<PAGE>
THE AIM LIFETIME PLUS(SM) II VARIABLE ANNUITY
Glenbrook Life and Annuity Company Prospectus dated May 1, 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
Plus(sm) II 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 20 investment alternatives ("investment
alternatives"). The investment alternatives include 3 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:
. 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
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* 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 Sub-Account that invests in that Fund.
We (Glenbrook) have filed a Statement of Additional Information, dated May 1,
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 C-1 of this prospectus. For a free copy, please write or call us at the
address or telephone number above, or go to the SEC's Web site
(http://www.sec.gov). You can find other information and documents about us,
including documents that are legally part of this prospectus, at the SEC's Web
site.
The Securities and Exchange Commission has not approved or
disapproved the securities described in this prospectus, nor
has it passed on the accuracy or the adequacy of this
prospectus. Anyone who tells you otherwise is committing a
federal crime.
IMPORTANT
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.
1
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Important Terms................................................ 3
The Contract At A Glance....................................... 4
How the Contract Works......................................... 6
Expense Table.................................................. 7
Financial Information.......................................... 10
Overview
The Contract................................................... 11
Purchases...................................................... 13
Contract Value................................................. 14
Investment Alternatives........................................ 15
The Variable Sub-Accounts.................................... 15
The Fixed Account Options.................................... 16
Transfers.................................................... 20
Expenses....................................................... 23
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............................. 42
Performance Information........................................ 43
Experts........................................................ 44
Appendix A--Accumulation Unit Values........................... A-1
Appendix B--Market Value Adjustment Example.................... B-1
Statement of Additional Information Table of Contents.......... C-1
</TABLE>
Other
Information
2
<PAGE>
IMPORTANT TERMS
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This prospectus uses a number of important terms that you may not be familiar
with. The index below identifies the page that describes each term. The first
use of each term in this prospectus appears in highlights.
<TABLE>
<CAPTION>
Page
------
<S> <C>
Accumulation Phase.................................................... 6
Accumulation Unit..................................................... 10, 14
Accumulation Unit Value............................................... 10, 14
Annuitant............................................................. 11
Automatic Additions Program........................................... 13
Automatic Fund Rebalancing Program.................................... 21
Beneficiary........................................................... 11
Cancellation Period................................................... 4
*Contract............................................................. 6,11
Contract Anniversary.................................................. 5
Contract Owner ("You")................................................ 6
Contract Value........................................................ 14
Contract Year......................................................... 4
Death Benefit Anniversary............................................. 32
Dollar Cost Averaging Program......................................... 21
Due Proof of Death.................................................... 32
Enhanced Death Benefit Rider.......................................... 32
Enhanced Death and Income Benefit Combination Rider................... 33
Fixed Account Options................................................. 16-18
Free Withdrawal Amount................................................ 24
Funds................................................................. 15
Glenbrook ("We")...................................................... 1,35
Guarantee Period...................................................... 16
Income Plan........................................................... 6,29
Investment Alternatives............................................... 1
Issue Date............................................................ 6
Market Value Adjustment............................................... 18
Payout Phase.......................................................... 6
Payout Start Date..................................................... 29
Qualified Contract.................................................... 4
Right to Cancel....................................................... 4,13
SEC................................................................... 1
Settlement Value...................................................... 32
Systematic Withdrawal Program......................................... 27
Treasury Rate......................................................... 18
Valuation Date........................................................ 13
Variable Account...................................................... 1,35
Variable Sub-Account.................................................. 1,15
</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
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.
3
<PAGE>
THE CONTRACT AT A GLANCE
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The following is a snapshot of the Contract. Please read the remainder of this
prospectus for more information.
Flexible Payments You can purchase a Contract with as little as
$5,000 ($2,000 for "Qualified Contracts," which
are Contracts issued with qualified plans). You
can add to your Contract as often and as much
as you like, but each payment must be at least
$500 ($100 for automatic purchase payments to
the variable investment options). You must
maintain a minimum account size of $1,000.
- --------------------------------------------------------------------------------
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 federal or
state law permits, to reflect the investment
experience of any amounts allocated to the
Variable Account.
- --------------------------------------------------------------------------------
Expenses You will bear the following expenses:
. Total Variable Account annual fees equal to
1.10% of average daily net assets (1.30% if
you select the Enhanced Death Benefit Rider
and 1.50% if you select the Enhanced Death
and Income Benefit Combination Rider)
. Annual contract maintenance charge of $35
(with certain exceptions)
. Withdrawal charges ranging from 0% to 7% of
payment 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.
- --------------------------------------------------------------------------------
Investment The Contract offers 20 investment alternatives
Alternatives including:
. 3 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
4
<PAGE>
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)
- --------------------------------------------------------------------------------
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 and an Enhanced Death and Income
Benefit Combination Rider.
- --------------------------------------------------------------------------------
Transfers Before the Payout Start Date, you may transfer
your Contract value ("Contract Value") among
the investment alternatives, with certain
restrictions. No minimum applies to the amount
you transfer.
We do not currently impose a fee upon
transfers. However, we reserve the right to
charge $10 per transfer after the 12th transfer
in each "Contract Year," which we measure from
the date we issue your contract or a Contract
anniversary ("Contract Anniversary").
- --------------------------------------------------------------------------------
Withdrawals You may withdraw some or all of your Contract
Value at anytime during the Accumulation Phase.
Full or partial withdrawals are available under
limited circumstances on or after the Payout
Start Date.
In general, you must withdraw at least $50 at a
time ($1,000 for withdrawals made during the
Payout Phase). 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.
5
<PAGE>
HOW THE CONTRACT WORKS
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The Contract basically works in two ways.
First, the Contract can help you (we assume you are the Contract owner) save
for retirement because you can invest in up to 20 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.
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.
6
<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 prospectus for the Funds.
CONTRACT OWNER TRANSACTION EXPENSES
Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years Since We Received the Purchase
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Payment Being Withdrawn: 0 1 2 3 4 5 6 7+
Applicable Charge: 7% 7% 6% 6% 5% 4% 3% 0%
</TABLE>
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 without incurring a withdrawal charge or
Market Value Adjustment.
**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................................. 1.00%*
Administrative Expense Charge..................................... 0.10%
Total Variable Account Annual Expenses............................ 1.10%
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*If you select the Enhanced Death Benefit Rider, the mortality and expense
risk charge will be equal to 1.20% of your Contract's average daily net
assets in the Variable Account. If you select the Enhanced Death and Income
Benefit Combination Rider, the mortality and expense risk charge will be
equal to 1.40% of the daily net assets of the Variable Account.
7
<PAGE>
FUND ANNUAL EXPENSES
(After Voluntary Reductions and Reimbursements)
(as a percentage of Fund average daily net assets)(1)
<TABLE>
<CAPTION>
Management Other Total Annual
Fund Fees Expenses Fund Expenses
- ---- ---------- -------- -------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund(2)........... 0.80% 1.62% 2.42%
AIM V.I. Balanced Fund(2).................... 0.75% 0.56% 1.31%
AIM V.I. Blue Chip Fund(2)................... 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)......... 0.75% 2.67% 3.42%
AIM V.I. Dent Demographic Trends Fund(2)..... 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).... 1.00% 0.37% 1.37%
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).................. 0.63% 0.79% 1.42%
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%
</TABLE>
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(1) Figures shown in the table are for the year ended December 31, 1999.
(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:
<TABLE>
<CAPTION>
Management Other Total Annual
Fund Fees Expenses Fund Expenses
---- ---------- -------- -------------
<S> <C> <C> <C>
AIM V.I. Aggressive Growth Fund......... 0.80% 3.82% 4.62%
AIM V.I. Balanced Fund.................. 0.75% 2.08% 2.83%
AIM V.I. Capital Development Fund....... 0.75% 5.05% 5.80%
AIM V.I. High Yield Fund................ 0.63% 1.87% 2.50%
</TABLE>
The AIM V.I. Blue Chip, Dent Demographic Trends, Global Growth and Income, and
Telecommunications and Technology Fund commenced operations on December 29,
1999, December 29, 1999, October 15, 1999 and October 15, 1999, respectively.
For the latter funds, the management fee, other expenses and total annual fund
operating expenses are based on estimates for these Funds' current full fiscal
year.
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.
8
<PAGE>
The example does not include any taxes or tax penalties you may be required to
pay if you surrender your Contract.
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM V.I. Aggressive Growth...................... $101 $176 $243 $425
AIM V.I. Balanced............................... $ 90 $144 $191 $322
AIM V.I. Blue Chip.............................. $ 90 $144 $190 $321
AIM V.I. Capital Appreciation................... $ 85 $127 $162 $264
AIM V.I. Capital Development.................... $110 $204 $288 $508
AIM V.I. Dent Demographic....................... $ 91 $147 $195 $331
AIM V.I. Diversified Income..................... $ 86 $130 $167 $274
AIM V.I. Global Growth and Income............... $ 91 $146 $194 $328
AIM V.I. Global Utilities....................... $ 88 $139 $182 $306
AIM V.I. Government Securities.................. $ 86 $132 $171 $281
AIM V.I. Growth................................. $ 85 $127 $162 $264
AIM V.I. Growth and Income...................... $ 85 $129 $164 $268
AIM V.I. High Yield............................. $ 91 $147 $196 $333
AIM V.I. International Equity................... $ 87 $134 $174 $289
AIM V.I. Money Market........................... $ 83 $124 $156 $250
AIM V.I. Telecommunications and Technology...... $ 90 $143 $189 $318
AIM V.I. Value.................................. $ 85 $128 $164 $267
</TABLE>
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.
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM V.I. Aggressive Growth...................... $41 $123 $208 $425
AIM V.I. Balanced............................... $29 $ 90 $153 $322
AIM V.I. Blue Chip.............................. $29 $ 90 $153 $321
AIM V.I. Capital Appreciation................... $23 $ 72 $124 $264
AIM V.I. Capital Development.................... $51 $153 $255 $508
AIM V.I. Dent Demographic....................... $30 $ 93 $158 $331
AIM V.I. Diversified Income..................... $24 $ 75 $129 $274
AIM V.I. Global Growth and Income............... $30 $ 92 $156 $328
AIM V.I. Global Utilities....................... $28 $ 85 $144 $306
AIM V.I. Government Securities.................. $25 $ 77 $132 $281
AIM V.I. Growth................................. $23 $ 72 $124 $264
AIM V.I. Growth and Income...................... $24 $ 73 $126 $268
AIM V.I. High Yield............................. $31 $ 93 $159 $333
AIM V.I. International Equity................... $26 $ 80 $136 $289
AIM V.I. Money Market........................... $22 $ 68 $117 $250
AIM V.I. Telecommunications and Technology...... $29 $ 89 $151 $318
AIM V.I. Value.................................. $24 $ 73 $125 $267
</TABLE>
Please remember that you are looking at examples and not a representation of
past or future expenses. The examples assume that any Fund expense waivers or
reimbursement arrangements described in the footnotes on page 8 are in effect
for the time periods presumed above. 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 and Income Benefit Combination Rider with a
mortality and expense risk charge of 1.40%. 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 $57,476.
9
<PAGE>
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
To measure the value of your investment in the Variable Sub-Accounts during the
Accumulation Phase, we use a unit of measure we call the "Accumulation Unit."
Each Variable Sub-Account has a separate value for its Accumulation Units we
call "Accumulation Unit Value." Accumulation Unit Value is analogous to, but
not the same as, the share price of a mutual fund.
Attached as Appendix A to this prospectus are tables showing the Accumulation
Unit Values of each Variable Sub-Account since its inception. To obtain a
fuller picture of each Variable Sub-Account's finances, please refer to the
Variable Account's financial statements contained in the Statement of
Additional Information. The financial statements of Glenbrook also appear in
the Statement of Additional Information.
10
<PAGE>
THE CONTRACT
- --------------------------------------------------------------------------------
CONTRACT OWNER
The AIM Lifetime PlusSM II 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 or Annuitant
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. At issue, the maximum age of Contract Owner, joint contract owner, or
annuitant if the owner is a non-natural person, cannot exceed age 90.
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. 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.
11
<PAGE>
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 have 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.
12
<PAGE>
PURCHASES
- --------------------------------------------------------------------------------
MINIMUM PURCHASE PAYMENTS
Your initial purchase payment must be at least $5,000 ($2,000 for a Qualified
Contract). All subsequent purchase payments must be $500 or more. You may make
purchase payments at any time prior to the Payout Start Date. We reserve the
right to limit the maximum amount of purchase payments we will accept. We also
reserve the right to reject any application.
MINIMUM AND MAXIMUM ALLOWABLE AGE
You can purchase a Contract if you are between the your state's age of majority
and 90. If the owner is a non-natural person, then the Annuitant must be
between the ages of 0 and 90.
AUTOMATIC ADDITIONS PROGRAM
You may make additional 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.
RIGHT TO CANCEL
You may cancel your 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 federal or 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.
13
<PAGE>
CONTRACT VALUE
- --------------------------------------------------------------------------------
On the Issue Date, your Contract Value is equal to your initial purchase
payment. 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
credit to your Contract, we divide (i) the amount of the purchase payment you
have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of
that Variable Sub-Account next computed after we receive your payment 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.
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 and the Enhanced
Death and Income Benefit Combination Rider described on pages 32 and 33 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.
14
<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>
<C> <S>
Fund: Each Fund Seeks*:
- -------------------------------------------------------------------------------
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 Demographics Fund Long-term growth of capital
together with current income
- -------------------------------------------------------------------------------
AIM V.I. Diversified Income Fund High level of current income
- -------------------------------------------------------------------------------
AIM V.I. Global Growth and Income Fund Long-term growth of capital
- -------------------------------------------------------------------------------
AIM V.I. Global Utilities Fund High level of current income
and a secondary objective of
growth of capital
- -------------------------------------------------------------------------------
AIM V.I. Government Securities Fund High level of current income
consistent with reasonable
concern for safety of
principal
- -------------------------------------------------------------------------------
AIM V.I. Growth Fund Growth of capital
- -------------------------------------------------------------------------------
AIM V.I. Growth and Income Fund Growth of capital with a
secondary objective 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 Fund As high a level of current
income as is 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
</TABLE>
- ----------------
*A Fund's investment objective may be changed by the Fund's Board of
Directors without shareholder 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.
15
<PAGE>
INVESTMENT ALTERNATIVES: The Fixed Account Options
- --------------------------------------------------------------------------------
You may allocate all or a portion of your purchase payments to the Fixed
Account. You may choose from among 3 Fixed Account Options including two dollar
cost averaging options 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. The Fixed Account
consists of our general assets other than those in segregated asset accounts.
We have sole discretion to invest the assets of the Fixed Account, subject to
applicable law. Any money you allocate to a Fixed Account Option does not
entitle you to share in the investment experience of the Fixed Account.
DOLLAR COST AVERAGING OPTIONS
You may establish a Dollar Cost Averaging Program, as described on page 21, by
allocating purchase payments to the Fixed Account either for 6 months (the "6
Month Dollar Cost Averaging Option") or for 12 months (the "12 Month Dollar
Cost Averaging Option"). Your purchase payments will earn interest for the
period you select at the current rates in effect 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 6 or 12 Month Dollar Cost
Averaging Options to other investment alternatives in equal monthly
installments beginning within 30 days of allocation. The number of monthly
installments must be no more than 6 for the 6 Month Dollar Cost Averaging
Option, and no more than 12 for the 12 Month Dollar Cost Averaging Option. At
the end of the applicable 6 or 12 month period, we will transfer any remaining
amounts in the 6 or 12 Month Dollar Cost Averaging Options to the other
investment alternatives you designated. Transfers out of the 6 or 12 Month
Dollar Cost Averaging Options do not count towards the 12 transfers you can
make without paying a transfer fee.
If we do not receive allocation instructions from you, the payment and
associated interest will be transferred to Money Market Variable Sub-Account in
equal monthly installments.
You may not transfer funds from other investment alternatives to either the 6
or 12 Month Dollar Cost Averaging Options.
The 6 or 12 Month Dollar Cost Averaging Options may not be available in your
state.
GUARANTEE PERIODS
Each payment or transfer allocated to a Fixed Account 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.
16
<PAGE>
We have no specific formula for determining the rate of interest that we will
declare initially or in the future. We will set those interest rates based on
investment returns available at the time of the determination. In addition, we
may consider various other factors in determining interest rates including
regulatory and tax requirements, our sales commission and administrative
expenses, general economic trends, and competitive factors. We determine the
interest rates to be declared in our sole discretion. We can neither predict
nor guarantee what those rates will be in the future. For current interest rate
information, please contact your sales representative or Glenbrook at 1-800-
776-6978. The interest rate will never be less than the minimum guaranteed rate
stated in the Contract.
HOW WE CREDIT INTEREST
We will credit interest daily to each amount allocated to a Guarantee Period at
a rate that compounds to the 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..................................................... $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 X 1.045
Rate) $10,450.00
Contract Value at end of $10,450.00
Contract Year X 1.045
X (1 + Annual Interest $10,920.25
Rate)
Contract Value at end of $10,920.25
Contract Year X 1.045
X (1 + Annual Interest $11,411.66
Rate)
Contract Value at end of $11,411.66
Contract Year X 1.045
X (1 + Annual Interest $11,925.19
Rate)
Contract Value at end of $11,925.19
Contract Year X 1.045
X (1 + Annual Interest $12,461.82
Rate)
</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.
17
<PAGE>
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
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 (a Market Value
Adjustment made upon payment of a death benefit would be positive) 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 24,
. as part of the Dollar Cost Averaging Program,
. when exercising the confinement, unemployment, widow withdrawals or
terminal illness waivers, or
. to satisfy IRS minimum distribution rule for the Contract.
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.
18
<PAGE>
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 you allocate money to a 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 B
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment.
19
<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 6 or 12 Month
Dollar Cost Averaging Options. 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.
20
<PAGE>
EXCESSIVE TRADING LIMITS
For Contracts issued on or after May 1, 1999, 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
21
<PAGE>
now represents 50% of your holdings because of its increase in value. If
you choose to have your holdings rebalanced quarterly, on the first day of
the next quarter we would sell some of your units in the 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.
22
<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 processing
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 1.00%
of the average daily net assets you have invested in the Variable Sub-Accounts
(1.20% if you select the Enhanced Death Benefit Rider, and 1.40% if you select
the Enhanced Death and Income Benefit Combination 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. If the charges under the Contract are not
sufficient, then Glenbrook will bear the loss.
We charge additional amounts for the enhanced death benefit and Enhanced Death
and Income Benefit Combination riders to compensate us for the additional risk
that we accept by providing each rider. Neither the Enhanced Death Benefit
Rider nor the Enhanced Death and Income Benefit Combination Rider are available
under a Contract that is continued by a surviving spouse. After the death of
the Contract owner, if the surviving spouse elects to continue the Contract in
the Accumulation Phase, then the mortality and expense risk charge will be
1.00% from the date we determine the value of the death benefit through the
remainder of the life of the continued Contract.
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
23
<PAGE>
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 do not currently impose a fee upon transfers among the investment
alternatives. However, we reserve the right to charge $10 per transfer after
the 12th transfer in each Contract Year. We will not charge a transfer fee on
transfers that are part of a Dollar Cost Averaging Program or Automatic Fund
Rebalancing Program.
WITHDRAWAL CHARGE
We may assess a withdrawal charge of up to 7% of the purchase payment(s) you
withdraw. The charge declines to 0% after 7 complete years from the date we
received the purchase payment being withdrawn. A schedule showing how the
charge declines appears on page 7, above. During each Contract Year, you can
withdraw up to 15% of the Contract Value as of the beginning of that Contract
Year without paying the charge. Unused portions of this 15% "Free Withdrawal
Amount" are not carried forward to future Contract Years.
We will deduct withdrawal charges, if applicable, from the amount paid. For
purposes of the withdrawal charge, we will treat withdrawals as coming from the
oldest purchase payments first. However, for federal income tax purposes,
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. To the extent that the withdrawal charge does not cover all sales
commissions and other promotional or distribution expenses, we may use any of
our corporate assets, including potential profit which may arise from the
mortality and expense risk charge or any other charges or fee described above,
to make up any difference.
Withdrawals 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
the Issue Date;
2) we must 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.
24
<PAGE>
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 a 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 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 are not required 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.
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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 8-9 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, we may require you to 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. 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 variable income payments 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 a portion 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 compute such variable income payments. The minimum amount you
may withdraw under this feature is $1,000. A withdrawal charge may apply. We
also deduct applicable premium taxes from the Contract Value at the Payout
Start Date.
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. If you elected the Enhanced Death and Income Benefit
Combination Rider, you may be able to apply an amount greater than your
Contract Value. 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 investments 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
the Annuitant, we will pay the death benefit to the current Contract Owner.
A claim for a distribution on death must include "Due Proof of Death." We will
accept the following documentation as Due Proof of Death:
. a certified copy of a death certificate; or
. a certified copy of a decree of a court of competent jurisdiction as to a
finding of death; or
. any other proof acceptable to us.
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 each 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 seventh Contract Anniversary during the
Accumulation Phase. For example, the 7th, 14th, and 21st 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.
A Market Value Adjustment made upon payment of a death benefit would be
positive.
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 3:00 p.m. Central Time on a Valuation Date, we
will process the request as of the end of he following Valuation Date.
ENHANCED DEATH BENEFIT RIDER
For Contract owners up to an including age 80, the Enhanced Death Benefit Rider
is an optional benefit that you may elect. If you elect the rider, the death
benefit will be the greater of the death benefit alternatives (1) through (4)
listed above, or (5) the enhanced death benefit.
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. 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. The Enhanced Death
Benefit Rider benefit is not available under a contract that is continued by a
surviving spouse. After the death of the Contract owner, if the surviving
spouse elects to continue the Contract in the Accumulation Phase, then the
mortality and expense risk charge will be 1.00% from the date we determine the
value of the death benefit through the remainder of the life of the continued
Contract, and any death benefit paid under a continued Contract will not
include the enhanced death benefit.
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. The
Enhanced Death Benefit A will never be greater than the maximum death benefit
allowed by any non-forfeiture laws which govern the Contract.
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 Annuitant's, 85th
birthday.
The Enhanced Death Benefit B will never be greater than the maximum death
benefit allowed by any non-forfeiture laws which govern the Contract.
ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER
Instead of the Enhanced Death Benefit Rider, for Contract Owners up to and
including age 80, you may choose the Enhanced Death and Income Benefit
Combination Rider.
The enhanced death benefit portion of the Enhanced Death and Income Benefit
Combination Rider is the same as that described above under "Enhanced Death
Benefit Rider."
The enhanced income benefit defines a minimum amount applied to the Payout
Phase. This minimum amount is equal to what the value of the enhanced death
benefit would be on the Payout Start Date.
The enhanced income benefit will apply if the Contract owner elects a Payout
Start Date that:
. is on or after the tenth Contract Anniversary, and
. is prior to the Annuitant's age 90.
On the Payout Start Date, you may apply the greater of the Contract Value or
the enhanced income benefit to the Payout Phase of the Contract. No Market
Value Adjustment will be applied to the enhanced income benefit amount. The
enhanced income benefit will only apply if the Income Plan selected provides
payments guaranteed for either single or joint life with a period certain of at
least:
. 10 years, if the youngest Annuitant's age is 80 or less on the date the
amount is applied; or
. 5 years, if the youngest Annuitant's age is greater than 80 on the date
the amount is applied.
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If, however, you apply the Contract Value and not the enhanced income benefit
to the Income Plan, then you may select any Income Plan we offer at that time.
The Enhanced Death and Income Benefit Combination Rider benefit is not
available under a Contract that is continued by a surviving spouse. After the
death of the Contract owner, if the surviving spouse elects to continue the
Contract in the Accumulation Phase, then the mortality and expense risk charge
will be 1.00% from the date we determine the value of the death benefit through
the remainder of the life of the continued Contract. Any death benefit paid
under a continued Contract will not include the enhanced death benefit. Any
calculation of amount to be applied to an Income Plan upon annuitization under
a continued Contract will not include the enhanced income benefit.
DEATH BENEFIT PAYMENTS
A death benefit will be paid if:
1) the Contract owner elects to receive the death benefit distributed in a
single payment within 180 days of the date of death, and
2) the death benefit is paid as of the day we determine the value of the
death benefit.
Otherwise, the Settlement Value will be paid. The Settlement Value paid will be
the Settlement Value next computed on or after the requested distribution date
for payment, or on the mandatory distribution date of 5 years after the date of
death, whichever is earlier. 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.
The Contract owner eligible to receive death benefits has the following
options:
1) If the Contract owner is not a natural person, then the Contract owner
may elect to receive the death benefit in one or more distributions.
2) If the Contract owner is a natural person, the Contract owner may elect
to receive the death benefit under an Income Plan or in one or more
distributions. Payments from the Income Plan must begin within one year of
the date of death and must be payable throughout:
. the life of the Contract owner; or
. a period not to exceed the life expectancy of the Contract owner; or
. the life of the Contract owner with payments guaranteed for a period
not to exceed the life expectancy of the Contract owner.
3) If the surviving spouse of the deceased Contract owner is the new
Contract owner, then the spouse may elect one of the options listed above
or may continue the Contract in the Accumulation Phase as if the death had
not occurred. 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 death benefit of
the continued Contract will be the greater of:
(a) the sum of all purchase payments reduced by a withdrawal
adjustment, as defined in the death benefit provision, or
(b) the Contract Value on the date we determine the death benefit.
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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 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.
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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. (effective May 1, 2000, Allstate Life Financial
Services, Inc. was renamed ALFS, Inc.), located at 3100 Sanders Road,
Northbrook, Illinois 60062-7154, serves as principal underwriter of the
Contracts. ALFS, Inc. ("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.
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
36
<PAGE>
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 and transaction confirmations 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 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
37
<PAGE>
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 or 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 or 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.
39
<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,
4) made under an immediate annuity, or
40
<PAGE>
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 the 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 Contract Value to another 403(b) plan.
INCOME TAX WITHHOLDING
Glenbrook is required to withhold federal income tax at a rate of 20% on all
"eligible rollover distributions" unless you elect to make a "direct rollover"
of such amounts to an IRA or eligible retirement plan. Eligible rollover
distributions generally include all distributions from Qualified Contracts,
excluding IRAs, with the exception of:
1) required minimum distributions, or
2) a series of substantially equal periodic payments made over a period of
at least 10 years, or, 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.
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ANNUAL REPORTS AND OTHER DOCUMENTS
- --------------------------------------------------------------------------------
Glenbrook's annual report on Form 10-K for the year ended December 31, 1999 is
incorporated herein by reference, which means that it is legally a part of this
prospectus.
After the date of this prospectus and before we terminate the offering of the
securities under this prospectus, all documents or reports we file with the SEC
under the Exchange Act are also incorporated herein by reference, which means
that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC
and that legally become a part of this prospectus, may change or supersede
statements in other documents that are legally part of this prospectus.
Accordingly, only the statement that is changed or replaced will legally be a
part of this prospectus.
We file our Exchange Act documents and reports, including our annual and
quarterly reports on Form 10-K and Form 10-Q electronically on the SEC's
"EDGAR" system using the identifying number CIK No. 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 or 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 deduction of insurance charges, the
contract maintenance charge, and withdrawal charge. Performance advertisements
also may include total return figures that reflect the deduction of insurance
charges, but not the contract maintenance or withdrawal charges. The deduction
of such charges would reduce the performance shown. In addition, performance
advertisements may include aggregate, average, year-by-year, or other types of
total return figures.
Performance information for periods prior to the inception date of the Variable
Sub-Accounts will be based on the historical performance of the corresponding
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.
43
<PAGE>
EXPERTS
- --------------------------------------------------------------------------------
The financial statements and related financial statement schedule of Glenbrook
as of December 31, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999, which are incorporated herein by reference, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which are incorporated herein by reference, and are 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 the
Statement of Additional Information have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing in the Statement of
Additional Information, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
44
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APPENDIX A Accumulation Unit Value and Number of Accumulation Units Outstanding
for Each Variable Sub-Account Since Inception
Basic Policy
<TABLE>
<CAPTION>
For the years beginning January 1 and ending December 31 1998 1999
- -------------------------------------------------------- ------- -------
<S> <C> <C>
AIM V.I. AGGRESSIVE GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $10.561
Accumulation Unit Value, End of Period....................... $10.561 $15.111
Number of Units Outstanding, End of Period................... 50,119 334,924
AIM V.I. BALANCED SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $11.298
Accumulation Unit Value, End of Period....................... $11.298 $13.331
Number of Units Outstanding, End of Period................... 67,315 626,980
AIM V.I. BLUE CHIP SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. -- --
Accumulation Unit Value, End of Period....................... -- --
Number of Units Outstanding, End of Period................... -- --
AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $11.037
Accumulation Unit Value, End of Period....................... $11.037 $15.787
Number of Units Outstanding, End of Period................... 97,387 829,707
AIM V.I. CAPITAL DEVELOPMENT SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $ 9.914
Accumulation Unit Value, End of Period....................... $ 9.914 $12.658
Number of Units Outstanding, End of Period................... 12,713 125,972
AIM V.I. DENT DEMOGRAPHIC TRENDS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. -- --
Accumulation Unit Value, End of Period....................... -- --
Number of Units Outstanding, End of Period................... -- --
AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $ 9.873
Accumulation Unit Value, End of Period....................... $ 9.873 $ 9.577
Number of Units Outstanding, End of Period................... 31,735 248,525
AIM V.I. GLOBAL GROWTH AND INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. -- --
Accumulation Unit Value, End of Period....................... -- --
Number of Units Outstanding, End of Period................... -- --
AIM V.I. GLOBAL UTILITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $10.803
Accumulation Unit Value, End of Period....................... $10.803 $14.271
Number of Units Outstanding, End of Period................... 28,175 112,484
AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $10.706
Accumulation Unit Value, End of Period....................... $10.706 $10.162
Number of Units Outstanding, End of Period................... 52,212 402,500
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
For the years beginning January 1 and ending December 31 1998 1999
- -------------------------------------------------------- ------- ---------
<S> <C> <C>
AIM V.I. GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.824
Accumulation Unit Value, End of Period..................... $11.824 $ 15.815
Number of Units Outstanding, End of Period................. 77,514 1,176,171
AIM V.I. GROWTH AND INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.684
Accumulation Unit Value, End of Period..................... $11.684 $ 15.514
Number of Units Outstanding, End of Period................. 112,627 1,472,961
AIM V.I. HIGH YIELD SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 9.099
Accumulation Unit Value, End of Period..................... $ 9.099 $ 9.946
Number of Units Outstanding, End of Period................. 61,267 374,834
AIM V.I. INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 9.674
Accumulation Unit Value, End of Period..................... $ 9.674 14.835
Number of Units Outstanding, End of Period................. 34,979 294,021
AIM V.I. MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 10.221
Accumulation Unit Value, End of Period..................... $10.221 $ 10.582
Number of Units Outstanding, End of Period................. 104,779 284,221
AIM V.I. TELECOMMUNICATIONS AND TECHNOLOGY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... -- --
Accumulation Unit Value, End of Period..................... -- --
Number of Units Outstanding, End of Period................. -- --
AIM V.I. VALUE SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.747
Accumulation Unit Value, End of Period..................... $11.747 $ 15.091
Number of Units Outstanding, End of Period................. 139,946 1,901,840
</TABLE>
- ----------------
* The Contracts were first offered for sale on June 2, 1998. The Accumulation
Unit Values in this table reflect a mortality and expense risk charge of
1.00% and an administrative expense charge of 0.10%. All of the Variable
Sub-Accounts commenced operations on or before June 2, 1998, except the Blue
Chip, Dent Demographics, Global Growth and Income and Telecommunications and
Technology Variable Sub-Accounts ("the New Sub-Accounts"). No Accumulation
Unit Data is shown for the New Sub-Accounts which commenced operations on
January 3, 2000.
A-2
<PAGE>
Accumulation Unit Values and Number of Accumulation Units
Outstanding for Each Variable Sub-Account Since Inception
Basic Policy plus Enhanced Death Benefit Rider
<TABLE>
<CAPTION>
For the years beginning January 1 and ending December 31 1998 1999
- -------------------------------------------------------- ------- ---------
<S> <C> <C>
AIM V.I. AGGRESSIVE GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 10.549
Accumulation Unit Value, End of Period..................... $10.549 $ 15.063
Number of Units Outstanding, End of Period................. 57,688 314,748
AIM V.I. BALANCED SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.285
Accumulation Unit Value, End of Period..................... $11.285 $ 13.289
Number of Units Outstanding, End of Period................. 221,488 1,149,345
AIM V.I. BLUE CHIP SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... -- --
Accumulation Unit Value, End of Period..................... -- --
Number of Units Outstanding, End of Period................. -- --
AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.025
Accumulation Unit Value, End of Period..................... $11.025 $ 15.737
Number of Units Outstanding, End of Period................. 223,554 1,105,150
AIM V.I. CAPITAL DEVELOPMENT SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 9.902
Accumulation Unit Value, End of Period..................... $ 9.902 $ 12.619
Number of Units Outstanding, End of Period................. 55,046 195,123
AIM V.I. DENT DEMOGRAPHIC TRENDS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... -- --
Accumulation Unit Value, End of Period..................... -- --
Number of Units Outstanding, End of Period................. -- --
AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 9.861
Accumulation Unit Value, End of Period..................... $ 9.861 $ 9.547
Number of Units Outstanding, End of Period................. 40,007 277,036
AIM V.I. GLOBAL GROWTH AND INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... -- --
Accumulation Unit Value, End of Period..................... -- --
Number of Units Outstanding, End of Period................. -- --
AIM V.I. GLOBAL UTILITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 10.791
Accumulation Unit Value, End of Period..................... $10.791 $ 14.226
Number of Units Outstanding, End of Period................. 21,377 146,531
AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 10.693
Accumulation Unit Value, End of Period..................... $10.693 $ 10.130
Number of Units Outstanding, End of Period................. 15,866 330,314
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
For the years beginning January 1 and ending December 31 1998 1999
- -------------------------------------------------------- ------- ---------
<S> <C> <C>
AIM V.I. GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.810
Accumulation Unit Value, End of Period..................... $11.810 $ 15.765
Number of Units Outstanding, End of Period................. 182,188 1,590,694
AIM V.I. GROWTH AND INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.671
Accumulation Unit Value, End of Period..................... $11.671 $ 15.465
Number of Units Outstanding, End of Period................. 276,962 2,087,079
AIM V.I. HIGH YIELD SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 9.088
Accumulation Unit Value, End of Period..................... $ 9.088 $ 9.914
Number of Units Outstanding, End of Period................. 103,485 361,905
AIM V.I. INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 9.663
Accumulation Unit Value, End of Period..................... $ 9.663 $ 14.788
Number of Units Outstanding, End of Period................. 63,514 374,374
AIM V.I. MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 10.209
Accumulation Unit Value, End of Period..................... $10.209 $ 10.549
Number of Units Outstanding, End of Period................. 111,395 250,507
AIM V.I. TELECOMMUNICATIONS AND TECHNOLOGY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... -- --
Accumulation Unit Value, End of Period..................... -- --
Number of Units Outstanding, End of Period................. -- --
AIM V.I. VALUE SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.733
Accumulation Unit Value, End of Period..................... $11.733 $ 15.044
Number of Units Outstanding, End of Period................. 350,953 2,912,880
</TABLE>
- ----------------
* The Contracts, including the Enhanced Death Benefit Rider, were first
offered for sale on June 2, 1998. The Accumulation Unit Values in this table
reflect a mortality and expense risk charge of 1.20% and an administrative
expense charge of 0.10%. All of the Variable Sub-Accounts commenced
operations on or before June 2, 1998, except the Blue Chip, Dent
Demographics, Global Growth and Income and Telecommunications and Technology
Variable Sub-Accounts ("the New Sub-Accounts"). No Accumulation Unit Data is
shown for the New Sub-Accounts which commenced operations on January 3,
2000.
A-4
<PAGE>
Accumulation Unit Values and Number of Accumulation Units
Outstanding for Each Variable Sub-Account Since Inception
Basic Policy plus Enhanced Death and Income Benefit Combination Rider
<TABLE>
<CAPTION>
For the years beginning January 1 and ending December 31 1998 1999
- -------------------------------------------------------- ------- -------
<S> <C> <C>
AIM V.I. AGGRESSIVE GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $10.536
Accumulation Unit Value, End of Period....................... $10.536 $15.016
Number of Units Outstanding, End of Period................... 63,177 256,328
AIM V.I. BALANCED SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $11.272
Accumulation Unit Value, End of Period....................... $11.272 $13.247
Number of Units Outstanding, End of Period................... 164,576 696,094
AIM V.I. BLUE CHIP SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. -- --
Accumulation Unit Value, End of Period....................... -- --
Number of Units Outstanding, End of Period................... -- --
AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $11.012
Accumulation Unit Value, End of Period....................... $11.012 $15.687
Number of Units Outstanding, End of Period................... 203,098 691,747
AIM V.I. CAPITAL DEVELOPMENT SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $ 9.891
Accumulation Unit Value, End of Period....................... $ 9.891 $12.579
Number of Units Outstanding, End of Period................... 42,275 94,929
AIM V.I. DENT DEMOGRAPHIC TRENDS SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. -- --
Accumulation Unit Value, End of Period....................... -- --
Number of Units Outstanding, End of Period................... -- --
AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $ 9.850
Accumulation Unit Value, End of Period....................... $ 9.850 $ 9.516
Number of Units Outstanding, End of Period................... 25,503 156,436
AIM V.I. GLOBAL GROWTH AND INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. -- --
Accumulation Unit Value, End of Period....................... -- --
Number of Units Outstanding, End of Period................... -- --
AIM V.I. GLOBAL UTILITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $10.778
Accumulation Unit Value, End of Period....................... $10.778 $14.181
Number of Units Outstanding, End of Period................... 16,742 81,745
AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period................. $10.000 $10.681
Accumulation Unit Value, End of Period....................... $10.681 $10.098
Number of Units Outstanding, End of Period................... 28,964 192,103
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
For the years beginning January 1 and ending December 31 1998 1999
- -------------------------------------------------------- ------- ---------
<S> <C> <C>
AIM V.I. GROWTH SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.797
Accumulation Unit Value, End of Period..................... $11.797 $ 15.715
Number of Units Outstanding, End of Period................. 233,659 1,047,361
AIM V.I. GROWTH AND INCOME SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.657
Accumulation Unit Value, End of Period..................... $11.657 $ 15.416
Number of Units Outstanding, End of Period................. 384,306 1,263,124
AIM V.I. HIGH YIELD SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 9.077
Accumulation Unit Value, End of Period..................... $ 9.077 $ 9.883
Number of Units Outstanding, End of Period................. 55,345 246,594
AIM V.I. INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 9.651
Accumulation Unit Value, End of Period..................... $ 9.651 $ 14.741
Number of Units Outstanding, End of Period................. 63,643 266,112
AIM V.I. MONEY MARKET SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 10.197
Accumulation Unit Value, End of Period..................... $10.197 $ 10.516
Number of Units Outstanding, End of Period................. 61,481 209,100
AIM V.I. TELECOMMUNICATIONS AND TECHNOLOGY SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... -- --
Accumulation Unit Value, End of Period..................... -- --
Number of Units Outstanding, End of Period................. -- --
AIM V.I. VALUE SUB-ACCOUNT
Accumulation Unit Value, Beginning of Period............... $10.000 $ 11.719
Accumulation Unit Value, End of Period..................... $11.719 $ 14.996
Number of Units Outstanding, End of Period................. 397,504 1,742,887
</TABLE>
- ----------------
* The Contracts, including the Enhanced Death and Income Benefit Combination
Rider, were first offered for sale on June 2, 1998. The Accumulation Unit
Values in this table reflect a mortality and expense risk charge of 1.40%
and an administrative expense charge of 0.10%. All of the Variable Sub-
Accounts commenced operations on or before June 2, 1998, except the Blue
Chip, Dent Demographics, Global Growth and Income and Telecommunications and
Technology Variable Sub-Accounts ("the New Sub-Accounts"). No Accumulation
Unit Data is shown for the New Sub-Accounts which commenced operations on
January 3, 2000.
A-6
<PAGE>
APPENDIX B
MARKET VALUE ADJUSTMENT
The Market Value Adjustment is based on the following:
I = the Treasury Rate, for a maturity equal to the 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.
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.
"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: $10,000 allocated to a Guarantee Period
Guarantee Period: 5 years
Guaranteed Interest Rate: 4.50%
5 Year 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.
B-1
<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 (1.045)/3/ = $11,411.66
Step 2. Calculate the Free
Withdrawal Amount: .15% X $10,000 X (1.045)/2/ = $1,638.04
Step 3. Calculate the
Withdrawal Charge: = .06 X ($10,000.00 - $1,638.04) = $501.72
Step 4. Calculate the Market
Value Adjustment: I= 4.5%
J= 4.2%
730 days
--------
N = 365 days = 2
Market Value Adjustment Factor: .9 X (I - J) X N
= .9 X (.045 - .042) X (2) = .0054
Market Value Adjustment = Market Value
Adjustment Factor X Amount Subject to
Market Value Adjustment
= .0054 X ($11,411.66 - $1,638.04) = $52.78
Step 5. Calculate the amount
received by Contract
owner as a result of
full withdrawal at the
end of Contract Year 3: $11,411.66 - $501.72 + $52.78 = $10,962.72
</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 (1.045)/3/ = $11,411.66
Step 2. Calculate the Free
Withdrawal Amount: .15 X $10,000.00 X (1.045)/2/ = $1,638.04
Step 3. Calculate the
Withdrawal Charge: .06 X ($10,000.00 - $1,638.04) = $501.72
Step 4. Calculate the Market
Value Adjustment: I= 4.5%
J= 4.8%
730 days
--------
N = 365 days = 2
Market Value Adjustment Factor: .9 X (I - J) X N
= .9 X (.045 - .048) X (2) = -.0054
Market Value Adjustment = Market Value
Adjustment Factor X Amount Subject to
Market Value Adjustment
= -.0054 X ($11,411.66 - $1,638.04) = -$52.78
Step 5. Calculate the amount
received by Contract
owner as a result of
full withdrawal at the
end of Contract Year 3: $11,411.66 - $501.72 - $52.78 = $10,857.16
</TABLE>
B-2
<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 of Contracts.................................................. 2
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers)............ 2
Performance Information................................................... 3
Standardized Total Returns.............................................. 3
Non-standardized Total Returns.......................................... 4
Adjusted Historical Total Returns....................................... 6
Calculation of Accumulation Unit Values................................... 8
Net Investment Factor................................................... 8
Calculation of Variable Income Payments................................... 8
Calculation of Annuity Unit Values...................................... 9
General Matters........................................................... 9
Incontestability........................................................ 9
Settlements............................................................. 9
Safekeeping of the Variable Account's Assets............................ 9
Premium Taxes........................................................... 9
Tax Reserves............................................................ 10
Federal Tax Matters....................................................... 10
Taxation of Glenbrook Life and Annuity Company.......................... 10
Exceptions to the Non-Natural Owner Rule................................ 10
IRS Required Distribution at Death Rules................................ 10
Qualified Plans........................................................... 11
Individual Retirement Annuities......................................... 11
Roth Individual Retirement Annuities.................................... 11
Simplified Employee Pension Plans....................................... 12
Savings Incentive Match Plans for Employees (Simple Plans).............. 12
Tax Sheltered Annuities................................................. 12
Corporate and Self-Employed Pension and Profit Sharing Plans............ 12
State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans..................................................... 12
Experts................................................................... 13
Financial Statements...................................................... 13
</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.
C-1
<PAGE>
THE AIM LIFETIME PLUS(SM) II VARIABLE ANNUITY
Glenbrook Life and Annuity Company Statement of Additional Information
Glenbrook Life and Annuity Company dated May 1, 2000
Separate Account A
Post Office Box 94039
Palatine, IL 60094-4039
1(800) 776 - 6978
This Statement of Additional Information supplements the information in the
prospectus for the AIM Lifetime Plus(SM) II Variable Annuity. This Statement of
Additional Information is not a prospectus. You should read it with the
prospectus, dated May 1, 2000, for the Contract. You may obtain a prospectus by
calling or writing us at the address or telephone number listed above.
Except as otherwise noted, this Statement of Additional Information uses the
same defined terms as the prospectus.
<PAGE>
TABLE OF CONTENTS
Additions, Deletions or Substitutions of Investments
The Contract
Purchases of Contracts
Tax-free Exchanges (1035 Exchanges, Rollovers and Transfers)
Performance Information
Standardized Total Returns
Non-standardized Total Returns
Adjusted Historical Total Returns
Calculation of Accumulation Unit Values
Net Investment Factor
Calculation of Variable Income Payments
Calculation of Annuity Unit Values
General Matters
Incontestability
Settlements
Safekeeping of the Variable Account's Assets
Premium Taxes
Tax Reserves
Federal Tax Matters
Taxation of Glenbrook Life and Annuity Company
Exceptions to the Non-Natural Owner Rule
IRS Required Distribution at Death Rules
Qualified Plans
Individual Retirement Annuities.
Roth Individual Retirement Annuities
Simplified Employee Pension Plans
Savings Inventive Match Plans for Employees (Simple Plans)
Tax Sheltered Annuities
Corporate and Self-Employed Pension and Profit Sharing Plans
State and Local Government and Tax-Exempt Organization
Deferred Compensation Plans
Experts
Financial Statements
<PAGE>
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
We may add, delete, or substitute the Fund shares held by any Variable Sub-
Account to the extent the law permits. We may substitute shares of any Fund with
those of another Fund of the same or different mutual fund if the shares of the
Fund are no longer available for investment, or if we believe investment in any
Fund would become inappropriate in view of the purposes of the Variable Account.
We will not substitute shares attributable to a Contract owner's interest in a
Variable Sub-Account until we have notified the Contract owner of the change,
and until the Securities and Exchange Commission has approved the change, to the
extent such notification and approval are required by law. Nothing contained in
this Statement of Additional Information shall prevent the Variable Account from
purchasing other securities for other series or classes of contracts, or from
effecting a conversion between series or classes of contracts on the basis of
requests made by Contract owners.
We also may establish additional Variable Sub-Accounts or series of Variable
Sub-Accounts. Each additional Variable Sub-Account would purchase shares in a
new Fund of the same or different mutual fund. We may establish new Variable
Sub-Accounts when we believe marketing needs or investment conditions warrant.
We determine the basis on which we will offer any new Variable Sub-Accounts in
conjunction with the Contract to existing Contract owners. We may eliminate one
or more Variable Sub-Accounts if, in our sole discretion, marketing, tax or
investment conditions so warrant.
We may, by appropriate endorsement, change the Contract as we believe necessary
or appropriate to reflect any substitution or change in the Funds. If we believe
the best interests of persons having voting rights under the Contracts would be
served, we may operate the Variable Account as a management company under the
Investment Company Act of 1940 or we may withdraw its registration under such
Act if such registration is no longer required.
<PAGE>
THE CONTRACT
The Contract is primarily designed to aid individuals in long-term financial
planning. You can use it for retirement planning regardless of whether the
retirement plan qualifies for special federal income tax treatment.
PURCHASE OF CONTRACTS
We offer the Contracts to the public through banks as well as brokers licensed
under the federal securities laws and state insurance laws. The principal
underwriter for the Variable Account, Allstate Life Financial Services, Inc.
("ALFS"), distributes the Contracts. ALFS is an affiliate of Glenbrook. The
offering of the Contracts is continuous. We do not anticipate discontinuing the
offering of the Contracts, but we reserve the right to do so at any time.
TAX-FREE EXCHANGES (1035 EXCHANGES, ROLLOVERS AND TRANSFERS)
We accept purchase payments that are the proceeds of a Contract in a transaction
qualifying for a tax-free exchange under Section 1035 of the Internal Revenue
Code ("Code"). Except as required by federal law in calculating the basis of the
Contract, we do not differentiate between Section 1035 purchase payments and
non-Section 1035 purchase payments.
We also accept "rollovers" and transfers from Contracts qualifying as tax-
sheltered annuities ("TSAs"), individual retirement annuities or accounts
("IRAs"), or any other Qualified Contract that is eligible to "rollover" into an
IRA. We differentiate among non-Qualified Contracts, TSAs, IRAs and other
Qualified Contracts to the extent necessary to comply with federal tax laws. For
example, we restrict the assignment, transfer, or pledge of TSAs and IRAs so the
Contracts will continue to qualify for special tax treatment. A Contract owner
contemplating any such exchange, rollover or transfer of a Contract should
contact a competent tax adviser with respect to the potential effects of such a
transaction.
<PAGE>
PERFORMANCE INFORMATION
From time to time we may advertise the "standardized," "non-standardized," and
"adjusted historical" total returns of the Variable Sub-Accounts, as described
below. Please remember that past performance is not an estimate or guarantee of
future performance and does not necessarily represent the actual experience of
amounts invested by a particular Contract owner. Also, please note that the
performance figures shown do not reflect any applicable taxes.
STANDARDIZED TOTAL RETURNS
A Variable Sub-Account's standardized total return represents the average annual
total return of that Sub-Account over a particular period. We compute
standardized total return by finding the annual percentage rate that, when
compounded annually, will accumulate a hypothetical $1,000 purchase payment to
the redeemable value at the end of the one, five or ten year period, or for a
period from the date of commencement of the Variable Sub-Account's operations,
if shorter than any of the foregoing. We use the following formula prescribed by
the SEC for computing standardized total return:
$1,000(1 + T)n = ERV
where:
T = average annual total return
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of 1, 5, or 10 year periods or
shorter period
n = number of years in the period
$1000 = hypothetical $1,000 investment
When factoring in the withdrawal charge assessed upon redemption, we exclude the
Free Withdrawal Amount, which is the amount you can withdraw from the Contract
without paying a withdrawal charge. We also use the withdrawal charge that would
apply upon redemption at the end of each period. Thus, for example, when
factoring in the withdrawal charge for a one year standardized total return
calculation, we would use the withdrawal charge that applies to a withdrawal of
a purchase payment made one year prior.
When factoring in the contract maintenance charge, we pro rate the charge by
dividing (i) the contract maintenance charge by (ii) the average Contract size
of $57,476. We then multiply the resulting percentage by a hypothetical $1,000
investment.
The standardized total returns for the Variable Sub-Accounts for the periods
ended December 31, 1999 are set out below.
The Contracts were first offered to the public on June 2, 1998. Certain of the
Variable Sub-Accounts were available for investment prior to that date.
Accordingly, performance figures for the Variable Sub-Accounts prior to that
date reflect the historical performance of the Variable Sub-Accounts, adjusted
to reflect the current level of charges that apply to the Variable Sub-Accounts
under the Contracts, as well as the withdrawal and contract maintenance charges
described above. No standardized total returns are shown for the AIM V.I. Money
Market Variable Sub-Account. In addition, no standardized returns are shown for
the AIM V.I. Blue Chip, Dent Demographic Trends, Global Growth and Income, and
Telecommunicaitons and Technology Variable Sub-Accounts which commenced
operations on January 3, 2000.
(Without the Enhanced Death Benefit Option or the Enhanced Death and Income
Benefit Combination Option)
<TABLE>
<CAPTION>
10 Years or Since
Variable Sub-Account One Year Five Years Inception (if less)*
<S> <C> <C> <C>
AIM V.I. Aggressive Growth 34.52% N/A 18.22%
AIM V.I. Balanced 10.93% N/A 13.99%
AIM V.I. Blue Chip N/A N/A N/A
AIM V.I. Capital Appreciation 34.47% N/A 19.58%
AIM V.I. Capital Development 20.04% N/A 5.96%
AIM V.I. Dent Demographic Trends N/A N/A N/A
AIM V.I. Diversified Income -3.05% N/A 2.99%
AIM V.I. Global Growth and Income N/A N/A N/A
AIM V.I. Global Utilities 24.19% N/A 18.29%
AIM V.I. Government Securities -5.13% N/A 2.00%
AIM V.I. Growth 25.75% N/A 24.63%
AIM V.I. Growth & Income 24.83% N/A 23.25%
AIM V.I. High Yield 2.76% N/A -3.59%
AIM V.I. International Equity 44.18% N/A 20.35%
AIM V.I. Telecommunications and Technology N/A N/A N/A
AIM V.I. Value 20.78% N/A 21.25%
</TABLE>
<PAGE>
* The Variable Sub-Accounts commenced operations on December 4, 1995 with the
exception of the AIM V.I. Aggressive Growth, Balanced, Capital Appreciation and
High Yield Sub-Accounts, which commenced operations on May 1, 1998, and the AIM
V.I. Blue Chip, Dent Demographic Trends, Global Growth and Income, and
Telecommunications and Technology Variable Sub-Accounts, which commenced
operations on January 3, 2000.
(With the Enhanced Death Benefit Option)
<TABLE>
<CAPTION>
10 Years or Since
Variable Sub-Account One Year Five Years Inception (if less)*
<S> <C> <C> <C>
AIM V.I. Aggressive Growth 34.25% N/A 17.99%
AIM V.I. Balanced 10.70% N/A 13.76%
AIM V.I. Blue Chip N/A N/A N/A
AIM V.I. Capital Appreciation 34.20% N/A 19.34%
AIM V.I. Capital Development 19.80% N/A 5.75%
AIM V.I. Dent Demographic Trends N/A N/A N/A
AIM V.I. Diversified Income -3.24% N/A 2.78%
AIM V.I. Global Growth and Income N/A N/A N/A
AIM V.I. Global Utilities 23.94% N/A 18.06%
AIM V.I. Government Securities -5.32% N/A 1.80%
AIM V.I. Growth 25.49% N/A 24.38%
AIM V.I. Growth & Income 24.58% N/A 23.00%
AIM V.I. High Yield 2.55% N/A -3.78%
AIM V.I. International Equity 43.89% N/A 20.11%
AIM V.I. Telecommunications and Technology N/A N/A N/A
AIM V.I. Value 20.54% N/A 21.01%
</TABLE>
*The inception dates of the Variable Sub-Accounts appear in the footnote to the
preceding table.
(With the Enhanced Death and Income Benefit Combination Option)
<TABLE>
<CAPTION>
10 Years or Since
Variable Sub-Account One Year Five Years Inception (if less)*
<S> <C> <C> <C>
AIM V.I. Aggressive Growth 33.99% N/A 17.75%
AIM V.I. Balanced 10.48% N/A 13.53%
AIM V.I. Blue Chip N/A N/A N/A
AIM V.I. Capital Appreciation 33.93% N/A 19.10%
AIM V.I. Capital Development 19.56% N/A 5.54%
AIM V.I. Dent Demographic Trends N/A N/A N/A
AIM V.I. Diversified Income -3.44% N/A 2.57%
AIM V.I. Global Growth and Income N/A N/A N/A
AIM V.I. Global Utilities 23.69% N/A 17.82%
AIM V.I. Government Securities -5.51% N/A 1.59%
AIM V.I. Growth 25.24% N/A 24.13%
AIM V.I. Growth & Income 24.33% N/A 22.75%
AIM V.I. High Yield 2.35% N/A -3.97%
AIM V.I. International Equity 43.60% N/A 19.87%
AIM V.I. Telecommunications and Technology N/A N/A N/A
AIM V.I. Value 20.30% N/A 20.77%
</TABLE>
*The inception dates of the Variable Sub-Accounts appear in the footnote to the
first table under "Standardized Total Returns."
NON-STANDARDIZED TOTAL RETURNS
From time to time, we also may quote rates of return that reflect changes in the
values of each Variable Sub-Account's accumulation units. We may quote these
"non-standardized total returns" on an annualized, cumulative, year by year or
other basis. These rates of return take into account asset-based charges, such
as the mortality and expense risk charge and administration charge. However,
these rates of return do not reflect withdrawal charges, contract maintenance
charges, or any taxes. Such charges, if reflected, would reduce the performance
shown.
Annualized returns reflect the rate of return that, when compounded annually,
would equal the cumulative rate of return for the period shown. We compute
annualized returns according to the following formula:
Annualized Return = (l + r) l/n -1
Where r = cumulative rate of return for the period shown and
n = number of years in the period
<PAGE>
The method of computing annualized rates of return is similar to that for
computing standardized performance, described above, except rather than using a
hypothetical $1,000 investment and the ending redeemable value thereof, we use
the changes in value of an accumulation unit.
Cumulative rates of return reflect the cumulative change in value of an
accumulation unit over the period shown. Year-by-year rates of return reflect
the change in value of an accumulation unit during the course of each year
shown. We compute these returns by dividing the accumulation unit value at the
end of each period shown, by the accumulation unit value at the beginning of
that period, and subtracting one. We compute other total returns on a similar
basis.
We may quote non-standardized total returns for 1, 3, 5, and 10 year periods, or
period since inception of the Variable Sub-Account's operations, as well as
other periods, such as "year to date" (prior calendar year end to the day stated
in the advertisement); "year to most recent quarter" (prior to calendar year end
to the end of the most recent quarter); the prior calendar year; and the "n"
most recent calendar years.
The non standardized annualized total returns for the Variable Sub-Accounts for
the period ended December 31, 1999 are set out below. The Contract was first
offered for sale as of June 2, 1998. Certain of the Variable Sub-Accounts were
available for investment prior to that date, Accordingly, the performance shown
reflects the historical performance of the Variable Sub-Accounts, adjusted to
reflect the current asset-based charges that apply to the Variable Sub-Accounts
under the Contracts (but not the withdrawal charge, contract maintenance charge
or taxes). No non-standardized annualized returns are shown for the Money Market
Variable Sub-Account. In addition, no non-standardized returns are shown for the
AIM V.I. Blue Chip, Dent Demographic Trends, Global Growth and Income, and
Telecommunicaitons and Technology Variable Sub-Accounts which commenced
operations on January 3, 2000.
(Without the Enhanced Death Benefit Option or the Enhanced Death and Income
Benefit Combination Option)
<TABLE>
<CAPTION>
10 Years or Since
Variable Sub-Account One Year Five Years Inception (if less)*
<S> <C> <C> <C>
AIM V.I. Aggressive Growth 43.09% N/A 22.73%
AIM V.I. Balanced 18.00% N/A 18.33%
AIM V.I. Blue Chip N/A N/A N/A
AIM V.I. Capital Appreciation 43.03% N/A 20.92%
AIM V.I. Capital Development 27.69 N/A 10.01%
AIM V.I. Dent Demographic Trends N/A N/A N/A
AIM V.I. Diversified Income -2.99% N/A 4.15%
AIM V.I. Global Growth and Income N/A N/A N/A
AIM V.I. Global Utilities 32.10% N/A 19.62%
AIM V.I. Government Securities -5.08% N/A 3.16%
AIM V.I. Growth 33.76% N/A 26.02%
AIM V.I. Growth & Income 32.78% N/A 24.62%
AIM V.I. High Yield 9.32% N/A 0.10%
AIM V.I. International Equity 53.35% N/A 21.69%
AIM V.I. Telecommunications and Technology N/A N/A N/A
AIM V.I. Value 28.48% N/A 22.60%
</TABLE>
*The inception dates of the Variable Sub-Accounts appear in the footnote to the
first table under "Standardized Total Returns."
(With the Enhanced Death Benefit Option)
<TABLE>
<CAPTION>
10 Years or Since
Variable Sub-Account One Year Five Years Inception (if less)*
<S> <C> <C> <C>
AIM V.I. Aggressive Growth 42.80% N/A 22.48%
AIM V.I. Balanced 17.76% N/A 18.09%
AIM V.I. Blue Chip N/A N/A N/A
AIM V.I. Capital Appreciation 42.75% N/A 20.68%
AIM V.I. Capital Development 27.43% N/A 9.79%
AIM V.I. Dent Demographic Trends N/A N/A N/A
AIM V.I. Diversified Income -3.19% N/A 3.95%
AIM V.I. Global Growth and Income N/A N/A N/A
AIM V.I. Global Utilities 31.84% N/A 19.38%
AIM V.I. Government Securities -5.27% N/A 2.95%
AIM V.I. Growth 33.49% N/A 25.77%
AIM V.I. Growth & Income 32.51% N/A 24.37%
AIM V.I. High Yield 9.10% N/A -0.10%
AIM V.I. International Equity 53.05% N/A 21.45%
AIM V.I. Telecommunications and Technology N/A N/A N/A
AIM V.I. Value 28.22% N/A 22.36%
</TABLE>
<PAGE>
*The inception dates of the Variable Sub-Accounts appear in the footnote to the
first table under "Standardized Total Returns."
(With the Enhanced Death and Income Benefit Combination Option)
<TABLE>
<CAPTION>
10 Years or Since
Variable Sub-Account One Year Five Years Inception (if less)*
<S> <C> <C> <C>
AIM V.I. Aggressive Growth 42.52% N/A 22.24%
AIM V.I. Balanced 17.53% N/A 17.85%
AIM V.I. Blue Chip N/A N/A N/A
AIM V.I. Capital Appreciation 42.46% N/A 20.43%
AIM V.I. Capital Development 27.18% N/A 9.57%
AIM V.I. Dent Demographic Trends N/A N/A N/A
AIM V.I. Diversified Income -3.38% N/A 3.74%
AIM V.I. Global Growth and Income N/A N/A N/A
AIM V.I. Global Utilities 31.58% N/A 19.14%
AIM V.I. Government Securities -5.45% N/A 2.75%
AIM V.I. Growth 33.22% N/A 25.52%
AIM V.I. Growth & Income 32.25% N/A 24.12%
AIM V.I. High Yield 8.88% N/A -0.30%
AIM V.I. International Equity 52.74% N/A 21.21%
AIM V.I. Telecommunications and Technology N/A N/A N/A
AIM V.I. Value 27.97% N/A 22.12%
</TABLE>
*The inception dates of the Variable Sub-Accounts appear in the footnote to the
first table under "Standardized Total Returns."
<PAGE>
ADJUSTED HISTORICAL TOTAL RETURNS
We may advertise the total return for periods prior to the date that the
Variable Sub-Accounts commenced operations. We will calculate such "adjusted
historical total returns" using the historical performance of the underlying
Funds and adjusting such performance to reflect the current level of charges
that apply to the Variable Sub-Accounts under the Contract, the contract
maintenance charge, and the appropriate withdrawal charge.
The adjusted historical total returns for the Variable Sub-Accounts for the
periods ended December 31, 1999 are set out below. No adjusted historical total
returns are shown for the AIM V.I. Money Market Variable Sub-Account.
(Without the Enhanced Death Benefit Option or the Enhanced Death and Income
Benefit Combination Option)
<TABLE>
<CAPTION>
10 Years or Since
Variable Sub-Account One Year Five Years Inception of Fund (if less)*
<S> <C> <C> <C>
AIM V.I. Aggressive Growth 34.52% N/A 18.22%
AIM V.I. Balanced 10.93% N/A 13.99%
AIM V.I. Blue Chip**** N/A N/A N/A
AIM V.I. Capital Appreciation 34.47% 23.12% 20.49%
AIM V.I. Capital Development 20.04% N/A 5.96%
AIM V.I. Dent Demographic Trends**** N/A N/A N/A
AIM V.I. Diversified Income -3.05% 5.70% 4.32%
AIM V.I. Global Growth and Income** -7.16% 11.04% 9.95%
AIM V.I. Global Utilities 24.19% 19.47% 16.39%
AIM V.I. Government Securities -5.13% 4.23% 3.07%
AIM V.I. Growth 25.75% 27.10% 21.08%
AIM V.I. Growth & Income** 24.83% 25.66% 22.34%
AIM V.I. High Yield 2.76% N/A -3.59%
AIM V.I. International Equity 44.18% 19.53% 17.03%
AIM V.I. Telecommunications and Technology*** 92.09% 31.02% 27.54%
AIM V.I. Value 20.78% 24.73% 21.22%
</TABLE>
* The inception dates of the Funds corresponding to the Variable Sub-Accounts
are as follows:
AIM V.I. Aggressive Growth Fund May 1, 1998
AIM V.I. Balanced Fund May 1, 1998
AIM V.I. Blue Chip December 29, 1999
AIM V.I. Capital Appreciation Fund May 5, 1993
AIM V.I. Capital Development Fund May 1, 1998
AIM V.I. Dent Demographics December 29, 1999
AIM V.I. Diversified Income Fund May 5, 1993
AIM V.I. Global Growth and Income February 10, 1993
AIM V.I. Global Utilities Fund May 2, 1994
AIM V.I. Government Securities Fund May 5, 1993
AIM V.I. Growth Fund May 5, 1993
AIM V.I. Growth & Income Fund May 2, 1994
AIM V.I. High Yield Fund May 1, 1998
AIM V.I. International Equity Fund May 5, 1993
AIM V.I. Telecommunications and Technology Fund October 18, 1993
AIM V.I. Value Fund May 5, 1993
**The performance figures for this Variable Sub-Account is not annualized.
*** Effective May 1, 2000, the AIM V.I. Telecommunications Fund changed its name
to the AIM V.I. Telecommunications and Technology Fund to reflect changes in its
investment policies. Performance shown for this fund reflects the investment
policies of the fund prior to the change.
****No adjusted historical returns are shown for the AIM V.I. Blue Chip and the
AIM V.I. Dent Demographic Trends Variable Sub-Accounts which commenced
operations on January 3, 2000.
<PAGE>
<TABLE>
<CAPTION>
(With the Enhanced Death Benefit Option)*
10 Years or
Variable Sub-Account One Year Five Years Since Inception of Fund (if less)*
<S> <C> <C> <C>
AIM V.I. Aggressive Growth 34.25% N/A 17.99%
AIM V.I. Balanced 10.70% N/A 13.76%
AIM V.I. Blue Chip N/A N/A N/A
AIM V.I. Capital Appreciation 34.20% 22.87% 20.25%
AIM V.I. Capital Development 19.80% N/A 5.75%
AIM V.I. Dent Demographic Trends N/A N/A N/A
AIM V.I. Diversified Income -3.24% 5.49% 4.11%
AIM V.I. Global Growth and Income -7.35% 10.82% 9.73%
AIM V.I. Global Utilities 23.94% 19.23% 16.16%
AIM V.I. Government Securities -5.32% 4.02% 2.86%
AIM V.I. Growth 25.49% 26.84% 20.83%
AIM V.I. Growth & Income** 24.58% 25.41% 22.10%
AIM V.I. High Yield 2.55% N/A -3.78%
AIM V.I. International Equity 43.89% 19.29% 16.80%
AIM V.I. Telecommunications and Technology** 91.71% 30.75% 27.28%
AIM V.I. Value 20.54% 24.48% 20.98%
</TABLE>
* The inception dates for the Funds appear in the footnote to the preceding
table.
**The performance figures for this Variable Sub-Account is not annualized.
(With the Enhanced Death and Income Benefit Combination Option)*
<TABLE>
<CAPTION>
10 Years or
Variable Sub-Account One Year Five Years Since Inception (if less)**
<S> <C> <C> <C>
AIM V.I. Aggressive Growth 33.99% N/A 17.75%
AIM V.I. Balanced 10.48% N/A 13.53%
AIM V.I. Blue Chip N/A N/A N/A
AIM V.I. Capital Appreciation 33.93% 22.63% 20.01%
AIM V.I. Capital Development 19.56% N/A 5.54%
AIM V.I. Dent Demographic Trends N/A N/A N/A
AIM V.I. Diversified Income -3.44% 5.28% 3.90%
AIM V.I. Global Growth and Income -7.54% 10.60% 9.51%
AIM V.I. Global Utilities 23.69% 18.99% 15.93%
AIM V.I. Government Securities -5.51% 3.81% 2.66%
AIM V.I. Growth 25.24% 26.59% 20.59%
AIM V.I. Growth & Income 24.33% 25.16% 21.86%
AIM V.I. High Yield 2.35% N/A -3.97%
AIM V.I. International Equity 43.60% 19.05% 16.56%
AIM V.I. Telecommunications and Technology 91.32% 30.50% 27.03%
AIM V.I. Value 20.30% 24.23% 20.73%
</TABLE>
* The inception dates for the Funds appear in the footnote to the first table
under "Adjusted Historical Total Returns."
<PAGE>
CALCULATION OF ACCUMULATION UNIT VALUES
The value of Accumulation Units will change each Valuation Period according to
the investment performance of the Fund shares purchased by each Variable Sub-
Account and the deduction of certain expenses and charges. A "Valuation Period"
is the period from the end of one Valuation Date and continues to the end of the
next Valuation Date. A Valuation Date ends at the close of regular trading on
the New York Stock Exchange (currently 3:00 p.m. Central Time).
The Accumulation Unit Value of a Variable Sub-Account for any Valuation Period
equals the Accumulation Unit Value as of the immediately preceding Valuation
Period, multiplied by the Net Investment Factor (described below) for that Sub-
Account for the current Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor for a Valuation Period is a number representing the
change, since the last Valuation Period, in the value of Sub-account assets per
Accumulation Unit due to investment income, realized or unrealized capital gain
or loss, deductions for taxes, if any, and deductions for the mortality and
expense risk charge and administrative expense charge. We determine the Net
Investment Factor for each Variable Sub-Account for any Valuation Period by
dividing (A) by (B) and subtracting (C) from the result, where:
(A) is the sum of:
(1) the net asset value per share of the Fund underlying the Variable
Sub-Account determined at the end of the current Valuation
Period; plus,
(2) the per share amount of any dividend or capital gain
distributions made by the Fund underlying the Variable Sub-
Account during the current Valuation Period;
(B) is the net asset value per share of the Fund underlying the Variable
Sub-Account determined as of the end of the immediately preceding
Valuation Period; and
(C) is the annualized mortality and expense risk and administrative
expense charges divided by 365 and then multiplied by the number of
calendar days in the current Valuation Period.
<PAGE>
CALCULATION OF VARIABLE INCOME PAYMENTS
We calculate the amount of the first variable income payment under an Income
Plan by applying the Contract Value allocated to each Variable Sub-Account less
any applicable premium tax charge deducted at the time, to the income payment
tables in the Contract. We divide the amount of the first variable annuity
income payment by the Variable Sub-Account's then current Annuity Unit value to
determine the number of annuity units ("Annuity Units") upon which later income
payments will be based. To determine income payments after the first, we simply
multiply the number of Annuity Units determined in this manner for each Variable
Sub-Account by the then current Annuity Unit value ("Annuity Unit Value") for
that Variable Sub-Account.
CALCULATION OF ANNUITY UNIT VALUES
Annuity Units in each Variable Sub-Account are valued separately and Annuity
Unit Values will depend upon the investment experience of the particular Fund in
which the Variable Sub-Account invests. We calculate the Annuity Unit Value for
each Variable Sub-Account at the end of any Valuation Period by:
. multiplying the Annuity Unit Value at the end of the immediately preceding
Valuation Period by the Variable Sub-Account's Net Investment Factor
(described in the preceding section) for the Period; and then
. dividing the product by the sum of 1.0 plus the assumed investment rate for
the Valuation Period.
The assumed investment rate adjusts for the interest rate assumed in the income
payment tables used to determine the dollar amount of the first variable income
payment, and is at an effective annual rate which is disclosed in the Contract.
We determine the amount of the first variable income payment paid under an
Income Plan using the income payment tables set out in the Contracts. The
Contracts include tables that differentiate on the basis of sex, except in
states that require the use of unisex tables.
<PAGE>
GENERAL MATTERS
INCONTESTABILITY
We will not contest the Contract after we issue it.
SETTLEMENTS
We may require that your Contract be returned to us prior to any settlement. We
must receive due proof of the Contract owner(s) death (or Annuitant's death if
there is a non-natural Contract owner) before we will settle a death claim.
SAFEKEEPING OF THE VARIABLE ACCOUNT'S ASSETS
We hold title to the assets of the Variable Account. We keep the assets
physically segregated and separate and apart from our general corporate assets.
We maintain records of all purchases and redemptions of the Fund shares held by
each of the Variable Sub-Accounts.
The Funds do not issue stock certificates. Therefore, we hold the Variable
Account's assets in open account in lieu of stock certificates. See the Funds'
prospectuses for a more complete description of the custodian of the Funds.
PREMIUM TAXES
Applicable premium tax rates depend on the Contract owner's state of residency
and the insurance laws and our status in those states where premium taxes are
incurred. Premium tax rates may be changed by legislation, administrative
interpretations, or judicial acts.
TAX RESERVES
We do not establish capital gains tax reserves for any Variable Sub-Account nor
do we deduct charges for tax reserves because we believe that capital gains
attributable to the Variable Account will not be taxable. However, we reserve
the right to deduct charges to establish tax reserves for potential taxes on
realized or unrealized capital gains.
<PAGE>
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. WE MAKE
NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION
INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on the individual circumstances
of each person. If you are concerned about any tax consequences with regard to
your individual circumstances, you should consult a competent tax adviser.
TAXATION OF GLENBROOK LIFE AND ANNUITY COMPANY
Glenbrook is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code. Since the Variable Account is not an entity separate
from Glenbrook, and its operations form a part of Glenbrook, it will not be
taxed separately as a "Regulated Investment Company" under Subchapter M of the
Code. Investment income and realized capital gains of the Variable Account are
automatically applied to increase reserves under the contract. Under existing
federal income tax law, Glenbrook believes that the Variable Account investment
income and capital gains will not be taxed to the extent that such income and
gains are applied to increase the reserves under the contract. Accordingly,
Glenbrook does not anticipate that it will incur any federal income tax
liability attributable to the Variable Account, and therefore Glenbrook does not
intend to make provisions for any such taxes. If Glenbrook is taxed on
investment income or capital gains of the Variable Account, then Glenbrook may
impose a charge against the Variable Account in order to make provision for such
taxes.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE
There are several exceptions to the general rule that annuity contracts held by
a non-natural owner are not treated as annuity contracts for federal income tax
purposes. Contracts will generally be treated as held by a natural person if the
nominal owner is a trust or other entity which holds the Contract as agent for a
natural person. However, this special exception will not apply in the case of an
employer who is the nominal owner of an annuity contract under a non-qualified
deferred compensation arrangement for its employees. Other exceptions to the
non-natural owner rule are: (1) contracts acquired by an estate of a decedent by
reason of the death of the decedent; (2) certain qualified contracts; (3)
contracts purchased by employers upon the termination of certain qualified
plans; (4) certain contracts used in connection with structured settlement
agreements, and (5) contracts purchased with a single premium when the annuity
starting date is no later than a year from purchase of the annuity and
substantially equal periodic payments are made, not less frequently than
annually, during the annuity period.
IRS REQUIRED DISTRIBUTION AT DEATH RULES
In order to be considered an annuity contract for federal income tax purposes,
an annuity contract must provide: (1) if any owner dies on or after the annuity
start date but before the entire interest in the contract has been distributed,
the remaining portion of such interest must be distributed at least as rapidly
as under the method of distribution being used as of the date of the owner's
death; (2) if any owner dies prior to the annuity start date, the entire
interest in the contract will be distributed within five years after the date of
the owner's death. These requirements are satisfied if any portion of the
owner's interest which is payable to (or for the benefit of) a designated
beneficiary is distributed over the life of such beneficiary (or over a period
not extending beyond the life expectancy of the beneficiary) and the
distributions begin within one year of the owner's death. If the owner's
designated beneficiary is the surviving spouse of the owner, the contract may be
continued with the surviving spouse as the new owner. If the owner of the
contract is a non-natural person, then the annuitant will be treated as the
owner for purposes of applying the distribution at death rules. In addition, a
change in the annuitant on a contract owned by a non-natural person will be
treated as the death of the owner.
<PAGE>
QUALIFIED PLANS
The Contract may be used with several types of qualified plans. The income on
qualified plan and IRA investments is tax deferred and variable annuites 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 below.
The tax rules applicable to participants in such qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. Adverse tax
consequences may result from excess contributions, premature distributions,
distributions that do not conform to specified commencement and minimum
distribution rules, excess distributions and in other circumstances. Contract
owners and participants under the plan and annuitants and beneficiaries under
the Contract may be subject to the terms and conditions of the plan regardless
of the terms of the Contract.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity (IRA).
Individual Retirement Annuities are subject to limitations on the amount that
can be contributed and on the time when distributions may commence. Certain
distributions from other types of qualified plans may be "rolled over" on a tax-
deferred basis into an Individual Retirement Annuity. An IRA generally may not
provide life insurance, but it may provide a death benefit that equals the
greater of the premiums paid and the Contract's Cash Value. The Contract
provides a death benefit that in certain circumstances may exceed the greater of
the payments and the Contract Value. It is possible that the death benefit could
be viewed as violating the prohibition on investment in life insurance contracts
with the result that the Contract would not be viewed as satisfying the
requirements of an IRA.
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth Individual
Retirement Annuity. Roth Individual Retirement Annuities are subject to
limitations on the amount that can be contributed and on the time when
distributions may commence. "Qualified distributions" from Roth Individual
Retirement Annuities are not includible in gross income. "Qualified
distributions" are any distributions made more than five taxable years after the
taxable year of the first contribution to the Roth Individual Retirement
Annuity, and which are made on or after the date the individual attains age 59
1/2, made to a beneficiary after the owner's death, attributable to the owner
being disabled or for a first time home purchase (first time home purchases are
subject to a lifetime limit of $10,000). "Nonqualified distributions" are
treated as made from contributions first and are includible in gross income to
the extent such distributions exceed the contributions made to the Roth
Individual Retirement Annuity. The taxable portion of a "nonqualified
distribution" may be subject to the 10% penalty tax on premature distributions.
Subject to certain limitations, a traditional Individual Retirement Account or
Annuity may be converted or "rolled over" to a Roth Individual Retirement
Annuity. The taxable portion of a conversion or rollover distribution is
includible in gross income, but is exempted from the 10% penalty tax on
premature distributions.
SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees using the employees' individual retirement
annuities if certain criteria are met. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to their individual retirement annuities. Employers intending to use
the Contract in connection with such plans should seek competent advice. In
particular, employers should consider that an IRA generally may not provide life
insurance, but it may provide a death benefit that equals the greater of the
premiums paid and the contract's cash value. The Contract provides a death
benefit that in certain circumstances may exceed the greater of the payments and
the Contract Value.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS)
Sections 408(p) and 401(k) of the Code allow employers with 100 or fewer
employees to establish SIMPLE retirement plans for their employees. SIMPLE plans
may be structured as a SIMPLE retirement account using an employee's IRA to hold
the assets or as a Section 401(k) qualified cash or deferred arrangement. In
general, a SIMPLE plan consists of a salary deferral program for eligible
employees and matching or nonelective contributions made by employers. Employers
intending to use the Contract in conjunction with SIMPLE plans should seek
competent tax and legal advice.
TAX SHELTERED ANNUITIES
Section 403(b) of the Code permits public school employees and employees of
certain types of tax-exempt organizations (specified in Section 501(c)(3) of the
<PAGE>
Code) to have their employers purchase annuity contracts for them, and subject
to certain limitations, to exclude the purchase payments from the employees'
gross income. An annuity contract used for a Section 403(b) plan must provide
that distributions attributable to salary reduction contributions made after
12/31/88, and all earnings on salary reduction contributions, may be made only
on or after the date the employee attains age 59 1/2, separates from service,
dies, becomes disabled or on the account of hardship (earnings on salary
reduction contributions may not be distributed for hardship). These limitations
do not apply to withdrawals where Glenbrook is directed to transfer some or all
of the Contract Value to another 403(b) plan.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS
Sections 401(a) and 403(a) of the Code permit corporate employers to establish
various types of tax favored retirement plans for employees. The Self-Employed
Individuals Retirement Act of 1962, as amended, (commonly referred to as "H.R.
10" or "Keogh") permits self-employed individuals to establish tax favored
retirement plans for themselves and their employees. Such retirement plans may
permit the purchase of annuity contracts in order to provide benefits under the
plans.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION
PLANS
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current taxes. The employees must be participants in an eligible deferred
compensation plan. To the extent the Contracts are used in connection with an
eligible plan, employees are considered general creditors of the employer and
the employer as owner of the contract has the sole right to the proceeds of the
contract. Generally, under the non-natural owner rules, such Contracts are not
treated as annuity contracts for federal income tax purposes. Under these plans,
contributions made for the benefit of the employees will not be includible in
the employees' gross income until distributed from the plan. However, under a
Section 457 plan all the compensation deferred under the plan must remain solely
the property of the employer, subject only to the claims of the employer's
general creditors, until such time as made available to the employee or a
beneficiary.
<PAGE>
EXPERTS
The financial statements and related financial statement schedules of Glenbrook
Life and Annuity Company as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 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.
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.
FINANCIAL STATEMENTS
The financial statements of the Variable Account as of December 31, 1999 and for
the periods in the two years then ended, the financial statements and related
financial statement schedule 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
accompanying Independent Auditors' Report appear in the pages that follow. The
financial statements of Glenbrook included herein should be considered only as
bearing upon the ability of Glenbrook to meet its obligations under the
Contacts.
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:
We have audited the accompanying Statements of Financial Position of Glenbrook
Life and Annuity Company (the "Company", an affiliate of The Allstate
Corporation) as of December 31, 1999 and 1998, and the related Statements of
Operations and Comprehensive Income, Shareholder's Equity and Cash Flows for
each of the three years in the period ended December 31, 1999. Our audits also
included Schedule IV - Reinsurance. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 25, 2000
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
---------- ------------
($ in thousands, except par value data)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $94,173 and $87,415 ) $ 92,937 $ 94,313
Short-term 53,063 4,663
----------- -----------
Total investments 146,000 98,976
Cash 9 --
Reinsurance recoverable from
Allstate Life Insurance Company 4,144,165 3,113,278
Deferred income taxes 293 --
Other assets 2,706 2,590
Separate Accounts 1,541,756 993,622
----------- -----------
TOTAL ASSETS $ 5,834,929 $ 4,208,466
=========== ===========
LIABILITIES
Reserve for life-contingent contract benefits $ 800 $ --
Contractholder funds 4,143,365 3,113,278
Current income taxes payable 2,360 2,181
Deferred income taxes -- 2,499
Payable to affiliates, net 4,122 3,583
Separate Accounts 1,541,756 993,622
----------- -----------
TOTAL LIABILITIES 5,692,403 4,115,163
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 11)
SHAREHOLDER'S EQUITY
Common stock, $500 par value, 10,000 and
4,200 shares authorized, 5,000 and
4,200 shares issued
and outstanding 2,500 2,100
Additional capital paid-in 119,241 69,641
Retained income 21,588 17,079
Accumulated other comprehensive (loss) income:
Unrealized net capital (losses) gains (803) 4,483
----------- -----------
TOTAL ACCUMULATED OTHER COMPREHENSIVE
(LOSS) INCOME (803) 4,483
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 142,526 93,303
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 5,834,929 $ 4,208,466
=========== ===========
</TABLE>
See notes to financial statements.
2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
($ in thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
REVENUES
Net investment income $ 6,579 $ 6,231 $ 5,304
Realized capital gains and losses 312 (5) 3,460
------- ------- -------
INCOME FROM OPERATIONS
BEFORE INCOME TAX EXPENSE 6,891 6,226 8,764
Income tax expense 2,382 2,182 3,078
------- ------- -------
NET INCOME 4,509 4,044 5,686
------- ------- -------
OTHER COMPREHENSIVE (LOSS) INCOME, AFTER-TAX
Change in unrealized net capital gains and losses (5,286) 1,315 378
------- ------- -------
COMPREHENSIVE (LOSS) INCOME $ (777) $ 5,359 $ 6,064
======= ======= =======
</TABLE>
See notes to financial statements.
3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998 1997
--------- --------- ---------
($ in thousands)
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning of year $ 2,100 $ 2,100 $ 2,100
Issuance of new shares of stock 400 -- --
--------- --------- ---------
Balance, end of year 2,500 2,100 2,100
--------- --------- ---------
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year $ 69,641 $ 69,641 $ 69,641
Capital contribution 49,600 -- --
--------- --------- ---------
Balance, end of year 119,241 69,641 69,641
--------- --------- ---------
RETAINED INCOME
Balance, beginning of year $ 17,079 $ 13,035 $ 7,349
Net income 4,509 4,044 5,686
--------- --------- ---------
Balance, end of year 21,588 17,079 13,035
--------- --------- ---------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance, beginning of year $ 4,483 $ 3,168 $ 2,790
Change in unrealized net capital gains
and losses (5,286) 1,315 378
--------- --------- ---------
Balance, end of year (803) 4,483 3,168
--------- --------- ---------
TOTAL SHAREHOLDER'S EQUITY $ 142,526 $ 93,303 $ 87,944
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
($ in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,509 $ 4,044 $ 5,686
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization and other non-cash items (65) (24) 29
Realized capital gains and losses (312) 5 (3,460)
Changes in:
Income taxes payable 235 1,590 240
Other operating assets and liabilities 264 915 961
-------- -------- --------
Net cash provided by operating activities 4,631 6,530 3,456
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 9,049 1,966 1,405
Investment collections 4,945 7,123 14,217
Investment purchases (20,328) (15,250) (50,115)
Participation in Separate accounts -- -- 13,981
Change in short-term investments, net (48,288) (369) (2,944)
-------- -------- --------
Net cash used in investing activities (54,622) (6,530) (23,456)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 400 -- --
Capital contribution 49,600 -- 20,000
-------- -------- --------
Net cash provided by financing activities 50,000 -- 20,000
-------- -------- --------
NET INCREASE IN CASH 9 -- --
CASH AT THE BEGINNING OF YEAR -- -- --
-------- -------- --------
CASH AT END OF YEAR $ 9 $ -- $ --
======== ======== ========
</TABLE>
See notes to financial statements.
5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity Company (the "Company"), a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). These financial statements have been prepared in conformity with
generally accepted accounting principles.
NATURE OF OPERATIONS
The Company markets savings and life insurance products through banks and
securities firms. Savings products include deferred annuities and immediate
annuities without life contingencies. Deferred annuities include fixed rate,
market value adjusted, indexed and variable annuities. Life insurance consists
of interest-sensitive life and variable life insurance. In 1999, substantially
all of the Company's statutory premiums and deposits were from annuities.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrender or withdrawal by customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have the
potential to impact its business. Recently enacted federal legislation will
allow for banks and other financial organizations to have greater participation
in the securities and insurance businesses. This legislation may present an
increased level of competition for sales of the Company's products. Furthermore,
the market for deferred annuities and interest-sensitive life insurance is
enhanced by the tax incentives available under current law. Any legislative
changes which lessen these incentives are likely to negatively impact the demand
for these products.
Additionally, traditional demutualizations of mutual insurance companies and
enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; and (2) increasing competition in the
capital markets.
Although the Company currently benefits from agreements with financial services
entities who market and distribute its products, change in control of these non-
affiliated entities with which the Company has alliances could negatively impact
the Company's sales.
The Company is authorized to sell life and savings products in all states except
New York, as well as in the District of Columbia. The top geographic locations
for statutory premiums and deposits for the Company were Florida, California,
Pennsylvania, Michigan, Texas, Illinois and New Jersey for the year ended
December 31, 1999. No other jurisdiction accounted for more than 5% of statutory
premiums and deposits. Substantially all premiums and deposits are ceded to ALIC
under reinsurance agreements.
6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost or amortized cost, which approximates fair value.
Investment income consists primarily of interest and short-term investment
dividends. Interest is recognized on an accrual basis and dividends are recorded
at the ex-dividend date. Interest income on mortgage-backed securities is
determined on the effective yield method, based on the estimated principal
repayments. Accrual of income is suspended for fixed income securities that are
in default or when the receipt of interest payments is in doubt. Realized
capital gains and losses are determined on a specific identification basis.
REINSURANCE RECOVERABLE
The Company has reinsurance agreements whereby substantially all contract
charges, credited interest, policy benefits and certain expenses are ceded to
ALIC. Such amounts are reflected net of such reinsurance in the statements of
operations and comprehensive income. Investment income earned on the assets
which support contractholder funds and the reserve for life-contingent contract
benefits is not included in the Company's financial statements as those assets
are owned and managed under terms of reinsurance agreements. Reinsurance
recoverable and the related reserve for life-contingent contract benefits and
contractholder funds are reported separately in the statements of financial
position. The Company continues to have primary liability as the direct insurer
for risks reinsured.
RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS AND INTEREST CREDITED
Interest-sensitive life contracts are insurance contracts whose terms are not
fixed and guaranteed. The terms that may be changed include premiums paid by the
contractholder, interest credited to the contractholder account balance and one
or more amounts assessed against the contractholder. Premiums from these
contracts are reported as deposits to contractholder funds. Contract charge
revenue consists of fees assessed against the contractholder account balance for
cost of insurance (mortality risk), contract administration and surrender
charges. Contract benefits include interest credited to contracts and claims
incurred in excess of the related contractholder account balance.
Contracts that do not subject the Company to significant risk arising from
mortality or morbidity are referred to as investment contracts. Fixed rate
annuities, market value adjusted annuities, indexed annuities and immediate
annuities without life contingencies are considered investment contracts.
Deposits received for such contracts are reported as deposits to contractholder
funds. Contract charge revenue for investment contracts consists of charges
assessed against the contractholder account balance for contract administration
and surrenders. Contract benefits include interest credited and claims incurred
in excess of the related contractholder account balance.
7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Crediting rates for fixed rate and interest-sensitive life contracts are
adjusted periodically by the Company to reflect current market conditions.
Crediting rates for indexed annuities are based on an interest rate index, such
as LIBOR or an equity index, such as the S&P 500.
Investment contracts include variable annuity and variable life contracts which
are sold as Separate Accounts products. The assets supporting these products are
legally segregated and available only to settle Separate Accounts contract
obligations. Deposits received are reported as Separate Accounts liabilities.
The Company's contract charge revenue for these contracts consists of charges
assessed against the Separate Accounts fund balances for contract maintenance,
administration, mortality, expense and surrenders.
All contract charges, contract benefits and interest credited are reinsured.
INCOME TAXES
The income tax provision is calculated under the liability method and presented
net of reinsurance. Deferred tax assets and liabilities are recorded based on
the difference between the financial statement and tax bases of assets and
liabilities at the enacted tax rates. Deferred income taxes arise primarily from
unrealized capital gains and losses on fixed income securities carried at fair
value and differences in the tax bases of investments.
SEPARATE ACCOUNTS
The Company issues deferred variable annuity and variable life contracts, the
assets and liabilities of which are legally segregated and recorded as assets
and liabilities of the Separate Accounts. Absent any contract provisions wherein
the Company contractually guarantees either a minimum return or account value to
the beneficiaries of the contractholders in the form of a death benefit, the
contractholders bear the investment risk that the Separate Accounts' funds may
not meet their stated objectives.
The assets of the Separate Accounts are carried at fair value. Separate Accounts
liabilities represent the contractholders' claim to the related assets and are
carried at the fair value of the assets. In the event that the asset value of
certain contractholder accounts are projected to be below the value guaranteed
by the Company, a liability is established through a charge to earnings.
Investment income and realized capital gains and losses of the Separate Accounts
accrue directly to the contractholders and therefore, are not included in the
Company's statements of operations and comprehensive income. Revenues to the
Company from the Separate Accounts consist of contract maintenance and
administration fees, and mortality, surrender and expense charges.
Prior to 1998, the Company had an ownership interest ("Participation") in the
Separate Accounts. The Company's Participation was carried at fair value and
unrealized gains and losses, net of deferred income taxes, were shown as a
component of shareholder's equity. Investment income and realized capital gains
and losses which arose from the Participation were included in the Company's
statements of operations and comprehensive income. The Company liquidated its
Participation during 1997, which resulted in a pretax realized capital gain of
$3.5 million.
8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to certain
variable annuity contract guarantees, is computed on the basis of assumptions as
to mortality, future investment yields, terminations and expenses at the time
the policy is issued. These assumptions include provisions for adverse deviation
and generally vary by such characteristics as type of coverage, year of issue
and policy duration. Detailed reserve assumptions and reserve interest rates are
outlined in Note 6.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of interest-sensitive life and
certain investment contracts. Deposits received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received, net of
commissions, and interest credited to the benefit of the contractholder less
withdrawals, mortality charges, and administrative expenses. Detailed
information on crediting rates and surrender and withdrawal protection on
contractholder funds are outlined in Note 6.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
In 1999, the Company adopted Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." The SOP
provides guidance concerning when to recognize a liability for insurance-related
assessments and how those liabilities should be measured. Specifically,
insurance-related assessments should be recognized as liabilities when all of
the following criteria have been met: 1) an assessment has been imposed or it is
probable that an assessment will be imposed, 2) the event obligating an entity
to pay an assessment has occurred and 3) the amount of the assessment can be
reasonably estimated. Adoption of this statement was not material to the
Company's results of operations or financial position.
9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
3. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company has reinsurance agreements whereby substantially all contract
charges, credited interest, policy benefits and certain expenses are ceded to
ALIC and reflected net of such reinsurance in the statements of operations and
comprehensive income. Reinsurance recoverable and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the statements of financial position. The Company continues to
have primary liability as the direct insurer for risks reinsured.
Investment income earned on the assets which support contractholder funds and
the reserve for life-contingent contract benefits is not included in the
Company's financial statements as those assets are owned and managed under terms
of reinsurance agreements. The following amounts were ceded to ALIC under
reinsurance agreements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Contract charges $ 27,175 $ 19,009 $ 11,641
Credited interest, policy benefits,
and certain expenses 253,945 218,008 179,954
</TABLE>
BUSINESS OPERATIONS
The Company utilizes services performed by AIC and ALIC and business facilities
owned or leased, and operated by AIC in conducting its business activities. The
Company reimburses AIC and ALIC for the operating expenses incurred on behalf of
the Company. The Company is charged for the cost of these operating expenses
based on the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $26,555, $15,949, and $19,243 in 1999, 1998 and 1997, respectively. Of
these costs, the Company retains investment related expenses. All other costs
are ceded to ALIC under reinsurance agreements.
10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
--------- ------- -------- ------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999
U.S. government and agencies $24,274 $ 1,260 $ - $25,534
Municipal 1,656 - (112) 1,544
Corporate 49,255 9 (2,022) 47,242
Mortgage-backed securities 18,988 96 (467) 18,617
------- ------- ------- -------
Total fixed income securities $94,173 $ 1,365 $(2,601) $92,937
======= ======= ======= =======
AT DECEMBER 31, 1998
U.S. government and agencies $24,350 $ 4,308 $ - $28,658
Municipal 656 24 - 680
Corporate 33,009 1,575 (39) 34,545
Mortgage-backed securities 29,400 1,047 (17) 30,430
------- ------- ------- -------
Total fixed income securities $87,415 $ 6,954 $ (56) $94,313
======= ======= ======= =======
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at December
31, 1999:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ----------
<S> <C> <C>
Due after one year through five years $ 30,974 $ 31,085
Due after five years through ten years 32,583 30,911
Due after ten years 11,628 12,324
--------- ----------
75,185 74,320
Mortgage-backed securities 18,988 18,617
--------- ----------
Total $ 94,173 $ 92,937
========= ==========
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Fixed income securities $6,458 $6,151 $5,014
Short-term investments 230 183 231
Participation in Separate Accounts -- -- 161
------ ------ ------
Investment income, before expense 6,688 6,334 5,406
Investment expense 109 103 102
------ ------ ------
Net investment income $6,579 $6,231 $5,304
====== ====== ======
</TABLE>
11
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Fixed income securities $ 312 $ (5) $ (61)
Short-term investments -- -- 6
Participation in Separate Accounts -- -- 3,515
-------- ------- --------
Realized capital gains and losses 312 (5) 3,460
Income taxes (109) 2 (1,211)
-------- ------- -------
Realized capital gains and
losses, after tax $ 203 $ (3) $ 2,249
======== ======= =======
</TABLE>
Excluding calls and prepayments, gross gains of $370 were realized on sales of
fixed income securities during 1999, and gross losses of $58, $5 and $61 were
realized on sales of fixed income securities during 1999, 1998 and 1997,
respectively. There were no gross gains realized on sales of fixed income
securities during 1998 and 1997.
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital losses on fixed income securities included in
shareholder's equity at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
COST/ FAIR GROSS UNREALIZED UNREALIZED
AMORTIZED COST VALUE GAINS LOSSES NET LOSSES
-------------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 94,173 $ 92,937 $ 1,365 $(2,601) $(1,236)
========= ======== ======= =======
Deferred income taxes 433
------
Unrealized net capital losses $ (803)
======
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Fixed income securities $(8,134) $ 2,024 $ 2,410
Participation in Separate Accounts -- -- (1,829)
Deferred income taxes 2,848 (709) (203)
------- ------- -------
(Decrease) increase in unrealized net
capital gains $(5,286) $ 1,315 $ 378
======= ======= =======
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1999, fixed income securities with a carrying value of $10,346
were on deposit with regulatory authorities as required by law.
12
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable and deferred income taxes) and liabilities
(including interest-sensitive life insurance reserves) are not considered
financial instruments and are not carried at fair value. Other assets and
liabilities considered financial instruments, such as accrued investment income
and cash, are generally of a short-term nature. Their carrying values are
assumed to approximate fair value.
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998
---- -----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Fixed income securities $ 92,937 $ 92,937 $ 94,313 $ 94,313
Short-term investments 53,063 53,063 4,663 4,663
Separate Accounts 1,541,756 1,541,756 993,622 993,622
</TABLE>
Fair values for fixed income securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. Short-term investments are highly
liquid investments with maturities of less than one year whose carrying value
are deemed to approximate fair value. Separate Accounts assets are carried in
the statements of financial position at fair value based on quoted market
prices.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $ 4,156,964 $ 3,924,117 $ 3,130,228 $ 2,967,101
Separate Accounts 1,541,756 1,541,756 993,622 993,622
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
13
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
6. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS
At December 31, 1999 the reserve for life-contingent contract benefits consisted
of reserves for immediate annuities. The assumptions for mortality generally
utilized in calculating immediate annuity reserves is the 1983 group annuity
mortality table. Interest rate assumptions for immediate annuities vary from
3.5% to 7.2%. Other estimation methods used for immediate annuities include the
present value of contractually fixed benefits.
At December 31, contractholder funds consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Interest-sensitive life $ 9,503 $ 3,335
Fixed annuities:
Immediate annuities 17,856 12,643
Deferred annuities 4,116,006 3,097,300
----------- -----------
Total contractholder funds $ 4,143,365 $ 3,113,278
=========== ===========
</TABLE>
Contractholder funds are equal to deposits received, net of commissions, and
interest credited to the benefit of the contractholder less withdrawals,
mortality charges and administrative expenses. Interest rates credited range
from 4.0% to 7.2% for interest-sensitive life contracts; 3.5% to 7.2% for
immediate annuities and 4.3% to 6.7% for deferred annuities. Withdrawal and
surrender charge protection includes: i) for interest-sensitive life, either a
percentage of account balance or dollar amount grading off generally over 20
years; and, ii) for deferred annuities not subject to a market value adjustment,
either a declining or a level percentage charge generally over nine years or
less. Approximately 1% of deferred annuities are subject to a market value
adjustment.
7. CORPORATION RESTRUCTURING
On November 10, 1999 the Corporation announced a series of strategic initiatives
to aggressively expand its selling and service capabilities. The Corporation
also announced that it is implementing a program to reduce expenses by
approximately $600 million. The reduction will result in the elimination of
approximately 4,000 current non-agent positions, across all employment grades
and categories by the end of 2000, or approximately 10% of the Corporation's
non-agent work force. The impact of the reduction in employee positions is not
expected to materially impact the results of operations of the Company.
These cost reductions are part of a larger initiative to redeploy the cost
savings to finance new initiatives including investments in direct access and
internet channels for new sales and service capabilities, new competitive
pricing and underwriting techniques, new agent and claim technology and enhanced
marketing and advertising. As a result of the cost reduction program, the
Corporation recorded restructuring and related charges of $81 million pretax
during the fourth quarter of 1999. The Corporation anticipates that additional
pretax restructuring related charges of approximately $100 million will be
expensed as incurred throughout 2000. The
14
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
Company's allocable share of these expenses were immaterial in 1999 and are
expected to be immaterial in 2000.
8. INCOME TAXES
For 1996, the Company filed a separate federal income tax return. Beginning in
1997, the Company joined the Corporation and its other eligible domestic
subsidiaries (the "Allstate Group") in the filing of a consolidated federal
income tax return and is party to a federal income tax allocation agreement (the
"Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the
Company pays to or receives from the Corporation the amount, if any, by which
the Allstate Group's federal income tax liability is affected by virtue of
inclusion of the Company in the consolidated federal income tax return.
Effectively, this results in the Company's annual income tax provision being
computed, with adjustments, as if the Company filed a separate return.
Prior to June 30, 1995, the Corporation was a subsidiary of Sears Roebuck & Co.
("Sears") and was, with its eligible domestic subsidiaries, included in the
Sears consolidated federal income tax return and federal income tax allocation
agreement. Effective June 30, 1995, the Corporation and Sears entered into a new
tax sharing agreement, which governs their respective rights and obligations
with respect to federal income taxes for all periods during which the
Corporation was a subsidiary of Sears, including the treatment of audits of tax
returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's federal income tax returns through the 1993 tax year. Any adjustment
that may result from IRS examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or results of operations of
the Company.
The components of the deferred income tax assets and liabilities at December 31,
are as follows:
<TABLE>
<CAPTION>
1999 1998
----- -------
<S> <C> <C>
DEFERRED ASSETS
Unrealized net capital losses $ 433 $ -
----- -------
Total deferred assets 433 -
DEFERRED LIABILITIES
Difference in tax bases of investments (140) (84)
Unrealized net capital gains -- (2,415)
----- -------
Total deferred liabilities (140) (2,499)
----- -------
Net deferred asset (liability) $ 293 $(2,499)
===== =======
</TABLE>
Although realization is not assured, management believes it is more likely than
not that the deferred tax asset will be realized based on the assumptions that
certain levels of income will be achieved.
15
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
The components of income tax expense for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current $2,326 $2,164 $3,037
Deferred 56 18 41
------ ------ ------
Total income tax expense $2,382 $2,182 $3,078
====== ====== ======
</TABLE>
The Company paid income taxes of $2,148, $592 and $2,839 in 1999, 1998 and 1997,
respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other (.4) - .1
------ ------ ------
Effective income tax rate 34.6% 35.0% 35.1%
====== ====== ======
</TABLE>
9. STATUTORY FINANCIAL INFORMATION
The Company's statutory capital and surplus was $141,362 and $84,865 at December
31, 1999 and 1998, respectively. The Company's statutory net income was $4,179,
$4,698 and $3,636 for the years ended December 31, 1999, 1998 and 1997,
respectively.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting practices prescribed or permitted by the Arizona Department of
Insurance. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed. The Company does not follow any permitted statutory accounting
practices that have a significant impact on statutory surplus or statutory net
income.
The NAIC's codification initiative has produced a comprehensive guide of
statutory accounting principles, which the Company will implement in January
2001. The Company's state of domicile, Arizona, has passed legislation revising
various statutory accounting requirements to conform to codification. These
requirements are not expected to have a material impact on the statutory surplus
of the Company.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by the Company without the prior approval of the state
insurance regulator is limited to formula amounts based on net income and
capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve
16
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
months. The maximum amount of dividends that the Company can distribute during
2000 without prior approval of the Arizona Department of Insurance is $4,179.
RISK-BASED CAPITAL
The NAIC has a standard for assessing the solvency of insurance companies, which
is referred to as risk-based capital ("RBC"). The requirement consists of a
formula for determining each insurer's RBC and a model law specifying regulatory
actions if an insurer's RBC falls below specified levels. The RBC formula for
life insurance companies establishes capital requirements relating to insurance,
business, asset and interest rate risks. At December, 31 1999, RBC for the
Company was significantly above levels that would require regulatory action.
10. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ------------------------------- ---------------------------
After- After- After-
Pretax Tax Tax Pretax Tax Tax Pretax Tax Tax
--------- -------- ------- -------- ------- -------- -------- -------- -------
UNREALIZED CAPITAL GAINS
AND LOSSES:
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized holding (losses)
gains arising during
the period $(7,822) $ 2,739 $(5,083) $2,019 $ (707) $ 1,312 $ 4,034 $(1,412) $ 2,622
Less: reclassification
adjustments 312 (109) 203 (5) 2 (3) 3,453 (1,209) 2,244
-------- ------- ------- ------- ------ ------- ------- ------- -------
Unrealized net capital
(losses) gains (8,134) 2,848 (5,286) 2,024 (709) 1,315 581 (203) 378
-------- ------- ------- ------- ------ ------- ------- ------- -------
Other comprehensive
(loss) income $(8,134) $ 2,848 $(5,286) $2,024 $ (709) $ 1,315 $ 581 $ (203) $ 378
======= ======= ======= ======= ====== ======= ======= ======= =======
</TABLE>
11. COMMITMENTS AND CONTINGENT LIABILITIES
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulations, removal of barriers preventing banks
from engaging in the securities and insurance business, tax law changes
affecting the taxation of insurance companies, the tax treatment of insurance
products and its impact on the relative desirability of various personal
investment vehicles, and proposed legislation to prohibit the use of gender in
determining insurance rates and benefits. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
17
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
($ IN THOUSANDS)
GUARANTY FUNDS
Under state insurance guaranty fund laws, insurers doing business in a state can
be assessed, up to prescribed limits, for certain obligations of insolvent
insurance companies to policyholders and claimants. The Company's expenses
related to these funds have been immaterial. These expenses are ceded to ALIC
under reinsurance agreements.
MARKETING AND COMPLIANCE ISSUES
Companies operating in the insurance and financial services markets have come
under the scrutiny of regulators with respect to market conduct and compliance
issues. Under certain circumstances, companies have been held responsible for
providing incomplete or misleading sales materials and for replacing existing
policies with policies that were less advantageous to the policyholder. The
Company monitors its sales materials and enforces compliance procedures to
mitigate any exposure to potential litigation. The Company is a member of the
Insurance Marketplace Standards Association, an organization which advocates
ethical market conduct.
18
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY
SCHEDULE IV--REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1999 AMOUNT CEDED AMOUNT
- ---------------------------- ---------- ---------- --------
<S> <C> <C> <C>
Life insurance in force $ 23,586 $ 23,586 $ --
========== ========== ========
Premiums and contract charges:
Life and annuities $ 27,175 $ 27,175 $ --
========== ========== ========
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
- ---------------------------- ---------- ---------- --------
Life insurance in force $ 12,056 $ 12,056 $ --
========== ========== ========
Premiums and contract charges:
Life and annuities $ 19,009 $ 19,009 $ --
========== ========== ========
GROSS NET
YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED AMOUNT
- ---------------------------- ---------- ---------- --------
Life insurance in force $ 4,095 $ 4,095 $ --
========== ========== ========
Premiums and contract charges:
Life and annuities $ 11,641 $ 11,641 $ --
========== ========== ========
</TABLE>
19
<PAGE>
------------------------------------------------
GLENBROOK LIFE AND
ANNUITY COMPANY
SEPARATE ACCOUNT A
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999
AND FOR THE PERIODS ENDED DECEMBER 31, 1999 AND
DECEMBER 31, 1998, AND INDEPENDENT AUDITORS'
REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Glenbrook Life and Annuity Company:
We have audited the accompanying statement of net assets of Glenbrook Life and
Annuity Company Separate Account A as of December 31, 1999 (including the assets
of each of the individual sub-accounts which comprise the Account as disclosed
in Note 1), and the related statements of operations for the period then
ended and the statements of changes in net assets for each of the periods in
the two year period then ended for each of the individual sub-accounts which
comprise the Account. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at December 31, 1999
by correspondence with the account custodians. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Glenbrook Life and Annuity Company
Separate Account A as of December 31, 1999 (including the assets of each of
the individual sub-accounts which comprise the Account), and the results of
operations for each of the individual sub-accounts for the period then ended
and the changes in their net assets for each of the periods in the two year
period then ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 27, 2000
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Allocation to Sub-Accounts investing in the AIM Variable Insurance:
Aggressive Growth, 1,202,499 shares (cost $12,591,700) $ 17,121,218
Balanced, 2,820,677 shares (cost $32,175,093) 36,781,630
Capital Appreciation, 5,640,099 shares (cost $123,610,584) 200,674,710
Capital Development, 544,154 shares (cost $4,891,395) 6,469,997
Diversified Income, 2,903,217 shares (cost $31,442,374) 29,206,359
Global Utilities, 754,339 shares (cost $12,000,534) 17,198,920
Government Securities, 1,716,068 shares (cost $18,690,716) 18,241,806
Growth, 5,520,352 shares (cost $122,399,910) 178,031,344
Growth and Income, 7,311,916 shares (cost $147,725,871) 230,983,436
High Yield, 1,310,837 shares (cost $12,183,042) 11,823,752
International Equity, 3,078,238 shares (cost $55,027,071) 90,161,585
Money Market, 26,646,729 shares (cost $26,646,729) 26,646,729
Value, 8,644,940 shares (cost $201,358,972) 289,605,478
----------------
Total Assets 1,152,946,964
LIABILITIES
Payable to Glenbrook Life and Annuity Company:
Accrued contract maintenance charges 261,880
----------------
Net Assets $ 1,152,685,084
================
</TABLE>
See notes to financial statements.
2
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
---------------------------------------------------------------------------
For the Year Ended December 31, 1999
---------------------------------------------------------------------------
Aggressive Capital Capital Diversified
Growth Balanced Appreciation Development Income
------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ 632,664 $ 4,236,568 $ - $ 1,832,183
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (98,256) (255,170) (1,960,006) (45,942) (380,130)
Administrative expense (7,992) (20,601) (147,276) (3,688) (28,594)
------------ ------------- ------------- ------------ ------------
Net investment income (loss) (106,248) 356,893 2,129,286 (49,630) 1,423,459
------------ ------------- ------------- ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 3,247,524 1,924,385 24,806,931 872,588 6,926,838
Cost of investments sold 3,031,576 1,785,039 19,189,905 795,815 7,018,662
------------- -------------- -------------- ------------- ------------
Net realized gains (losses) 215,948 139,346 5,617,026 76,773 (91,824)
------------- -------------- -------------- ------------- ------------
Change in unrealized gains (losses) 4,209,609 4,020,500 51,595,684 1,390,044 (2,286,057)
------------- -------------- -------------- ------------- ------------
Net gains (losses) on investments 4,425,557 4,159,846 57,212,710 1,466,817 (2,377,881)
------------- -------------- -------------- ------------- ------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,319,309 $ 4,516,739 $ 59,341,996 $ 1,417,187 $ (954,422)
============= ============== ============== ============= ============
</TABLE>
See notes to financial statements.
3
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
---------------------------------------------------------------------------
For the Year Ended December 31, 1999
---------------------------------------------------------------------------
Global Government Growth High
Utilities Securities Growth and Income Yield
------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 267,439 $ 626,354 $ 6,269,902 $ 1,929,971 $ 887,090
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (165,214) (182,421) (1,697,514) (2,246,247) (89,265)
Administrative expense (12,519) (14,096) (128,606) (170,120) (7,253)
------------ ----------- ------------ ------------ -----------
Net investment income (loss) 89,706 429,837 4,443,782 (486,396) 790,572
------------ ----------- ------------ ------------ -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 1,744,420 5,346,438 17,350,511 17,480,900 3,537,974
Cost of investments sold 1,411,118 5,557,193 12,650,325 11,753,105 3,542,944
------------ ----------- ------------ ------------ -----------
Net realized gains (losses) 333,302 (210,755) 4,700,186 5,727,795 (4,970)
------------ ----------- ------------ ------------ -----------
Change in unrealized gains (losses) 3,515,858 (528,814) 32,217,069 47,095,503 (114,157)
------------ ----------- ------------ ------------ -----------
Net gains (losses) on investments 3,849,160 (739,569) 36,917,255 52,823,298 (119,127)
------------ ----------- ------------ ------------ -----------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,938,866 $ (309,732) $41,361,037 $52,336,902 $ 671,445
============ =========== ============ ============ ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AIM Variable Insurance Funds Sub-Accounts
---------------------------------------------------------
For the Year Ended December 31, 1999
---------------------------------------------------------
International Money
Equity Market Value
------------- ------------ -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends $2,936,034 $1,096,347 $4,751,047
Charges from Glenbrook Life and Annuity Company:
Mortality and expense risk (817,478) (315,536) (2,879,219)
Administrative expense (61,096) (23,884) (217,899)
------------ ----------- ------------
Net investment income (loss) 2,057,460 756,927 1,653,929
------------ ----------- ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 8,943,538 41,107,872 24,736,258
Cost of investments sold 7,211,309 41,107,872 17,493,708
------------ ----------- ------------
Net realized gains (losses) 1,732,229 - 7,242,550
------------ ----------- ------------
Change in unrealized gains (losses) 26,684,961 - 48,321,129
------------ ----------- ------------
Net gains (losses) on investments 28,417,190 - 55,563,679
------------ ----------- ------------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $30,474,650 $ 756,927 $57,217,608
============ =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds Sub-Accounts
--------------------------------------------------------------------------------------------
Aggressive Growth Balanced Capital Appreciation
---------------------------- ---------------------------- --------------------------------
1999 1998 (a) 1999 1998 (a) 1999 1998
------------- ------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (106,248) $ 2,547 $ 356,893 $ 75,806 $ 2,129,286 $ 1,967,873
Net realized gains (losses) 215,948 (15,810) 139,346 5,357 5,617,026 1,110,690
Change in unrealized gains (losses) 4,209,609 319,909 4,020,500 586,037 51,595,684 16,356,911
------------ ------------ ------------ ------------ -------------- --------------
Change in net assets resulting from
operations 4,319,309 306,646 4,516,739 667,200 59,341,996 19,435,474
------------ ------------ ------------ ------------ -------------- --------------
FROM CAPITAL TRANSACTIONS
Deposits 8,035,288 2,135,109 15,618,535 6,083,120 21,442,704 27,826,970
Benefit Payments (8,753) (14,062) (309,234) - (1,408,893) (1,288,645)
Payments on termination (317,202) (25,499) (989,411) (25,240) (11,709,901) (5,665,316)
Contract maintenance charges (4,663) (962) (8,851) (1,991) (57,450) (49,931)
Transfers among the sub-accounts
and with the Fixed Account - net 1,685,558 1,006,560 10,092,477 1,129,932 (4,128,252) (3,082,106)
------------ ------------ ------------ ------------ -------------- --------------
Change in net assets resulting
from capital transactions 9,390,228 3,101,146 24,403,516 7,185,821 4,138,208 17,740,972
------------ ------------ ------------ ------------ -------------- --------------
INCREASE (DECREASE) IN NET ASSETS 13,709,537 3,407,792 28,920,255 7,853,021 63,480,204 37,176,446
NET ASSETS AT BEGINNING OF PERIOD 3,407,792 - 7,853,021 - 137,148,924 99,972,478
------------ ------------ ------------ ------------ -------------- --------------
NET ASSETS AT END OF PERIOD $17,117,329 $ 3,407,792 $36,773,276 $ 7,853,021 $ 200,629,128 $ 137,148,924
============ ============ ============ ============ ============== ==============
</TABLE>
(a) For the Period Beginning May 1, 1998 and Ended December 31, 1998.
See notes to financial statements.
6
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AIM Variable Insurance Funds Sub-Accounts
------------------------------------------------------------------------------------------
Capital Development Diversified Income Global Utilities
---------------------------- ----------------------------- -----------------------------
1999 1998 (a) 1999 1998 1999 1998
------------- ------------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (49,630) $ (1,482) $ 1,423,459 $ 1,441,294 $ 89,706 $ 116,938
Net realized gains (losses) 76,773 (85,264) (91,824) 332,248 333,302 154,412
Change in unrealized gains (losses) 1,390,044 188,558 (2,286,057) (1,400,824) 3,515,858 890,786
------------ ------------ ------------ ------------- ------------ ------------
Change in net assets resulting from
operations 1,417,187 101,812 (954,422) 372,718 3,938,866 1,162,136
------------ ------------ ------------ ------------- ------------ ------------
FROM CAPITAL TRANSACTIONS
Deposits 1,757,832 1,246,579 3,792,814 9,846,369 2,236,252 4,015,495
Benefit Payments (129,146) (13,161) (675,319) (385,671) (100,968) (46,809)
Payments on termination (145,588) (12,524) (2,196,034) (2,695,450) (625,850) (406,509)
Contract maintenance charges (1,505) (647) (6,368) (5,120) (12,516) (2,884)
Transfers among the sub-accounts
and with the Fixed Account - net 1,322,815 924,873 584,051 (1,467,235) 1,244,957 19,697
------------ ------------ ------------ ------------- ------------ ------------
Change in net assets resulting
from capital transactions 2,804,408 2,145,120 1,499,144 5,292,893 2,741,875 3,578,990
------------ ------------ ------------ ------------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS 4,221,595 2,246,932 544,722 5,665,611 6,680,741 4,741,126
NET ASSETS AT BEGINNING OF PERIOD 2,246,932 - 28,655,003 22,989,392 10,514,272 5,773,146
------------ ------------ ------------ ------------- ------------ ------------
NET ASSETS AT END OF PERIOD $ 6,468,527 $ 2,246,932 $29,199,725 $ 28,655,003 $17,195,013 $10,514,272
============ =========== =========== ============ =========== ===========
</TABLE>
(a) For the Period Beginning May 1, 1998 and Ended December 31, 1998.
See notes to financial statements.
7
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AIM Variable Insurance Funds Sub-Accounts
-------------------------------------------------------------------------------------------
Government Securities Growth Growth and Income
----------------------------- ------------------------------ ------------------------------
1999 1998 1999 1998 1999 1998
-------------- -------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 429,837 $ 168,997 $ 4,443,782 $ 5,382,105 $ (486,396) $ 308,794
Net realized gains (losses) (210,755) 153,359 4,700,186 987,982 5,727,795 1,053,908
Change in unrealized gains (losses) (528,814) 130,670 32,217,069 16,303,872 47,095,503 23,957,880
------------ ------------ ------------ ------------- ------------ -------------
Change in net assets resulting from
operations (309,732) 453,026 41,361,037 22,673,959 52,336,902 25,320,582
------------ ------------ ------------ ------------- ------------ -------------
FROM CAPITAL TRANSACTIONS
Deposits 4,797,984 4,568,260 32,904,800 23,869,470 41,198,795 36,230,581
Benefit Payments (275,085) (124,034) (1,384,416) (975,193) (2,333,670) (1,638,147)
Payments on termination (882,622) (1,262,189) (9,060,632) (3,190,196) (9,522,305) (5,238,011)
Contract maintenance charges (3,191) (2,326) (33,261) (34,053) (66,649) (40,480)
Transfers among the sub-accounts
and with the Fixed Account - net 3,392,041 1,923,252 10,386,196 3,705,981 13,778,324 3,017,320
------------ ------------ ------------ ------------- ------------ -------------
Change in net assets resulting
from capital transactions 7,029,127 5,102,963 32,812,687 23,376,009 43,054,495 32,331,263
------------ ------------ ------------ ------------- ------------ -------------
INCREASE (DECREASE) IN NET ASSETS 6,719,395 5,555,989 74,173,724 46,049,968 95,391,397 57,651,845
NET ASSETS AT BEGINNING OF PERIOD 11,518,268 5,962,279 103,817,182 57,767,214 135,539,573 77,887,728
------------ ------------ ------------ ------------- ------------ -------------
NET ASSETS AT END OF PERIOD $ 18,237,663 $ 11,518,268 $177,990,906 $ 103,817,182 $230,930,970 $ 135,539,573
============ ============ ============ ============= ============ =============
</TABLE>
See notes to financial statements.
8
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AIM Variable Insurance Funds Sub-Accounts
--------------------------------------------------------------------------------------------
High Yield International Equity Money Market
----------------------------- ------------------------------ -----------------------------
1999 1998 (a) 1999 1998 1999 1998
-------------- ------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 790,572 $ 133,544 $ 2,057,460 $ (327,045) $ 756,927 $ 486,612
Net realized gains (losses) (4,970) (44,695) 1,732,229 509,511 - 2,406
Change in unrealized gains (losses) (114,157) (245,133) 26,684,961 6,041,195 - -
------------ ----------- ------------ ------------ ----------- ------------
Change in net assets resulting from
operations 671,445 (156,284) 30,474,650 6,223,661 756,927 489,018
------------ ----------- ------------ ------------ ----------- ------------
FROM CAPITAL TRANSACTIONS
Deposits 4,635,730 3,163,932 6,382,730 8,980,894 6,179,730 11,012,762
Benefit Payments (69,216) (27,383) (568,866) (545,615) (1,376,343) (581,205)
Payments on termination (518,964) (26,647) (4,009,274) (2,469,363) (27,460,642) (4,230,248)
Contract maintenance charges (2,856) (891) (24,027) (19,466) (7,523) (2,945)
Transfers among the sub-accounts
and with the Fixed Account - net 3,544,455 607,744 1,139,993 (1,619,523) 30,250,774 (2,261,847)
------------ ----------- ------------ ------------ ----------- ------------
Change in net assets resulting
from capital transactions 7,589,149 3,716,755 2,920,556 4,326,927 7,585,996 3,936,517
------------ ----------- ------------ ------------ ----------- ------------
INCREASE (DECREASE) IN NET ASSETS 8,260,594 3,560,471 33,395,206 10,550,588 8,342,923 4,425,535
NET ASSETS AT BEGINNING OF PERIOD 3,560,471 - 56,745,899 46,195,311 18,297,753 13,872,218
------------ ----------- ------------ ------------ ----------- ------------
NET ASSETS AT END OF PERIOD $ 11,821,065 $ 3,560,471 $ 90,141,105 $ 56,745,899 $26,640,676 $ 18,297,753
============ =========== ============ ============ =========== ============
</TABLE>
(a) For the Period Beginning May 1, 1998 and Ended December 31, 1998.
See notes to financial statements.
9
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AIM Variable Insurance
Funds Sub-Accounts
-------------------------------
Value
-------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 1,653,929 $ 5,973,408
Net realized gains (losses) 7,242,550 1,063,109
Change in unrealized gains (losses) 48,321,129 29,565,438
------------- --------------
Change in net assets resulting from operations 57,217,608 36,601,955
------------- --------------
FROM CAPITAL TRANSACTIONS
Deposits 57,580,730 42,925,682
Benefit Payments (2,736,914) (1,481,255)
Payments on termination (15,807,346) (6,178,474)
Contract maintenance charges (84,128) (56,393)
Transfers among the sub-accounts
and with the Fixed Account - net 20,233,291 2,724,682
------------- --------------
Change in net assets resulting
from capital transactions 59,185,633 37,934,242
------------- --------------
INCREASE (DECREASE) IN NET ASSETS 116,403,241 74,536,197
NET ASSETS AT BEGINNING OF PERIOD 173,136,456 98,600,259
------------- --------------
NET ASSETS AT END OF PERIOD $289,539,697 $ 173,136,456
============= ==============
</TABLE>
See notes to financial statements.
10
<PAGE>
GLENBROOK LIFE AND ANNUITY COMPANY SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Glenbrook Life and Annuity Company Separate Account A (the "Account"), a
unit investment trust registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, is a Separate Account
of Glenbrook Life and Annuity Company ("Glenbrook Life"). The assets of
the Account are legally segregated from those of Glenbrook Life. Glenbrook
Life is wholly owned by Allstate Life Insurance Company, a wholly owned
subsidiary of Allstate Insurance Company, which is wholly owned by The
Allstate Corporation.
Glenbrook Life issues the AIM Lifetime-SM- Plus and AIM Lifetime-SM-Plus
II variable annuity contracts, the deposits of which are invested at the
direction of the contractholders in the sub-accounts that comprise the
Account. Absent any contract provisions wherein Glenbrook Life
contractually guarantees either a minimum return or account value to the
beneficiaries of the contractholders in the form of a death benefit, the
contractholders bear the investment risk that the sub-accounts may not
meet their stated objectives. The sub-accounts invest in the following
underlying mutual fund portfolios of the AIM Variable Insurance Funds,
Inc. (the "Funds").
Aggressive Growth Growth
Balanced Growth and Income
Capital Appreciation High Yield
Capital Development International Equity
Diversified Income Money Market
Global Utilities Value
Government Securities
Glenbrook Life provides insurance and administrative services to the
contractholders for a fee. Glenbrook Life also maintains a fixed account
("Fixed Account"), to which contractholders may direct their deposits and
receive a fixed rate of return. Glenbrook Life has sole discretion to
invest the assets of the Fixed Account, subject applicable law.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS - Investments consist of shares of the Funds and
are stated at fair value based on quoted market prices at December 31,
1999.
INVESTMENT INCOME - Investment income consists of dividends declared by
the Funds and is recognized on the ex-dividend date.
REALIZED GAINS AND LOSSES - Realized gains and losses represent the
difference between the proceeds from sales of portfolio shares by the
Account and the cost of such shares, which is determined on a weighted
average basis. FEDERAL INCOME TAXES - The Account intends to qualify as a
segregated asset account as defined in the Internal Revenue Code ("Code").
As such, the operations of the Account are included in the tax return of
Glenbrook Life. Glenbrook Life is taxed as a life insurance company under
the Code. No federal income taxes are allocable to the Account as the
Account did not generate taxable income.
11
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
3. EXPENSES
ADMINISTRATIVE EXPENSE CHARGE - Glenbrook Life deducts administrative
expense charges daily at a rate equal to .10% per annum of the average
daily net assets of the Account. Glenbrook Life guarantees that the amount
of this charge will not increase over the life of the contract.
CONTRACT MAINTENANCE CHARGE - Glenbrook Life deducts an annual maintenance
charge of $35 on each contract anniversary and guarantees that this charge
will not increase over the life of the contract. This charge will be
waived if certain conditions are met.
MORTALITY AND EXPENSE RISK CHARGE - Glenbrook Life assumes mortality and
expense risks related to the operations of the Account and deducts charges
daily. The mortality and expense risk charge covers insurance benefits
available with the contract and certain expenses of the contract. It also
covers the risk that the current charges will not be sufficient in the
future to cover the cost of administering the contract. Glenbrook Life
guarantees that the amount of this charge will not increase over the life
of the contract. At the contractholder's discretion, additional options,
primarily death benefits, may be purchased for an additional charge.
Glenbrook Life guarantees that the amount of this charge will not increase
over the life of the contract.
12
<PAGE>
4. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
<TABLE>
<CAPTION>
AIM LIFETIME PLUS CONTRACTS
Unit activity during 1999:
---------------------------------------------
Accumulation
Units Outstanding Units Units Units Outstanding Unit Value
December 31, 1998 Issued Redeemed December 31, 1999 December 31, 1999
------------------- ---------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Investments in the AIM Variable Insurance
Funds Sub-Accounts:
Aggressive Growth 163,537 184,361 (100,135) 247,763 $ 13.99
Balanced 244,603 159,944 (106,859) 297,688 13.16
Capital Appreciation 8,770,421 307,397 (1,617,429) 7,460,389 21.35
Capital Development 126,384 26,585 (48,513) 104,456 11.66
Diversified Income 2,301,209 214,498 (565,733) 1,949,974 11.63
Global Utilities 630,811 62,993 (89,561) 604,243 20.43
Government Securities 912,586 238,814 (359,467) 791,933 11.19
Growth 5,170,994 385,091 (891,193) 4,664,892 25.26
Growth and Income 6,935,245 519,163 (978,168) 6,476,240 24.14
High Yield 170,679 271,185 (234,238) 207,626 9.96
International Equity 3,847,934 256,272 (621,547) 3,482,659 21.91
Money Market 1,389,344 3,699,838 (3,452,257) 1,636,925 11.48
Value 9,222,186 692,912 (1,465,091) 8,450,007 22.59
Units relating to accrued contract maintenance charges are included in units redeemed.
</TABLE>
13
<PAGE>
4. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
<TABLE>
<CAPTION>
AIM LIFETIME PLUS II CONTRACTS
Unit activity during 1999:
---------------------------------------------
Accumulation
Units Outstanding Units Units Units Outstanding Unit Value
December 31, 1998 Issued Redeemed December 31, 1999 December 31, 1999
------------------- ---------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Investments in the AIM Variable Insurance Sub-Accounts:
Aggressive Growth 50,119 301,769 (16,964) 334,924 $ 15.11
Balanced 67,315 607,933 (48,268) 626,980 13.33
Capital Appreciation 97,387 773,222 (40,902) 829,707 15.79
Capital Development 12,713 120,814 (7,555) 125,972 12.66
Diversified Income 31,735 229,422 (12,632) 248,525 9.58
Global Utilities 28,175 89,775 (5,466) 112,484 14.27
Government Securities 52,212 405,077 (54,789) 402,500 10.16
Growth 77,514 1,170,719 (72,062) 1,176,171 15.82
Growth and Income 112,627 1,431,896 (71,562) 1,472,961 15.51
High Yield 61,267 367,205 (53,638) 374,834 9.95
International Equity 34,979 272,471 (13,429) 294,021 14.84
Money Market 104,779 380,718 (201,276) 284,221 10.58
Value 139,946 1,851,057 (89,163) 1,901,840 15.09
Units relating to accrued contract maintenance charges are included in units redeemed.
</TABLE>
14
<PAGE>
4. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
<TABLE>
<CAPTION>
AIM LIFETIME PLUS II CONTRACTS WITH ENHANCED DEATH BENEFIT COMBINATION
Unit activity during 1999:
---------------------------------------------
Accumulation
Units Outstanding Units Units Units Outstanding Unit Value
December 31, 1998 Issued Redeemed December 31, 1999 December 31, 1999
------------------- ---------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Investments in the AIM Variable Insurance Sub-Accounts:
Aggressive Growth 57,688 441,244 (184,184) 314,748 $ 15.06
Balanced 221,488 980,109 (52,252) 1,149,345 13.29
Capital Appreciation 223,554 939,687 (58,091) 1,105,150 15.74
Capital Development 55,046 165,029 (24,952) 195,123 12.62
Diversified Income 40,007 293,800 (56,771) 277,036 9.55
Global Utilities 21,377 133,089 (7,935) 146,531 14.23
Government Securities 15,866 410,394 (95,946) 330,314 10.13
Growth 182,188 1,469,272 (60,766) 1,590,694 15.77
Growth and Income 276,962 1,900,703 (90,586) 2,087,079 15.47
High Yield 103,485 315,867 (57,447) 361,905 9.91
International Equity 63,514 351,411 (40,551) 374,374 14.79
Money Market 111,395 420,695 (281,583) 250,507 10.55
Value 350,953 2,714,994 (153,067) 2,912,880 15.04
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
15
<PAGE>
4. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
<TABLE>
<CAPTION>
AIM LIFETIME PLUS II CONTRACTS WITH ENHANCED DEATH AND INCOME BENEFIT COMBINATION
Unit activity during 1999:
---------------------------------------------
Accumulation
Units Outstanding Units Units Units Outstanding Unit Value
December 31, 1998 Issued Redeemed December 31, 1999 December 31, 1999
------------------- ---------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Investments in the AIM Variable Insurance Sub-Accounts:
Aggressive Growth 63,177 205,731 (12,580) 256,328 $ 15.02
Balanced 164,576 557,405 (25,887) 696,094 13.25
Capital Appreciation 203,098 526,960 (38,311) 691,747 15.69
Capital Development 42,275 55,546 (2,892) 94,929 12.58
Diversified Income 25,503 138,673 (7,740) 156,436 9.52
Global Utilities 16,742 66,280 (1,277) 81,745 14.18
Government Securities 28,964 180,838 (17,699) 192,103 10.10
Growth 233,659 850,660 (36,958) 1,047,361 15.72
Growth and Income 384,306 939,145 (60,327) 1,263,124 15.42
High Yield 55,345 215,963 (24,714) 246,594 9.88
International Equity 63,643 210,267 (7,798) 266,112 14.74
Money Market 61,481 403,123 (255,504) 209,100 10.52
Value 397,504 1,397,006 (51,623) 1,742,887 15.00
</TABLE>
Units relating to accrued contract maintenance charges are included in units
redeemed.
16
