$200 million. If the Fund is closed, Contract owners maintaining an
allocation of Contract Value in that Fund will nevertheless be permitted to
allocate additional purchase payments to the Fund.
Amounts you allocate to Variable Sub-Accounts may grow in value, decline in
value, or grow less than you expect, depending on the investment performance of
the Funds in which those Variable Sub-Accounts invest. You bear the investment
risk that the Funds might not meet their investment objectives. Shares of the
Funds are not deposits, or obligations of, or guaranteed or endorsed by any bank
and are not insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency.
17
<PAGE>
INVESTMENT ALTERNATIVES: The Fixed Account Options
--------------------------------------------------------------------------------
You may allocate all or a portion of your purchase payments to the Fixed
Account. You may choose from among 2 Fixed Account Options including a dollar
cost averaging option and the option to invest in one or more Guarantee Periods.
The Fixed Account Options may not be available in all states. Please consult
with your sales representative for current information. The Fixed Account
supports our insurance and annuity obligations. Amounts allocated to the Fixed
Account become part of the general assets of Glenbrook. Allstate Life Insurance
Company invests the assets of the general account in accordance with applicable
laws governing the investment of insurance company general accounts. We have
sole discretion to invest the assets of the Fixed Account, subject to applicable
law. Any money you allocate to a Fixed Account Option does not entitle you to
share in the investment experience of the Fixed Account.
DOLLAR COST AVERAGING OPTION
You may establish a Dollar Cost Averaging Program, as described on page 22, by
allocating purchase payments to the Fixed Account for 9 months ("9 Month Dollar
Cost Averaging Option"). Your purchase payments and related Credit Enhancement
will earn interest at the current rates in effect for this Option at the time of
allocation. Rates may differ from those available for the Guarantee Periods
described below.
You must transfer all of your money out of the 9 Month Dollar Cost Averaging
Option to other investment alternatives in equal monthly installments beginning
within 30 days of allocation. At the end of the 9 month period, we will transfer
any remaining amounts in the 9 Month Dollar Cost Averaging Account to the other
investment alternatives you designated. Transfers out of the 9 Month Dollar Cost
Averaging Option do not count towards the 12 transfers you can make without
paying a transfer fee.
You may not transfer funds from other investment alternatives to the 9 Month
Dollar Cost Averaging Option.
The 9 Month Dollar Cost Averaging Option may not be available in your state.
GUARANTEE PERIODS
Each purchase payment and related Credit Enhancement or transfer allocated to a
Guarantee Period earns interest at a specified rate that we guarantee for a
period of years. Guarantee Periods may range from 1 to 10 years. We are
currently offering Guarantee Periods of 1, 3, 5, 7, and 10 years in length. In
the future we may offer Guarantee Periods of different lengths or stop offering
some Guarantee Periods.
You select a Guarantee Period for each purchase or transfer. If you do not
select a Guarantee Period, we will assign the same period(s) you selected for
your most recent purchase payment.
We reserve the right to limit the number of additional purchase payments that
you may allocate to this Option.
INTEREST RATES
We will tell you what interest rates and Guarantee Periods we are offering at a
particular time. We may declare different interest rates for Guarantee Periods
of the same length that begin at different times. We will not change the
interest rate that we credit to a particular allocation until the end of the
relevant Guarantee Period.
We have no specific formula for determining the rate of interest that we will
declare initially or in the future. We will set those interest rates based on
investment returns available at the time of the determination. In addition, we
may consider various other factors in determining interest rates including
regulatory and tax requirements, our sales commission and administrative
expenses, general economic trends, and competitive factors. We determine the
interest rates to be declared in our sole discretion. We can neither predict nor
guarantee what those rates will be in the future. For current interest rate
information, please contact your sales representative or our Customer Support
Unit at 1-800-776-6978. The interest rate will never be less than the minimum
guaranteed rate stated in the Contract.
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<PAGE>
HOW WE CREDIT INTEREST
We will credit interest daily to each amount allocated to a Guarantee Period at
a rate that compounds to the effective annual interest rate that we declared at
the beginning of the applicable Guarantee Period. The following example
illustrates how a purchase payment allocated to this Option would grow, given an
assumed Guarantee Period and annual interest rate:
<TABLE>
<S> <C>
Purchase Payment plus Credit Enhancement............................ $10,000
Guarantee Period.................................................... 5 years
Annual Interest Rate................................................ 4.50%
</TABLE>
END OF CONTRACT YEAR
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning Contract Value $10,000.00
X (1 + Annual Interest
Rate) X 1.045
$10,450.00
Contract Value at end of
Contract Year $10,450.00
X (1 + Annual Interest
Rate) X1.045
$10,920.25
Contract Value at end of
Contract Year $10,920.25
X (1 + Annual Interest
Rate) X 1.045
$11,411.66
Contract Value at end of
Contract Year $11,411.66
X (1 + Annual Interest
Rate) X 1.045
$11,925.19
Contract Value at end of
Contract Year $11,925.19
X (1 + Annual Interest
Rate) X 1.045
$12,461.82
</TABLE>
Total Interest Credited During Guarantee Period = $2,461.82 ($12,461.82-
$10,000)
This example assumes no withdrawals during the entire 5 year Guarantee Period.
If you were to make a partial withdrawal, you may be required to pay a
withdrawal charge. In addition, the amount withdrawn may be increased or
decreased by a Market Value Adjustment that reflects changes in interest rates
since the time you invested the amount withdrawn. The hypothetical interest rate
is for illustrative purposes only and is not intended to predict future interest
rates to be declared under the Contract. Actual interest rates declared for any
given Guarantee Period may be more or less than shown above but will never be
less than the guaranteed minimum rate stated in the Contract.
RENEWALS
Prior to the end of each Guarantee Period, we will mail you a notice asking you
what to do with your money, including the accrued interest. During the 30-day
period after the end of the Guarantee Period, you may:
1) take no action. We will automatically apply your money to a new Guarantee
Period of the same length as the expired Guarantee Period. The new Guarantee
Period will begin on the day the previous Guarantee Period ends. The new
interest rate will be our then current declared rate for a Guarantee Period of
that length; or
2) instruct us to apply your money to one or more new Guarantee Periods of
your choice. The new Guarantee Period(s) will begin on the day the previous
Guarantee Period ends. The new interest rate will be our then current declared
rate for those Guarantee Periods; or
3) instruct us to transfer all or a portion of your money to one or more
Variable Sub-Accounts of the Variable Account. We will effect the transfer on
the day we receive your instructions. We will not adjust the amount
transferred to include a Market Value Adjustment; or
19
<PAGE>
4) withdraw all or a portion of your money. You may be required to pay a
withdrawal charge, but we will not adjust the amount withdrawn to include a
Market Value Adjustment. You may also be required to pay premium taxes and
withholding (if applicable). The amount withdrawn will be deemed to have been
withdrawn on the day the previous Guarantee Period ends. Amounts not withdrawn
will be applied to a new Guarantee Period of the same length as the previous
Guarantee Period. The new Guarantee Period will begin on the day the previous
Guarantee Period ends.
MARKET VALUE ADJUSTMENT
All withdrawals in excess of the Free Withdrawal Amount, and transfers from a
Guarantee Period, other than those taken during the 30 day period after a
Guarantee Period expires, are subject to a Market Value Adjustment. A Market
Value Adjustment also may apply upon payment of a death benefit and when you
apply amounts currently invested in this option to an Income Plan (unless paid
or applied during the 30-day period after such Guarantee Period expires). We
will not apply a Market Value Adjustment to a withdrawal you make:
. within the Free Withdrawal Amount as described on page 25,
. to satisfy IRS minimum distribution rules for the Contract,
. as part of the Dollar Cost Averaging Program, or
. when exercising the confinement, unemployment or terminal illness
waivers.
We apply the Market Value Adjustment to reflect changes in interest rates from
the time you first allocate money to a Guarantee Period to the time it is
removed from that Guarantee Period. We calculate the Market Value Adjustment by
comparing the Treasury Rate for a period equal to the Guarantee Period at its
inception to the Treasury Rate for a period equal to the Guarantee Period when
you remove your money. "Treasury Rate" means the U.S. Treasury Note Constant
Maturity Yield as reported in Federal Reserve Bulletin Release H.15.
The Market Value Adjustment may be positive or negative, depending on changes in
interest rates. As such, you bear the investment risk associated with changes in
interest rates. If interest rates increase significantly, the Market Value
Adjustment and any withdrawal charge, premium taxes, and income tax withholding
(if applicable) could reduce the amount you receive upon full withdrawal of your
Contract Value to an amount that is less than the purchase payment plus interest
at the minimum guaranteed interest rate under the Contract.
Generally, if the original Treasury Rate at the time you allocate money to a
Guarantee Period is higher than the applicable current Treasury Rate, then the
Market Value Adjustment will result in a higher amount payable to you,
transferred, or applied to an Income Plan. Conversely, if the Treasury Rate at
the time we established the Guarantee Period is lower than the applicable
current Treasury Rate, then the Market Value Adjustment will result in a lower
amount payable to you, transferred, or applied to an Income Plan.
For example, assume that you purchase a Contract and you select an initial
Guarantee Period of 5 years and the 5 year Treasury Rate for that duration is
4.50%. Assume that at the end of 3 years, you make a partial withdrawal. If,
at that later time, the current 5 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 you. Conversely, if the current 5 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 you.
The formula for calculating Market Value Adjustments is set forth in Appendix A
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment.
20
<PAGE>
INVESTMENT ALTERNATIVES: Transfers
--------------------------------------------------------------------------------
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer Contract Value among the
investment alternatives. Transfers are not permitted into the 9 Month Dollar
Cost Averaging Option. You may request transfers in writing on a form that we
provide or by telephone according to the procedure described below. There is no
minimum transfer amount. We currently do not assess, but reserve the right to
assess, a $10 charge on each transfer in excess of 12 per Contract Year. We
treat transfers to or from more than one Fund on the same day as one transfer.
We will process transfer requests that we receive before 3:00 p.m. Central Time
on any Valuation Date using the Accumulation Unit Values for that Date. We will
process requests completed after 3:00 p.m. on any Valuation Date using the
Accumulation Unit Values for the next Valuation Date. The Contract permits us to
defer transfers from the Fixed Account Options for up to 6 months from the date
we receive your request. If we decide to postpone transfers from any Fixed
Account Option for 30 days or more, we will pay interest as required by
applicable law. Any interest would be payable from the date we receive the
transfer request to the date we make the transfer.
If you transfer an amount from a Guarantee Period other than during the 30 day
period after a Guarantee Period expires, we will increase or decrease the amount
by a Market Value Adjustment.
We reserve the right to waive any transfer restrictions.
TRANSFERS DURING THE PAYOUT PHASE
During the Payout Phase, you may make transfers among the Variable Sub-Accounts
to change the relative weighting of the Variable Sub-Accounts on which your
variable income payments will be based. In addition, you will have a limited
ability to make transfers from the Variable Sub-Accounts to increase the
proportion of your income payments consisting of fixed income payments. You may
not, however, convert any of your fixed income payments into variable income
payments. You may not make any transfers for the first 6 months after the Payout
Start Date. Thereafter, you may make transfers among the Variable Sub- Accounts
or make transfers from the Variable Sub-Accounts to increase the proportion of
your income payments consisting of fixed income payments. Your transfers must be
at least 6 months apart.
TELEPHONE TRANSFERS
You may make transfers by telephone by calling 1-800-776-6978. The cut off time
for telephone transfer requests is 3:00 p.m. Central Time. In the event that the
New York Stock Exchange closes early, i.e., before 3:00 p.m. Central Time, or in
the event that the Exchange closes early for a period of time but then reopens
for trading on the same day, we will process telephone transfer requests as of
the close of the Exchange on that particular day. We will not accept telephone
requests received at any telephone number other than the number that appears in
this paragraph or received after the close of trading on the Exchange.
We may suspend, modify or terminate the telephone transfer privilege at any time
without notice.
We use procedures that we believe provide reasonable assurance that the
telephone transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
21
<PAGE>
EXCESSIVE TRADING LIMITS
We reserve the right to limit transfers in any Contract Year, or to refuse any
transfer request for a Contract owner or certain Contract owners, if:
. we believe, in our sole discretion, that excessive trading by such Contract
owner or owners, or a specific transfer request or group of transfer
requests, may have a detrimental effect on the Accumulation Unit Values of
any Variable Sub-Account or the share prices of the corresponding Funds or
would be to the disadvantage of other Contract owners; or
. we are informed by one or more of the corresponding Funds that they intend
to restrict the purchase or redemption of Fund shares because of excessive
trading or because they believe that a specific transfer or groups of
transfers would have a detrimental effect on the prices of Fund shares.
We may apply the restrictions in any manner reasonably designed to prevent
transfers that we consider disadvantageous to other Contract owners.
DOLLAR COST AVERAGING PROGRAM
You may make transfers automatically through dollar cost averaging prior to the
Payout Start Date. There are three different ways to use the Dollar Cost
Averaging Program:
1) You may allocate purchase payments to the Fixed Account Options for the
specific purpose of dollar cost averaging.
2) You may dollar cost average out of any Variable Sub-account into any other
Variable Sub-account(s).
3) You may transfer interest credited from a Guarantee Period(s) to any
Variable Sub-account without application of a Market Value Adjustment.
We will not charge a transfer fee for transfers made under this Program, nor
will such transfers count against the 12 transfers you can make each Contract
Year without paying a transfer fee.
The theory of dollar cost averaging is that if purchases of equal dollar amounts
are made at fluctuating prices, the aggregate average cost per unit will be less
than the average of the unit prices on the same purchase dates. However,
participation in this Program does not assure you of a greater profit from your
purchases under the Program nor will it prevent or necessarily reduce losses in
a declining market.
AUTOMATIC FUND REBALANCING PROGRAM
Once you have allocated your money among the Variable Sub-Accounts, the
performance of each Sub-Account may cause a shift in the percentage you
allocated to each Sub-Account. If you select our Automatic Fund Rebalancing
Program, we will automatically rebalance the Contract Value in each Variable
Sub-Account and return it to the desired percentage allocations. Money you
allocate to the Fixed Account will not be included in the rebalancing.
We will rebalance your account each quarter according to your instructions. We
will transfer amounts among the Variable Sub-Accounts to achieve the percentage
allocations you specify. You can change your allocations at any time by
contacting us in writing or by telephone. The new allocation will be effective
with the first rebalancing that occurs after we receive your written or
telephone request. We are not responsible for rebalancing that occurs prior to
receipt of proper notice of your request.
Example:
Assume that you want your initial purchase payment split among 2 Variable
Sub-Accounts. You want 40% to be in the AIM V.I. Diversified Income
Variable Sub-Account and 60% to be in the AIM V.I. Growth Variable Sub-
Account. Over the next 2 months the bond market does very well while the
stock market performs poorly. At the end of the first quarter, the AIM V.I.
Diversified Income Variable Sub-Account now represents 50% of your holdings
because of its increase in value. If you choose to have your holdings
22
<PAGE>
rebalanced quarterly, on the first day of the next quarter we would sell
some of your units in the AIM V.I. Diversified Income Variable Sub-Account
and use the money to buy more units in the AIM V.I. Growth Variable Sub-
Account so that the percentage allocations would again be 40% and 60%
respectively.
The Automatic Fund Rebalancing Program is available only during the Accumulation
Phase. The transfers made under the Program do not count towards the 12
transfers you can make without paying a transfer fee, and are not subject to a
transfer fee.
Fund rebalancing is consistent with maintaining your allocation of investments
among market segments, although it is accomplished by reducing your Contract
Value allocated to the better performing segments.
23
<PAGE>
EXPENSES
--------------------------------------------------------------------------------
As a Contract owner, you will bear, directly or indirectly, the charges and
expenses described below.
CONTRACT MAINTENANCE CHARGE
During the Accumulation Phase, on each Contract Anniversary, we will deduct a
$35 contract maintenance charge from your Contract Value invested in each
Variable Sub-Account in proportion to the amount invested. During the Payout
Phase, we will deduct the charge proportionately from each income payment.
The charge is to compensate us for the cost of administering the Contracts and
the Variable Account. Maintenance costs include expenses we incur in billing and
collecting purchase payments; keeping records; processing death claims, cash
withdrawals, and policy changes; proxy statements; calculating Accumulation Unit
Values and income payments; and issuing reports to Contract owners and
regulatory agencies. We cannot increase the charge. We will waive this charge
if:
. total purchase payments equal $50,000 or more, or
. all money is allocated to the Fixed Account Options, as of the Contract
Anniversary.
After the Payout Start Date, we will waive this charge if, as of the Payout
Start Date:
. the Contract Value is $50,000 or more, or
. all income payments are fixed amount income payments.
If you surrender your Contract, we will deduct a full contract maintenance
charge, unless your Contract qualifies for a waiver.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily at an annual rate of 1.40%
of the average daily net assets you have invested in the Variable Sub-Accounts
(1.60% if you select the Enhanced Death Benefit Rider). The mortality and
expense risk charge is for all the insurance benefits available with your
Contract (including our guarantee of annuity rates and the death benefits), for
certain expenses of the Contract, and for assuming the risk (expense risk) that
the current charges will be sufficient in the future to cover the cost of
administering the Contract and the cost of the Credit Enhancement. We expect to
make a profit from this fee. However, if the charges under the Contract are not
sufficient, then Glenbrook will bear the loss. We charge additional amounts for
the Enhanced Death Benefit Rider to compensate us for the additional risk that
we accept by providing the rider.
We guarantee the mortality and expense risk charge and we cannot increase it. We
assess the mortality and expense risk charge during both the Accumulation Phase
and the Payout Phase.
ADMINISTRATIVE EXPENSE CHARGE
We deduct an administrative expense charge daily at an annual rate of 0.10% of
the average daily net assets you have invested in the Variable Sub-Accounts. We
intend this charge to cover actual administrative expenses that exceed the
revenues from the contract maintenance charge. 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.
We assess this charge each day during the Accumulation Phase and the Payout
Phase. We guarantee that we will not raise this charge.
TRANSFER FEE
We reserve the right to charge $10 per transfer after the 12th transfer in each
Contract Year. We will not charge a transfer fee on transfers that are part of a
Dollar Cost Averaging Program or Automatic Fund Rebalancing Program.
24
<PAGE>
WITHDRAWAL CHARGE
We may assess a withdrawal charge of up to 8% of the purchase payment(s) you
withdraw. The charge declines to 0% after 8 complete years from the date we
received the purchase payment being withdrawn. A schedule showing how the charge
declines appears on page 8, above. During each Contract Year, you can withdraw
up to 15% of the Contract Value as of the beginning of that Contract Year (15%
of the initial purchase payment during the first Contract Year) without paying
the charge. Unused portions of this 15% "Free Withdrawal Amount" are not carried
forward to future Contract Years. Credit Enhancements are not considered
purchase payments when determining the Free Withdrawal Amount in the first year
of the Contract. See "Contract" for details.
We will deduct withdrawal charges, if applicable, from the amount paid. For
purposes of the withdrawal charge, we will treat withdrawals as coming from the
oldest purchase payments first. However, for federal income tax purposes,
earnings are considered to come out first, which means you pay taxes on the
earnings portion of your withdrawal.
We do not apply a withdrawal charge in the following situations:
. on the Payout Start Date (a withdrawal charge may apply if you elect to
receive income payments for a specified period of less than 120 months);
. the death of the Contract owner or Annuitant (unless the Settlement Value
is used);
. withdrawals taken to satisfy IRS minimum distribution rules for the
Contract; or
. withdrawals that qualify for one of the waivers described below.
We use the amounts obtained from the withdrawal charge to pay sales commissions
and other promotional or distribution expenses associated with marketing the
Contracts and to help defray the cost of the Credit Enhancement. To the extent
that the withdrawal charge does not cover all sales commissions and other
promotional or distribution expenses, or the cost of the Credit Enhancement, we
may use any of our corporate assets, including potential profit which may arise
from the mortality and expense risk charge or any other charges or fee described
above, to make up any difference.
Withdrawals also may be subject to tax penalties or income tax and a Market
Value Adjustment. You should consult your own tax counsel or other tax advisers
regarding any withdrawals.
CONFINEMENT WAIVER
We will waive the withdrawal charge and any Market Value Adjustment on all
withdrawals taken prior to the Payout Start Date under your Contract if the
following conditions are satisfied:
1) you, or the Annuitant if the Contract is owned by a non-natural person, are
first confined to a long term care facility or a hospital (as defined in the
Contract) for at least 90 consecutive days. You or the Annuitant must enter
the long term care facility or hospital at least 30 days after Issue Date;
2) we receive your request for the withdrawal and due proof (as defined in the
Contract) of the stay no later than 90 days following the end of your or the
Annuitant's stay at the long term care facility or hospital; and
3) a physician must have prescribed the stay and the stay must be medically
necessary (as defined in the Contract).
You may not claim this benefit if you, or the Annuitant, or a member of your or
the Annuitant's immediate family (as defined in the Contract), is the physician
prescribing your or the Annuitant's stay in a long term care facility.
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TERMINAL ILLNESS WAIVER
We will waive the withdrawal charge and any Market Value Adjustment on all
withdrawals taken prior to the Payout Start Date under your Contract if:
1) you (or the Annuitant if the Contract owner is not a natural person) are
first diagnosed by a physician (we may require a second or third opinion) with
a terminal illness (as defined in the Contract) at least 30 days after the
Issue Date; and
2) you claim this benefit and deliver adequate proof of diagnosis to us.
UNEMPLOYMENT WAIVER
We will waive the withdrawal charge and any Market Value Adjustment on one
partial or a full withdrawal taken prior to the Payout Start Date under your
Contract, if you meet the following requirements:
1) you or the Annuitant become unemployed at least one year after the Issue
Date;
2) you or the Annuitant have been granted unemployment compensation (as
defined in the Contract) for at least 30 consecutive days as a result of that
unemployment and we receive due proof thereof (as defined in the Contract)
prior to or at the time of the withdrawal request; and
3) you or the Annuitant exercise this benefit within 180 days of your or the
Annuitant's initial receipt of unemployment compensation.
You may exercise this benefit once during the life of your Contract. This waiver
applies upon the unemployment of the Annuitant only if the Contract owner is not
a natural person.
Please refer to your Contract for more detailed information about the terms and
conditions of these waivers.
The laws of your state may limit the availability of these waivers and may also
change certain terms and/or benefits available under the waivers. You should
consult your Contract for further details on these variations. Also, even if you
do not need to pay our withdrawal charge because of these waivers, you still may
be required to pay taxes or tax penalties on the amount withdrawn. You should
consult your tax adviser to determine the effect of a withdrawal on your taxes.
PREMIUM TAXES
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for paying these taxes and
will deduct them from your Contract Value. Some of these taxes are due when the
Contract is issued, others are due when income payments begin or upon surrender.
Our current practice is not to charge anyone for these taxes until income
payments begin or when a total withdrawal occurs, including payment upon death.
We may discontinue this practice sometime in the future and deduct premium taxes
from the purchase payments. Premium taxes generally range from 0% to 4%,
depending on the state.
At the Payout Start Date, if applicable, we deduct the charge for premium taxes
from each investment alternative in the proportion that the Contract owner's
value in the investment alternative bears to the total Contract Value.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES
We are not currently maintaining a provision for taxes. In the future, however,
we may establish a provision for taxes if we determine, in our sole discretion,
that we will incur a tax as a result of the operation of the Variable Account.
We will deduct for any taxes we incur as a result of the operation of the
Variable Account, whether or not we previously made a provision for taxes and
whether or not it was sufficient. Our status under the Internal Revenue Code is
briefly described in the Statement of Additional Information.
OTHER EXPENSES
Each Fund deducts advisory fees and other expenses from its assets. You
indirectly bear the charges and expenses of the Fund whose shares are held by
the Variable Sub-Accounts. These fees and expenses are described in the
accompanying prospectus for the Funds. For a summary of current estimates of
those charges and expenses, see pages 8 and 9 above. We may receive compensation
from A I M Advisors, Inc., for administrative services we provide to the Funds.
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ACCESS TO YOUR MONEY
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You can withdraw some or all of your Contract Value at any time prior to the
Payout Start Date. Withdrawals also are available under limited circumstances on
or after the Payout Start Date. See "Income Plans" on page 29.
The amount payable upon withdrawal is the Contract Value next computed after we
receive the request for a withdrawal at our headquarters, adjusted by any Market
Value Adjustment, less any withdrawal charges, contract maintenance charges,
income tax withholding, penalty tax, and any premium taxes. We will pay
withdrawals from the Variable Account within 7 days of receipt of the request,
subject to postponement in certain circumstances.
You can withdraw money from the Variable Account or the Fixed Account Options.
To complete a partial withdrawal from the Variable Account, we will cancel
Accumulation Units in an amount equal to the withdrawal and any applicable
withdrawal charge and premium taxes.
You must name the investment alternative from which you are taking the
withdrawal. If none is named, then the withdrawal request is incomplete and
cannot be honored.
In general, you must withdraw at least $50 at a time. You also may withdraw a
lesser amount if you are withdrawing your entire interest in a Variable Sub-
Account.
If you request a total withdrawal, you must return your Contract to us. We also
will deduct a contract maintenance charge of $35, unless we have waived the
contract maintenance charge on your Contract.
POSTPONEMENT OF PAYMENTS
We may postpone the payment of any amounts due from the Variable Account under
the Contract if:
1) The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;
2) An emergency exists as defined by the SEC; or
3) The SEC permits delay for your protection.
In addition, we may delay payments or transfers from the Fixed Account Options
for up to 6 months or shorter period if required by law. If we delay payment or
transfer for 30 days or more, we will pay interest as required by law. Any
interest would be payable from the date we receive the withdrawal request to the
date we make the payment or transfer.
SYSTEMATIC WITHDRAWAL PROGRAM
You may choose to receive systematic withdrawal payments on a monthly,
quarterly, semi-annual, or annual basis at any time prior to the Payout Start
Date. The minimum amount of each systematic withdrawal is $50. At our
discretion, systematic withdrawals may not be offered in conjunction with the
Dollar Cost Averaging or Automatic Fund Rebalancing Programs.
Depending on fluctuations in the value of the Variable Sub-Accounts and the
value of the Fixed Account, systematic withdrawals may reduce or even exhaust
the Contract Value. Income taxes may apply to systematic withdrawals. Please
consult your tax advisor before taking any withdrawal.
We will make systematic withdrawal payments to you or your designated payee. We
may modify or suspend the Systematic Withdrawal Program and charge a processing
fee for the service. If we modify or suspend the Systematic Withdrawal Program,
existing systematic withdrawal payments will not be affected.
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MINIMUM CONTRACT VALUE
If your request for a partial withdrawal would reduce the Contract Value to less
than $1,000, we may treat it as a request to withdraw your entire Contract
Value. Your Contract will terminate if you withdraw all of your Contract Value.
We will, however, ask you to confirm your withdrawal request before terminating
your Contract. If we terminate your Contract, we will distribute to you its
Contract Value, adjusted by any applicable Market Value Adjustment, less
withdrawal and other charges and taxes.
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INCOME PAYMENTS
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PAYOUT START DATE
You select the Payout Start Date in your application, which must be at least 30
days after the Issue Date. The Payout Start Date is the day that we apply your
Contract Value adjusted by any Market Value Adjustment and less any applicable
taxes to an Income Plan. The Payout Start Date must be no later than the
Annuitant's 90th birthday, or the 10th Contract Anniversary, if later.
You may change the Payout Start Date at any time by notifying us in writing of
the change at least 30 days before the scheduled Payout Start Date. Absent a
change, we will use the Payout Start Date stated in your Contract.
INCOME PLANS
An "Income Plan" is a series of payments on a scheduled basis to you or to
another person designated by you. You may choose and change your choice of
Income Plan until 30 days before the Payout Start Date. If you do not select an
Income Plan, we will make income payments in accordance with Income Plan 1 with
guaranteed payments for 10 years. After the Payout Start Date, you may not make
withdrawals (except as described below) or change your choice of Income Plan.
Three Income Plans are available under the Contract. Each is available to
provide:
. fixed income payments;
. variable income payments; or
. a combination of the two.
The three Income Plans are:
. Income Plan 1--Life Income with Guaranteed Payments. Under this plan, we
make periodic income payments for at least as long as the Annuitant lives.
If the Annuitant dies before we have made all of the guaranteed income
payments, we will continue to pay the remainder of the guaranteed income
payments as required by the Contract.
. Income Plan 2--Joint and Survivor Life Income with Guaranteed Payments.
Under this plan, we make periodic income payments for at least as long as
either the Annuitant or the joint Annuitant is alive. If both the Annuitant
and the joint Annuitant die before we have made all of the guaranteed
income payments, we will continue to pay the remainder of the guaranteed
income payments as required by the Contract.
. Income Plan 3--Guaranteed Payments for a Specified Period (5 Years to 30
Years).
Under this plan, we make periodic income payments for the period you have
chosen. These payments do not depend on the Annuitant's life. Income
payments for less than 120 months may be subject to a withdrawal charge. We
will deduct the mortality and expense risk charge from the Variable
Sub-Account assets which support the variable income payments supporting
this plan even though we do not bear any mortality risk.
The length of any guaranteed payment period under your selected Income Plan
generally will affect the dollar amounts of each income payment. As a general
rule, longer guarantee periods result in lower income payments, all other things
being equal. For example, if you choose an Income Plan with payments that depend
on the life of the Annuitant but with no minimum specified period for guaranteed
payments, the income payments generally will be greater than the income payments
made under the same Income Plan with a minimum specified period for guaranteed
payments.
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If you choose Income Plan 1 or 2, or, if available, another Income Plan with
payments that continue for the life of the Annuitant or joint Annuitant, we may
require proof of age and sex of the Annuitant or joint Annuitant before starting
income payments, and proof that the Annuitant or joint Annuitant is alive before
we make each payment. Please note that under such Income Plans, if you elect to
take no minimum guaranteed payments, it is possible that the payee could receive
only 1 income payment if the Annuitant and any joint Annuitant both die before
the second income payment, or only 2 income payments if they die before the
third income payment, and so on.
Generally, you may not make withdrawals after the Payout Start Date. One
exception to this rule applies if you are receiving variable income payments
that do not depend on the life of the Annuitant (such as under Income Plan 3).
In that case you may terminate all or part of the Variable Account portion of
the income payments at any time and receive a lump sum equal to the present
value of the remaining variable payments associated with the amount withdrawn.
To determine the present value of any remaining variable income payments being
withdrawn, we use a discount rate equal to the assumed annual investment rate
that we use to complete such variable income payments. The minimum amount you
may withdraw under this feature is $1,000. A withdrawal charge may apply. We
also assess applicable premium taxes at the Payout Start Date from the Contract
Value.
We may make other Income Plans available. You may obtain information about them
by writing or calling us.
You may apply all or part of your Contract Value to an Income Plan. You must
apply at least the Contract Value in the Fixed Account Options on the Payout
Start Date to fixed income payments. If you wish to apply any portion of your
Fixed Account Option balance to provide variable income payments, you should
plan ahead and transfer that amount to the Variable Sub-Accounts prior to the
Payout Start Date. If you do not tell us how to allocate your Contract Value
among fixed and variable income payments, we will apply your Contract Value in
the Variable Account to variable income payments and your Contract Value in the
Fixed Account Options to fixed income payments.
We will apply your Contract Value, adjusted by a Market Value Adjustment, less
applicable taxes to your Income Plan on the Payout Start Date. If the Contract
Value is less than $2,000 or not enough to provide an initial payment of at
least $20, and state law permits, we may:
. pay you the Contract Value, adjusted by any Market Value Adjustment and less
any applicable taxes, in a lump sum instead of the periodic payments you
have chosen, or
. reduce the frequency of your payments so that each payment will be at least
$20.
VARIABLE INCOME PAYMENTS
The amount of your variable income payments depends upon the investment results
of the Variable Sub-Accounts you select, the premium taxes you pay, the age and
sex of the Annuitant, and the Income Plan you choose. We guarantee that the
payments will not be affected by (a) actual mortality experience and (b) the
amount of our administration expenses.
We cannot predict the total amount of your variable income payments. Your
variable income payments may be more or less than your total purchase payments
because (a) variable income payments vary with the investment results of the
underlying Funds and (b) the Annuitant could live longer or shorter than we
expect based on the tables we use.
In calculating the amount of the periodic payments in the annuity tables in the
Contract, we assumed an annual investment rate of 3%. If the actual net
investment return of the Variable Sub-Accounts you choose is less than this
assumed investment rate, then the dollar amount of your variable income payments
will decrease. The dollar amount of your variable income payments will increase,
however, if the actual net investment return exceeds the assumed investment
rate. The dollar amount of the variable income payments stays level if the net
investment return equals the assumed investment rate. Please refer to the
Statement of Additional Information for more detailed information as to how we
determine variable income payments. We reserve the right to make other assumed
investment rates available under this Contract.
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FIXED INCOME PAYMENTS
We guarantee income payment amounts derived from any Fixed Account Option for
the duration of the Income Plan. We calculate the fixed income payments by:
1) adjusting the portion of the Contract Value in any Fixed Account Option on
the Payout Start Date by any applicable Market Value Adjustment;
2) deducting any applicable premium tax; and
3) applying the resulting amount to the greater of (a) the appropriate value
from the income payment table in your Contract or (b) such other value as we
are offering at that time.
We may defer making fixed income payments for a period of up to 6 months or such
shorter times as state law may require. If we defer payments for 30 days or
more, we will pay interest as required by law from the date we receive the
withdrawal request to the date we make payment.
CERTAIN EMPLOYEE BENEFIT PLANS
The Contracts offered by this prospectus contain income payment tables that
provide for different payments to men and women of the same age, except in
states that require unisex tables. We reserve the right to use income payment
tables that do not distinguish on the basis of sex to the extent permitted by
law. In certain employment-related situations, employers are required by law to
use the same income payment tables for men and women. Accordingly, if the
Contract is to be used in connection with an employment-related retirement or
benefit plan and we do not offer unisex annuity tables in your state, you should
consult with legal counsel as to whether the purchase of a Contract is
appropriate.
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DEATH BENEFITS
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We will pay a death benefit if, prior to the Payout Start Date:
1) any Contract owner dies or,
2) the Annuitant dies, if the Contract is owned by a company or other legal
entity.
We will pay the death benefit to the new Contract owner as determined
immediately after the death. The new Contract owner would be a surviving
Contract owner or, if none, the Beneficiary(ies). In the case of the death of an
Annuitant, we will pay the death benefit to the current Contract owner.
DEATH BENEFIT AMOUNT
Prior to the Payout Start Date, the death benefit is equal to the greatest of:
1) the Contract Value as of the date we determine the death benefit, or
2) the Settlement Value (that is, the amount payable on a full withdrawal of
Contract Value) on the date we determine the death benefit, or
3) the sum of all purchase payments, reduced by a withdrawal adjustment, as
defined below, or
4) the Contract Value on the Death Benefit Anniversary prior to the date we
determine the death benefit, increased by purchase payments made since that
Death Benefit Anniversary and reduced by a withdrawal adjustment, as defined
below.
A "Death Benefit Anniversary" is every eighth Contract Anniversary during the
Accumulation Phase. For example, the 8th, 16th, and 24th Contract Anniversaries
are the first three Death Benefit Anniversaries.
The "withdrawal adjustment" is equal to (a) divided by (b), with the result
multiplied by (c), where:
(a) is the withdrawal amount;
(b) is the Contract Value immediately prior to the withdrawal; and
(c) is the value of the applicable death benefit alternative immediately
prior to the withdrawal.
We will determine the value of the death benefit as of the end of the Valuation
Date on which we receive a complete request for payment of the death benefit. If
we receive a request after 3 p.m. Central Time on a Valuation Date, we will
process the request as of the end of the following Valuation Date. A request for
payment of the death benefit must include Due Proof of Death. We will accept the
following documentation as "Due Proof of Death":
. a certified copy of a death certificate,
. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death, or
. other documentation as we may accept in our sole discretion.
ENHANCED DEATH BENEFIT RIDER
If the Contract owner is a living individual, the enhanced death benefit applies
only for the death of the Contract owner. If the Contract owner is not a living
individual, the enhanced death benefit applies only for the death of the
Annuitant. For Contracts with the Enhanced Death Benefit Rider, the death
benefit will be the greatest of (1) through (4) above, or (5) the enhanced death
benefit. The enhanced death benefit is equal to the greater of Enhanced Death
Benefit A or Enhanced Death Benefit B. Enhanced Death Benefit B may not be
available in all states.
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The enhanced death benefit will never be greater than the maximum death benefit
allowed by any nonforfeiture laws which govern the Contract.
Enhanced Death Benefit A. The Enhanced Death Benefit A on the Issue Date is
equal to the initial purchase payment. On each Contract Anniversary, we will
recalculate your Enhanced Death Benefit A to equal the greater of your Contract
Value on that date, or the most recently calculated Enhanced Death Benefit A. We
also will recalculate your Enhanced Death Benefit A whenever you make an
additional purchase payment or a partial withdrawal. Additional purchase
payments will increase the Enhanced Death Benefit A dollar-for-dollar.
Withdrawals will reduce the Enhanced Death Benefit A by an amount equal to a
withdrawal adjustment computed in the manner described above under "Death
Benefit Amount." 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 before the date we calculate the death benefit.
We will calculate Anniversary Values for each Contract Anniversary prior to the
oldest Contract owner's or, if the Contract owner is not a natural person, the
oldest Annuitant's 85th birthday. After age 85, we will recalculate the Enhanced
Death Benefit A 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 computed in the manner
described above under "Death Benefit Amount." Each purchase payment and each
withdrawal adjustment will accumulate daily at a rate equivalent to 5% per year
until the earlier of the date
. we determine the death benefit, or
. the first day of the month following the oldest Contract owner's or, if the
Contract owner is not a natural person, the oldest Annuitant's 85th
birthday.
DEATH BENEFIT PAYMENTS
Death of Contract Owner. Within 180 days of the date of your death, the new
Contract Owner may elect to:
1) receive the death benefit in a lump sum, or
2) apply an amount equal to the death benefit to one of the available Income
Plans described above. The Payout Start Date must be within one year of the
date of your death. Income payments must be:
(a) over the life of the new Contract Owner,
(b) for a guaranteed number of payments from 5 to 30 years but not to
exceed the life expectancy of the new Contract Owner, or
(c) over the life of new Contract Owner with a guaranteed number of payments
from 5 to 30 years but not to exceed the life expectancy of the new Contract
Owner.
Otherwise, the new Contract Owner will receive the Settlement Value. The
"Settlement Value" is the Contract Value, less any applicable withdrawal charge,
market value adjustment, taxes, and contract maintenance charge. The new Owner
may make a single withdrawal of any amount within the year of the date of death
without incurring a withdrawal charge. We will calculate the Settlement Value as
of the end of the Valuation Date coinciding with the requested distribution date
for payment or on the mandatory distribution date of 5 years after the date of
your death, whichever is earlier. If we receive a request after 3 p.m. Central
Time on a Valuation Date, we will process the request as of the end of the
following Valuation Date. We are currently waiving the 180 day limit, but we
reserve the right to enforce the limitation in the future.
In any event, the entire value of the Contract must be distributed within 5
years after the date of death unless an Income Plan is elected or a surviving
spouse continues the Contract in accordance with the provisions described below.
If the surviving spouse of the deceased Contract owner is the new Contract
owner, then the spouse may elect one of the options listed above or may continue
the Contract in the Accumulation Phase as if the death had not
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occurred. The Contract may only 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 or a Market Value Adjustment. On the day the Contract is continued, the
Contract Value will be the death benefit on the Valuation Date after we receive
due proof of death (the next Valuation Date if we receive due proof of death
after 3 p.m. Central Time). Prior to the Payout Start Date, the death benefit of
the continued Contract will be the greater of:
(a) the sum of all purchase payments less any withdrawals, as defined in
the death benefit provision,
(b) the Contract Value on the date we determine the death benefit, or
(c) the Contract Value on the Death Benefit anniversary prior to the date we
determine the Death Benefit, increased by any purchase payments made since
that Death Benefit Anniversary and reduced by a withdrawal adjustment, as
defined under Death Benefit Amount.
If the new Contract Owner is a corporation, trust, or other non-natural person,
then the new Contract Owner may elect, within 180 days of your death, to receive
the death benefit in a lump sum or may elect to receive the Settlement Value in
a lump sum within 5 years of death. We are currently waiving the 180 day limit,
but we reserve the right to enforce the limitation in the future. If any new
Contract owner is a non-natural person, we will consider all new Contract owners
to be non-natural persons for purposes of the above.
Death of Annuitant. If the Annuitant who is not also the Contract Owner dies
prior to the Payout Start Date, the Contract Owner must elect one of the
applicable options described below.
If the Contract Owner is a natural person, the Contract Owner may elect to
continue the Contract as if the death had not occurred, or, if we receive Due
Proof of Death within 180 days of the date of the Annuitant's death, the
Contract Owner may choose to:
1) receive the death benefit in a lump sum; or
2) apply the death benefit to an Income Plan that must begin within 1 year of
the date of death.
If the Contract Owner elects to continue the Contract or to apply the death
benefit to an Income Plan, the new Annuitant will be the youngest Contract
Owner, unless the Contract Owner names a different Annuitant.
If the Contract Owner is a non-natural person, the non-natural Contract Owner
may elect, within 180 days of the Annuitant's date of death, to receive the
death benefit in a lump sum or may elect to receive the Settlement Value payable
in a lump sum within 5 years of the Annuitant's date of death. If the
non-natural Contract Owner does not make one of the above described elections,
the Settlement Value must be withdrawn by the non-natural Contract Owner on or
before the mandatory distribution date 5 years after the Annuitant's death. We
are currently waiving the 180 day limit, but we reserve the right to enforce the
limitation in the future.
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MORE INFORMATION
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GLENBROOK
Glenbrook is the issuer of the Contract. Glenbrook is a stock life insurance
company organized under the laws of the State of Arizona in 1998. Previously,
Glenbrook was organized under the laws of the State of Illinois in 1992.
Glenbrook was originally organized under the laws of the State of Indiana in
1965. From 1965 to 1983 Glenbrook was known as "United Standard Life Assurance
Company" and from 1983 to 1992 as "William Penn Life Assurance Company of
America."
Glenbrook is currently licensed to operate in the District of Columbia and all
states except New York. We intend to offer the Contract in those jurisdictions
in which we are licensed. Our headquarters is located at 3100 Sanders Road,
Northbrook, Illinois, 60062.
Glenbrook is a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life"), a stock life insurance company incorporated under the laws of
the State of Illinois. Allstate Life is a wholly owned subsidiary of Allstate
Insurance Company, a stock property-liability insurance company incorporated
under the laws of the State of Illinois. All of the outstanding capital stock of
Allstate Insurance Company is owned by The Allstate Corporation.
Glenbrook and Allstate Life entered into a reinsurance agreement effective June
5, 1992. Under the reinsurance agreement, Allstate Life reinsures substantially
all of Glenbrook's liabilities under its various insurance contracts. The
reinsurance agreement provides us with financial backing from Allstate Life.
However, it does not create a direct contractual relationship between Allstate
Life and you. In other words, the obligations of Allstate Life under the
reinsurance agreement are to Glenbrook; Glenbrook remains the sole obligor under
the Contract to you.
Several independent rating agencies regularly evaluate life insurers' claims-
paying ability, quality of investments, and overall stability. A.M. Best Company
assigns A+ (Superior) to Allstate Life which automatically reinsures all net
business of Glenbrook. A.M. Best Company also assigns Glenbrook the rating of
A+(r) because Glenbrook automatically reinsures all net business with Allstate
Life. Standard & Poor's Insurance Rating Services assigns an AA+ (Very Strong)
financial strength rating and Moody's assigns an Aa2 (Excellent) financial
strength rating to Glenbrook. Glenbrook shares the same ratings of its parent,
Allstate Life. These ratings do not reflect the investment performance of the
Variable Account. We may from time to time advertise these ratings in our sales
literature.
THE VARIABLE ACCOUNT
Glenbrook established the Glenbrook Life and Annuity Company Separate Account A
on September 6, 1995. We have registered the Variable Account with the SEC as a
unit investment trust. The SEC does not supervise the management of the Variable
Account or Glenbrook.
We own the assets of the Variable Account. The Variable Account is a segregated
asset account under Arizona law. That means we account for the Variable
Account's income, gains and losses separately from the results of our other
operations. It also means that only the assets of the Variable Account that are
in excess of the reserves and other Contract liabilities with respect to the
Variable Account are subject to liabilities relating to our other operations.
Our obligations arising under the Contracts are general corporate obligations of
Glenbrook.
The Variable Account consists of 17 Variable Sub-Accounts, each of which invests
in a corresponding Fund. We may add new Variable Sub-Accounts or eliminate one
or more of them, if we believe marketing, tax, or investment conditions so
warrant. We may also add other variable sub-accounts that may be available under
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other variable annuity contracts. We do not guarantee the investment performance
of the Variable Account, its Sub-Accounts or the Funds. We may use the Variable
Account to fund our other annuity contracts. We will account separately for each
type of annuity contract funded by the Variable Account.
THE FUNDS
Dividends and Capital Gain Distributions. We automatically reinvest all
dividends and capital gains distributions from the Funds in shares of the
distributing Funds at their net asset value.
Voting Privileges. As a general matter, you do not have a direct right to vote
the shares of the Funds held by the Variable Sub-Accounts to which you have
allocated your Contract Value. Under current law, however, you are entitled to
give us instructions on how to vote those shares on certain matters. Based on
our present view of the law, we will vote the shares of the Funds that we hold
directly or indirectly through the Variable Account in accordance with
instructions that we receive from Contract owners entitled to give such
instructions.
As a general rule, before the Payout Start Date, the Contract owner or anyone
with a voting interest is the person entitled to give voting instructions. The
number of shares that a person has a right to instruct will be determined by
dividing the Contract Value allocated to the applicable Variable Sub-Account by
the net asset value per share of the corresponding Fund as of the record date of
the meeting. After the Payout Start Date, the person receiving income payments
has the voting interest. The payee's number of votes will be determined by
dividing the reserve for such Contract allocated to the applicable Sub-account
by the net asset value per share of the corresponding eligible Fund. The votes
decrease as income payments are made and as the reserves for the Contract
decrease.
We will vote shares attributable to Contracts for which we have not received
instructions, as well as shares attributable to us, in the same proportion as we
vote shares for which we have received instructions, unless we determine that we
may vote such shares in our own discretion. We will apply voting instructions to
abstain on any item to be voted upon on a pro-rata basis to reduce the votes
eligible to be cast. We reserve the right to vote Fund shares as we see fit
without regard to voting instructions to the extent permitted by law. If we
disregard voting instructions, we will include a summary of that action and our
reasons for that action in the next semi-annual financial report we send to you.
Changes in Funds. If the shares of any of the Funds are no longer available for
investment by the Variable Account or if, in our judgment, further investment in
such shares is no longer desirable in view of the purposes of the Contract, we
may eliminate that Fund and substitute shares of another eligible investment
fund. Any substitution of securities will comply with the requirements of the
1940 Act. We also may add new Variable Sub-Accounts that invest in additional
mutual funds. We will notify you in advance of any change.
Conflicts of Interest. The Funds sell their shares to separate accounts
underlying both variable life insurance and variable annuity contracts. It is
conceivable that in the future it may be unfavorable for variable life insurance
separate accounts and variable annuity separate accounts to invest in the same
Fund. The board of directors of the Funds monitors for possible conflicts among
separate accounts buying shares of the Funds. Conflicts could develop for a
variety of reasons. For example, differences in treatment under tax and other
laws or the failure by a separate account to comply with such laws could cause a
conflict. To eliminate a conflict, the Funds' board of directors may require a
separate account to withdraw its participation in a Fund. A Fund's net asset
value could decrease if it had to sell investment securities to pay redemption
proceeds to a separate account withdrawing because of a conflict.
THE CONTRACT
Distribution. ALFS, Inc.* ("ALFS"), located at 3100 Sanders Road, Northbrook,
Illinois 60062-7154, serves as principal underwriter of the Contracts. ALFS is a
wholly owned subsidiary of Allstate Life. ALFS is a registered broker dealer
under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), and
is a member of the National Association of Securities Dealers, Inc.
----------------
* Effective May 1, 2000, Allstate Life Financials Services, Inc. was renamed
ALFS, Inc.
36
<PAGE>
We will pay commissions to broker-dealers who sell the Contracts. Commissions
paid may vary, but we estimate that the total commissions paid on all Contract
sales will not exceed 8% of all purchase payments (on a present value basis).
These commissions are intended to cover distribution expenses. Sometimes, we
also pay the broker-dealer a persistency bonus in addition to the standard
commissions. A persistency bonus is not expected to exceed 1.20%, on an annual
basis, of the Contract Values considered in connection with the bonus. Sale of
the Contracts may also count toward incentive program awards for the registered
representative. 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 Exchange Act, pursuant to legal and regulatory
exceptions.
Glenbrook does not pay ALFS a commission for distribution of the Contracts. The
underwriting agreement with ALFS provides that we will reimburse ALFS for any
liability to Contract owners arising out of services rendered or Contracts
issued.
Administration. We have primary responsibility for all administration of the
Contracts and the Variable Account. We provide the following administrative
services, among others:
. issuance of the Contracts;
. maintenance of Contract owner records;
. Contract owner services;
. calculation of unit values;
. maintenance of the Variable Account; and
. preparation of Contract owner reports.
We will send you Contract statements at least annually. You should notify us
promptly in writing of any address change. You should read your statements and
confirmations carefully and verify their accuracy. You should contact us
promptly if you have a question about a periodic statement. We will investigate
all complaints and make any necessary adjustments retroactively, but you must
notify us of a potential error within a reasonable time after the date of the
questioned statement. If you wait too long, we reserve the right to make the
adjustment as of the date that we receive notice of the potential error.
We also will provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.
QUALIFIED PLANS
If you use the Contract with a qualified plan, the plan may impose different or
additional conditions or limitations on withdrawals, waivers of withdrawal
charges, death benefits, Payout Start Dates, income payments, and other Contract
features. In addition, adverse tax consequences may result if qualified plan
limits on distributions and other conditions are not met. Please consult your
qualified plan administrator for more information.
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised Glenbrook on
certain federal securities law matters. All matters of state law pertaining to
the Contracts, including the validity of the Contracts and Glenbrook's right to
issue such Contracts under state insurance law, have been passed upon by Michael
J. Velotta, General Counsel of Glenbrook.
YEAR 2000
Glenbrook is heavily dependent upon complex computer systems for all phases of
its operations, including customer service, and policy and contract
administration. Since many of Glenbrook's older computer software programs
recognize only the last two digits of the year in any date, some software may
have failed to operate
37
<PAGE>
properly in or after the year 1999, if the software was not reprogrammed or
replaced ("Year 2000 Issue"). Glenbrook believes that many of its counterparties
and suppliers also had potential Year 2000 Issues which could affect Glenbrook.
In 1995, Allstate Insurance Company commenced a four phase plan intended to
mitigate and/or prevent the adverse effects of Year 2000 Issues. These
strategies included 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 included Glenbrook actively working with its major
external counterparties and suppliers to assess their compliance efforts and
Glenbrook's exposure to them. Because of the accuracy of this plan, and its
timely completion, Glenbrook has experienced no material impacts on its results
of operations, liquidity or financial position due to the Year 2000 issue. Year
2000 costs are expensed as incurred.
38
<PAGE>
TAXES
--------------------------------------------------------------------------------
The following discussion is general and is not intended as tax advice. Glenbrook
makes no guarantee regarding the tax treatment of any Contract or transaction
involving a Contract.
Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on your individual circumstances.
If you are concerned about any tax consequences with regard to your individual
circumstances, you should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
Tax Deferral. Generally, you are not taxed on increases in the Contract Value
until a distribution occurs. This rule applies only where:
1) the Contract owner is a natural person,
2) the investments of the Variable Account are "adequately diversified"
according to Treasury Department regulations, and
3) Glenbrook is considered the owner of the Variable Account assets for
federal income tax purposes.
Non-natural Owners. As a general rule, annuity contracts owned by non-natural
persons such as corporations, trusts, or other entities are not treated as
annuity contracts for federal income tax purposes. The income on such contracts
is taxed as ordinary income received or accrued by the owner during the taxable
year. Please see the Statement of Additional Information for a discussion of
several exceptions to the general rule for Contracts owned by non-natural
persons.
Diversification Requirements. For a Contract to be treated as an annuity for
federal income tax purposes, the investments in the Variable Account must be
"adequately diversified" consistent with standards under Treasury Department
regulations. If the investments in the Variable Account are not adequately
diversified, the Contract will not be treated as an annuity contract for federal
income tax purposes. As a result, the income on the Contract will be taxed as
ordinary income received or accrued by the Contract owner during the taxable
year. Although Glenbrook does not have control over the Funds their investments,
we expect the Funds to meet the diversification requirements.
Ownership Treatment. The IRS has stated that you will be considered the owner of
Variable Account assets if you possess incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. At the time
the diversification regulations were issued, the Treasury Department announced
that the regulations do not provide guidance concerning circumstances in which
investor control of separate account investments may cause an investor to be
treated as the owner of the separate account. The Treasury Department also
stated that future guidance would be issued regarding the extent that owners
could direct sub-account investments without being treated as owners of the
underlying assets of the separate account.
Your rights under the Contract are different than those described by the IRS in
rulings in which it found that contract owners were not owners of separate
account assets. For example, you have the choice to allocate premiums and
Contract Values among more investment alternatives. Also, you may be able to
transfer among investment alternatives more frequently than in such rulings.
These differences could result in you being treated as the owner of the Variable
Account. If this occurs, income and gain from the Variable Account assets would
be includible in your gross income. Glenbrook does not know what standards will
be set forth in any regulations or rulings which the Treasury Department may
issue. It is possible that future standards announced by the Treasury Department
could adversely affect the tax treatment of your Contract. We reserve the right
to modify the Contract as necessary to attempt to prevent you from being
considered the federal tax owner of the assets of the Variable Account. However,
we make no guarantee that such modification to the Contract will be successful.
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<PAGE>
Taxation of Partial and Full Withdrawals. If you make a partial withdrawal under
a non-Qualified Contract, amounts received are taxable to the extent the
Contract Value, without regard to surrender charges, exceeds the investment in
the Contract. The investment in the Contract is the gross premium paid for the
Contract minus any amounts previously received from the Contract if such amounts
were properly excluded from your gross income. If you make a partial withdrawal
under a Qualified Contract, the portion of the payment that bears the same ratio
to the total payment that the investment in the Contract (i.e., nondeductible
IRA contributions, after tax contributions to qualified plans) bears to the
Contract Value, is excluded from your income. If you make a full withdrawal
under a non-Qualified Contract or a Qualified Contract, the amount received will
be taxable only to the extent it exceeds the investment in the Contract.
"Nonqualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions. "Qualified distributions" from Roth IRAs are
not included in gross income. "Qualified distributions" are any distributions
made more than 5 taxable years after the taxable year of the first contribution
to any Roth IRA and which are:
. made on or after the date the individual attains age 59 1/2,
. made to a beneficiary after the Contract owner's death,
. attributable to the Contract owner being disabled, or
. for a first time home purchase (first time home purchases are subject to a
lifetime limit of $10,000).
If you transfer a non-Qualified Contract without full and adequate consideration
to a person other than your spouse (or to a former spouse incident to a
divorce), you will be taxed on the difference between the Contract Value and the
investment in the Contract at the time of transfer. Except for certain Qualified
Contracts, any amount you receive as a loan under a Contract, and any assignment
or pledge (or agreement to assign or pledge) of the Contract Value is treated as
a withdrawal of such amount or portion.
Taxation of Annuity Payments. Generally, the rule for income taxation of annuity
payments received from a non-Qualified Contract provides for the return of your
investment in the Contract in equal tax-free amounts over the payment period.
The balance of each payment received is taxable. For fixed annuity payments, the
amount excluded from income is determined by multiplying the payment by the
ratio of the investment in the Contract (adjusted for any refund feature or
period certain) to the total expected value of annuity payments for the term of
the Contract. If you elect variable annuity payments, the amount excluded from
taxable income is determined by dividing the investment in the Contract by the
total number of expected payments. The annuity payments will be fully taxable
after the total amount of the investment in the Contract is excluded using these
ratios. If you die, and annuity payments cease before the total amount of the
investment in the Contract is recovered, the unrecovered amount will be allowed
as a deduction for your last taxable year.
Taxation of Annuity Death Benefits. Death of a Contract owner, or death of the
Annuitant if the Contract is owned by a non-natural person, will cause a
distribution of death benefits from a Contract. Generally, such amounts are
included in income as follows:
1) if distributed in a lump sum, the amounts are taxed in the same manner
as a full withdrawal, or
2) if distributed under an annuity option, the amounts are taxed in the same
manner as an annuity payment. Please see the Statement of Additional
Information for more detail on distribution at death requirements.
Penalty Tax on Premature Distributions. A 10% penalty tax applies to the taxable
amount of any premature distribution from a non-Qualified Contract. The penalty
tax generally applies to any distribution made prior to the date you attain age
59 1/2. However, no penalty tax is incurred on distributions:
1) made on or after the date the Contract owner attains age 59 1/2;
2) made as a result of the Contract owner's death or disability;
3) made in substantially equal periodic payments over the Contract owner's
life or life expectancy,
40
<PAGE>
4) made under an immediate annuity, or
5) attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine if any other exceptions
to the penalty apply to your situation. Similar exceptions may apply to
distributions from Qualified Contracts.
Aggregation of Annuity Contracts. All non-qualified deferred annuity contracts
issued by Glenbrook (or its affiliates) to the same Contract owner during any
calendar year will be aggregated and treated as one annuity contract for
purposes of determining the taxable amount of a distribution.
TAX QUALIFIED CONTRACTS
Contracts may be used as investments with certain qualified plans such as:
. Individual Retirement Annuities or Accounts (IRAs) under Section 408 of
the Code;
. Roth IRAs under Section 408A of the Code;
. Simplified Employee Pension Plans under Section 408(k) of the Code;
. Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section
408(p) of the Code;
. Tax Sheltered Annuities under Section 403(b) of the Code;
. Corporate and Self Employed Pension and Profit Sharing Plans; and
. State and Local Government and Tax Exempt Organization Deferred
Compensation Plans.
The income on qualified plan and IRA investments is tax deferred and variable
annuities held by such plans do not receive any additional tax deferral. You
should review the annuity features, including all benefits and expenses, prior
to purchasing a variable annuity in a qualified plan or IRA. Glenbrook reserves
the right to limit the availability of the Contract for use with any of the
Qualified Plans listed above. In the case of certain qualified plans, the terms
of the plans may govern the right to benefits, regardless of the terms of the
Contract.
Restrictions Under Section 403(b) Plans. Section 403(b) of the Code provides
tax-deferred retirement savings plans for employees of certain non-profit and
educational organizations. Under Section 403(b), any Contract used for a 403(b)
plan must provide that distributions attributable to salary reduction
contributions made after December 31, 1988, and all earnings on salary reduction
contributions, may be made only:
1) on or after the date of employee
. attains age 59 1/2,
. separates from service,
. dies,
. becomes disabled; or
2) on account of hardship (earnings on salary reduction contributions may not
be distributed on account of hardship).
These limitations do not apply to withdrawals where Glenbrook is directed to
transfer some or all of the Contract Value to another 403(b) plan.
INCOME TAX WITHHOLDING
Glenbrook is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless you elect to make a "direct rollover"
of such amounts to an IRA or eligible retirement plan. Eligible rollover
distributions generally include all distributions from Qualified Contracts,
excluding IRAs, with the exception of:
1) required minimum distributions, or
41
<PAGE>
2) a series of substantially equal periodic payments made over a period of
at least 10 years, or
3) over the life (joint lives) of the participant (and beneficiary).
Glenbrook may be required to withhold federal and state income taxes on any
distributions from non-Qualified Contracts or Qualified Contracts that are not
eligible rollover distributions, unless you notify us of your election to not
have taxes withheld.
42
<PAGE>
ANNUAL REPORTS AND OTHER DOCUMENTS
--------------------------------------------------------------------------------
Glenbrook's annual report on Form 10-K for the year ended December 31, 1999 and
quarterly report on 10-Q for the quarter ended March 31, 2000 are incorporated
herein by reference, which means that it is legally a part of this prospectus.
After the date of this prospectus and before we terminate the offering of the
securities under this prospectus, all documents or reports we file with the SEC
under the Exchange Act are also incorporated herein by reference, which means
that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC
and that legally become a part of this prospectus, may change or supersede
statements in other documents that are legally part of this prospectus.
Accordingly, only the statement that is changed or replaced will legally be a
part of this prospectus.
We file our Exchange Act documents and reports, including our annual and
quarterly reports on Form 10-K and Form 10-Q electronically on the SEC's "EDGAR"
system using the identifying number CIK No. 0000947878. The SEC maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov. You also can view these materials at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. For more information on the operations of SEC's Public Reference Room,
call 1-800-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of
any document incorporated herein by reference (other than exhibits not
specifically incorporated by reference into the text of such documents), please
write or call us at P.O. Box 94039, Palatine, Illinois 60094-4039 (telephone:
1-800-776-6978).
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<PAGE>
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
We may advertise the performance of the Variable Sub-Accounts, including yield
and total return information. Yield refers to the income generated by an
investment in a Variable Sub-Account over a specified period. Total return
represents the change, over a specified period of time, in the value of an
investment in a Variable Sub-Account after reinvesting all income distributions.
All performance advertisements will include, as applicable, standardized yield
and total return figures that reflect the Credit Enhancement and the deduction
of insurance charges, the contract maintenance charge, and withdrawal charge.
Performance advertisements also may include total return figures that reflect
the deduction of insurance charges, but not the contract maintenance or
withdrawal charges. However, any total return figures that reflect the Credit
Enhancement will also reflect applicable withdrawal charges to the extent
required. The deduction of such charges would reduce the performance shown. In
addition, performance advertisements may include aggregate, average, year-by-
year, or other types of total return figures.
Performance information for periods prior to the inception date of the Variable
Sub-Accounts will be based on the historical performance of the corresponding
Funds for the periods beginning with the inception dates of the Funds and
adjusted to reflect current Contract expenses. You should not interpret these
figures to reflect actual historical performance of the Variable Account.
We may include in advertising and sales materials tax deferred compounding
charts and other hypothetical illustrations that compare currently taxable and
tax deferred investment programs based on selected tax brackets. Our
advertisements also may compare the performance of our Variable Sub-Accounts
with: (a) certain unmanaged market indices, including but not limited to the Dow
Jones Industrial Average, the Standard & Poor's 500, and the Shearson Lehman
Bond Index; and/or (b) other management investment companies with investment
objectives similar to the underlying funds being compared. In addition, our
advertisements may include the performance ranking assigned by various
publications, including the Wall Street Journal, Forbes, Fortune, Money,
Barron's, Business Week, USA Today, and statistical services, including Lipper
Analytical Services Mutual Fund Survey, Lipper Annuity and Closed End Survey,
the Variable Annuity Research Data Survey, and SEI.
44
<PAGE>
EXPERTS
--------------------------------------------------------------------------------
The financial statements of Glenbrook as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 and the related
financial statement schedule that appear in the Statement of Additional
Information have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The financial statements of the Variable Account as of December 31, 1999, and
for each of the periods in the two years then ended that appear in this
Statement of Additional Information have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
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<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 applicable Guarantee Period
for the week preceding the establishment of the Guarantee Period.
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 Guarantee Period; and
J = the Treasury Rate for a maturity equal to the Guarantee Period for the
week preceding the receipt of the withdrawal, transfer, death benefit, or
income payment request. If a note for a maturity of length N 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
To determine the Market Value Adjustment, we will multiply the Market Value
Adjustment factor by the amount transferred, withdrawn (in excess of the Free
Withdrawal Amount), paid as a death benefit, or applied to an Income Plan, from
a Guarantee Period at any time other than during the 30 day period after such
Guarantee Period expires.
EXAMPLES OF MARKET VALUE ADJUSTMENT
<TABLE>
<S> <C>
Purchase Payment of $10,000 Plus
Credit Enhancement of $400
(Option 1: 4% up front): $10,400 allocated to a Guarantee Period
Guarantee Period: 5 years
Treasury Rate (at the time the
Guarantee Period
was established): 4.50%
Full Surrender: End of Contract Year 3
</TABLE>
----------------
NOTE: These examples assume that premium taxes are not applicable.
46
<PAGE>
EXAMPLE 1: (Assumes declining interest rates)
<TABLE>
<S> <C>
Step 1. Calculate Contract
Value at End of
Contract Year 3: $10,000.00 X (1.04) X (1.045)/3/ = $11,868.13
Step 2. Calculate the Free
Withdrawal Amount: 15% X $10,000.00 X (1.04) X (1.045)/2/ = $1,703.56
Step 3. Calculate the
Withdrawal Charge: = .07 X ($10,000.00 - $1,703.56) = $580.75
Step 4. Calculate the
Market Value
Adjustment: I = 4.50%
J= 4.20%
730 days
--------
N = 365 days = 2
Market Value Adjustment Factor: .9 X (I - J) X N
= .9 X (.045 - .042) X (2) = 0.0054
Market Value Adjustment = Market Value
Adjustment Factor X Amount Subject to
Market Value Adjustment
= .0054 X ($11,868.13 - $1,703.56) = $54.89
Step 5. Calculate the
amount received by
Contract owner as
a result of full
withdrawal at the
end of Contract
Year 3: $11,868.13 - $580.75 + $54.89 = $11,342.27
</TABLE>
EXAMPLE 2: (Assumes rising interest rates)
<TABLE>
<S> <C>
Step 1. Calculate Contract
Value at End of
Contract Year 3: $10,000.00 X (1.04) X (1.045)/3/ = $11,868.13
Step 2. Calculate the Free
Withdrawal Amount: 15% X $10,000.00 X (1.04) X (1.045)/2/ = $1,703.56
Step 3. Calculate the
Withdrawal Charge: = .07 X ($10,000.00 - $1,703.56) = $580.75
Step 4. Calculate the
Market Value
Adjustment: I = 4.50%
J= 4.80%
730 days
--------
N = 365 days = 2
Market Value Adjustment Factor: .9 X (I - J) X N
= .9 X (.045 - .048) X (2) = -0.0054
Market Value Adjustment = Market Value
Adjustment Factor X Amount Subject to
Market Value Adjustment
= .0054 X ($11,868.13 - $1,703.56) = $(54.89)
Step 5. Calculate the
amount received by
Contract owner as
a result of full
withdrawal at the
end of Contract
Year 3: $11,868.13 - $580.75 - $54.89 = $11,232.49
</TABLE>
47
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
Additions, Deletions or Substitutions of Investments....................... 1
The Contract............................................................... 2
Purchases................................................................ 2
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers)............. 2
Performance Information.................................................... 3
Calculation of Accumulation Unit Values.................................... 11
Calculation of Variable Income Payments.................................... 12
General Matters
Incontestability......................................................... 13
Settlements.............................................................. 13
Safekeeping of the Variable Account's Assets............................. 13
Premium Taxes............................................................ 13
Tax Reserves............................................................. 13
Federal Tax Matters........................................................ 14
Qualified Plans............................................................ 15
Experts.................................................................... 18
Financial Statements....................................................... 19
</TABLE>
This prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made. We do not authorize anyone to provide
any information or representations regarding the offering described in this
prospectus other than as contained in this prospectus.
48
