424B3 1 glacprofourtwentyfour.txt PROSPECTUS 72 - Original THE ALLSTATE(R) PROVIDER VARIABLE ANNUITY (formerly referred to as "The Glenbrook Provider Variable Annuity") GLENBROOK LIFE AND ANNUITY COMPANY 300 N. MILWAUKEE AVE. VERNON HILLS, IL 60061 TELEPHONE NUMBER: 1-800-755-5275 PROSPECTUS DATED MAY 1, 2002 ------------------------------------------------------------------------------- GLENBROOK LIFE AND ANNUITY COMPANY ("GLENBROOK LIFE") is offering the Allstate(R) Provider 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 22 investment alternatives ("INVESTMENT ALTERNATIVES"). The investment alternatives include 2 fixed account options ("FIXED ACCOUNT OPTIONS") and 20 variable sub-accounts ("VARIABLE SUB-ACCOUNTS") of the GLENBROOK LIFE Multi-Manager Variable Account ("VARIABLE ACCOUNT"). Each Variable Sub-Account invests exclusively in shares of the following mutual funds ("FUNDS"):
AIM VARIABLE INSURANCE FUNDS DREYFUS STOCK INDEX FUND AMERICAN CENTURY VARIABLE PORTFOLIOS DREYFUS VARIABLE INVESTMENT FUND (VIF) (VP), INC. FIDELITY VARIABLE INSURANCE PRODUCTS THE DREYFUS SOCIALLY RESPONSIBLE FUND GROWTH FUND, INC. MFS(R) VARIABLE INSURANCE TRUST /SM/
Each Fund has multiple investment portfolios ("PORTFOLIOS"). Not all of the Funds and/or Portfolios, however, may be available with your Contract. You should check with your sales representative for further information on the availability of Funds and/or Portfolios. Your annuity application will list all available Portfolios. WE (GLENBROOK LIFE) have filed a Statement of Additional Information, dated May 1, 2002, 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 44 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 UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A FEDERAL CRIME. IMPORTANT THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL NOTICES 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 TABLE OF CONTENTS -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- OVERVIEW -------------------------------------------------------------------------------- Important Terms 3 -------------------------------------------------------------------------------- The Contract at a Glance 4 -------------------------------------------------------------------------------- How the Contract Works 6 -------------------------------------------------------------------------------- Expense Table 7 -------------------------------------------------------------------------------- Financial Information 11 -------------------------------------------------------------------------------- CONTRACT FEATURES -------------------------------------------------------------------------------- The Contract 12 -------------------------------------------------------------------------------- Purchases 13 -------------------------------------------------------------------------------- Contract Value 14 -------------------------------------------------------------------------------- Investment Alternatives -------------------------------------------------------------------------------- The Variable Sub-Accounts 15 -------------------------------------------------------------------------------- The Fixed Account Options 16 -------------------------------------------------------------------------------- Transfers 19 -------------------------------------------------------------------------------- Expenses 20 -------------------------------------------------------------------------------- Access To Your Money 22 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Income Payments 22 -------------------------------------------------------------------------------- Death Benefits 25 -------------------------------------------------------------------------------- OTHER INFORMATION -------------------------------------------------------------------------------- More Information: -------------------------------------------------------------------------------- GLENBROOK LIFE 27 -------------------------------------------------------------------------------- The Variable Account 28 -------------------------------------------------------------------------------- The Portfolios 28 -------------------------------------------------------------------------------- The Contract 28 -------------------------------------------------------------------------------- Qualified Plans 29 -------------------------------------------------------------------------------- Legal Matters 29 -------------------------------------------------------------------------------- Taxes 30 -------------------------------------------------------------------------------- Annual Reports and Other Documents 35 -------------------------------------------------------------------------------- Experts 35 -------------------------------------------------------------------------------- Performance Information 35 -------------------------------------------------------------------------------- APPENDIX A-ACCUMULATION UNIT VALUES 37 -------------------------------------------------------------------------------- APPENDIX B- MARKET VALUE ADJUSTMENT EXAMPLE 41 -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 44 -------------------------------------------------------------------------------- 2 IMPORTANT TERMS -------------------------------------------------------------------------------- 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. PAGE -------------------------------------------------------------------------------- Accumulation Phase 6 -------------------------------------------------------------------------------- Accumulation Unit 11 -------------------------------------------------------------------------------- Accumulation Unit Value 11 -------------------------------------------------------------------------------- Annuitant 13 -------------------------------------------------------------------------------- Automatic Additions Program 13 -------------------------------------------------------------------------------- Automatic Portfolio Rebalancing Program 19 -------------------------------------------------------------------------------- Beneficiary 12 -------------------------------------------------------------------------------- Cancellation Period 14 -------------------------------------------------------------------------------- Contract* 28 -------------------------------------------------------------------------------- Contract Anniversary 5 -------------------------------------------------------------------------------- Contract Owner ("You") 12 -------------------------------------------------------------------------------- Contract Value 14 -------------------------------------------------------------------------------- Contract Year 4 -------------------------------------------------------------------------------- Death Benefit Anniversary 27 -------------------------------------------------------------------------------- Death Proceeds 26 -------------------------------------------------------------------------------- Dollar Cost Averaging Program 19 -------------------------------------------------------------------------------- Due Proof of Death 26 -------------------------------------------------------------------------------- Enhanced Death Benefit Rider 27 -------------------------------------------------------------------------------- Fixed Account Options 16 -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- Free Withdrawal Amount 21 -------------------------------------------------------------------------------- GLENBROOK LIFE ("We" or "Us") 1 -------------------------------------------------------------------------------- Guarantee Periods 17 -------------------------------------------------------------------------------- Income Plan 23 -------------------------------------------------------------------------------- Investment Alternatives 19 -------------------------------------------------------------------------------- Issue Date 6 -------------------------------------------------------------------------------- Market Value Adjustment 18 -------------------------------------------------------------------------------- Payout Phase 6 -------------------------------------------------------------------------------- Payout Start Date 22 -------------------------------------------------------------------------------- Portfolios 28 -------------------------------------------------------------------------------- Qualified Contracts 32 -------------------------------------------------------------------------------- SEC 1 -------------------------------------------------------------------------------- Settlement Value 27 -------------------------------------------------------------------------------- Systematic Withdrawal Program 22 -------------------------------------------------------------------------------- Valuation Date 13 -------------------------------------------------------------------------------- Variable Account 28 -------------------------------------------------------------------------------- Variable Sub-Account 15 -------------------------------------------------------------------------------- * In certain states the Contract is available only as a group Contract. If you purchase a group Contract, we will issue you a certificate that represents your ownership and that summarizes the provisions of the group Contract. References to "Contract" in this prospectus include certificates, unless the context requires otherwise. 3 THE CONTRACT AT A GLANCE -------------------------------------------------------------------------------- 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 $3,000 ($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 $50. ------------------------------------------------------------------------------- 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 1.35% of average daily net assets (1.45% if you select the ENHANCED DEATH BENEFIT RIDER) .Annual contract maintenance charge of $35 (with certain exceptions) .Withdrawal charges ranging from 0% to 6% of purchase 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 Portfolio pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. ------------------------------------------------------------------------------- INVESTMENT The Contract offers 22 investment alternatives ALTERNATIVES including: .2 Fixed Account Options (which credit interest at rates we guarantee) .20 Variable Sub-Accounts investing in Portfolios offering professional money management by these investment advisers: . AIM Advisors, Inc. . American Century Investment Management, Inc. . The Dreyfus Corporation . Fidelity Management & Research Company . MFS Investment Management(R) To find out current rates being paid on the Fixed Account Options or how the Variable Sub-Accounts have performed, call us at 1-800-755-5275. ------------------------------------------------------------------------------- SPECIAL SERVICES For your convenience, we offer these special services: . AUTOMATIC PORTFOLIO REBALANCING PROGRAM . AUTOMATIC ADDITIONS PROGRAM . DOLLAR COST AVERAGING PROGRAM . SYSTEMATIC WITHDRAWAL PROGRAM ------------------------------------------------------------------------------- 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) 4 ------------------------------------------------------------------------------- DEATH BENEFITS If you or the ANNUITANT (if the Contract is owned by a non-natural person) die before the PAYOUT START DATE, we will pay the death benefit described in the Contract. We offer an Enhanced Death Benefit Rider. ------------------------------------------------------------------------------- TRANSFERS Before the Payout Start Date, you may transfer your Contract value ("CONTRACT VALUE") among the investment alternatives, with certain restrictions. Transfers to a Guarantee Period of the Fixed Account must be at least $50. 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 any time prior to the Payout Start Date. In general, you must withdraw at least $50 at a time. Full or partial withdrawals are available under limited circumstances on or after the Payout Start Date. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59/1/2/, may be subject to an additional 10% federal tax penalty. A withdrawal charge and MARKET VALUE ADJUSTMENT also may apply. -------------------------------------------------------------------------------
5 HOW THE CONTRACT WORKS -------------------------------------------------------------------------------- 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 22 investment alternatives and generally 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 any of the 2 Fixed Account Options, you will earn a fixed rate of interest that we declare periodically. If you invest in any of the 20 Variable Sub-Accounts, your investment return will vary up or down depending on the performance of the corresponding Portfolios. 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 23. 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 Portfolios. 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. LOGO 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 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 1-800-755-5275 if you have any question about how the Contract works. 6 EXPENSE TABLE -------------------------------------------------------------------------------- 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 that may be imposed by the state where you reside. For more information about Variable Account expenses, see "Expenses," below. For more information about Portfolio expenses, please refer to the accompanying prospectuses for the Funds. CONTRACT OWNER TRANSACTION EXPENSES Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years Since We Received the Purchase 0 1 2 3 4 5 6+ Payment Being Withdrawn -------------------------------------------------------------------------------------------- Applicable Charge % % % -------------------------------------------------------------------------------------------- Annual Contract Maintenance Charge $35.00** -------------------------------------------------------------------------------------------- Transfer Fee $10.00*** --------------------------------------------------------------------------------------------
*Each Contract Year, you may withdraw up to 15% of your aggregate purchase payments without incurring a withdrawal charge. ** 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 portfolio rebalancing. We are currently waiving the transfer fee.
VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE DEDUCTED FROM EACH BasePolicy PolicywithEnhancedDeathBenefitRider VARIABLE SUB-ACCOUNT) ------------------------------------------------------------------------------- Mortality and Expense Risk 1.25% 1.35% Charge ------------------------------------------------------------------------------- Administrative Expense 0.10% 0.10% Charge ------------------------------------------------------------------------------- Total Variable Account 1.35% 1.45% Annual Expense -------------------------------------------------------------------------------
7 PORTFOLIO ANNUAL EXPENSES (as a percentage of Portfolio average daily net assets)(1)
Total Management Rule12b-1 Other Portfolio Portfolio Fees Fees Expenses Annual Expenses --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund-Series I 0.61% N/A 0.24% .85% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Core Equity Fund-Series I (2) 0.61% N/A 0.21% 0.82% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Diversified Income Fund-Series I 0.60% N/A 0.33% 0.93% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Global Utilities Fund-Series I 0.65% N/A 0.42% 1.07% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Government Securities Fund-Series I 0.50% N/A 0.58% 1.08% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund-Series I 0.62% N/A 0.26% 0.88% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. International Growth Fund-Series I (2) 0.73% N/A 0.32% 1.05% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund-Series I (2) 0.60% N/A 0.25% 0.85% --------------------------------------------------------------------------------------------------------------------------- American Century VP Balanced (3) 0.90% N/A 0.00% 0.90% --------------------------------------------------------------------------------------------------------------------------- American Century VP International (3) 1.26% N/A 0.00% 1.26% --------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc.: Initial Shares 0.75% N/A 0.03% 0.78% --------------------------------------------------------------------------------------------------------------------------- Dreyfus Stock Index Fund: Initial Shares 0.25% N/A 0.01% 0.26% --------------------------------------------------------------------------------------------------------------------------- Dreyfus VIF - Growth & Income Portfolio: Initial Shares 0.75% N/A 0.05% 0.80% --------------------------------------------------------------------------------------------------------------------------- Dreyfus VIF - Money Market Portfolio 0.50% N/A 0.08% 0.58% --------------------------------------------------------------------------------------------------------------------------- Dreyfus VIF - Small Company Stock Portfolio: Initial Shares 0.75% N/A 0.28% 1.03% --------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Contrafund Portfolio (4) 0.58% N/A 0.10% 0.68% --------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio (4) 0.48% N/A 0.10% 0.58% --------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio - Initial Class (4) 0.58% N/A 0.10% 0.68% --------------------------------------------------------------------------------------------------------------------------- Fidelity VIP High Income Portfolio - Initial Class (4) 0.58% N/A 0.13% 0.71% --------------------------------------------------------------------------------------------------------------------------- MFS Emerging Growth Series - Initial Class (5) 0.75% N/A 0.12% 0.87% ---------------------------------------------------------------------------------------------------------------------------
(1) Figures shown in the Table are for the year ended December 31, 2001 (except as otherwise noted). (2) Effective May 1, 2002 the AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. (3) The Portfolio has a stepped fee schedule. As a result, the Portfolio's management fee generally decreases as Portfolio assets increase. (4) Actual "Total Portfolio Annual Expenses" were lower because a portion of the brokerage commissions that the Portfolios paid was used to reduce the Portfolios' expenses. In addition, through arrangements with the Portfolios' custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the Portfolios' custodian expenses. These offsets may be discontinued at any time. Had these offsets been taken into account, "Total Portfolio Annual Expenses" would have been 0.64% for Contrafund Portfolio, 0.57% for Equity-Income Portfolio, 0.65% for Growth Portfolio and 0.70% for High Income Portfolio. (5) The Portfolio has an expense offset arrangement which reduces the Portfolio's custodian fee based upon the amount of cash maintained by the Portfolio with its custodian and dividend disbursing agent. The Portfolio may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the Portfolio's expenses. "Other Expenses" do not take these expense reductions into account, and are therefore higher than the actual expenses of the Portfolio. Had these fee reductions been taken into account, "Total Portfolio Annual Expenses" would have been lower and would equal 0.86%. 8 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, .. surrendered your Contract at the end of each time period, and .. elected the Enhanced Death Benefit Rider. THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT. ASSUMES TERMINATION
Portfolio 1 Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund $75 $117 $154 $273 ------------------------------------------------------------------------------- AIM V.I. Core Equity Fund $75 $117 $152 $270 ------------------------------------------------------------------------------- AIM V.I. Diversified Income Fund $76 $120 $158 $281 ------------------------------------------------------------------------------- AIM V.I. Global Utilities Fund $78 $124 $165 $295 ------------------------------------------------------------------------------- AIM V.I. Government Securities Fund $78 $124 $165 $296 ------------------------------------------------------------------------------- AIM V.I. Growth Fund $76 $118 $155 $276 ------------------------------------------------------------------------------- AIM V.I. International Growth Fund $77 $124 $164 $293 ------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund $75 $117 $154 $273 ------------------------------------------------------------------------------- American Century VP Balanced Fund $76 $119 $156 $278 ------------------------------------------------------------------------------- American Century VP International Fund $80 $130 $174 $314 ------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth $75 $115 $150 $266 Fund, Inc.: Initial Shares ------------------------------------------------------------------------------- Dreyfus Stock Index Fund: Initial Shares $69 $ 99 $123 $210 ------------------------------------------------------------------------------- Dreyfus VIF - Growth & Income Portfolio: $75 $116 $151 $268 Initial Shares ------------------------------------------------------------------------------- Dreyfus VIF - Money Market Portfolio $73 $109 $140 $245 ------------------------------------------------------------------------------- Dreyfus VIF - Small Company Stock $77 $123 $163 $291 Portfolio: Initial Shares ------------------------------------------------------------------------------- Fidelity VIP Contrafund Portfolio $74 $112 $145 $255 ------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio $73 $109 $140 $245 ------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio $74 $112 $145 $255 ------------------------------------------------------------------------------- Fidelity VIP High Income Portfolio $74 $113 $146 $258 ------------------------------------------------------------------------------- MFS Emerging Growth Series $76 $118 $155 $275 -------------------------------------------------------------------------------
9 EXAMPLE 2 Same assumptions as Example 1 above, except that you decided not to surrender your Contract. ASSUMES NO TERMINATION
Portfolio 1 Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund $24 $75 $128 $273 ------------------------------------------------------------------------------- AIM V.I. Core Equity Fund $24 $74 $126 $270 ------------------------------------------------------------------------------- AIM V.I. Diversified Income Fund $25 $77 $132 $281 ------------------------------------------------------------------------------- AIM V.I. Global Utilities Fund $27 $82 $139 $295 ------------------------------------------------------------------------------- AIM V.I. Government Securities Fund $27 $82 $140 $296 ------------------------------------------------------------------------------- AIM V.I. Growth Fund $25 $76 $130 $276 ------------------------------------------------------------------------------- AIM V.I. International Growth Fund $26 $81 $138 $293 ------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund $24 $75 $128 $273 ------------------------------------------------------------------------------- American Century VP Balanced Fund $25 $76 $131 $278 ------------------------------------------------------------------------------- American Century VP International Fund $29 $88 $149 $314 ------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth $24 $73 $124 $266 Fund, Inc.: Initial Shares ------------------------------------------------------------------------------- Dreyfus Stock Index Fund: Initial Shares $18 $57 $97 $210 ------------------------------------------------------------------------------- Dreyfus VIF - Growth & Income Portfolio: $24 $73 $125 $268 Initial Shares ------------------------------------------------------------------------------- Dreyfus VIF - Money Market Portfolio $22 $67 $114 $245 ------------------------------------------------------------------------------- Dreyfus VIF - Small Company Stock $26 $80 $137 $291 Portfolio: Initial Shares ------------------------------------------------------------------------------- Fidelity VIP Contrafund Portfolio $23 $70 $119 $255 ------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio $22 $67 $114 $245 ------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio $23 $70 $119 $255 ------------------------------------------------------------------------------- Fidelity VIP High Income Portfolio $23 $71 $121 $258 ------------------------------------------------------------------------------- MFS Emerging Growth Series $25 $76 $129 $275 -------------------------------------------------------------------------------
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EARNINGS. YOUR ACTUAL EXPENSES MAY BE LESS OR GREATER THAN THOSE SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LESS OR GREATER THAN 5%, WHICH IS NOT GUARANTEED. THE ABOVE EXAMPLES ASSUME THE ELECTION OF THE ENHANCED DEATH BENEFIT RIDER WITH A MORTALITY AND EXPENSE RISK CHARGE OF 1.35%. IF THAT RIDER WERE NOT ELECTED, THE EXPENSE FIGURES SHOWN ABOVE WOULD BE SLIGHTLY LOWER. TO REFLECT THE CONTRACT MAINTENANCE CHARGE IN THE EXAMPLES, WE ESTIMATED AN EQUIVALENT PERCENTAGE CHARGE, BASED ON THE CURRENT AVERAGE CONTRACT SIZE OF $43,861. 10 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 the date the Contracts were first offered. 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 LIFE also appear in the Statement of Additional Information. 11 THE CONTRACT -------------------------------------------------------------------------------- CONTRACT OWNER The Allstate Provider Variable Annuity is a contract between you, the Contract Owner, and Glenbrook Life, a life insurance company. As the Contract Owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted): .. the investment alternatives during the Accumulation and Payout Phases, .. the amount and timing of your purchase payments and withdrawals, .. the programs you want to use to invest or withdraw money, .. the income payment plan you want to use to receive retirement income, .. the Annuitant (either yourself or someone else) on whose life the income payments will be based, .. the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract Owner dies, and .. any other rights that the Contract provides. If you die, any surviving Contract Owner, or, if none, the Beneficiary may exercise the rights and privileges provided to them by the Contract. The Contract cannot be jointly owned by both a non-natural person and a natural person. If the Contract Owner is a grantor trust, the Contract Owner will be considered a non-living person for purposes of the Death of Owner and Death of Annuitant provisions of your Contract. The maximum age of the oldest Contract Owner or Annuitant cannot exceed 90 as of the date we receive the completed application. You may change the Contract Owner at any time. We will provide a change of ownership form to be signed by you and filed with us. After we accept the form, the change of ownership will be effective as of the date you signed the form. Until we receive your written notice to change the Contract Owner, we are entitled to rely on the most recent ownership 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 the Contract Owner, you should deliver your written notice to us promptly. Each change is subject to any payment made by us or any other action we take before we accept the change. 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 29. Changing ownership of this Contract may cause adverse tax consequences and may not be allowed under qualified plans. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner. BENEFICIARY The Beneficiary is the person who may elect to receive the Death Proceeds or become the new Contract Owner, subject to the "Death of Owner" section below, 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. You may name one or more primary and contingent Beneficiaries when you apply for a Contract. The primary Beneficiary is the person who is first entitled to receive benefits under the Contract upon the death of the sole surviving Contract Owner. A contingent Beneficiary is the person selected by the Contract Owner who will become the Beneficiary if all named primary Beneficiaries die before the death of the sole surviving Contract Owner. You may change or add Beneficiaries at any time, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed by you and filed with us. After we accept the form, the change of Beneficiary will be effective as of the date you signed the form. 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. Each change is subject to any payment made by us or any other action we take before we accept the change. If you did not name a Beneficiary or, unless otherwise provided in the Beneficiary designation, if a named Beneficiary is no longer living and there are no other surviving primary or contingent 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 one or more Beneficiaries survive you (or survives the Annuitant, if the Contract Owner is not a natural person), we will divide the Death Proceeds among the surviving Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the Death Proceeds in equal amounts to the surviving Beneficiaries. If more than one Beneficiary shares in the Death 12 Proceeds, each Beneficiary will be treated as a separate and independent owner of his or her respective share. Each Beneficiary will exercise all rights related to his or her share including the sole right to select a payout option, subject to any restrictions previously placed upon the Beneficiary. Each Beneficiary may designate a Beneficiary(ies) for his or her respective share, but that designated Beneficiary(ies) will be restricted to the payout option chosen by the original Beneficiary. MODIFICATION OF THE CONTRACT Only a Glenbrook Life officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law. ANNUITANT The Annuitant is the individual 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. You may change the Annuitant at any time prior to the Payout Start Date (only if the Contract Owner is a natural person). Once we accept a change, it takes effect as of the date you signed the request. Each change is subject to any payment we make or other action we take before we accept it. You may designate a joint Annuitant, who is a second person on whose life income payments depend at the time you select an Income Plan. We permit joint Annuitants only on or after the Payout Start Date. If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be: (i) the youngest Contract Owner; otherwise, (ii) the youngest Beneficiary. ASSIGNMENT You may not assign any 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 payable to the Beneficiary. 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. PURCHASES -------------------------------------------------------------------------------- MINIMUM PURCHASE PAYMENTS Your initial purchase payment must be at least $3,000 ($2,000 for a Qualified Contract). All subsequent purchase payments must be $50 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. AUTOMATIC ADDITIONS PROGRAM You may make subsequent purchase payments by automatically transferring money from your bank account. Consult your sales representative for more 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 home office. 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 are open for business 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 13 Accumulation Unit Values computed on the next Valuation Date. RIGHT TO CANCEL You may cancel the Contract by returning it to us within the Cancellation Period, which is the 20 day period after you receive the Contract, or a longer period should your state require it. You may return your Contract 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. In states where we are required to refund purchase payments, we reserve the right during the Cancellation Period to invest any purchase payments you allocated to a Variable Sub-Account to the money market Variable Sub-Account available under the Contract. We will notify you if we do so. At the end of the Cancellation Period, you may then allocate your money to other Variable Sub-Accounts. If your Contract is qualified under Section 408 of the Internal Revenue Code, we will refund the greater of any purchase payments or the Contract Value. CONTRACT VALUE -------------------------------------------------------------------------------- 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 investment 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 Accumulation Units 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. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Variable Sub-Account allocated to your Contract. ACCUMULATION UNIT VALUE As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect: .. changes in the share price of the Portfolio 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 Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we calculate Accumulation Unit Value, please refer to the Statement of Additional Information. We determine a separate Accumulation Unit Value for each Variable Sub-Account on each Valuation Date. We also determine a separate set of Accumulation Unit Values reflecting the cost of the Enhanced Death Benefit Rider described on page 27. YOU SHOULD REFER TO THE PROSPECTUSES FOR THE PORTFOLIOS THAT ACCOMPANY THIS PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE. 14 INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS -------------------------------------------------------------------------------- You may allocate your purchase payments to up to 20 Variable Sub-Accounts. Each Variable Sub-Account invests in the shares of a corresponding Portfolio. Each Portfolio has its own investment objective(s) and policies. We briefly describe the Portfolios below. For more complete information about each Portfolio, including expenses and risks associated with the Portfolio, please refer to the accompanying prospectuses for the Portfolios. You should carefully review the Portfolios' prospectuses before allocating amounts to the Variable Sub-Accounts.
PORTFOLIO: EACH PORTFOLIO SEEKS: INVESTMENT ADVISOR: ------------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS* ------------------------------------------------------------------------------- AIM V.I. Capital Growth of capital Appreciation Fund ------------------------------------------------------- AIM V.I. Core Equity Growth of capital with a Fund** secondary objective of current income ------------------------------------------------------- AIM V.I. Diversified A high level of current Income Fund income AIM ADVISORS, ------------------------------------------------------- INC. AIM V.I. Global High total return Utilities Fund ------------------------------------------------------- AIM V.I. Government A high level of current Securities Fund income consistent with a reasonable concern for safety of principal ------------------------------------------------------- AIM V.I. Growth Fund Growth of capital ------------------------------------------------------------------------------- AIM V.I. International Long-term growth of capital Growth Fund** ------------------------------------------------------- AIM V.I. Premier Long-term growth of capital Equity Fund** and income as a secondary objective ------------------------------------------------------- AMERICAN CENTURY VARIABLE PORTFOLIOS (VP), INC. ------------------------------------------------------------------------------- American Century VP Long-term capital growth and AMERICAN Balanced Fund current income INVESTMENT MANAGEMENT, INC. ------------------------------------------------------------------------------- American Century VP Long-term capital growth International Fund ------------------------------------------------------- THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; THE DREYFUS STOCK INDEX FUND; AND THE DREYFUS VARIABLE INVESTMENT FUND (VIF) (COLLECTIVELY, THE DREYFUS FUNDS) ------------------------------------------------------------------------------- The Dreyfus Socially Capital growth and, Responsible Growth secondarily, current income Fund, Inc. ------------------------------------------------------- Dreyfus Stock Index To match the total return of Fund the Standard & Poor's(R) 500 Composite Stock Price Index ------------------------------------------------------- Dreyfus VIF Growth & Long-term capital growth, Income Portfolio current income and growth of income, consistent with THE DREYFUS reasonable investment risk CORPORATION ------------------------------------------------------- Dreyfus VIF Money A high level of current Market Portfolio income as is consistent with the preservation of capital and the maintenance of liquidity ------------------------------------------------------- Dreyfus VIF Small Investment returns Company Stock (consisting of capital Portfolio appreciation and income) that are greater than the total return performance of stocks ------------------------ represented by the Russell 2500/SM/ Stock Index ("Russell 2500") ------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND ------------------------------------------------------------------------------- Fidelity VIP Long-term capital Contrafund Portfolio appreciation ------------------------------------------------------- FIDELITY MANAGEMENT Fidelity VIP Reasonable income & Equity-Income RESEARCH COMPANY Portfolio ------------------------------------------------------- Fidelity VIP Growth Capital appreciation Portfolio ------------------------------------------------------------------------------- Fidelity VIP High High level of current income Income Portfolio while also considering growth of capital ------------------------------------------------------- MFS(R) VARIABLE INSURANCE TRUST/SM/ ------------------------------------------------------------------------------- MFS Emerging Growth Long-term growth of capital Series ------------------------------------------------------- MFS INVESTMENT MFS Limited Maturity Provide as high a level of MANAGEMENT (R) Series*** current income as is believed to be consistent with prudent investment risk. Secondary objective is to protect shareholders' capital. ------------------------ -------------------------------------------------------
15 *A Portfolio's investment objective may be changed by the Fund's Board of Trustees without shareholder approval. ** Effective May 1, 2002 the AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. *** No longer available under the contracts. 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 PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE PORTFOLIOS 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. VARIABLE INSURANCE PORTFOLIOS MAY NOT BE MANAGED BY THE SAME PORTFOLIO MANAGERS WHO MANAGE RETAIL MUTUAL FUNDS WITH SIMILAR NAMES. THESE PORTFOLIOS ARE LIKELY TO DIFFER FROM SIMILARLY NAMED RETAIL FUNDS IN ASSETS, CASH FLOW, AND TAX MATTERS. ACCORDINGLY, THE HOLDINGS AND INVESTMENT RESULTS OF A VARIABLE INSURANCE PORTFOLIO CAN BE EXPECTED TO BE GREATER OR LESS THAN THE INVESTMENT RESULTS OF SIMILARLY NAMED RETAIL MUTUAL FUNDS. INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT OPTIONS -------------------------------------------------------------------------------- You may allocate all or a portion of your purchase payments to the Fixed Account. You may choose from among 2 Fixed Account Options: a dollar cost averaging option, and the option to invest in one or more Guarantee Periods included in the Guaranteed Maturity Fixed Account. 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 FIXED ACCOUNT OPTION Purchase payments that you allocate to the Dollar Cost Averaging Fixed Account Option ("DCA Fixed Account Option") will earn interest for a one year period at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound over the year to the annual interest rate we guaranteed at the time of allocation. After the one year period, we will declare a renewal rate which we guarantee for a full year. Subsequent renewal dates will be every twelve months for each payment or transfer. For each purchase payment, the first transfer from the DCA Fixed Account must occur within one month of the date of payment. If we do not receive an allocation from you within one month of the date of payment, the payment plus associated interest will be transferred to the money market Sub-Account in equal monthly installments using the longest transfer period being offered at the time the purchase payment is made. Transferring Account Value to the money market Variable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 19. You must transfer each purchase payment and all its earnings out of this Option by means of dollar cost averaging within 36 months of payment. At the end of 36 months, any nominal amounts remaining in the DCA Fixed Account will be alloccated to the money market Variable Sub-Account. No transfers are permitted into the DCA Fixed Account. We bear the investment risk for all amounts allocated to the DCA Fixed Account Option. That is because we guarantee the current and renewal interest rates we credit to the amounts you allocate to this Option, which will never be less than the minimum guaranteed rate in the Contract. Currently, we determine, in our sole discretion, the amount of interest credited in excess of the guaranteed rate. We may declare more than one interest rate for different monies based upon the date of allocation to the DCA Fixed Account Option. For current interest rate information, please contact your sales representative or GLENBROOK LIFE customer service at 1-800-755-5275. 16 GUARANTEE PERIODS Each payment or transfer allocated to a Guarantee Period earns interest at a specified rate that we guarantee for a period of years. Guarantee Periods may range from 1 to 10 years. We are currently offering Guarantee Periods of 1, 3, 5, 7, and ten years in length. In the future, we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods. You select the Guarantee Period for each payment 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. Each payment or transfer allocated to a Guarantee Period must be at least $50. 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 will not change the interest rate that we credit to a particular allocation until the end of the relevant Guarantee Period. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. 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 LIFE at 1-800-755-5275. HOW WE CREDIT INTEREST. We will credit interest daily to each amount allocated to a Guarantee Period at a rate that compounds to the annual interest rate that we declared at the beginning of the applicable Guarantee Period. THE FOLLOWING EXAMPLE ILLUSTRATES HOW A PURCHASE PAYMENT ALLOCATED TO A GUARANTEED PERIOD WOULD GROW, GIVEN AN ASSUMED GUARANTEE PERIOD AND ANNUAL INTEREST RATE:
Purchase Payment $ .............................................................................................................................10,000 Guarantee Period 5 ..............................................................................................................................years Annual Interest Rate 4.5 .................................................................................................................................0%
END OF CONTRACT YEAR
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ---------- ---------- ---------- ---------- ------------ Beginning Contract $10,000.00 Value................ X (1 + Annual Interest Rate) 1.045 ---------- $10,450.00 Contract Value at end $10,450.00 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ---------- $10,920.25 Contract Value at end $10,920.25 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ---------- $11,411.66 Contract Value at end $11,411.66 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ---------- $11,925.19 Contract Value at end $11,925.19 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ----------- $12,461.82
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 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. RENEWALS. Prior to the end of each Guarantee Period, we will mail you a notice asking you what to do with your money, 17 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 expiring 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; we will pay interest from the day the Guarantee Period expired until the date of the transfer. The interest will be the rate for the shortest Guarantee Period then being offered; 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. We will pay interest from the day the Guarantee Period expired until the date of withdrawal. The interest will be the rate for the shortest Guarantee Period then being offered. 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. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59/1/2/, may be subject to an additional 10% federal tax penalty. MARKET VALUE ADJUSTMENT. All withdrawals and transfers from a Guarantee Period, other than those taken during the 30 day period after such Guarantee Period expires, are subject to a Market Value Adjustment. A Market Value Adjustment also may apply upon payment of a death benefit and when you apply amounts currently invested in a Guarantee Period to an Income Plan (unless paid or applied during the 30-day period after such Guarantee Period expires). We also will not apply a Market Value Adjustment to a withdrawal you make within the Free Withdrawal Amount as described on page 21. 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 you remove it 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 from a Guaranteed Period to an amount that is less than the purchase payment applied to that period plus interest earned under the Contract. Generally, if the original Treasury Rate at the time you allocate money to a Guarantee Period is higher than the applicable current Treasury Rate for a period equal to the Guarantee Period, 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 Treasury Rate for a period equal to the Guarantee Period, 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. 18 INVESTMENT ALTERNATIVES: TRANSFERS -------------------------------------------------------------------------------- TRANSFERS DURING THE ACCUMULATION PHASE During the Accumulation Phase, you may transfer Contract Value among the investment alternatives. You may request transfers in writing on a form that we provide or by telephone according to the procedure described below. The minimum amount that you may transfer into a Guarantee Period is $50. 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 Portfolio 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. Central Time 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 for up to six months from the date we receive your request. If we decide to postpone transfers 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 such 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 so as 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 portion of your right to receive fixed income payments into variable income payments. If you choose an Income Plan that depends on any person's life, 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 1-800-755-5275. 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. DOLLAR COST AVERAGING PROGRAM Through our Dollar Cost Averaging Program, you may automatically transfer a fixed dollar amount every month during the Accumulation Phase from the DCA Fixed Account to any Variable Sub-Account. You may not use the Dollar Cost Averaging Program to transfer amounts to the Guarantee Periods. We will not charge a transfer fee for transfers made under this Program, nor will such transfer 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. Call or write us for instructions on how to enroll. AUTOMATIC PORTFOLIO REBALANCING PROGRAM Once you have allocated your money among the Variable Sub-Accounts, the performance of each Variable Sub-Account may cause a shift in the percentage you allocated to each Variable Sub-Account. If you select our Automatic Portfolio Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. We will not include money you allocate to the Fixed Account Options in the Automatic Portfolio Rebalancing Program. We will rebalance your account each quarter according to your instructions. We will transfer amounts among 19 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 request. We are not responsible for rebalancing that occurs prior to receipt of your request. Example: Assume that you want your initial purchase payment split among two Variable Sub-Accounts. You want 40% to be in the AIM V.I. Value 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. Value Variable Sub-Account 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. Value 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 Portfolio 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. Portfolio 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. 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. If you surrender your Contract, we will deduct the contract maintenance charge pro rated for the part of the Contract Year elapsed, unless your Contract qualifies for a waiver, described below. The charge is to compensate us for the cost of administering the Contracts and the Variable Account. Maintenance costs include expenses we incur collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract Owners and regulatory agencies. We cannot increase the charge. However, we will waive this charge if, as of the Contract Anniversary or upon full surrender: .. total purchase payments equal $50,000 or more, or all money is allocated to the Fixed Account. In addition, we will waive the contract maintenance charge if total purchase payments are $50,000 or more as of the Payout Start Date. MORTALITY AND EXPENSE RISK CHARGE We deduct a mortality and expense risk charge daily at an annual rate of 1.25% of the average daily net assets you have invested in the Variable Sub-Accounts (1.35% if you select the Enhanced Death Benefit Rider). The mortality and expense risk charge is for all the insurance benefits available with your Contract (including our guarantee of annuity rates and the death benefits), for certain expenses of the Contract, and for assuming the risk (expense risk) that the current charges will be sufficient in the future to cover the cost of administering the Contract. If the charges under the Contract are not sufficient, then we will bear the loss. We charge an additional amount for the Enhanced Death Benefit Rider to compensate us for the additional risk that we accept by providing these options. We guarantee that we will not raise the mortality and expense risk charge. We assess the mortality and expense risk charge during both the Accumulation Phase and the Payout Phase. ADMINISTRATIVE EXPENSE CHARGE We deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-Accounts. We intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed 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 or Automatic Portfolio Rebalancing Program. WITHDRAWAL CHARGE We may assess a withdrawal charge of up to 6% of the purchase payment(s) you withdraw. The charge declines to 0% over a 6 year period that begins on the day we receive your payment. A schedule showing how the charge declines is shown on page 7. During each Contract Year, you can withdraw up to 15% of the 20 aggregate amount of your purchase payments without paying the charge. Unused portions of this "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 calculating the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings, 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 terminate income payments to be received for a specified period); .. on the death of the Contract Owner (or the Annuitant, if the Contract Owner is not a natural person), unless the Settlement Value is used to determine the Death Proceeds; .. withdrawals taken to satisfy IRS minimum distribution rules for the Contract; or .. withdrawals that qualify for one of the waivers as 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 of earnings are taxed as ordinary income and, if taken before age 59/1/2,/ may be subject to an additional 10% federal tax penalty. Withdrawals may also be subject to 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 Owner is not a natural person) are confined to a long term care facility or a hospital 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. you request the withdrawal and provide written proof 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, the Annuitant, or a member of your or the Annuitant's immediate family, is the physician prescribing your or the Annuitant's stay in a long term care facility. 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 with a terminal illness at least 30 days after the Issue Date; and 2. you claim this benefit and deliver adequate proof of diagnosis to us. Please refer to your Contract for more detailed information about the terms and conditions of these waivers. The laws of your state may limit the availability of these waivers and may also change certain terms and/or benefits available under the waivers. You should consult your Contract for further details on these variations. Also, even if you do not need to pay our withdrawal charge or a Market Value Adjustment 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. At our discretion, we may discontinue this practice 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 making a provision for such taxes. In the future, however, we may make 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 "Taxes" section beginning on page 30. OTHER EXPENSES Each Portfolio deducts advisory fees and other expenses 21 from its assets. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Variable Sub-Accounts. These fees and expenses are described in the accompanying prospectuses for the Portfolios. For a summary of current estimates of those charges and expenses, see page 7. We may receive compensation from the investment advisers or administrators of the Portfolios in connection with the administrative services we provide to the Portfolios. ACCESS TO YOUR MONEY -------------------------------------------------------------------------------- You can withdraw some or all of your Contract Value at any time prior to the Payout Start Date. The amount payable upon withdrawal is the Contract Value (or portion thereof) next computed after we receive the request for a withdrawal at our home office, 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. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 /1/2/, may be subject to an additional 10% Federal tax penalty. 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 for 30 days or more, we will pay interest as required by law. 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 Program or Automatic Portfolio Rebalancing Program. Depending on fluctuations in the value of the Variable Sub-Accounts and the value of the Fixed Account Options, systematic withdrawals may reduce or even exhaust the Contract Value. Withdrawals of earnings under a Systematic Withdrawal Program are taxed as ordinary income and, if taken prior to age 59 /1/2/, may be subject to an additional 10% federal tax penalty. Please consult your tax advisor before taking any withdrawal. We will make systematic withdrawal payments to you or your designated payee. At our discretion, 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. MINIMUM CONTRACT VALUE If your request for a partial withdrawal would reduce your Contract Value to less than $2,000, 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. Before terminating any Contract whose value has been previously reduced by withdrawals to less than $2,000, we will inform you in writing of our intention to terminate your Contract and give you at least 30 days in which to make an additional purchase payment to restore your Contract's Value to the contractual minimum of $2,000. 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 applicable taxes. INCOME PAYMENTS -------------------------------------------------------------------------------- PAYOUT START DATE You select the Payout Start Date in your application. The "PAYOUT START DATE" is the day that we apply your money to an Income Plan. The Payout Start Date must be: .. at least 30 days after the Issue Date; and .. no later than the day the Annuitant reaches age 90, or the 10th Contract Anniversary, if later. 22 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 scheduled payments to you or someone you designate. 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. 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. You may elect to receive guaranteed payments for periods ranging from 5 to 30 years. We will deduct the mortality and expense risk charge from the Variable Sub-Account assets that support variable income payments even though we may 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. 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 are alive before we make each payment. Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on. Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or part of the Variable Account portion of the income payments at any time and receive a lump sum equal to the present value of the remaining variable payments associated with the amount withdrawn. 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 must apply at least the Contract Value in the Fixed Account on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account 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 to fixed income payments. We will apply your Contract Value, adjusted by any Market Value Adjustment, less applicable taxes to your Income Plan on the Payout Start Date. If the amount available to apply under an Income Plan is less than $2,000, or not enough to provide an initial payment of at least $20, and state law permits, we may: .. terminate the Contract and pay you the Contract Value, adjusted by any applicable 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 23 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 Portfolios; 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. 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 any shorter time 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 applicable 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. 24 DEATH BENEFITS -------------------------------------------------------------------------------- DEATH OF OWNER If you die before the Payout Start Date, any surviving joint Contract Owner or, if none, the Beneficiary will be designated the new Contract Owner and will be entitled to the options described below. If the new Contract Owner previously was the Beneficiary, however, the new Contract Owner's options will be subject to any restrictions previously placed upon the Beneficiary. The claim for death benefits must be submitted to us within 180 days of the relevant death in order to claim the standard or enhanced death benefit. If a complete claim is not submitted within 180 days of the relevant death, the claimant will receive the greater of Contract Value or the Settlement Value. (See "Death Proceeds" below). 1. If your spouse is the sole surviving Contract Owner or, in the absence of any surviving Contract Owner, is the sole Beneficiary: (a) Your spouse may elect to receive the Death Proceeds in a lump sum; or (b) Your spouse may elect to receive the Death Proceeds paid out under one of the Income Plans (described in "Income Payments" above) subject to the following conditions: The Payout Start Date must be within one year of your date of death. Income payments must be payable: (i) over the life of your spouse; or (ii) for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of your spouse; or (iii) over the life of your spouse with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of your spouse. (c) If your spouse does not elect one of these options, the Contract will continue in the Accumulation Phase as if the death had not occurred. If the Contract is continued in the Accumulation Phase, the following conditions apply: The Contract Value of the continued Contract will be the Death Proceeds. Unless otherwise instructed by the continuing spouse, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the Sub-Accounts of the Variable Account. The excess will be allocated in proportion to your Contract Value in those Sub-Accounts as of the end of the Valuation Period during which we receive the complete request for settlement of the Death Proceeds, except that any portion of this excess attributable to the Fixed Account Options will be allocated to the money market Variable Sub-Account. Within 30 days of the date the Contract is continued, your surviving spouse may choose one of the following transfer alternatives without incurring a transfer fee: (i) transfer all or a portion of the excess among the Variable Sub-accounts; (ii) transfer all or a portion of the excess into the Guaranteed Maturity Fixed Account and begin a new Guarantee Period; or (iii) transfer all or a portion of the excess into a combination of Variable Sub-accounts and the Guaranteed Maturity Fixed Account. Any such transfer does not count as one of the free transfers allowed each Contract Year and is subject to any minimum allocation amount specified in the Contract. The surviving spouse may make a single withdrawal of any amount within one year of the date of your death without incurring a Withdrawal Charge or Market Value Adjustment. Prior to the Payout Start Date, the Death Benefit of the continued Contract will be as defined in the Death Benefit provision. Only one spousal continuation is allowed under the Contract. 2. If the new Contract Owner is not your spouse but is a living person: (a) The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or (b) The new Contract Owner may elect to receive the Death Proceeds paid out under one of the Income Plans (described in "Income Payments" above) subject to the following conditions: The Payout Start Date must be within one year of your date of death. Income Payments must be payable: (i) over the life of the new Contract Owner; or (ii) for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of the new Contract Owner; or (iii) over the life of the new Contract Owner with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the new Contract Owner. (c) If the new Contract Owner does not elect one of the options above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. On the date we receive the complete request for settlement of the Death Proceeds the Contract Value will be the Death Proceeds. Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers (as described in "Transfers During the Payout Phase" above) during this 5 year period. 25 The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived for any withdrawals made during this 5 year period. We reserve the right to offer additional options upon the death of the Contract Owner. If the new Contract Owner dies prior to the complete liquidation of the Contract Value, then the new Contract Owner's named Beneficiary(ies) will receive the greater of the Settlement Value or the remaining Contract Value. This amount must be liquidated as a lump sum within 5 years of the date of the original Contract Owner's death. 3. If the new Contract Owner is a corporation or other type of non-living person: (a) The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or (b) If the new Contract Owner does not elect the option above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. On the date we receive the complete request for settlement of the Death Proceeds, the Contract Value under this option will be the Death Proceeds. Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers (as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived during this 5 year period. We reserve the right to make additional options available to the new Contract Owner upon the death of the Contract Owner. If any new Contract Owner is a non-living person, all new Contract Owners will be considered to be non-living persons for purposes of these provisions Under any of these options, all ownership rights, subject to any restrictions previously placed upon the Beneficiary, are available to the new Contract Owner from the date of your death to the date on which the Death Proceeds are paid. DEATH OF ANNUITANT If the Annuitant who is not also the Contract Owner dies prior to the Payout Start Date, the following apply: 1. If the Contract Owner is a living person, then the Contract will continue with a new Annuitant, who will be: (a) the youngest Contract Owner; otherwise (b) the youngest Beneficiary. You may change the Annuitant before the Payout Start Date. 2. If the Contract Owner is a non-living person: (a) The Contract Owner may elect to receive the Death Proceeds in a lump sum; or (b) If the Contract Owner does not elect the option above, then the Contract Owner must receive the Contract Value payable within 5 years of the Annuitant's date of death. On the date we receive the complete request for settlement of the Death Proceeds, the Contract Value under this option will be the Death Proceeds. Unless otherwise instructed by the Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the Contract Owner may make transfers (as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived during this 5 year period. We reserve the right to make additional options available to the Contract Owner upon the death of the Annuitant. Under any of these options, all ownership rights are available to the non-living Contract Owner from the date of the Annuitant's death to the date on which the Death Proceeds are paid. DUE PROOF OF DEATH 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, .. a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or .. any other proof acceptable to us. DEATH BENEFIT PAYMENTS DEATH PROCEEDS If we receive a complete request for settlement of the Death Proceeds within 180 days of the date of your death, the Death Proceeds are equal to the applicable death benefit described below. Otherwise, the Death Proceeds are equal to the greater of the Contract Value or the Settlement Value. We reserve the right to extend, on a non-discriminatory basis, the 180-day period in which the Death Proceeds will equal the applicable death benefit as described above. This right applies only for the purposes of determining the amount payable as Death Proceeds and in no way restricts when a claim may be filed. 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 26 value of 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 value of the death benefit, or 3. 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 an adjustment for any partial withdrawals since that Death Benefit Anniversary. A "Death Benefit Anniversary" is every seventh Contract Anniversary beginning with the Issue Date. For example, the Issue Date, 7th and 14th Contract Anniversaries are the first 3 Death Benefit Anniversaries. The partial 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 Contract Value on the Death Benefit Anniversary adjusted by any prior purchase payments or withdrawals made since that Anniversary. We will determine the value of the death benefit as of the end of the Valuation Date on which we receive a complete request for payment of the death benefit. If we receive a request after 3 p.m. Central Time on a Valuation Date, we will process the request as of the end of the following Valuation Date. ENHANCED DEATH BENEFIT RIDER For Contracts with the Enhanced Death Benefit Rider, the death benefit will be the greatest of (1) through (3) above, or (4) the value of the Enhanced Death Benefit Rider, which is the greatest of the ANNIVERSARY VALUES as of the date we determine the death benefit. The "Anniversary Value" is equal to the Contract Value on a Contract Anniversary, increased by purchase payments made since that Anniversary and reduced by an adjustment for any partial withdrawals since that Anniversary. The adjustment is equal to (a) divided by (b), and the result multiplied by (c) where: (a) is the withdrawal amount, (b) is the Contract Value immediately prior to the withdrawal, and (c) is the Contract Value on that Contract Anniversary adjusted by any prior purchase payments and withdrawals since that Contract Anniversary. We will calculate Anniversary Values for each Contract Anniversary prior to the oldest Contract Owner's or the Annuitant's, if the Contract Owner is not a natural person, 80th birthday. The Enhanced Death Benefit Rider will never be greater than the maximum death benefit allowed by any state non-forfeiture laws that govern the Contract. MORE INFORMATION -------------------------------------------------------------------------------- GLENBROOK LIFE GLENBROOK LIFE is the issuer of the Contract. GLENBROOK LIFE is a stock life insurance company organized under the laws of the State of Arizona in 1998. Previously, GLENBROOK LIFE was organized under the laws of the State of Illinois in 1992. GLENBROOK LIFE was originally organized under the laws of the State of Indiana in 1965. From 1965 to 1983 GLENBROOK LIFE was known as "United Standard Life Assurance Company" and from 1983 to 1992 as "William Penn Life Assurance Company of America." GLENBROOK LIFE 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 home office is located at 3100 Sanders Road, Northbrook, Illinois, 60062. GLENBROOK LIFE 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 Illinois. All of the outstanding capital stock of Allstate Insurance Company is owned by The Allstate Corporation. GLENBROOK LIFE and Allstate Life entered into a reinsurance agreement effective June 5, 1992. Under the reinsurance agreement, Allstate Life reinsures substantially all of GLENBROOK LIFE'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 LIFE; GLENBROOK LIFE remains the sole obligor under the Contract to you. Independent rating agencies regularly evaluate life insurers' claims-paying ability, quality of investments, and overall stability. A.M. Best Company assigns an A+ (Superior) financial strength rating to Allstate Life, which results in an A+r rating to GLENBROOK LIFE due to the reinsurance agreement with Allstate Life mentioned above. Standard & Poor's Insurance Rating Services assigns an AA+ (Very Strong) financial strength rating and Moody's Investors Service assigns an Aa2 (Excellent) financial strength rating to GLENBROOK LIFE, sharing the same ratings of its parent, Allstate Life. These ratings do not reflect the investment performance of the Variable 27 Account. We may from time to time advertise these ratings in our sales literature. THE VARIABLE ACCOUNT GLENBROOK LIFE established the GLENBROOK LIFE Life Multi-Manager Variable Account on January 15, 1996. 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 LIFE. 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 LIFE. The Variable Account consists of multiple Variable Sub-Accounts, Each Variable Sub-Account invests in a corresponding Portfolio. 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 Portfolios. We may use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account. THE PORTFOLIOS DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value. VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Portfolios 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 Portfolios 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 Portfolio 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 Variable Sub-Account by the net asset value per share of the corresponding Portfolio. 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 Portfolio 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 PORTFOLIOS. If the shares of any of the Portfolios 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 Portfolio and substitute shares of another eligible investment Portfolio. Any substitution of securities will comply with the requirements of the Investment Company Act of 1940. 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. Certain of the Portfolios 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 Portfolio. The boards of directors of these Portfolios monitor for possible conflicts among separate accounts buying shares of the Portfolios. 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, a Portfolio's board of directors may require a separate account to withdraw its participation in a Portfolio. A Portfolio's net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a separate account withdrawing because of a conflict. THE CONTRACT DISTRIBUTION. ALFS, Inc., ("ALFS") located at 3100 Sanders Road, Northbrook, IL 60062-7154, serves as principal underwriter and distributor of the Contracts. ALFS is a wholly owned subsidiary of Allstate Life Insurance Company. 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. 28 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. These commissions are intended to cover distribution expenses. Sometimes, we also pay the broker-dealer a persistency bonus in addition to the standard commissions. A persistency bonus is not expected to exceed 0.25%, on an annual basis, of the Contract Values considered in connection with the bonus. 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 LIFE 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 Jorden Burt LLP, Washington, D.C., has advised GLENBROOK LIFE on certain federal securities law matters. All matters of state insurance law pertaining to the Contracts, including the validity of the Contracts and GLENBROOK LIFE's right to issue such Contracts under state insurance law, have been passed upon by Michael J. Velotta, General Counsel of GLENBROOK LIFE. 29 TAXES -------------------------------------------------------------------------------- THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. GLENBROOK LIFE 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 GLENBROOK LIFE AND ANNUITY COMPANY GLENBROOK LIFE 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 LIFE, and its operations form a part of GLENBROOK LIFE, it will not be taxed separately. 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 LIFE 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 LIFE does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore GLENBROOK LIFE does not intend to make provisions for any such taxes. If GLENBROOK LIFE is taxed on investment income or capital gains of the Variable Account, then GLENBROOK LIFE may impose a charge against the Variable Account in order to make provision for such taxes. 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 LIFE 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 does not enjoy tax deferral and is taxed as ordinary income received or accrued by the owner during the taxable year. 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) immediate annuity 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. 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 LIFE does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements. OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a contract owner 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 a broader selection of investment alternatives. Also, you may be able to transfer among investment alternatives more frequently than in such rulings. These differences could 30 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 LIFE 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. 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 full withdrawal under a non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract. 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. The Federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. 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. WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding the taxation of any additional withdrawal received after the Payout Start Date. It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine. DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide: 1. if any Contract Owner dies on or after the Payout 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 Contract Owner's death; 2. if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owner's death. These requirements are satisfied if any portion of the Contract Owner's interest that 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 1 year of the Contract Owner's death. If the Contract Owner's designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner. 3. if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract 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 Contract Owner. TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit 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 Income Plan, the amounts are taxed in the same manner as annuity payments. 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 591/2. However, no penalty tax is incurred on distributions: 1. made on or after the date the Contract Owner attains age 591/2, 2. made as a result of the Contract Owner's death or becoming totally disabled, 3. made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary, 4. made under an immediate annuity, or 5. attributable to investment in the Contract before August 14, 1982. You should consult a competent tax advisor to determine how these exceptions may apply to your situation. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, 31 any additional withdrawal or other modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owner's attaining age 591/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. You should consult a competent tax advisor prior to taking a withdrawal. TAX FREE EXCHANGES UNDER IRC SECTION 1035. A 1035 exchange is a tax-free exchange of a non-qualified life insurance contract, endowment contract or annuity contract for a new non-qualified annuity contract. The Contract Owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them. TAXATION OF OWNERSHIP CHANGES. 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 taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax. Currently we do not allow assignments. AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-qualified deferred annuity contracts issued by GLENBROOK LIFE (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution. INCOME TAX WITHHOLDING Generally, GLENBROOK LIFE is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. GLENBROOK LIFE is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory. Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number. TAX QUALIFIED CONTRACTS The income on qualified plan and IRA investments is tax deferred, and the income on variable annuities held by such plans does 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. 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 under Sections 401 and 403; and .. State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Section 457. GLENBROOK LIFE reserves the right to limit the availability of the Contract for use with any of the Qualified Plans listed above or to modify the Contract to conform with tax requirements. 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 certain transactions such as excess contributions, premature distributions, and, distributions that do not conform to specified commencement and minimum distribution rules. 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. TAXATION OF WITHDRAWALS FROM A QUALIFIED CONTRACT. If you make a partial withdrawal under a Qualified Contract other than a Roth IRA, 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. We do not keep track of nondeductible contributions, and all tax reporting of distributions from Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable. "QUALIFIED DISTRIBUTIONS" from Roth IRAs are not included in gross income. "Qualified distributions" are any distributions made more than five taxable years after 32 the taxable year of the first contribution to any Roth IRA and which are: .. made on or after the date the Contract Owner attains age 591/2, .. made to a beneficiary after the Contract Owner's death, .. attributable to the Contract Owner being disabled, or .. made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000). "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. All tax reporting of distributions from Roth IRAs will indicate that the taxable amount is not determined. REQUIRED MINIMUM DISTRIBUTIONS. Generally, qualified plans require minimum distributions upon reaching age 701/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the Contract. Not all income plans offered under the Contract satisfy the requirements for minimum distributions. Because these distributions are required under the Code and the method of calculation is complex, please see a competent tax advisor. THE DEATH BENEFIT AND QUALIFIED CONTRACTS. Pursuant to the Code and IRS regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may not invest in life insurance contracts. However, an IRA may provide a death benefit that equals the greater of the purchase payments or the Contract Value. The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or 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 satisfy the requirements of an IRA. We believe that these regulations do not prohibit all forms of optional death benefits. It is also possible that the certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under qualified plans, such as in connection with a 403(b) plan. GLENBROOK LIFE reserves the right to limit the availability of the Contract for use with any of the qualified plans listed above. PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM QUALIFIED CONTRACTS. A 10% penalty tax applies to the taxable amount of any premature distribution from a Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 591/2. However, no penalty tax is incurred on distributions: 1. made on or after the date the Contract Owner attains age 591/2, 2. made as a result of the Contract Owner's death or total disability, 3. made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary, 4. made pursuant to an IRS levy, 5. made for certain medical expenses, 6. made to pay for health insurance premiums while unemployed (only applies for IRAs), 7. made for qualified higher education expenses (only applies for IRAs), and 8. made for a first time home purchase (up to a $10,000 lifetime limit and only applies for IRAs). During the first 2 years of the individual's participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax. You should consult a competent tax advisor to determine how these exceptions may apply to your situation. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON QUALIFIED CONTRACTS. With respect to Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayer's attaining age 591/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. You should consult a competent tax advisor prior to taking a withdrawal. INCOME TAX WITHHOLDING ON QUALIFIED CONTRACTS. Generally, GLENBROOK LIFE is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered "ELIGIBLE ROLLOVER DISTRIBUTIONS." The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. GLENBROOK LIFE 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 33 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, 3. a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or, 4. hardship distributions. For all annuitized distributions that are not subject to the 20% withholding requirement, GLENBROOK LIFE is required to withhold federal income tax using the wage withholding rates from all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory. Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number. 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. 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. Subject to certain limitations, a traditional Individual Retirement Account or Annuity may be converted or "ROLLED OVER" to a Roth Individual Retirement Annuity. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions. SIMPLIFIED EMPLOYEE PENSION PLANS. Section 408(k) of the Code allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice. SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS). Sections 408(p) and 401(k) of the Code allow eligible 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 IRA 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. TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS (TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND YOUR COMPETENT TAX ADVISOR. TAX SHELTERED ANNUITIES. Section 403(b) of the Tax 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 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee: .. attains age 591/2, .. separates from service, .. dies, .. becomes disabled, or .. incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship). These limitations do not apply to withdrawals where GLENBROOK LIFE 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. Self-employed individuals may establish tax favored retirement plans for themselves and their employees. Such retirement plans (commonly referred to as "H.R.10" or "KEOGH") may permit the purchase of annuity contracts. 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. In eligible governmental plans, all assets and income must be held in a trust/ custodial account/annuity contract for the exclusive benefit of the participants and their beneficiaries. To the extent the Contracts are used in connection with a non-governmental eligible plan, employees are considered 34 general creditors of the employer and the employer as owner of the Contract has the sole right to the proceeds of the Contract. Under eligible 457 plans, contributions made for the benefit of the employees will not be includible in the employees' gross income until distributed from the plan. ANNUAL REPORTS AND OTHER DOCUMENTS -------------------------------------------------------------------------------- GLENBROOK LIFE's annual report on Form 10-K for the year ended December 31, 2001 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. 0001007285. 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 300 N. Milwaukee Ave. Vernon Hills, IL 60061 (telephone: 1-800-755-5275). EXPERTS -------------------------------------------------------------------------------- The financial statements of Glenbrook Life as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 and the related financial statement schedule incorporated herein by reference from the Annual Report on Form 10-K of Glenbrook Life and from the Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, incorporated herein by reference, and have been so incorporated 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, 2001 and for each of the periods in the two years then ended incorporated herein by reference from the Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, incorporated herein by reference and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. PERFORMANCE INFORMATION -------------------------------------------------------------------------------- We may advertise the performance of the Variable Sub-Accounts, including yield and total return information. 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. Yield refers to the income generated by an investment in a Variable Sub-Account over a specified period. 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 Portfolios for the periods beginning with the inception dates of the Portfolios 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 35 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. 36 APPENDIX A -------------------------------------------------------------------------------- ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST BEING OFFERED BASIC POLIC
For the Years Beginning January 1 and Ending December 31, 1998 1999 2000 2001 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $30.700 $17.628 $15.496 Accumulation Unit Value, End of Period $30.700 $17.628 $15.496 $11.728 Number of Units Outstanding, End of Period 6,547 7,877 8,541 7,986 AIM V.I. CORE EQUITY SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.000 $12.897 $17.081 $14.400 Accumulation Unit Value, End of Period $12.897 $17.081 $14.400 $10.962 Number of Units Outstanding, End of Period 52,358 21,097 24,225 12,309 AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.131 $ 9.802 $ 9.739 Accumulation Unit Value, End of Period $10.131 $ 9.802 $ 9.739 9.953 Number of Units Outstanding, End of Period 9,663 13,500 9,544 2,903 AIM V.I. GLOBAL UTILITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $11.444 $15.079 $14.539 Accumulation Unit Value, End of Period $11.444 $15.079 $14.539 10.337 Number of Units Outstanding, End of Period 0 0 1,656 1,657 AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.868 $10.290 $11.181 Accumulation Unit Value, End of Period $10.868 $10.290 $11.181 $11.738 Number of Units Outstanding, End of Period 692 719 15,350 478 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $13.490 $17.988 $14.120 Accumulation Unit Value, End of Period $13.490 $17.988 $14.120 $ 9.209 Number of Units Outstanding, End of Period 15,902 14,265 13,585 14,671 AIM V.I. INTERNATIONAL GROWTH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.000 $11.445 $17.507 $12.713 Accumulation Unit Value, End of Period $11.445 $17.507 $12.713 $ 9.590 Number of Units Outstanding, End of Period 1,491 1,207 1,206 1,206 AIM V.I. PREMIER EQUITY SUB ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.000 $13.299 $17.043 $14.353 Accumulation Unit Value, End of Period $13.299 $17.043 $14.353 $12.380 Number of Units Outstanding, End of Period 34,858 34,854 32,778 22,769 AMERICAN CENTURY VP BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.618 $12.116 $13.142 $12.611 Accumulation Unit Value, End of Period $12.116 $13.142 $12.611 $11.988 Number of Units Outstanding, End of Period 9,621 10,484 10,810 9,085 AMERICAN CENTURY VP INTERNATIONAL SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.025 $11.752 $19.020 $15.609 Accumulation Unit Value, End of Period $11.734 $19.020 $15.609 $10.906 Number of Units Outstanding, End of Period 344 371 370 379 DREYFUS SOCIALLY RESPONSIBLE GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.813 $13.265 $17.649 $15.472 Accumulation Unit Value, End of Period $13.265 $17.649 $ 15472 $11.859 Number of Units Outstanding, End of Period 4726 3,528 6,596 4,051 DREYFUS STOCK INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $12.819 $15.237 $13.626 Accumulation Unit Value, End of Period $12.819 $15.237 $13.626 $11.839 Number of Units Outstanding, End of Period 39,205 80,779 77,360 28,373 DREYFUS VIF GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $11.656 $13.601 $12.900 37 Accumulation Unit Value, End of Period $11.656 $13.601 $12.900 $12.025 Number of Units Outstanding, End of Period 15,709 18,597 16,850 2,648 DREYFUS VIF MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.566 $10.909 $11.402 Accumulation Unit Value, End of Period $10.566 $10.909 $11.402 $11.732 Number of Units Outstanding, End of Period 750 40,342 2,062 9,333 DREYFUS VIF SMALL COMPANY STOCK SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.343 $11.275 $12.061 Accumulation Unit Value, End of Period $10.343 $11.275 $12.061 $11.757 Number of Units Outstanding, End of Period 710 5,754 2,477 613 FIDELITY VIP CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $14.184 $17.370 $15.987 Accumulation Unit Value, End of Period $14.184 $17.370 $15.987 $13.889 Number of Units Outstanding, End of Period 9350 14,873 17,120 7,894 FIDELITY VIP EQUITY - INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $11.259 $11.799 $12.610 Accumulation Unit Value, End of Period $11.259 $11.799 $12.610 $11.858 Number of Units Outstanding, End of Period 40,266 70,192 67,206 16,719 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $14.691 $19.899 $17.461 Accumulation Unit Value, End of Period $14.691 $19.899 $17.461 $14.235 Number of Units Outstanding, End of Period 6361 11,241 14,641 5,421 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.164 $10.834 $ 8.280 Accumulation Unit Value, End of Period $10.164 $10.834 $ 8.280 $ 7.235 Number of Units Outstanding, End of Period 5,530 27,471 18,857 1,096 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $14.544 $25.331 $20.073 Accumulation Unit Value, End of Period $14.544 $25.331 $20.073 $13.217 Number of Units Outstanding, End of Period 4,972 10,929 14,285 6,297 MFS LIMITED MATURITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.000 $10.273 $10.753 -- Accumulation Unit Value, End of Period $10.273 $10.753 $11.237 -- Number of Units Outstanding, End of Period 1,014 5,857 4,938 --
Y* *The AIM Variable Sub-Account, as well as the Fidelity Equity Income and Dreyfus Stock Index Variable Sub-Accounts, commenced operations on January 26, 1998. The other Variable Sub-Accounts commenced operation on June 17, 1997, but had no material operations for the year ended December 31, 1997. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.25% and an administrative expense charge of 0.10%. (1) Effective May 1, 2002 the AIM V.I. Growth and Income, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively, and the corresponding Sub-Accounts changed their names. (2) No longer available under the contracts. 38 ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST BEING OFFERED BASIC POLICY PLUS ENHANCED DEATH BENEFIT RIDER
For the Years Beginning January 1 and Ending December 31, 1998 1999 2000 2001 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $12.344 $17.594 $15.450 Accumulation Unit Value, End of Period $12.344 $17.594 $15.450 $11.682 Number of Units Outstanding, End of Period 5,197 13,896 14,129 10,572 AIM V.I. CORE EQUITY SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.000 $12.897 $17.081 $14.400 Accumulation Unit Value, End of Period $12.897 $17.081 $14.400 $ 9.173 Number of Units Outstanding, End of Period 0 21,097 24,225 14,671 AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.121 $ 9.784 $ 9.711 Accumulation Unit Value, End of Period $10.121 $ 9.784 $ 9.711 $ 9.913 Number of Units Outstanding, End of Period 8,931 7,601 8,074 7,232 AIM V.I. GLOBAL UTILITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $11.433 $15.050 $13.620 Accumulation Unit Value, End of Period $11.433 $15.050 $13.620 $ 9.750 Number of Units Outstanding, End of Period -- 1,584 327 -- AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $10.858 $10.270 $11.149 Accumulation Unit Value, End of Period $10.858 $10.270 $11.149 $11.691 Number of Units Outstanding, End of Period 7,546 39,816 47,013 16,757 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $13.477 $17.964 $14.079 Accumulation Unit Value, End of Period $13.477 $17.964 $14.079 $ 9.173 Number of Units Outstanding, End of Period 15,252 14,638 17,565 14,671 AIM V.I. INTERNATIONAL GROWTH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.000 $11.434 $17.474 $12.676 Accumulation Unit Value, End of Period $11.434 $17.474 $12.676 $ 9.590 Number of Units Outstanding, End of Period 5,403 4,967 977 1,206 AIM V.I. PREMIER EQUITY SUB ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.000 $13.287 $17.011 $14.311 Accumulation Unit Value, End of Period $13.287 $17.011 $14.311 $12.332 Number of Units Outstanding, End of Period 5,2510 64,070 65,919 57,074 AMERICAN CENTURY VP BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.618 $12.116 $13.142 $12.611 Accumulation Unit Value, End of Period $12.116 $13.142 $12.611 11.988 Number of Units Outstanding, End of Period 7,716 10,484 10,810 9,085 AMERICAN CENTURY VP INTERNATIONAL SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.025 $11.734 $18.972 $15.544 Accumulation Unit Value, End of Period $11.734 $18.972 $15.554 10.856 Number of Units Outstanding, End of Period 5,196 5,546 11,548 11,365 DREYFUS SOCIALLY RESPONSIBLE GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.813 $13.265 $17.649 $15.472 Accumulation Unit Value, End of Period $13.265 $17.643 $15.472 $11.805 Number of Units Outstanding, End of Period 4,373 3,528 6,596 6,031 DREYFUSSTOCK INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $12.819 $15.237 $13.626 Accumulation Unit Value, End of Period $12.819 $15.237 $13.626 $11.792 Number of Units Outstanding, End of Period 86,935 80,779 77,360 66,841 DREYFUS VIF GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.602 $11.656 $13.601 $12.900 39 Accumulation Unit Value, End of Period $11.656 $13.601 $12.900 $11.970 Number of Units Outstanding, End of Period 18,031 18,597 16,850 13,932 DREYFUS VIF MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.198 $10.566 $10.909 $11.402 Accumulation Unit Value, End of Period $10.566 $10.909 $11.402 $11.679 Number of Units Outstanding, End of Period 13,027 40,342 2,062 3,684 DREYFUS VIF SMALL COMPANY STOCK SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.161 $10.343 $11.275 $12.061 Accumulation Unit Value, End of Period $10.343 $11.275 $12.061 $11.704 Number of Units Outstanding, End of Period 5,753 5,754 2,477 2,227 FIDELITY VIP CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.071 $14.184 $17.370 $15.987 Accumulation Unit Value, End of Period $14.184 $17.370 $15.987 $13.826 Number of Units Outstanding, End of Period 11,838 14,873 17,120 13,544 FIDELITY VIP EQUITY - INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.000 $11.259 $11.799 $12.610 Accumulation Unit Value, End of Period $11.259 $11.799 $12.610 $11.811 Number of Units Outstanding, End of Period 76,050 70,192 67,206 57,665 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.685 $14.691 $19.899 $17.461 Accumulation Unit Value, End of Period $14.691 $19.899 $17.461 $14.170 Number of Units Outstanding, End of Period 8,947 11,241 14,641 12,263 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.779 $10.164 $10.834 $ 8.280 Accumulation Unit Value, End of Period $10.164 $10.834 $ 8.280 $ 7.202 Number of Units Outstanding, End of Period 28,509 27,471 18,857 14,048 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.999 $14.544 $25.331 $20.073 Accumulation Unit Value, End of Period $14.544 $25.331 $20.073 $13.157 Number of Units Outstanding, End of Period 6,085 10,929 14,285 10,328 MFS LIMITED MATURITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.269 $10.273 $10.753 -- Accumulation Unit Value, End of Period $10.273 $10.753 $11.237 -- Number of Units Outstanding, End of Period 3,996 5,857 4,938 --
* * The AIM Variable Sub-Account, as well as the Fidelity Equity Income and Dreyfus Stock Index Variable Sub-Accounts, commenced operations on January 26, 1998. The other Variable Sub-Accounts commenced operation on June 17, 1997, but had no material operations for the year ended December 31, 1997. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.35% and an administrative expense charge of 0.10%. (1) Effective May 1, 2002 the AIM V.I. Growth and Income, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively, and the corresponding Sub-Accounts changed their names. (2) No longer available under the contracts. 40 APPENDIX B -------------------------------------------------------------------------------- MARKET VALUE ADJUSTMENT EXAMPLE -------------------------------------------------------------------------------- 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. *If a U.S. Treasury Note ("Note") with a maturity of the Guarantee Period is not available, we will determine an appropriate interest rate based on an interpolation of the next shortest duration and next longest duration Notes. The Market Value Adjustment factor is determined from the following formula: .9 X [I-(J + .0025)] 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. 41 EXAMPLES OF MARKET VALUE ADJUSTMENT -------------------------------------------------------------------------------- Purchase Payment: $10,000 allocated to a Guarantee Period Guarantee Period: 5 years Interest Rate: 4.50% Full Surrender: End of Contract Year 3 NOTE: These examples assume that premium taxes are not applicable.
Step 1. Calculate Contract Value at $10,000.00 X (1.045)/3 /= $11,411.66 End of Contract Year 3: Step 2. Calculate the Free Withdrawal .15 X ($10,000.00) = $1,500.00 Amount: Step 3. Calculate the Withdrawal I = 4.5% Charge: J = 4.2% N = 730 days =2 -------- 365 days Step 4. Calculate the Market Value Market Value Adjustment Factor: .9 X Adjustment: [I - (J + .0025)] X N = .9 X [.045 - (.042 + .0025)] X 2 = .0009 Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: = .0009 X ($11,411.66 - $1,500.00) = $8.92 Step 5. Calculate the amount received by a Contract Owner as a result of full withdrawal at the end of Contract Year $11,411.66 + $8.92 = $11,420.58 3:
EXAMPLE 1 (ASSUMES DECLINING INTEREST RATES) 42 EXAMPLE 2: (ASSUMES RISING INTEREST RATES)
Step 1. Calculate Contract Value at $10,000.00 X (1.045)/3 /= $11,411.66 End of Contract Year 3: Step 2. Calculate the Free Withdrawal .15 X ($10,000.00) = $1,500.00 Amount: Step 3. Calculate the Withdrawal I = 4.5% Charge: J = 4.8% N = 730 days =2 -------- 365 days Step 4. Calculate the Market Value Market Value Adjustment Factor: .9 X Adjustment: [I - (J + .0025)] X N = .9 X [.045 - (.048 + .0025)] X 2 = - .0099 Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: = - .0099 X ($11,411.66 - $1,500.00) = - $98.13 Step 5. Calculate the amount received by a Contract Owner as a result of full withdrawal at the end of Contract Year $11,411.66 - $98.13 = $11,313.53 3:
43 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- DESCRIPTION -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- CALCULATION OF VARIABLE INCOME PAYMENTS -------------------------------------------------------------------------------- CALCULATION OF ANNUITY UNIT VALUES -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- DESCRIPTION -------------------------------------------------------------------------------- GENERAL MATTERS -------------------------------------------------------------------------------- Incontestability -------------------------------------------------------------------------------- Settlements -------------------------------------------------------------------------------- Safekeeping of the Variable Account's -------------------------------------------------------------------------------- Assets -------------------------------------------------------------------------------- Premium Taxes -------------------------------------------------------------------------------- Tax Reserves -------------------------------------------------------------------------------- FEDERAL TAX MATTERS -------------------------------------------------------------------------------- QUALIFIED PLANS -------------------------------------------------------------------------------- EXPERTS -------------------------------------------------------------------------------- FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 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. 44 257 - Brown THE ALLSTATE\\(R)\\ PROVIDER VARIABLE ANNUITY (formerly referred to as "The Glenbrook Provider Variable Annuity") GLENBROOK LIFE AND ANNUITY COMPANY 300 N. MILWAUKEE AVE. VERNON HILLS, IL 60061 TELEPHONE NUMBER: 1-800-755-5275 PROSPECTUS DATED MAY 1, 2002 ------------------------------------------------------------------------------- GLENBROOK LIFE AND ANNUITY COMPANY ("GLENBROOK LIFE") is offering the Allstate\\(R)\\\\ \\Provider Variable Annuity, an individual 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 41 "INVESTMENT ALTERNATIVES". The investment alternatives include 3 fixed account options ("FIXED ACCOUNT OPTIONS") and 38 variable sub-accounts ("VARIABLE SUB-ACCOUNTS") of the GLENBROOK LIFE Multi-Manager Variable Account ("VARIABLE ACCOUNT"). Each Variable Sub-Account invests exclusively in shares of one of the portfolios ("PORTFOLIOS") of the following mutual funds ("FUNDS"):
AIM VARIABLE INSURANCE FUNDS FIDELITY VARIABLE INSURANCE PRODUCTS THE DREYFUS SOCIALLY RESPONSIBLE FUNDS GROWTH GOLDMAN SACHS VARIABLE INSURANCE TRUST FUND, INC. MFS(R) VARIABLE INSURANCE TRUST/SM/ DREYFUS STOCK INDEX FUND NEUBERGER BERMAN ADVISERS MANAGEMENT DREYFUS VARIABLE INVESTMENT FUND TRUST (VIF) THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
Not all of the Funds and/or Portfolios, however, may be available with your Contract. You should check with your representative for further information on the availability of Funds and/or Portfolios. Your annuity application will list all available Portfolios. WE (GLENBROOK LIFE) have filed a Statement of Additional Information, dated May 1, 2002, 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 54 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 UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A FEDERAL CRIME. IMPORTANT THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL NOTICES 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 TABLE OF CONTENTS -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- OVERVIEW -------------------------------------------------------------------------------- Important Terms 3 -------------------------------------------------------------------------------- The Contract at a Glance 4 -------------------------------------------------------------------------------- How the Contract Works 6 -------------------------------------------------------------------------------- Expense Table 7 -------------------------------------------------------------------------------- Financial Information 13 -------------------------------------------------------------------------------- CONTRACT FEATURES -------------------------------------------------------------------------------- The Contract 14 -------------------------------------------------------------------------------- Purchases 15 -------------------------------------------------------------------------------- Contract Value 16 -------------------------------------------------------------------------------- Investment Alternatives 17 -------------------------------------------------------------------------------- The Variable Sub-Accounts 17 -------------------------------------------------------------------------------- The Fixed Account Options 19 -------------------------------------------------------------------------------- Transfers 21 -------------------------------------------------------------------------------- Expenses 23 -------------------------------------------------------------------------------- Access To Your Money 25 -------------------------------------------------------------------------------- Income Payments 26 -------------------------------------------------------------------------------- Death Benefits 27 -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- OTHER INFORMATION -------------------------------------------------------------------------------- More Information: 31 -------------------------------------------------------------------------------- GLENBROOK LIFE 31 -------------------------------------------------------------------------------- The Variable Account 31 -------------------------------------------------------------------------------- The Portfolios 31 -------------------------------------------------------------------------------- The Contract 32 -------------------------------------------------------------------------------- Qualified Plans 32 -------------------------------------------------------------------------------- Legal Matters 33 -------------------------------------------------------------------------------- Taxes 34 -------------------------------------------------------------------------------- Annual Reports and Other Documents 39 -------------------------------------------------------------------------------- Experts 39 -------------------------------------------------------------------------------- Performance Information 39 -------------------------------------------------------------------------------- APPENDIX A-ACCUMULATION UNIT VALUES 41 -------------------------------------------------------------------------------- APPENDIX B-MARKET VALUE ADJUSTMENT EXAMPLE 53 -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 56 -------------------------------------------------------------------------------- 2 IMPORTANT TERMS -------------------------------------------------------------------------------- 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. PAGE -------------------------------------------------------------------------------- Accumulation Phase 6 -------------------------------------------------------------------------------- Accumulation Unit 16 -------------------------------------------------------------------------------- Accumulation Unit Value 16 -------------------------------------------------------------------------------- Anniversary Values 30 -------------------------------------------------------------------------------- Annuitant 14 -------------------------------------------------------------------------------- Automatic Additions Plan 15 -------------------------------------------------------------------------------- Automatic Portfolio Rebalancing Program 22 -------------------------------------------------------------------------------- Beneficiary 14 -------------------------------------------------------------------------------- Cancellation Period 16 -------------------------------------------------------------------------------- Contract* 14 -------------------------------------------------------------------------------- Contract Anniversary 5 -------------------------------------------------------------------------------- Contract Owner (You) 14 -------------------------------------------------------------------------------- Contract Value 16 -------------------------------------------------------------------------------- Contract Year 4 -------------------------------------------------------------------------------- Death Benefit Anniversary 29 -------------------------------------------------------------------------------- Death Proceeds 29 -------------------------------------------------------------------------------- Dollar Cost Averaging Program 22 -------------------------------------------------------------------------------- Due Proof of Death 29 -------------------------------------------------------------------------------- Enhanced Death Benefit Rider 30 -------------------------------------------------------------------------------- Enhanced Death and Income Benefit Combination Rider 30 -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- Fixed Account Options 19 -------------------------------------------------------------------------------- Free Withdrawal Amount 24 -------------------------------------------------------------------------------- Funds 1 -------------------------------------------------------------------------------- GLENBROOK LIFE ("We" or "Us") 31 -------------------------------------------------------------------------------- Guarantee Periods 19 -------------------------------------------------------------------------------- Income Plan 26 -------------------------------------------------------------------------------- Investment Alternatives 17 -------------------------------------------------------------------------------- Issue Date 6 -------------------------------------------------------------------------------- Market Value Adjustment 21 -------------------------------------------------------------------------------- Payout Phase 6 -------------------------------------------------------------------------------- Payout Start Date 26 -------------------------------------------------------------------------------- Portfolios 31 -------------------------------------------------------------------------------- Qualified Contracts 36 -------------------------------------------------------------------------------- SEC 1 -------------------------------------------------------------------------------- Settlement Value 29 -------------------------------------------------------------------------------- Systematic Withdrawal Program 25 -------------------------------------------------------------------------------- Valuation Date 15 -------------------------------------------------------------------------------- Variable Account 31 -------------------------------------------------------------------------------- Variable Sub-Account 17 -------------------------------------------------------------------------------- * In certain states the Contract is available only as a group Contract. If you purchase a group Contract, we will issue you a certificate that represents your ownership and that summarizes the provisions of the group Contract. References to "Contract" in this prospectus include certificates, unless the context requires otherwise. 3 THE CONTRACT AT A GLANCE -------------------------------------------------------------------------------- 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 $3,000 ($2,000 for "QUALIFIED CONTRACTS", which are Contracts issued within QUALIFIED PLANS). You can add to your Contract as often and as much as you like, but each payment must be at least $50. ------------------------------------------------------------------------------- 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 1.15% of average daily net assets (1.37% if you select the ENHANCED DEATH BENEFIT RIDER and 1.59% 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 6% of purchase 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 Portfolio pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. ------------------------------------------------------------------------------- INVESTMENT The Contract offers 41 investment alternatives ALTERNATIVES including: .3 Fixed Account Options (which credit interest at rates we guarantee) .38 Variable Sub-Accounts investing in Portfolios offering professional money management by these investment advisers: . AIM Advisors, Inc. . The Dreyfus Corporation . Fidelity Management & Research Company . Goldman Sachs Asset Management . Goldman Sachs Asset Management International . MFS Investment Management(R) . Miller Anderson & Sherrerd, LLP . Morgan Stanley Asset Management . Neuberger Berman Management, 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 1-800-755-5275. ------------------------------------------------------------------------------- SPECIAL SERVICES For your convenience, we offer these special services: . AUTOMATIC PORTFOLIO REBALANCING PROGRAM . AUTOMATIC ADDITIONS PROGRAM . DOLLAR COST AVERAGING PROGRAM . SYSTEMATIC WITHDRAWAL PROGRAM ------------------------------------------------------------------------------- 4 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 or the ANNUITANT (if the Contract is owned by a non-natural person) die before the PAYOUT START DATE, we will pay the death benefit described in the Contract. We 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. Transfers to a Guarantee Period of the Fixed Account must be at least $50. 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 any time prior to the Payout Start Date. In general, you must withdraw at least $50 at a time. Full or partial withdrawals are available under limited circumstances on or after the Payout Start Date. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 /1/2/, may be subject to an additional 10% federal tax penalty. A withdrawal charge and MARKET VALUE ADJUSTMENT also may apply. -------------------------------------------------------------------------------
5 HOW THE CONTRACT WORKS -------------------------------------------------------------------------------- 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 41 investment alternatives and generally 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 any of the 3 Fixed Account Options, you will earn a fixed rate of interest that we declare periodically. If you invest in any of the 38 Variable Sub-Accounts, your investment return will vary up or down depending on the performance of the corresponding Portfolios. 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 26. 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 Portfolios. 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. LOGO 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 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 1-800-755-5275 if you have any questions about how the Contract works. 6 EXPENSE TABLE -------------------------------------------------------------------------------- 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 that may be imposed by the state where you reside. For more information about Variable Account expenses, see "Expenses," below. For more information about Portfolio expenses, please refer to the accompanying prospectuses for the Funds. CONTRACT OWNER TRANSACTION EXPENSES Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years Since We Received the Purchase 0 1 2 3 4 5 6+ Payment Being Withdrawn -------------------------------------------------------------------------------------------- Applicable Charge % % % -------------------------------------------------------------------------------------------- Annual Contract Maintenance Charge $35.00** -------------------------------------------------------------------------------------------- Transfer Fee $10.00*** --------------------------------------------------------------------------------------------
*Each Contract Year, you may withdraw up to 15% of your aggregate purchase payments without incurring a withdrawal charge. ** 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 portfolio rebalancing. We are currently waiving the transfer fee.
PolicywithEnhancedDeathandInc VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE PolicywithEnhancedDeathBenefitRider DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT) BasePolicy ------------------------------------------------------------------------------------------------------------------------------------ Mortality and Expense Risk Charge 1.05% ------------------------------------------------------------------------------------------------------------------------------------ Administrative Expense Charge 0.10% ------------------------------------------------------------------------------------------------------------------------------------ Total Variable Account Annual Expenses 1.15% ------------------------------------------------------------------------------------------------------------------------------------
7 PORTFOLIO ANNUAL EXPENSES (as a percentage of Portfolio average daily net assets)(1) (after contractual fee waivers and expense reimbursements, where appicable, as indicated in the footnotes)
Total Portfolio Management Rule 12b-1 Other Annual Portfolio Fees Fees Expenses Expenses ------------------------------------------------------------------------------- AIM V.I. Balanced Fund - Series 0.75% N/A 0.37% 1.12% I ------------------------------------------------------------------------------- AIM V.I. Capital Appreciation 0.61% N/A 0.24% 0.85% Fund - Series I ------------------------------------------------------------------------------- AIM V.I. Core Equity Fund - 0.61% N/A 0.21% 0.82% Series I (2) ------------------------------------------------------------------------------- AIM V.I. Diversified Income Fund 0.60% N/A 0.33% 0.93% - Series I ------------------------------------------------------------------------------- AIM V.I. Global Utilities Fund - 0.65% N/A 0.42% 1.07% Series I ------------------------------------------------------------------------------- AIM V.I. Government Securities 0.50% N/A 0.58% 1.08% Fund - Series I ------------------------------------------------------------------------------- AIM V.I. Growth Fund - Series I 0.62% N/A 0.26% 0.88% ------------------------------------------------------------------------------- AIM V.I. High Yield Fund - 0.63% N/A 0.66% 1.29% Series I ------------------------------------------------------------------------------- AIM V.I. International Growth 0.73% N/A 0.32% 1.05% Fund - Series I (2) ------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund - 0.60% N/A 0.25% 0.85% Series I (2) ------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc.: Initial 0.75% N/A 0.03% 0.78% Shares ------------------------------------------------------------------------------- Dreyfus Stock Index Fund: 0.25% N/A 0.01% 0.26% Initial Shares ------------------------------------------------------------------------------- Dreyfus VIF - Growth & Income 0.75% N/A 0.05% 0.80% Portfolio: Initial Shares ------------------------------------------------------------------------------- Dreyfus VIF - Money Market 0.50% N/A 0.08% 0.58% Portfolio ------------------------------------------------------------------------------- Dreyfus VIF - Small Company 0.75% N/A 0.28% 1.03% Stock Portfolio: Initial Shares ------------------------------------------------------------------------------- Fidelity VIP Contrafund 0.58% N/A 0.10% 0.68% Portfolio-Initial Class (3) ------------------------------------------------------------------------------- Fidelity VIP Equity-Income 0.48% N/A 0.10% 0.58% Portfolio-Initial Class (3) ------------------------------------------------------------------------------- Fidelity VIP Growth 0.58% N/A 0.10% 0.68% Portfolio-Initial Class (3) ------------------------------------------------------------------------------- Fidelity VIP High Income 0.58% N/A 0.13% 0.71% Portfolio-Initial Class (3) ------------------------------------------------------------------------------- Goldman Sachs VIT Capital Growth 0.75% N/A 0.94% 1.69% Fund (4) ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ Small 0.75% N/A 0.47% 1.22% Cap Equity Fund (4) ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ U.S. 0.70% N/A 0.12% 0.82% Equity Fund (4) ------------------------------------------------------------------------------- Goldman Sachs VIT Growth and 0.75% N/A 0.42% 1.17% Income Fund (4) ------------------------------------------------------------------------------- Goldman Sachs VIT International 1.00% N/A 1.05% 2.05% Equity Fund (4) ------------------------------------------------------------------------------- MFS Emerging Growth 0.75% N/A 0.12% 0.87% Series-Initial Class (5) ------------------------------------------------------------------------------- MFS Investors Trust 0.75% N/A 0.15% 0.90% Series-Initial Class (5) ------------------------------------------------------------------------------- MFS New Discovery Series-Initial 0.90% N/A 0.16% 1.06% Class (5,6) ------------------------------------------------------------------------------- Neuberger Berman AMT Guardian 0.85% N/A 0.14% 0.99% Portfolio-Class I (7) ------------------------------------------------------------------------------- Neuberger Berman AMT Mid-Cap 0.84% N/A 0.07% 0.91% Growth Portfolio-Class I (7) ------------------------------------------------------------------------------- Neuberger Berman AMT Partners 0.82% N/A 0.05% 0.87% Portfolio-Class I (7) ------------------------------------------------------------------------------- Van Kampen UIF Core Plus Fixed 0.40% N/A 0.31% 0.71% Income Portfolio (8,9) ------------------------------------------------------------------------------- Van Kampen UIF Equity Growth 0.55% N/A 0.36% 0.91% Portfolio (8,9) ------------------------------------------------------------------------------- Van Kampen UIF Global Value 0.80% N/A 0.48% 1.28% Equity Portfolio (8,9) ------------------------------------------------------------------------------- Van Kampen UIF International 0.80% N/A 0.54% 1.34% Magnum Portfolio (8,9) ------------------------------------------------------------------------------- Van Kampen UIF Mid Cap Value 0.75% N/A 0.35% 1.10% Portfolio (8,9) ------------------------------------------------------------------------------- Van Kampen UIF U.S. Real Estate 0.80% N/A 0.35% 1.15% (8,9) ------------------------------------------------------------------------------- Van Kampen UIF Value Portfolio 0.55% N/A 0.38% 0.93% (8,9) -------------------------------------------------------------------------------
1. Figures shown in the Table are for the year ended December 31, 2001 (except as otherwise noted). 2. Effective May 1, 2002 the AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. 3. Actual "Total Portfolio Annual Expenses" were lower because a portion of the brokerage commissions that the Portfolios paid was used to reduce the Portfolios' expenses. In addition, through arrangements with the Portfolios' custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the Portfolios' 8 custodian expenses. These offsets may be discontinued at any time. Had these offsets been taken into account, "Total Portfolio Annual Expenses" would have been 0.64% for Contrafund Portfolio, 0.57% for Equity-Income Portfolio, 0.65% for Growth Portfolio and 0.70% for High Income Portfolio. 4. "Total Portfolio Annual Expenses" listed in the table above reflect gross ratios prior to any voluntary waivers/ reimbursements of expenses. Goldman Sachs Asset Management and Goldman Sachs Asset Management International, the investment advisers, have voluntarily agreed to reduce or limit certain other expenses (excluding management fees, taxes, interest, brokerage fees, litigation, indemnification and other extraordinary expenses) to the extent "Total Portfolio Annual Expenses" exceed 1.00% for Capital Growth Fund, 1.00% for Core/SM/ Small Cap Equity Fund, 0.82% for Core/SM/ U.S. Equity Fund, and 1.35% for International Equity Fund. With these limitations taken into consideration, "Management Fees", "Rule 12b-1 fees","Other Expenses" and "Total Portfolio Annual Expenses" were as follows:
Total Management Rule12b-1 Other Portfolio Portfolio Fees Fees Expenses Annual Expenses ------------------------------------------------------------------------------- Goldman Sachs VIT Capital 0.75% N/A 0.25% 1.00% Growth Fund ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ 0.75% N/A 0.25% 1.00% Small Cap Equity Fund ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ 0.70% N/A 0.12% 0.82% U.S. Equity Fund* ------------------------------------------------------------------------------- Goldman Sachs VIT 1.00% N/A 0.35% 1.35% International Equity Fund -------------------------------------------------------------------------------
*The Portfolio had expenses offset by earnings credits from the custodian bank. Had the expenses offset been taken into account, "Total Portfolio Annual Expenses would have been 0.81%. 5. Each Portfolio has an expense offset arrangement which reduces the Portfolios' custodian fee based upon the amount of cash maintained by the Portfolio with its custodian and dividend disbursing agent. Each Portfolio may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the Portfolios' expenses. "Other Expenses" do not take these expense reductions into account, and are therefore higher than the actual expenses of the Portfolios. Had these fee reductions been taken into account, "Total Portfolio Annual Expenses" would have been lower and would equal 0.86% for Emerging Growth Series, 0.89% for Investors Trust Series and 1.05% for New Discovery Series. 6. MFS has contractually agreed, subject to reimbursement, to bear expenses for the Portfolio such that "Other Expenses" (after taking into account the expense offset arrangement described in note 5 above), do not exceed 0.15% of the average daily net assets of the Portfolio during the current fiscal year. Without these fee arrangements "Total Portfolio Annual Expenses" would have been 1.09%. These contractual fee arrangements will continue at least until May 1, 2003, unless changed with the consent of the board of trustees which oversees the Portfolios. 7. Neuberger Berman Management Inc. ("NBMI") has undertaken through April 30, 2005 to reimburse certain operating expenses, including the compensation of NBMI (except with respect to Guardian, Mid-Cap Growth and Partners Portfolios) and excluding taxes, interest, extraordinary expenses, brokerage commissions and transaction costs, that exceed, in the aggregate, 1.00% of the Guardian, Mid-Cap Growth and Partners Portfolios' average daily net asset value. The expense reimbursement arrangements for Guardian, Mid-Cap Growth and Partners Portfolios are contractual for three years and any excess expenses can be repaid to NBMI within three years of the year incurred, provided such recoupment would not cause a Portfolio to exceed its respective limitation. 8. "Total Portfolio Annual Expenses" listed in the table above reflect gross ratios prior to any voluntary waivers/ reimbursements of expenses by the adviser. For the year ended December 31, 2001, the management fee was reduced to reflect the voluntary waiver of a portion or all of the management fee and the reimbursement by the Portfolios' adviser to the extent "Total Portfolio Annual Expenses" exceed the following percentages: Van Kampen UIF Core Plus Fixed Income Portfolio 0.70%; Van Kampen UIF Equity Growth Portfolio 0.85%; Van Kampen UIF Global Value Equity Portfolio 1.15%; Van Kampen UIF International Magnum Portfolio 1.15%; Van Kampen UIF Mid Cap Value Portfolio 1.05%; Van Kampen UIF U.S. Real Estate Portfolio 1.10%; Van Kampen UIF Value Portfolio 0.85%. The adviser may terminate this voluntary waiver at any time at its sole discretion. After such reductions, the "Management Fees", "Other Expenses" and "Total Portfolio Annual Expenses" were as follows:
Total Management Rule12b-1 Other Portfolio Portfolio Fees Fees Expenses Annual Expenses --------------------------------------------------------------------------------------------- Van Kampen UIF Core Plus Fixed Income 0.39% N/A 0.31% 0.70% Portfolio --------------------------------------------------------------------------------------------- Van Kampen UIF Equity Growth Portfolio 0.49% N/A 0.36% 0.85% --------------------------------------------------------------------------------------------- 9 Van Kampen UIF Global Value Equity 0.67% N/A 0.48% 1.15% Portfolio --------------------------------------------------------------------------------------------- Van Kampen UIF International Magnum 0.62% N/A 0.54% 1.16% Portfolio --------------------------------------------------------------------------------------------- Van Kampen UIF Mid Cap Value Portfolio 0.70% N/A 0.35% 1.05% --------------------------------------------------------------------------------------------- Van Kampen UIF U.S. Real Estate Portfolio 0.75% N/A 0.35% 1.10% --------------------------------------------------------------------------------------------- Van Kampen UIF Value Portfolio 0.47% N/A 0.38% 0.85% ---------------------------------------------------------------------------------------------
Additionally, in determining the actual amount of voluntary management fee waiver and/or expense reimbursement for a Portfolio, if any, the adviser excludes from consideration certain investment related expenses, such as foreign country tax expense and interest expense on borrowing. Included in "Other Expenses" of the International Magnum Portfolio is 0.01% of such investment-related expenses. 9. Effective May 1, 2002 the Portfolios have been re-branded and have changed names from Morgan Stanley UIF Fixed Income Portfolio to Van Kampen UIF Core Plus Fixed Income Portfolio, Morgan Stanley UIF Equity Growth Portfolio to Van Kampen UIF Equity Growth Portfolio, Morgan Stanley UIF Global Value Equity Portfolio to Van Kampen UIF Global Value Equity Portfolio, Morgan Stanley UIF International Magnum Portfolio to Van Kampen UIF International Magnum Portfolio, Morgan Stanley UIF Mid Cap Value Portfolio to Van Kampen UIF Mid Cap Value Portfolio, Morgan Stanley UIF U.S. Real Estate Portfolio to Van Kampen UIF U.S. Real Estate Portfolio, and Morgan Stanley UIF Value Portfolio to Van Kampen UIF Value Portfolio. 10 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, .. 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, and .. elected the Enhanced Death and Income Benefit Combination Rider. THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT ASSUMES TERMINATION
Sub-Account 1 Year 3 Year 5 Year 10 Year ------------------------------------------------------------------------------- AIM V.I. Balanced $80 $132 $177 $320 ------------------------------------------------------------------------------- AIM V.I. Capital Appreciation $77 $123 $164 $293 ------------------------------------------------------------------------------- AIM V.I. Core Equity $77 $123 $162 $290 ------------------------------------------------------------------------------- AIM V.I. Diversified Income $78 $126 $168 $301 ------------------------------------------------------------------------------- AIM V.I. Global Utilities $80 $130 $175 $315 ------------------------------------------------------------------------------- AIM V.I. Government Securities $80 $131 $175 $316 ------------------------------------------------------------------------------- AIM V.I. Growth $78 $124 $165 $296 ------------------------------------------------------------------------------- AIM V.I. High Yield $82 $137 $186 $337 ------------------------------------------------------------------------------- AIM V.I. International Growth $79 $130 $174 $313 ------------------------------------------------------------------------------- AIM V.I. Premier Equity $77 $123 $164 $293 ------------------------------------------------------------------------------- Dreyfus Socially Responsible Growth $77 $121 $160 $286 ------------------------------------------------------------------------------- Dreyfus Stock Index $71 $105 $133 $232 ------------------------------------------------------------------------------- Dreyfus VIF - Growth & Income $77 $122 $161 $288 ------------------------------------------------------------------------------- Dreyfus VIF - Money Market $75 $115 $150 $265 ------------------------------------------------------------------------------- Dreyfus VIF - Small Company Stock $79 $129 $173 $311 ------------------------------------------------------------------------------- Fidelity VIP Contrafund $76 $118 $155 $276 ------------------------------------------------------------------------------- Fidelity VIP Equity-Income $75 $115 $150 $265 ------------------------------------------------------------------------------- Fidelity VIP Growth $76 $118 $155 $276 ------------------------------------------------------------------------------- Fidelity VIP High Income $76 $119 $156 $279 ------------------------------------------------------------------------------- Goldman Sachs VIT Capital Growth $86 $149 $206 $374 ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ Small Cap Equity $81 $135 $182 $329 ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ U.S. Equity $77 $123 $162 $290 ------------------------------------------------------------------------------- Goldman Sachs VIT Growth and Income $81 $133 $180 $325 ------------------------------------------------------------------------------- Goldman Sachs VIT International Equity $90 $160 $223 $407 ------------------------------------------------------------------------------- MFS Emerging Growth $78 $124 $165 $295 ------------------------------------------------------------------------------- MFS Investors Trust $78 $125 $166 $298 ------------------------------------------------------------------------------- MFS New Discovery $80 $130 $174 $314 ------------------------------------------------------------------------------- Neuberger Berman AMT Guardian $79 $128 $171 $307 ------------------------------------------------------------------------------- Neuberger Berman AMT Mid-Cap Growth $78 $125 $167 $299 ------------------------------------------------------------------------------- Neuberger Berman AMT Partners $78 $124 $165 $295 ------------------------------------------------------------------------------- Van Kampen UIF Core Plus Fixed Income $76 $119 $156 $279 ------------------------------------------------------------------------------- Van Kampen UIF Equity Growth $78 $125 $167 $299 ------------------------------------------------------------------------------- Van Kampen UIF Global Value Equity $82 $137 $185 $335 ------------------------------------------------------------------------------- Van Kampen UIF International Magnum $82 $138 $188 $341 ------------------------------------------------------------------------------- Van Kampen UIF Mid Cap Value $80 $131 $176 $318 ------------------------------------------------------------------------------- Van Kampen UIF U.S. Real Estate $81 $136 $184 $332 ------------------------------------------------------------------------------- Van Kampen UIF Value $78 $126 $168 $301 -------------------------------------------------------------------------------
11 EXAMPLE 2 Same assumptions as Example 1 above, except that you decided not to surrender your Contract, or you began receiving income payments for a specified period of at least 120 months, at the end of each period. ASSUMES NO TERMINATION
Sub-Account 1 Year 3 Year 5 Year 10 Year ------------------------------------------------------------------------------- AIM V.I. Balanced $29 $ 89 $152 $320 ------------------------------------------------------------------------------- AIM V.I. Capital Appreciation $26 $ 81 $138 $293 ------------------------------------------------------------------------------- AIM V.IM Core Equity $26 $ 80 $137 $290 ------------------------------------------------------------------------------- AIM V.I. Diversified Income $27 $ 83 $142 $301 ------------------------------------------------------------------------------- AIM V.I. Global Utilities $29 $ 88 $149 $315 ------------------------------------------------------------------------------- AIM V.I. Government Securities $29 $ 88 $150 $316 ------------------------------------------------------------------------------- AIM V.I. Growth $27 $ 82 $140 $296 ------------------------------------------------------------------------------- AIM V.I. High Yield $31 $ 95 $160 $337 ------------------------------------------------------------------------------- AIM V.I. International Growth $28 $ 87 $148 $313 ------------------------------------------------------------------------------- AIM V.I. Premier Equity $26 $ 81 $138 $293 ------------------------------------------------------------------------------- Dreyfus Socially Responsible Growth $26 $ 79 $135 $286 ------------------------------------------------------------------------------- Dreyfus Stock Index $20 $ 63 $108 $232 ------------------------------------------------------------------------------- Dreyfus VIF - Growth & Income $26 $ 79 $136 $288 ------------------------------------------------------------------------------- Dreyfus VIF - Money Market $24 $ 73 $124 $265 ------------------------------------------------------------------------------- Dreyfus VIF - Small Company Stock $28 $ 86 $147 $311 ------------------------------------------------------------------------------- Fidelity VIP Contrafund $25 $ 76 $129 $276 ------------------------------------------------------------------------------- Fidelity VIP Equity-Income $24 $ 73 $124 $265 ------------------------------------------------------------------------------- Fidelity VIP Growth $25 $ 76 $129 $276 ------------------------------------------------------------------------------- Fidelity VIP High Income $25 $ 77 $131 $279 ------------------------------------------------------------------------------- Goldman Sachs VIT Capital Growth $35 $107 $180 $374 ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ Small Cap Equity $30 $ 92 $157 $329 ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ U.S. Equity $26 $ 80 $137 $290 ------------------------------------------------------------------------------- Goldman Sachs VIT Growth and Income $30 $ 91 $154 $325 ------------------------------------------------------------------------------- Goldman Sachs VIT International Equity $39 $117 $198 $407 ------------------------------------------------------------------------------- MFS Emerging Growth $27 $ 82 $139 $295 ------------------------------------------------------------------------------- MFS Investors Trust $27 $ 83 $141 $298 ------------------------------------------------------------------------------- MFS New Discovery $29 $ 87 $149 $314 ------------------------------------------------------------------------------- Neuberger Berman AMT Guardian $28 $ 85 $145 $307 ------------------------------------------------------------------------------- Neuberger Berman AMT Mid-Cap Growth $27 $ 83 $141 $299 ------------------------------------------------------------------------------- Neuberger Berman AMT Partners $27 $ 82 $139 $295 ------------------------------------------------------------------------------- Van Kampen UIF Core Plus Fixed Income $25 $ 77 $131 $279 ------------------------------------------------------------------------------- Van Kampen UIF Equity Growth $27 $ 83 $141 $299 ------------------------------------------------------------------------------- Van Kampen UIF Global Value Equity $31 $ 94 $160 $335 ------------------------------------------------------------------------------- Van Kampen UIF International Magnum $31 $ 96 $163 $341 ------------------------------------------------------------------------------- Van Kampen UIF Mid Cap Value $29 $ 89 $151 $318 ------------------------------------------------------------------------------- Van Kampen UIF U.S. Real Estate $30 $ 93 $158 $332 ------------------------------------------------------------------------------- Van Kampen UIF Value $27 $ 83 $142 $301 -------------------------------------------------------------------------------
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EARNINGS. YOUR ACTUAL EXPENSES MAY BE LESS OR GREATER THAN THOSE SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LESS 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 1.49%. IF NO RIDER WERE ELECTED, OR THE ENHANCED DEATH BENEFIT RIDER WERE ELECTED, THE EXPENSE FIGURES SHOWN ABOVE WOULD BE SLIGHTLY LOWER. TO REFLECT THE CONTRACT MAINTENANCE CHARGE IN THE EXAMPLES, WE ESTIMATED AN EQUIVALENT PERCENTAGE CHARGE, BASED ON THE CURRENT AVERAGE CONTRACT SIZE OF $45,559 12 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 the date the contracts were first offered. To obtain a fuller picture of each Variable Sub-Account's finances, please refer to the Variable Account's financial statement contained in the Statement of Additional Information. The financial statements of GLENBROOK LIFE also appear in the Statement of Additional Information. 13 THE CONTRACT -------------------------------------------------------------------------------- CONTRACT OWNER The Glenbrook Life Provider Variable Annuity is a contract between you, the Contract Owner, and Glenbrook Life, a life insurance company. As the Contract Owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted): .. the investment alternatives during the Accumulation and Payout Phases, .. the amount and timing of your purchase payments and withdrawals, .. the programs you want to use to invest or withdraw money, .. the income payment plan you want to use to receive retirement income, .. the Annuitant (either yourself or someone else) on whose life the income payments will be based, .. the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving contract Owner dies, and .. any other rights that the Contract provides. If you die, any surviving Contract Owner, or, if none, the Beneficiary may exercise the rights and privileges provided to them by the Contract. The Contract cannot be jointly owned by both a non-natural person and a natural person. If the Contract Owner is a grantor trust, the Contract Owner will be considered a non-living person for the purposes of the Death of Owner and Death of Annuitant provisions of your Contract. The maximum age of the oldest Contract Owner or Annuitant cannot exceed 90 as of the date we received the completed application. You may change the Contract Owner at any time. We will provide a change of ownership form to be signed by you and filed with us. After we accept the form, the change of ownership will be effective as of the date you signed the form. Until we receive your written notice to change the Contract Owner, we are entitled to rely on the most recent ownership 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 the Contract Owner, you should deliver your written notice to us promptly. Each change is subject to any payment made by us or any other action we take before we accept the change. 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 within a qualified plan. See "Qualified Plans" on page 32. Changing ownership of this Contract may cause adverse tax consequences and may not be allowed under qualified plans. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner. ANNUITANT The Annuitant is the individual 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. You may change the Annuitant at any time prior to the Payout Start Date (only if the Contract Owner is a natural person). Once we accept a change, it takes effect as of the date you signed the request. Each change is subject to any payment we make or other action we take before we accept it. You may designate a joint Annuitant, who is a second person on whose life income payments depend. We permit joint Annuitants only on or after the Payout Start Date. If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be: (i) the youngest Contract Owner; otherwise, (ii) the youngest Beneficiary. BENEFICIARY The Beneficiary is the person who may elect to receive the Death Proceeds or become the new Contract Owner, subject to the "Death of Owner" section below, 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. You may name one or more primary and contingent Beneficiaries when you apply for a Contract. The primary Beneficiary is the person who is the first entitled to receive benefits under the Contract upon the death of the sole surviving Contract Owner. A contingent Beneficiary is the person selected by the Contract Owner who will become the Beneficiary if all named primary Beneficiaries die before the death of the sole surviving Contract Owner. You may change or add Beneficiaries at any time, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed by you and filed with us. After we accept the form, the change of Beneficiary will be effective as of the date you signed the form. 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. Each change is subject to any payment made by us or any other action we take before we accept 14 the change. If you did not name a Beneficiary or, unless otherwise provided in the Beneficiary designation, if a named Beneficiary is no longer living and there are no other surviving primary or contingent 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 one or more Beneficiaries survive you (or survives the Annuitant, if the Contract Owner is not a natural person), we will divide the Death Proceeds among the surviving Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the Death Proceeds in equal amounts to the surviving Beneficiaries. If more than one Beneficiary shares in the Death Proceeds, each Beneficiary will be treated as a separate and independent owner of his or her respective share. Each Beneficiary will exercise all rights related to his or her share, including the sole right to select a payout option, subject to any restrictions previously placed upon the Beneficiary. Each Beneficiary may designate a Beneficiary(ies) for his or her respective share, but that designated Beneficiary(ies) will be restricted to the payout option chosen by the original Beneficiary. MODIFICATION OF THE CONTRACT Only a Glenbrook Life officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law. ASSIGNMENT You may not assign any 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 payable to the Beneficiary. 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. PURCHASES -------------------------------------------------------------------------------- MINIMUM PURCHASE PAYMENTS Your initial purchase payment must be at least $3,000 ($2,000 for a Qualified Contract). All subsequent purchase payments must be $50 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. AUTOMATIC ADDITIONS PROGRAM You may make subsequent purchase payments by automatically transferring money from your bank account. Consult your representative for more 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 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 home office. 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 home office. We are open for business 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 15 Date, we will credit your purchase payment using the Accumulation Unit Values computed on the next Valuation Date. RIGHT TO CANCEL You may cancel the Contract by returning it to us within the Cancellation Period, which is the 20 day period after you receive the Contract, or a longer period should your state require it. You may return your Contract 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. In states where we are required to refund purchase payments, we reserve the right during the Cancellation Period to invest any purchase payments you allocated to a Variable Sub-Account to the money market Variable Sub-Account available under the Contract. We will notify you if we do so. At the end of the Cancellation Period, you may then allocate your money to other Variable Sub-Accounts. If your Contract is qualified under Section 408 of the Internal Revenue Code, we will refund the greater of any purchase payments of the Contract Value. CONTRACT VALUE -------------------------------------------------------------------------------- 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 investment 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 or transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of that Variable Sub-Account next computed after we receive your payment or transfer. For example, if we receive a $10,000 purchase payment allocated to a Variable Sub-Account when the Accumulation Unit Value for the Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Variable Sub-Account allocated to your Contract. ACCUMULATION UNIT VALUE As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect: .. changes in the share price of the Portfolio 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 Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we calculate 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 30. YOU SHOULD REFER TO THE PROSPECTUSES FOR THE PORTFOLIOS THAT ACCOMPANY THIS PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE. 16 INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS -------------------------------------------------------------------------------- You may allocate your purchase payments to up to 38 Variable Sub-Accounts. Each Variable Sub-Account invests in the shares of a corresponding Portfolio. Each Portfolio has its own investment objective(s) and policies. We briefly describe the Portfolios below. For more complete information about each Portfolio, including expenses and risks associated with the Portfolio, please refer to the accompanying prospectuses for the Portfolios. You should carefully review the Portfolio prospectuses before allocating amounts to the Variable Sub-Accounts.
PORTFOLIO: EACH PORTFOLIO SEEKS: INVESTMENT ADVISOR: ------------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS* ------------------------------------------------------------------------------- AIM V.I. Balanced Fund As high a total return as possible, consistent with preservation of capital ------------------------------------------------------- AIM V.I. Capital Growth of capital Appreciation Fund ------------------------------------------------------- AIM V.I. Core Equity Growth of capital with a Fund** secondary objective of current income ------------------------------------------------------- AIM ADVISORS, AIM V.I. Diversified A high level of current INC. Income Fund income ------------------------------------------------------- AIM V.I. Global High total return Utilities Fund ------------------------------------------------------- AIM V.I. Government A high level of current Securities Fund income consistent with a reasonable concern for safety of principal ------------------------------------------------------- AIM V.I. Growth Fund Growth of capital ------------------------------------------------------- AIM V.I. High Yield A high level of current ------------------------ Fund income ------------------------------------------------------- AIM V.I. International Long-term growth of capital Growth Fund*** ------------------------------------------------------- AIM V.I. Premier Long-term growth of capital Equity Fund**** and income as a secondary objective ------------------------------------------------------- THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.; THE DREYFUS STOCK INDEX FUND; AND THE DREYFUS VARIABLE INVESTMENT FUND (VIF) (COLLECTIVELY, THE DREYFUS FUNDS) ------------------------------------------------------------------------------- The Dreyfus Socially Capital growth and, Responsible Growth secondarily, current income Fund, Inc. ------------------------------------------------------- Dreyfus Stock Index To match the total return of Fund the Standard & Poor's(R) 500 Composite Stock Price Index ------------------------------------------------------- Dreyfus VIF Growth & Long-term capital growth, Income Portfolio current income and growth of income, consistent with THE DREYFUS reasonable investment risk CORPORATION ------------------------------------------------------- Dreyfus VIF Money A high level of current Market Portfolio income as is consistent with the preservation of capital and the maintenance of liquidity ------------------------------------------------------- Dreyfus VIF Small Investment returns Company Stock (consisting of capital Portfolio appreciation and income) that are greater than the total return performance of stocks ------------------------ represented by the Russell 2500/SM/ Stock Index ("Russell 2500") ------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND ------------------------------------------------------------------------------- Fidelity VIP II Long-term capital ContrafunD Portfolio appreciation ------------------------------------------------------------------------------- Fidelity VIP Reasonable income Equity-Income Portfolio FIDELITY MANAGEMENT ------------------------------------------------------- & Fidelity VIP Growth Capital appreciation RESEARCH COMPANY Portfolio ------------------------------------------------------- Fidelity VIP High High level of current income Income Portfolio while also considering growth ------------------------ of capital ------------------------------------------------------- 17 GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT) ------------------------------------------------------------------------------- Goldman Sachs VIT Long-term growth of capital Capital Growth Fund ------------------------------------------------------- Goldman Sachs VIT Long-term growth of capital CORE/SM/Small Cap Equity Fund ------------------------------------------------------- GOLDMAN SACHS Goldman Sachs VIT Long-term growth of capital ASSET CORE/SM/ U.S. Equity and dividend income MANAGEMENT Fund ------------------------------------------------------- Goldman Sachs VIT A high total return, Global Income Fund emphasizing current income and, to a lesser extent providing opportunities for capital appreciation ------------------------------------------------------- Goldman Sachs VIT Long-term growth of capital ------------------------ Growth and Income Fund and growth of income ------------------------------------------------------- Goldman Sachs VIT Long-term capital International Equity appreciation Fund ------------------------------------------------------- MFS(R) VARIABLE INSURANCE TRUST/SM/ ------------------------------------------------------------------------------- MFS Emerging Growth Long-term growth of capital Series ------------------------------------------------------- MFS INVESTMENT MFS Investors Trust Long-term growth of capital MANAGEMENT(R) Series with a secondary objective to seek reasonable current income ------------------------------------------------------- MFS New Discovery Capital appreciation ------------------------ Series ------------------------------------------------------- THE UNIVERSAL INSTITUTIONAL FUNDS, INC. ------------------------------------------------------------------------------- Morgan Stanley UIF Long-term capital MORGAN STANLEY Equity Growth appreciation ASSET MANAGEMENT ------------------------------------------------------------------------------- Morgan Stanley UIF Above-average total return MILLER Fixed Income over a market cycle of three ANDERSON & to five years SHERRERD, LLP ------------------------------------------------------------------------------- Morgan Stanley UIF Long-term capital MORGAN STANLEY Global Equity appreciation ASSET MANAGEMENT ------------------------------------------------------- Morgan Stanley UIF Long-term capital ------------------------ International Magnum appreciation ------------------------------------------------------- Morgan Stanley UIF Mid Above-average total return MILLER ANDERSON Cap Value over a market cycle of three & to five years SHERRERD, LLP ------------------------------------------------------------------------------- Morgan Stanley UIF Above-average current income MORGAN STANLEY U.S. Real Estate and long-term capital ASSET appreciation MANAGEMENT ------------------------------------------------------------------------------- Morgan Stanley UIF Above-average total return MILLER ANDERSON & Value over a market cycle of three SHERRERD, LLP to five years ------------------------------------------------------------------------------- NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST ------------------------------------------------------------------------------- Neuberger Berman AMT Long-term growth of capital; Guardian current income is a secondary goal NEUBERGER BERMAN ------------------------------------------------------- MANAGEMENT INC. Neuberger Berman AMT Growth of capital Mid-Cap Growth ------------------------------------------------------- Neuberger Berman AMT Growth of capital ------------------------ Partners -------------------------------------------------------
* A Portfolio's investment objective may be changed by the Portfolio's Board of Trustees without shareholder approval. **Effective May 1, 2002, the Portfolio changed its name from AIM V.I. Growth and Income Fund to AIM V.I. Core Equity Fund. ***Effective May 1, 2002, the Portfolio changed its name from AIM V.I. International Equity Fund to AIM V.I. International Growth Fund. ****Effective May 1, 2002, the Portfolio changed its name from AIM V.I. Value Fund to AIM V.I. Premier Equity 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 PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE PORTFOLIOS 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. 18 VARIABLE INSURANCE PORTFOLIOS MAY NOT BE MANAGED BY THE SAME PORTFOLIO MANAGERS WHO MANAGE RETAIL MUTUAL FUNDS WITH SIMILAR NAMES. THESE PORTFOLIOS ARE LIKELY TO DIFFER FROM SIMILARLY NAMED RETAIL FUNDS IN ASSETS, CASH FLOW, AND TAX MATTERS. ACCORDINGLY, THE HOLDINGS AND INVESTMENT RESULTS OF A VARIABLE INSURANCE PORTFOLIO CAN BE EXPECTED TO BE GREATER OR LESS THAN THE INVESTMENT RESULTS OF SIMILARLY NAMED RETAIL MUTUAL FUNDS. 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: 2 dollar cost averaging options, and the option to invest in one or more Guarantee Periods included in the Guaranteed Maturity Fixed Account. The Fixed Account Options may not be available in all states. Please consult with your 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 FIXED ACCOUNT OPTIONS DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. Purchase payments that you allocate to the Dollar Cost Averaging Fixed Account Option ("DCA Fixed Account Option") will earn interest for a one year period at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound over the year to the annual interest rate we guaranteed at the time of allocation. After the one year period, we will declare a renewal rate which we guarantee for a full year. Subsequent renewal dates will be every twelve months for each payment or transfer. For each purchase payment, the first transfer from the DCA Fixed Account must occur within one month of the date of payment. If we do not receive an allocation from you within one month of the date of payment, the payment plus associated interest will be transferred to the money market Variable Sub-Account in equal monthly installments. Transferring Account Value to the money market Variable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 22. You must transfer each purchase payment and all its earnings out of this Option by means of dollar cost averaging within 36 months of payment. At the end of 36 months, any nominal amounts remaining in the DCA Fixed Account will be allocated to the money market Variable Sub-Account. No transfers are permitted into the DCA Fixed Account. SHORT TERM DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. You may establish a Short Term Dollar Cost Averaging Program by allocating purchase payments to the Short Term Dollar Cost Averaging Fixed Account Option ("Short Term DCA Fixed Account Option"). We will credit interest to purchase payments you allocate to this Option for up to one year at the current rate in effect at the time of allocation. For each purchase payment, the first transfer from the Short Term DCA Fixed Account must occur within one month of the date of payment. If we do not receive an allocation from you within one month of the date of payment, the payment plus associated interest will be transferred to the money market Variable Sub-Account in equal monthly installments. Transferring Account Value to the money market Variable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 22. We will follow your instructions in transferring amounts monthly from the Short Term DCA Fixed Account Option. However, you may not choose less than 3 or more than 12 monthly installments. Further, you must transfer each purchase payment and all its earnings out of this Option by means of dollar cost averaging within 12 months. At the end of the transfer period, any nominal amounts remaining in the Short Term DCA Fixed Account will be allocated to the money market Variable Sub-Account. If you discontinue the Short term Dollar Cost Averaging Program before the end of the transfer period, we will transfer the remaining balance in this Option to the money market Variable Sub-Account unless you request a different investment alternative. No transfers are permitted into the Short Term DCA Fixed Account. We bear the investment risk for all amounts allocated to the DCA Fixed Account Option and the Short Term DCA Fixed Account Option. That is because we guarantee the current and renewal interest rates we credit to the amounts you allocate to either of these Options, which will never be less than the minimum guaranteed rate in the Contract. Currently, we determine, in our sole discretion, the amount of interest credited in excess of the guaranteed rate. We may declare more than one interest rate for different monies based upon the date of allocation to the DCA Fixed Account Option and the Short Term DCA Fixed Account Option. For current interest rate information, please contact your representative or GLENBROOK LIFE customer service at 1-800-755-5275. GUARANTEE PERIODS Each payment or transfer allocated to a Guarantee Period earns interest at a specified rate that we guarantee for a period of years. Guarantee Periods may range from 1 to 10 years. We are currently offering Guarantee Periods of 1, 3, 5, 7, and 10 years in length. In the future we may offer Guarantee Periods of different lengths or stop 19 offering some Guarantee Periods. You select the Guarantee Period for each payment 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(s). Each payment or transfer allocated to a Guarantee Period must be at least $50. 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 will not change the interest rate that we credit to a particular allocation until the end of the relevant Guarantee Period. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. 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 representative or GLENBROOK LIFE at 1-800-755-5275. HOW WE CREDIT INTEREST. We will credit interest daily to each amount allocated to a Guarantee Period at a rate that compounds to the annual interest rate that we declared at the beginning of the applicable Guarantee Period. THE FOLLOWING EXAMPLE ILLUSTRATES HOW A PURCHASE PAYMENT ALLOCATED TO A GUARANTEED PERIOD WOULD GROW, GIVEN AN ASSUMED GUARANTEE PERIOD AND ANNUAL INTEREST RATE:
Purchase Payment $ .............................................................................................................................10,000 Guarantee Period 5 ..............................................................................................................................years Annual Interest 4.5 Rate.............................................................................................................................0%
END OF CONTRACT YEAR
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ---------- ---------- ---------- ---------- ------------ Beginning Contract $10,000.00 Value................ X (1 + Annual Interest Rate) x1.045 ---------- $10,450.00 Contract Value at end $10,450.00 of Contract Year..... X (1 + Annual Interest) x1.045 ---------- $10,920.25 Contract Value at end $10,920.25 of Contract Year..... X (1 + Annual Interest Rate) x1.045 ---------- $11,411.66 Contract Value at end $11,411.66 of Contract Year..... X (1 + Annual Interest Rate) x1.045 ---------- $11,925.19 Contract Value at end $11,925.19 of Contract Year..... X (1 + Annual Interest Rate) x1.045 ----------- $12,461.82
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 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. 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 expiring 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 20 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; we will pay interest from the day the Guarantee Period expired until the date of the transfer. The interest will be the rate for the shortest Guarantee Period then being offered; 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 income tax withholding, if applicable. We will pay interest from the day the Guarantee Period expired until the date of withdrawal. The interest will be the rate for the shortest Guarantee Period then being offered. 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. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 /1/2,/ may be subject to an additional 10% federal tax penalty. MARKET VALUE ADJUSTMENT. All withdrawals and transfers from a Guarantee Period, other than those taken during the 30 day period after such Guarantee Period expires, are subject to a Market Value Adjustment. A Market Value Adjustment also may apply upon payment of a death benefit and when you apply amounts currently invested in a Guarantee Period to an Income Plan (unless paid or applied during the 30-day period after such Guarantee Period expires). We also will not apply a Market Value Adjustment to a withdrawal you make: .. within the Free Withdrawal Amount as described on page 24, .. that qualify for one of the waivers as described on page 24, .. to satisfy the IRS minimum distribution rules for the Contract, or .. a single withdrawal made by a surviving spouse made within one year after continuing 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 you remove it 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 from a Guaranteed Period to an amount that is less than the purchase payment applied to that period plus interest earned under the Contract. Generally, if the original Treasury Rate at the time you allocate money to a Guarantee Period is higher than the applicable current Treasury Rate for a period equal to the Guarantee Period, 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 Treasury Rate for a period equal to the Guarantee Period, 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. INVESTMENT ALTERNATIVES: TRANSFERS -------------------------------------------------------------------------------- TRANSFERS DURING THE ACCUMULATION PHASE During the Accumulation Phase, you may transfer Contract Value among the investment alternatives. You may not transfer Contract Value to either the Short-Term Dollar Cost Averaging Fixed Account or the Dollar Cost Averaging Fixed Account Options. You may request transfers in writing on a form that we provided or by telephone according to the procedure described below. The minimum amount that you may transfer into a Guarantee Period is $50. We currently do not assess, but reserve the right to assess, a $10 charge on each transfer 21 in excess of 12 per Contract Year. All transfers to or from more than one Portfolio on any given day counts 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. Central Time 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 for up to six months from the date we receive your request. If we decide to postpone transfers 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 such 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 so as 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 portion of your right to receive fixed income payments into variable income payments. If you choose an Income Plan that depends on any person's life, 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 1-800-755-5275. 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. DOLLAR COST AVERAGING PROGRAM Through our Dollar Cost Averaging Program, you may automatically transfer a fixed dollar amount every month during the Accumulation Phase from the Short Term DCA Fixed Account or the DCA Fixed Account, to any Variable Sub-Account. You may not use the Dollar Cost Averaging Program to transfer amounts to the Guarantee Periods. 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. Call or write us for instructions on how to enroll. AUTOMATIC PORTFOLIO REBALANCING PROGRAM Once you have allocated your money among the Variable Sub-Accounts, the performance of each Variable Sub-Account may cause a shift in the percentage you allocated to each Variable Sub-Account. If you select our Automatic Portfolio Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. We will not include money you allocate to the Fixed Account Options in the Automatic Portfolio Rebalancing Program. 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 request. We are not responsible for rebalancing that occurs prior to receipt 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 Fidelity VIP High 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 22 performs poorly. At the end of the first quarter, the Fidelity VIP High Income Variable Sub-Account 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 Fidelity VIP High 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 Portfolio 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. Portfolio 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. 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. If you surrender your Contract, we will deduct the contract maintenance charge pro rated for the part of the Contract Year elapsed, unless your Contract qualifies for a waiver, described below. The charge is to compensate us for the cost of administering the Contracts and the Variable Account. Maintenance costs include expenses we incur collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract Owners and regulatory agencies. We cannot increase the charge. However, we will waive this charge if, as of the Contract Anniversary or upon full surrender: .. total purchase payments equal $50,000 or more, or .. all money is allocated to the Fixed Account. In addition, we will waive the Contract Maintenance Charge if total purchase payments are $50,000 or more as of the Payout Start Date. MORTALITY AND EXPENSE RISK CHARGE We deduct a mortality and expense risk charge daily at an annual rate of 1.05% of the average daily net assets you have invested in the Variable Sub-Accounts (1.27% if you select the Enhanced Death Benefit Rider, and 1.49% 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 we will bear the loss. We charge an additional amount for the Enhanced Death Benefit Rider and the Enhanced Death and Income Benefit Combination Rider to compensate us for the additional risk that we accept by providing these options. We guarantee that we will not raise the mortality and expense risk charge. We assess the mortality and expense risk charge during both the Accumulation Phase and the Payout Phase. ADMINISTRATIVE EXPENSE CHARGE We deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-Accounts. We intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed 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. 23 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 or Automatic Portfolio Rebalancing Program. WITHDRAWAL CHARGE We may assess a withdrawal charge of up to 6% of the purchase payment(s) you withdraw. The charge declines to 0% over a 6 year period that begins on the day we receive your payment. A schedule showing how the charge declines is shown on page 7. During each Contract Year, you can withdraw up to 15% of the aggregate amount of your purchase payments without paying the charge. Unused portions of this "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 calculating the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings, 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 terminate income payments to be received for a specified period); .. on the death of the Contract Owner, or the Annuitant, if the Contract Owner is not a natural person (unless the Settlement Value is used to determine the death benefit); .. withdrawals taken to satisfy IRS minimum distribution rules for the Contract; or .. withdrawals that qualify for one of the waivers as 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 of earnings are taxed as ordinary income and, if taken prior to age 59 /1/2,/ may be subject to an additional 10% federal tax penalty 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 Owner is not a natural person, are confined to a long term care facility or a hospital 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. You request the withdrawal and provide written proof 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, the Annuitant, or a member of your or the Annuitant's immediate family, is the physician prescribing your or the Annuitant's stay in a long term care facility. 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 with a terminal illness 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, if the Contract Owner is not a natural person, become unemployed at least one year after the Issue Date; 2. you or the Annuitant, if the Contract Owner is not a natural person, receive unemployment compensation as defined in the Contract for at least 30 days as a result of that unemployment; and 3. you or the Annuitant, if the Contract Owner is not a natural person, claim this benefit within 180 days of your or the Annuitant's initial receipt of unemployment compensation. Please refer to your Contract for more detailed information about the terms and conditions of these waivers. The laws of your state may limit the availability of these waivers and may also change certain terms and/or benefits available under the waivers. You should consult your Contract for further details on these variations. Also, even if you do not need to pay our withdrawal charge or a Market Value Adjustment 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. 24 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. At our discretion, we may discontinue this practice 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 such 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 "Taxes" section beginning on page 34. OTHER EXPENSES Each Portfolio deducts advisory fees and other expenses from its assets. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Variable Sub-Accounts. These fees and expenses are described in the accompanying prospectuses for the Portfolios. For a summary of current estimates of those charges and expenses, see page 23. We may receive compensation from the investment advisers or administrators of the Portfolios in connection with the administrative services we provide to the Portfolios. ACCESS TO YOUR MONEY -------------------------------------------------------------------------------- You can withdraw some or all of your Contract Value at any time prior to the Payout Start Date. The amount payable upon withdrawal is the Contract Value (or portion thereof) next computed after we receive the request for a withdrawal at our home office, 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. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 /1/2/, may be subject to an additional 10% Federal tax penalty. 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 for 30 days or more, we will pay interest as required by law. 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 Program or Automatic Portfolio Rebalancing Program. Depending on fluctuations in the value of the Variable Sub-Accounts and the value of the Fixed Account Options, systematic withdrawals may reduce or even exhaust the Contract Value. Withdrawals of earnings under a Systematic Withdrawal Program are taxed as ordinary income and, if taken prior to age 59 /1/2/, may be subject to an additional 10% federal tax penalty. Please consult your tax advisor before taking any withdrawal. We will make systematic withdrawal payments to you or your designated payee. At our discretion, 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. MINIMUM CONTRACT VALUE If your request for a partial withdrawal would reduce your 25 Contract Value to less than $2,000, 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. Before terminating any Contract whose value has been previously reduced by withdrawals to less than $2,000, we will inform you in writing of our intention to terminate your Contract and give you at least 30 days in which to make an additional purchase payment to restore your Contract's Value to the contractual minimum of $2,000. 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 applicable taxes. INCOME PAYMENTS -------------------------------------------------------------------------------- PAYOUT START DATE You select the Payout Start Date in your application. The "PAYOUT START DATE" is the day that we apply your money to an Income Plan. The Payout Start Date must be: .. at least 30 days after the Issue Date; and .. no later than the day the Annuitant reaches age 90, 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 scheduled payments to you or someone you designate. 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. 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. You may elect to receive guaranteed payments for periods ranging from 5 to 30 years. 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 that support variable income payments even though we may 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. 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 are alive before we make each payment. Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on. Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or part of the Variable Account portion of the income payments at any time and receive a lump sum equal to the commuted balance of the remaining variable payments associated with the amount withdrawn. The minimum amount you may withdraw under this feature is $1,000. A withdrawal charge may apply. We deduct applicable premium taxes from the Contract Value at the Payout 26 Start Date. We may make other Income Plans available. If you elected the Enhanced Death and Income Benefit Combination Option, you may be able to apply an amount greater than your Contract Value to an Income Plan. You must apply at least the Contract Value in the Fixed Account on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account 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 to fixed income payments. We will apply your Contract Value, adjusted by any applicable Market Value Adjustment, less applicable taxes to your Income Plan on the Payout Start Date. If the amount available to apply under an Income Plan is less than $2,000, or not enough to provide an initial payment of at least $20, and state law permits, we may: .. terminate the Contract and pay you the Contract Value, adjusted by any applicable 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 Portfolios; 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. 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 any shorter time 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 applicable 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. DEATH BENEFITS -------------------------------------------------------------------------------- DEATH OF OWNER If you die before the Payout Start Date, any surviving joint Contract Owner or, if none, the Beneficiary will be designated the new Contract Owner and will be entitled to the options described below. If the new Contract Owner previously was the Beneficiary, however, the new Contract Owner's options will be subject to any restrictions previously placed upon the Beneficiary. The claim for death benefits must be submitted to us within 180 days of the relevant death in order to claim the standard or enhanced death benefit. If a complete claim is not submitted within 180 days of the relevant death, the claimant will receive the greater of Contract Value or the 27 Settlement Value. (See "Death Proceeds" below). 1. If your spouse is the sole surviving Contract Owner or, in the absence of any surviving Contract Owner, is the sole Beneficiary: (a) Your spouse may elect to receive the Death Proceeds in a lump sum; or (b) Your spouse may elect to receive the Death Proceeds paid out under one of the Income Plans (described in "Income Payments" above) subject to the following conditions: The Payout Start Date must be within one year of your date of death. Income payments must be payable: (i) over the life of your spouse; or (ii) for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of your spouse; or (iii) over the life of your spouse with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of your spouse. (c) If your spouse does not elect one of these options, the Contract will continue in the Accumulation Phase as if the death had not occurred. If the Contract is continued in the Accumulation Phase, the following conditions apply: The Contract Value of the continued Contract will be the Death Proceeds. Unless otherwise instructed by the continuing spouse, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the Sub-accounts of the Variable Account. The excess will be allocated in proportion to your Contract Value in those Sub-accounts as of the end of the Valuation Period during which we receive the complete request for settlement of the Death Proceeds, except that any portion of this excess attributable to the Fixed Account Options will be allocated to the money market Variable Sub-account. Within 30 days of the date the Contract is continued, your surviving spouse may choose one of the following transfer alternatives without incurring a transfer fee: (i) transfer all or a portion of the excess among the Variable Sub-accounts; (ii) transfer all or a portion of the excess into the Guaranteed Maturity Fixed Account and begin a new Guarantee Period; or (iii) transfer all or a portion of the excess into a combination of Variable Sub-accounts and the Guaranteed Maturity Fixed Account. Any such transfer does not count as one of the free transfers allowed each Contract Year and is subject to any minimum allocation amount specified in the Contract. The surviving spouse may make a single withdrawal of any amount within one year of the date of your death without incurring a Withdrawal Charge or Market Value Adjustment. Prior to the Payout Start Date, the Death Benefit of the continued Contract will be as defined in the Death Benefit provision. Only one spousal continuation is allowed under the Contract. 2. If the new Contract Owner is not your spouse but is a living person: (a) The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or (b) The new Contract Owner may elect to receive the Death Proceeds paid out under one of the Income Plans (described in "Income Payments" above) subject to the following conditions: The Payout Start Date must be within one year of your date of death. Income Payments must be payable: (i) over the life of the new Contract Owner; or (ii) for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of the new Contract Owner; or (iii) over the life of the new Contract Owner with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the new Contract Owner. (c) If the new Contract Owner does not elect one of the options above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. On the date we receive the complete request for settlement of the Death Proceeds, the Contract Value will be the Death Proceeds. Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers (as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived for any withdrawals made during this 5 year period. We reserve the right to offer additional options upon the death of the Contract Owner. If the new Contract Owner dies prior to the complete liquidation of the Contract Value, then the new Contract Owner's named Beneficiary(ies) will receive the greater of the Settlement Value or the remaining Contract Value. This amount must be liquidated as a lump sum within 5 years of the date of the original Contract Owner's death. 3. If the new Contract Owner is a corporation or other type of non-living person: (a) The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or 28 (b) If the new Contract Owner does not elect the option above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. On the date we receive the complete request for settlement of the Death Proceeds, the Contract Value under this option will be the Death Proceeds. Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers(as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived during this 5 year period. We reserve the right to make additional options available to the new Contract Owner upon the death of the Contract Owner. If any new Contract Owner is a non-living person, all new Contract Owners will be considered to be non-living persons for purposes of these provisions. Under any of these options, all ownership rights, subject to any restrictions previously placed upon the Beneficiary, are available to the new Contract Owner from the date of your death to the date on which the Death Proceeds are paid. DEATH OF ANNUITANT If the Annuitant who is not also the Contract Owner dies prior to the Payout Start Date, the following apply: 1. If the Contract Owner is a living person, then the Contract will continue with a new Annuitant, who will be: (a) the youngest Contract Owner; otherwise (b) the youngest Beneficiary. You may change the Annuitant before the Payout Start Date. 2. If the Contract Owner is a non-living person: (a) The Contract Owner may elect to receive the Death Proceeds in a lump sum; or (b) If the Contract Owner does not elect the option above, then the Contract Owner must receive the Contract Value payable within 5 years of the Annuitant's date of death. On the date we receive the complete request for settlement of the Death Proceeds, the Contract Value under this option will be the Death Proceeds. Unless otherwise instructed by the Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the Contract Owner may make transfers (as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived during this 5 year period. We reserve the right to make additional options available to the Contract Owner upon the death of the Annuitant. Under any of these options, all ownership rights are available to the non-living Contract Owner from the date of the Annuitant's death to the date on which the Death Proceeds are paid. DUE PROOF OF DEATH 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, .. a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or .. any other proof acceptable to us. DEATH BENEFIT PAYMENTS DEATH PROCEEDS. If we receive a complete request for settlement of the Death Proceeds within 180 days of the date of your death, the Death Proceeds are equal to the applicable death benefit described below. Otherwise, the Death Proceeds are equal to the greater of the Contract Value or the Settlement Value. We reserve the right to extend, on a non-discriminatory basis, the 180-day period in which the Death Proceeds will equal the applicable death benefit as described above. This right applies only for the purposes of determining the amount payable as Death Proceeds and in no way restricts when a claim may be filed. 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 value of 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 value of the death benefit, or 3. 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 an adjustment for any partial withdrawals since that Death Benefit Anniversary. A "Death Benefit Anniversary" is every seventh Contract Anniversary beginning with the Issue Date. For example, the Issue Date, 7th and 14th Contract Anniversaries are the first 3 Death Benefit Anniversaries. The partial withdrawal adjustment is equal to (a) divided by (b), with the result multiplied by (c), where: (a) = the withdrawal amount; (b) = the Contract Value immediately prior to the 29 withdrawal; and (c) = the Contract Value on the Death Benefit Anniversary adjusted by any prior purchase payments or withdrawals made since that Anniversary. We will determine the value of the death benefit as of the end of the Valuation Date on which we receive a complete request for payment of the death benefit. If we receive a request after 3 p.m. Central Time on a Valuation Date, we will process the request as of the end of the following Valuation Date. OPTIONAL RIDERS We offer two optional riders: an Enhanced Death Benefit Rider and an Enhanced Death and Income Benefit Combination Rider. You may elect to add either or no Riders to your Contract; you may not add both. If you elect an optional Rider, we will charge you a higher mortality and expense risk charge. We may discontinue offering either or both of these Riders at any time. The benefits under these Riders are described below. ENHANCED DEATH BENEFIT RIDER If the Contract Owner is a living individual, the enhanced death benefit applies only upon the death of the Contract Owner. If the Contract Owner is not a living individual, the enhanced death benefit applies only upon the death of the Annuitant. For Contracts with the Enhanced Death Benefit Rider, the death benefit will be the greatest of (1) through (3) above, or (4) the enhanced death benefit. The enhanced death benefit is equal to the greater of the Enhanced Death Benefit A or Enhanced Death Benefit B. Enhanced Death Benefit B may not be available in all states. The enhanced death benefit will never be greater than the maximum death benefit allowed by any state nonforfeiture laws that govern the Contract. ENHANCED DEATH BENEFIT A. At issue, Enhanced Death Benefit A is equal to the initial purchase payment. After issue, Enhanced Death Benefit A is the greatest of the ANNIVERSARY VALUES as of the date we determine the death benefit. The "Anniversary Value" is equal to the Contract Value on a Contract Anniversary, increased by purchase payments made since that Anniversary and reduced by an adjustment for any partial withdrawals since that Anniversary. The adjustment is equal to (a) divided by (b), and the result multiplied by (c) where: (a) = the withdrawal amount, (b) = the Contract Value immediately prior to the withdrawal, and (c) = the Contract Value on that Contract Anniversary adjusted by any prior purchase payments and withdrawals since that Contract Anniversary. We will calculate Anniversary Values for each Contract Anniversary prior to the oldest Contract Owner's or the Annuitant's, if the Contract Owner is not a natural person, 85th birthday. After age 85, we will recalculate Enhanced Death Benefit A only for purchase payments and withdrawals. ENHANCED DEATH BENEFIT B. The Enhanced Death Benefit B is equal to total purchase payments made reduced by a withdrawal adjustment, as defined below. 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 adjustment is equal to (a) divided by (b), and the result multiplied by (c) where: (a) = the withdrawal amount, (b) = the Contract Value immediately prior to the withdrawal, and (c) = the most recently calculated enhanced death benefit. ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER. Instead of the Enhanced Death Benefit Rider, you may instead choose the Enhanced Death and Income Benefit Combination Rider. The enhanced death benefit portion of the Enhanced Death and Income Benefit Combination Rider is as described above under "Enhanced Death Benefit Rider." The enhanced income benefit guarantees that the amount of income payments you receive will not be less than those determined by applying the value of the enhanced death benefit on the Payout Start Date to the minimum guaranteed rate (rather than to any current rates we may be offering) for the Income Plan you select. 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 90th Birthday. 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 a single or joint lives 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. 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 income benefit only applies to the 30 determination of income payments under Income Plans in the circumstances described above. This is not a guarantee of Contract Value on invetment performance. This benefit does not enhance the amounts you receive in partial withdrawals or surrenders. If you surrender your Contract, you will not receive any benefit under this Rider. MORE INFORMATION -------------------------------------------------------------------------------- GLENBROOK LIFE GLENBROOK LIFE is the issuer of the Contract. GLENBROOK LIFE is a stock life insurance company organized under the laws of the State of Arizona in 1998. Previously, GLENBROOK LIFE was organized under the laws of the State of Illinois in 1992. GLENBROOK LIFE was originally organized under the laws of the State of Indiana in 1965. From 1965 to 1983 GLENBROOK LIFE was known as "United Standard Life Assurance Company" and from 1983 to 1992 as "William Penn Life Assurance Company of America." GLENBROOK LIFE 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 home office is located at 3100 Sanders Road, Northbrook, Illinois 60062. GLENBROOK LIFE 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 Illinois. All of the outstanding capital stock of Allstate Insurance Company is owned by The Allstate Corporation. GLENBROOK LIFE and Allstate Life entered into a reinsurance agreement effective June 5, 1992. Under the reinsurance agreement, Allstate Life reinsures substantially all of GLENBROOK LIFE'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 LIFE; GLENBROOK LIFE remains the sole obligor under the Contract to you. Independent rating agencies regularly evaluate life insurers' claims-paying ability, quality of investments, and overall stability. A.M. Best Company assigns an A+ (Superior) financial strength rating to Allstate Life, which results in an A+r rating to GLENBROOK LIFE due to the reinsurance agreement with Allstate Life mentioned above. Standard & Poor's assigns an AA+ (Very Strong) financial strength rating and Moody's Investors Service assigns an Aa2 (Excellent) financial strength rating to GLENBROOK LIFE, sharing 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 LIFE established the GLENBROOK LIFE Multi-Manager Variable Account on January 15, 1996. 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 LIFE. 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 LIFE. The Variable Account consists of multiple Variable Sub-Accounts. Each Variable Sub-Account invests in a corresponding Portfolio. 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 Portfolios. We may use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account. THE PORTFOLIOS DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value. VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Portfolios 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 Portfolios 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 31 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 Portfolio 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 Variable Sub-Account by the net asset value per share of the corresponding Portfolio. 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 Portfolio 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 PORTFOLIOS. If the shares of any of the Portfolios 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 Portfolio and substitute shares of another eligible investment portfolio. Any substitution of securities will comply with the requirements of the Investment Company Act of 1940. 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. Certain of the Portfolios 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 Portfolio. The boards of directors of these Portfolios monitor for possible conflicts among separate accounts buying shares of the Portfolios. 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, a Portfolio's board of directors may require a separate account to withdraw its participation in a Portfolio. A Portfolio's net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a separate account withdrawing because of a conflict. THE CONTRACT DISTRIBUTION. ALFS, Inc. ("ALFS"), located at 3100 Sanders Road, Northbrook, IL 60062-7154, serves as principal underwriter of the Contracts. ALFS is a wholly owned subsidiary of Allstate Life. ALFS is a registered broker dealer under the Securities and Exchange Act of 1934, as amended ("EXCHANGE ACT"), and is a member of the National Association of Securities Dealers, Inc. 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. These commissions are intended to cover distribution expenses. Sometimes, we also pay the broker-dealer a persistency bonus in addition to the standard commissions. A persistency bonus is not expected to exceed 0.25%, on an annual basis, of the Contract Values considered in connection with the bonus. 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 LIFE 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 within a qualified plan, the plan 32 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 Jorden Burt, LLP, Washington, D.C., has advised GLENBROOK LIFE on certain federal securities law matters. All matters of state insurance law pertaining to the Contracts, including the validity of the Contracts and GLENBROOK LIFE's right to issue such Contracts under state insurance law, have been passed upon by Michael J. Velotta, General Counsel of GLENBROOK LIFE. 33 TAXES -------------------------------------------------------------------------------- THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. GLENBROOK LIFE 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 GLENBROOK LIFE AND ANNUITY COMPANY GLENBROOK LIFE 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 LIFE, and its operations form a part of GLENBROOK LIFE, it will not be taxed separately. 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 LIFE 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 LIFE does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore GLENBROOK LIFE does not intend to make provisions for any such taxes. If GLENBROOK LIFE is taxed on investment income or capital gains of the Variable Account, then GLENBROOK LIFE may impose a charge against the Variable Account in order to make provision for such taxes. 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 LIFE 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 does not enjoy tax deferral and is taxed as ordinary income received or accrued by the owner during the taxable year. 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) immediate annuity 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. 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 LIFE does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements. OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a contract owner 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 a broader selection of investment alternatives. Also, you may be able to transfer among investment alternatives more frequently than in such rulings. These differences could 34 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 LIFE 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. 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 full withdrawal under a non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract. 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. The Federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. 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. WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding the taxation of any additional withdrawal received after the Payout Start Date. It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine. DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide: 1. if any Contract Owner dies on or after the Payout 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 Contract Owner's death; 2. if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owner's death. These requirements are satisfied if any portion of the Contract Owner's interest that 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 1 year of the Contract Owner's death. If the Contract Owner's designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner. 3. if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract 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 Contract Owner. TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit 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 Income Plan, the amounts are taxed in the same manner as annuity payments. 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 591/2. However, no penalty tax is incurred on distributions: 1. made on or after the date the Contract Owner attains age 591/2, 2. made as a result of the Contract Owner's death or becoming totally disabled, 3. made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary, 4. made under an immediate annuity, or 5. attributable to investment in the Contract before August 14, 1982. You should consult a competent tax advisor to determine how these exceptions may apply to your situation. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, 35 any additional withdrawal or other modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owner's attaining age 591/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. You should consult a competent tax advisor prior to taking a withdrawal. TAX FREE EXCHANGES UNDER IRC SECTION 1035. A 1035 exchange is a tax-free exchange of a non-qualified life insurance contract, endowment contract or annuity contract for a new non-qualified annuity contract. The Contract Owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them. TAXATION OF OWNERSHIP CHANGES. 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 taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax. Currently we do not allow assignments. AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-qualified deferred annuity contracts issued by GLENBROOK LIFE (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution. INCOME TAX WITHHOLDING Generally, GLENBROOK LIFE is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. GLENBROOK LIFE is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory. Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number. TAX QUALIFIED CONTRACTS The income on qualified plan and IRA investments is tax deferred, and the income on variable annuities held by such plans does 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. 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 under Sections 401 and 403; and .. State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Section 457. GLENBROOK LIFE reserves the right to limit the availability of the Contract for use with any of the Qualified Plans listed above or to modify the Contract to conform with tax requirements. 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 certain transactions such as excess contributions, premature distributions, and, distributions that do not conform to specified commencement and minimum distribution rules. 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. TAXATION OF WITHDRAWALS FROM A QUALIFIED CONTRACT. If you make a partial withdrawal under a Qualified Contract other than a Roth IRA, 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. We do not keep track of nondeductible contributions, and all tax reporting of distributions from Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable. "QUALIFIED DISTRIBUTIONS" from Roth IRAs are not included in gross income. "Qualified distributions" are any distributions made more than five taxable years after 36 the taxable year of the first contribution to any Roth IRA and which are: .. made on or after the date the Contract Owner attains age 591/2, .. made to a beneficiary after the Contract Owner's death, .. attributable to the Contract Owner being disabled, or .. made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000). "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. All tax reporting of distributions from Roth IRAs will indicate that the taxable amount is not determined. REQUIRED MINIMUM DISTRIBUTIONS. Generally, qualified plans require minimum distributions upon reaching age 701/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the Contract. Not all income plans offered under the Contract satisfy the requirements for minimum distributions. Because these distributions are required under the Code and the method of calculation is complex, please see a competent tax advisor. THE DEATH BENEFIT AND QUALIFIED CONTRACTS. Pursuant to the Code and IRS regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may not invest in life insurance contracts. However, an IRA may provide a death benefit that equals the greater of the purchase payments or the Contract Value. The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or 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 satisfy the requirements of an IRA. We believe that these regulations do not prohibit all forms of optional death benefits. It is also possible that the certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under qualified plans, such as in connection with a 403(b) plan. GLENBROOK LIFE reserves the right to limit the availability of the Contract for use with any of the qualified plans listed above. PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM QUALIFIED CONTRACTS. A 10% penalty tax applies to the taxable amount of any premature distribution from a Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 591/2. However, no penalty tax is incurred on distributions: 1. made on or after the date the Contract Owner attains age 591/2, 2. made as a result of the Contract Owner's death or total disability, 3. made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary, 4. made pursuant to an IRS levy, 5. made for certain medical expenses, 6. made to pay for health insurance premiums while unemployed (only applies for IRAs), 7. made for qualified higher education expenses (only applies for IRAs), and 8. made for a first time home purchase (up to a $10,000 lifetime limit and only applies for IRAs). During the first 2 years of the individual's participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax. You should consult a competent tax advisor to determine how these exceptions may apply to your situation. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON QUALIFIED CONTRACTS. With respect to Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayer's attaining age 591/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. You should consult a competent tax advisor prior to taking a withdrawal. INCOME TAX WITHHOLDING ON QUALIFIED CONTRACTS. Generally, GLENBROOK LIFE is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered "ELIGIBLE ROLLOVER DISTRIBUTIONS." The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. GLENBROOK LIFE 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 37 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, 3. a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or, 4. hardship distributions. For all annuitized distributions that are not subject to the 20% withholding requirement, GLENBROOK LIFE is required to withhold federal income tax using the wage withholding rates from all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory. Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number. 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. 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. Subject to certain limitations, a traditional Individual Retirement Account or Annuity may be converted or "ROLLED OVER" to a Roth Individual Retirement Annuity. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions. SIMPLIFIED EMPLOYEE PENSION PLANS. Section 408(k) of the Code allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice. SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS). Sections 408(p) and 401(k) of the Code allow eligible 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 IRA 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. TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS (TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND YOUR COMPETENT TAX ADVISOR. TAX SHELTERED ANNUITIES. Section 403(b) of the Tax 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 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee: .. attains age 591/2, .. separates from service, .. dies, .. becomes disabled, or .. incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship). These limitations do not apply to withdrawals where GLENBROOK LIFE 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. Self-employed individuals may establish tax favored retirement plans for themselves and their employees. Such retirement plans (commonly referred to as "H.R.10" or "KEOGH") may permit the purchase of annuity contracts. 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. In eligible governmental plans, all assets and income must be held in a trust/ custodial account/annuity contract for the exclusive benefit of the participants and their beneficiaries. To the extent the Contracts are used in connection with a non-governmental eligible plan, employees are considered 38 general creditors of the employer and the employer as owner of the Contract has the sole right to the proceeds of the Contract. Under eligible 457 plans, contributions made for the benefit of the employees will not be includible in the employees' gross income until distributed from the plan. ANNUAL REPORTS AND OTHER DOCUMENTS -------------------------------------------------------------------------------- GLENBROOK LIFE's annual report on Form 10-K for the year ended December 31, 2001 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. 0001007285. 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 300 N. Milwaukee Ave. Vernon Hills, IL 60061 (telephone: 1-800-755-5275). EXPERTS -------------------------------------------------------------------------------- The financial statements of Glenbrook Life as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 and the related financial statement schedule incorporated herein by reference from the Annual Report on Form 10-K of Glenbrook Life and from the Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, incorporated herein by reference, and have been so incorporated 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, 2001 and for each of the periods in the two years then ended incorporated herein by reference from the Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, incorporated herein by reference and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. PERFORMANCE INFORMATION -------------------------------------------------------------------------------- We may advertise the performance of the Variable Sub-Accounts, including yield and total return information. 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. Yield refers to the income generated by an investment in a Variable Sub-Account over a specified period. 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 Portfolios for the periods beginning with the inception dates of the Portfolios 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 39 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. 40 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED* --------------------------------------------------------------------------------
For the Years Beginning January 1* and Ending December 31, Sub-Accounts 1998 1999 2000 2001 AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.73 $ 12.66 $ 11.99 Accumulation Unit Value, End of Period $10.73 $ 12.66 $ 11.99 $ 10.50 Number of Units Outstanding, End of Period -- 7,487 52,646 90,025 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.39 $ 16.29 $ 14.35 Accumulation Unit Value, End of Period $10.73 $ 16.29 $ 14.35 $ 10.88 Number of Units Outstanding, End of Period -- 8,743 73,347 76,217 AIM V.I. CORE EQUITY SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.00 $ 11.36 $ 15.09 $ 12.74 Accumulation Unit Value, End of Period $11.36 $ 15.09 $ 12.74 $ 9.72 Number of Units Outstanding, End of Period -- 12,180 53,747 73,192 AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.22 $ 9.91 $ 9.87 Accumulation Unit Value, End of Period $10.22 $ 9.91 $ 9.87 $ 10.11 Number of Units Outstanding, End of Period -- 721 721 721 AIM V.I. GLOBAL UTILITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.73 $ 14.16 $ 13.68 Accumulation Unit Value, End of Period $10.73 $ 14.16 $ 13.68 $ 11.04 Number of Units Outstanding, End of Period -- -- -- -- AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.38 $ 9.85 $ 10.73 Accumulation Unit Value, End of Period $10.38 $ 9.85 $ 10.73 $ 11.29 Number of Units Outstanding, End of Period -- -- 2,954 17,908 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.83 $ 15.82 $ 12.43 Accumulation Unit Value, End of Period $11.83 $ 15.82 $ 12.43 $ 8.13 Number of Units Outstanding, End of Period -- 13,275 69,688 57,165 AIM V.I. HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.31 $ 11.27 $ 9.03 Accumulation Unit Value, End of Period $10.31 $ 11.27 $ 9.03 $ 8.48 Number of Units Outstanding, End of Period -- 7,387 9,651 16,857 AIM V.I. INTERNATIONAL GROWTH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.00 $ 10.68 $ 16.38 $ 11.92 Accumulation Unit Value, End of Period $10.68 $ 16.38 $ 11.92 $ 9.00 Number of Units Outstanding, End of Period -- -- 4,196 4,353 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.00 $ 11.52 $ 14.80 $ 12.49 Accumulation Unit Value, End of Period $11.52 $ 14.80 $ 12.49 $ 10.79 Number of Units Outstanding, End of Period -- 42,074 115,418 133,037 DREYFUS SOCIALLY RESPONSIBLE GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.79 $ 14.40 $ 12.66 Accumulation Unit Value, End of Period $10.79 $ 14.40 $ 12.66 $ 9.69 Number of Units Outstanding, End of Period -- 3,130 5,459 2,854 41 DREYFUS STOCK INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.87 $ 12.97 $ 11.63 Accumulation Unit Value, End of Period $10.87 $ 12.97 $ 11.63 $ 10.10 Number of Units Outstanding, End of Period -- 9,930 23,030 17,916 DREYFUS VIF GROWTH & INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.65 $ 12.47 $ 11.86 Accumulation Unit Value, End of Period $10.65 $ 12.47 $ 11.86 $ 11.078 Number of Units Outstanding, End of Period -- 2,680 3,326 13,021 DREYFUS VIF MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.05 $ 10.40 $ 10.91 Accumulation Unit Value, End of Period $10.05 $ 10.40 $ 10.91 $ 11.211 Number of Units Outstanding, End of Period -- -- -- 33,552 DREYFUS VIF SMALL COMPANY STOCK SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.65 $ 11.66 $ 12.51 Accumulation Unit Value, End of Period $10.65 $ 11.66 $ 12.51 $ 12.178 Number of Units Outstanding, End of Period -- 236 429 428 FIDELITY VIP CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.66 $ 14.33 $ 13.23 Accumulation Unit Value, End of Period $11.66 $ 14.33 $ 13.23 $ 11.473 Number of Units Outstanding, End of Period -- 18,963 101,434 128,908 FIDELITY VIP EQUITY-INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.48 $ 11.02 $ 11.81 Accumulation Unit Value, End of Period $10.48 $ 11.02 $ 11.81 $ 11.096 Number of Units Outstanding, End of Period -- 30,264 100,008 169,933 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.20 $ 15.22 $ 13.40 Accumulation Unit Value, End of Period $11.20 $ 15.22 $ 13.40 $ 10.906 Number of Units Outstanding, End of Period -- 25,821 168,574 193,055 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 11.16 $ 8.55 Accumulation Unit Value, End of Period $10.43 $ 11.16 $ 8.55 $ 7.462 Number of Units Outstanding, End of Period -- 3,837 45,009 69,939 GOLDMAN SACHS VIT CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.10 $ 13.99 $ 8.55 Accumulation Unit Value, End of Period $11.10 $ 11.16 $ 8.55 $ 10.763 Number of Units Outstanding, End of Period -- -- 573 573 GOLDMAN SACHS CORE/SM/ SMALL CAP EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.60 $ 12.36 $ 12.44 Accumulation Unit Value, End of Period $10.60 $ 12.36 $ 12.44 $ 12.851 Number of Units Outstanding, End of Period -- 86 717 716 GOLDMAN SACHS VIT CORE/SM/ U.S. EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.89 $ 13.46 $ 12.02 Accumulation Unit Value, End of Period $10.89 $ 13.46 $ 12.02 $ 10.466 Number of Units Outstanding, End of Period -- 317 -- 159 GOLDMAN SACHS VIT GLOBAL INCOME SUB-ACCOUNT (3) Accumulation Unit Value, Beginning of Period $10.00 $ 9.67 $ 9.92 $ 10.70 Accumulation Unit Value, End of Period $ 9.67 $ 9.92 $ 10.70 $ 11.089 Number of Units Outstanding, End of Period -- -- 724 895 GOLDMAN SACHS VIT GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 9.94 $ 10.46 $ 9.86 Accumulation Unit Value, End of Period $ 9.94 $ 10.46 $ 9.86 $ 8.712 Number of Units Outstanding, End of Period -- 637 636 1386 GOLDMAN SACHS VIT INTERNATIONAL EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.84 $ 14.25 $ 12.24 Accumulation Unit Value, End of Period $10.84 $ 14.25 $ 12.24 $ 9.402 Number of Units Outstanding, End of Period -- -- 168 167 42 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.95 $ 20.88 $ 16.60 Accumulation Unit Value, End of Period $11.95 $ 20.88 $ 16.60 $ 10.91 Number of Units Outstanding, End of Period -- 1,059 58,025 104,779 MFS INVESTORS TRUST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.81 $ 11.41 $ 11.26 Accumulation Unit Value, End of Period $10.81 $ 11.41 $ 11.26 $ 9.36 Number of Units Outstanding, End of Period -- 6,295 15,337 45,121 MFS NEW DISCOVERY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.38 $ 19.52 $ 18.92 Accumulation Unit Value, End of Period $11.38 $ 19.52 $ 18.92 $ 17.76 Number of Units Outstanding, End of Period -- 183 3,148 6,802 NEUBERGER BERMAN AMT GUARDIAN SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.81 $ 12.28 $ 10.31 Accumulation Unit Value, End of Period $10.81 $ 12.28 $ 10.31 $ 12.058 Number of Units Outstanding, End of Period -- -- 28,736 -- NEUBERGER BERMAN AMT MID-CAP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 12.13 $ 18.45 $ 16.88 Accumulation Unit Value, End of Period $12.13 $ 18.45 $ 16.88 $ 12.575 Number of Units Outstanding, End of Period -- 296 696 695 NEUBERGER BERMAN AMT PARTNERS SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.31 $ 10.00 $ 10.90 Accumulation Unit Value, End of Period $10.31 $ 10.94 $ 10.90 $ 10.465 Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF CORE PLUS FIXED INCOME SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.15 $ 9.87 $ 10.85 Accumulation Unit Value, End of Period $10.15 $ 9.87 $ 10.85 $ 11.723 Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF EQUITY GROWTH SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.94 $ 15.09 $ 13.17 Accumulation Unit Value, End of Period $10.94 $ 15.09 $ 13.17 11.049 Number of Units Outstanding, End of Period -- -- 162 -- VAN KAMPEN UIF GLOBAL VALUE EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 10.73 $ 11.83 Accumulation Unit Value, End of Period $10.43 $ 10.73 $ 11.83 $ 10.873 Number of Units Outstanding, End of Period -- -- 959 -- VAN KAMPEN UIF INTERNATIONAL MAGNUM SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.39 $ 12.85 $ 11.13 Accumulation Unit Value, End of Period $10.39 $ 12.85 $ 11.13 $ 8.881 Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF MID CAP VALUE SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.96 $ 10.00 $ 14.32 Accumulation Unit Value, End of Period $10.96 $ 13.07 $ 14.32 $ 13.705 Number of Units Outstanding, End of Period -- -- 5,400 -- VAN KAMPEN UIF U.S. REAL ESTATE SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.18 $ 10.00 $ 12.67 Accumulation Unit Value, End of Period $10.18 $ 9.91 $ 12.67 $ 13.759 Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF VALUE SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 9.95 $ 10.00 $ 11.93 Accumulation Unit Value, End of Period $ 9.95 $ 9.65 $ 11.93 $ 12.058 Number of Units Outstanding, End of Period -- -- 233 --
BASIC POLICY *The Contracts were first offered on November 10, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.05% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before November 10, 1998. 1. Effective May 1, 2002 AIM V.I. Growth and IncomeFund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. 43 2. Effective May 1, 2002 the Portfolios have been re-branded and have changed names from Morgan Stanley UIF Fixed Income Portfolio to Van Kampen UIF Core Plus Fixed Income Portfolio, Morgan Stanley UIF Equity Growth Portfolio to Van Kampen UIF Equity Growth Portfolio, Morgan Stanley UIF Global Value Equity Porfolio to Van Kampen UIF Global Value Equity Portfolio, Morgan Stanley UIF International Magnum Portfolio to Van Kampen UIF International Magnum Portfolio, Morgan Stanley UIF Mid Cap Value Portfolio to Van Kampen UIF Mid Cap Value Portfolio, Morgan Stanley UIF U.S. Real Estate Portfolio to Van Kampen UIF U.S. Real Estate Portfolio and Morgan Stanley UIF Value Portfolio to Van Kampen UIF Value Portfolio. 3. The Goldman Sachs VIT Global Income Sub-Account will not be available to new investors beginning on May 1, 2001. 44 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED* --------------------------------------------------------------------------------
For the Years Beginning January 1* and Ending December 31, SUB-ACCOUNTS 1998 1999 2000 2001 AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.73 $ 12.63 $ 11.94 Accumulation Unit Value, End of Period $10.73 $ 12.63 $ 11.94 $ 10.43 Number of Units Outstanding, End of Period -- 16,023 98,137 129,553 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.39 $ 16.25 $ 14.28 Accumulation Unit Value, End of Period $11.39 $ 16.25 $ 14.28 $ 10.81 Number of Units Outstanding, End of Period -- 17,447 131,704 139,313 AIM V.I. CORE EQUITY SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.00 $ 11.36 $ 15.05 $ 12.68 Accumulation Unit Value, End of Period $11.36 $ 15.05 $ 12.68 $ 9.65 Number of Units Outstanding, End of Period -- 16,349 92,631 96,750 AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.22 $ 9.88 $ 9.82 Accumulation Unit Value, End of Period $10.22 $ 9.88 $ 9.82 $ 10.13 Number of Units Outstanding, End of Period -- -- -- -- AIM V.I. GLOBAL UTILITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.72 $ 14.13 $ 13.62 Accumulation Unit Value, End of Period $10.72 $ 14.13 $ 13.62 $ 9.68 Number of Units Outstanding, End of Period -- 154 327 326 AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.38 $ 9.83 $ 10.68 Accumulation Unit Value, End of Period $10.38 $ 9.83 $ 10.68 $ 11.21 Number of Units Outstanding, End of Period -- -- -- 6,075 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.82 $ 15.78 $ 12.38 Accumulation Unit Value, End of Period $11.82 $ 15.78 $ 12.38 $ 8.07 Number of Units Outstanding, End of Period -- 14,400 102,325 90,578 AIM V.I. HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.31 $ 11.25 $ 8.98 Accumulation Unit Value, End of Period $10.31 $ 11.25 $ 8.98 $ 8.42 Number of Units Outstanding, End of Period -- 3,356 14,461 20,655 AIM V.I. INTERNATIONAL GROWTH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.00 $ 10.68 $ 16.34 $ 11.16 Accumulation Unit Value, End of Period $10.68 $ 16.34 $ 11.16 $ 8.95 Number of Units Outstanding, End of Period -- 606 4,960 5,642 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.00 $ 11.52 $ 14.76 $ 12.43 Accumulation Unit Value, End of Period $11.52 $ 14.76 $ 12.43 $ 10.72 Number of Units Outstanding, End of Period -- 35,445 212,348 204,770 DREYFUS SOCIALLY RESPONSIBLE GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.78 $ 14.36 $ 12.60 Accumulation Unit Value, End of Period $10.78 $ 14.36 $ 12.60 $ 9.63 Number of Units Outstanding, End of Period -- 1,093 1,147 4,204 45 DREYFUS STOCK INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.87 $ 12.94 $ 11.58 Accumulation Unit Value, End of Period $10.87 $ 12.94 $ 11.58 $ 10.03 Number of Units Outstanding, End of Period -- 5,556 16,753 33,168 DREYFUS VIF GROWTH & INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.64 $ 12.43 $ 11.80 Accumulation Unit Value, End of Period $10.64 $ 12.43 $ 11.80 $ 10.96 Number of Units Outstanding, End of Period -- -- -- 4,754 DREYFUS VIF MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.04 $ 10.38 $ 10.86 Accumulation Unit Value, End of Period $10.04 $ 10.38 $ 10.86 $ 11.13 Number of Units Outstanding, End of Period -- -- 4,766 53,563 DREYFUS VIF SMALL COMPANY STOCK SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.66 $ 11.63 $ 12.45 Accumulation Unit Value, End of Period $10.66 $ 11.63 $ 12.45 $ 12.09 Number of Units Outstanding, End of Period -- -- 468 168 FIDELITY VIP CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.66 $ 14.29 $ 13.16 Accumulation Unit Value, End of Period $11.66 $ 14.29 $ 13.16 $ 11.39 Number of Units Outstanding, End of Period -- 30,660 158,502 154,780 FIDELITY VIP EQUITY-INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.47 $ 10.99 $ 11.76 Accumulation Unit Value, End of Period $10.47 $ 10.99 $ 11.76 $ 11.02 Number of Units Outstanding, End of Period -- 17,530 80,075 140,070 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.20 $ 15.19 $ 13.33 Accumulation Unit Value, End of Period $11.20 $ 15.19 $ 13.33 $ 10.83 Number of Units Outstanding, End of Period -- 45,514 210,159 224,251 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 11.13 $ 8.51 Accumulation Unit Value, End of Period $10.43 $ 11.13 $ 8.51 $ 7.41 Number of Units Outstanding, End of Period -- 3,914 55,337 76,456 GOLDMAN SACHS VIT CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.09 $ 13.95 $ 12.67 Accumulation Unit Value, End of Period $11.09 $ 13.95 $ 12.67 $ 9.23 Number of Units Outstanding, End of Period -- -- -- -- GOLDMAN SACHS CORE/SM/ SMALL CAP EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.60 $ 12.33 $ 12.38 Accumulation Unit Value, End of Period $10.60 $ 12.33 $ 12.38 $ 12.35 Number of Units Outstanding, End of Period -- -- -- -- GOLDMAN SACHS VIT CORE/SM/ U.S. EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.89 $ 13.42 $ 11.97 Accumulation Unit Value, End of Period $10.89 $ 13.42 $ 11.97 $ 10.39 Number of Units Outstanding, End of Period -- -- -- 514 GOLDMAN SACHS VIT GLOBAL INCOME SUB-ACCOUNT (3) Accumulation Unit Value, Beginning of Period $10.00 $ 9.67 $ 9.90 $ 14.28 Accumulation Unit Value, End of Period $ 9.67 $ 9.90 $ 14.28 $ 11.01 Number of Units Outstanding, End of Period -- -- -- 9,473 GOLDMAN SACHS VIT GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 9.94 $ 9.90 $ 9.90 Accumulation Unit Value, End of Period $ 9.94 $ 9.90 $ 9.81 $ 8.91 Number of Units Outstanding, End of Period -- -- -- -- GOLDMAN SACHS VIT INTERNATIONAL EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.84 $ 14.22 $ 12.18 Accumulation Unit Value, End of Period $10.84 $ 14.22 $ 12.18 $ 9.34 Number of Units Outstanding, End of Period -- -- 272 204 46 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.90 $ 20.83 $ 16.42 Accumulation Unit Value, End of Period $11.90 $ 20.83 $ 16.42 $ 10.84 Number of Units Outstanding, End of Period -- 3,068 78,095 112,839 MFS INVESTORS TRUST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.81 $ 11.38 $ 11.21 Accumulation Unit Value, End of Period $10.81 $ 11.38 $ 11.21 $ 9.29 Number of Units Outstanding, End of Period -- 3,323 23,854 35,987 MFS NEW DISCOVERY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.38 $ 19.47 $ 18.83 Accumulation Unit Value, End of Period $11.38 $ 19.47 $ 18.83 $ 17.636 Number of Units Outstanding, End of Period -- 1,669 2,029 11,438 NEUBERGER BERMAN AMT GUARDIAN SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.80 $ 12.25 $ 12.22 Accumulation Unit Value, End of Period $10.80 $ 12.25 $ 12.22 $ 11.88 Number of Units Outstanding, End of Period -- 1,333 -- -- NEUBERGER BERMAN AMT MID-CAP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 12.12 $ 18.40 $ 16.80 Accumulation Unit Value, End of Period $12.12 $ 18.40 $ 16.80 $ 12.49 Number of Units Outstanding, End of Period -- -- 929 804 NEUBERGER BERMAN AMT PARTNERS SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.30 $ 10.91 $ 10.84 Accumulation Unit Value, End of Period $10.30 $ 10.91 $ 10.84 $ 10.43 Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF CORE PLUS FIXED INCOME SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.15 $ 9.85 $ 10.80 Accumulation Unit Value, End of Period $10.15 $ 9.85 $ 10.80 $ 11.64 Number of Units Outstanding, End of Period -- 1,566 4,181 5,179 VAN KAMPEN UIF EQUITY GROWTH SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.94 $ 15.05 $ 13.11 Accumulation Unit Value, End of Period $10.94 $ 15.05 $ 13.11 $ 10.97 Number of Units Outstanding, End of Period -- 1,953 1,953 1,954 VAN KAMPEN UIF GLOBAL VALUE EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 10.71 $ 11.78 Accumulation Unit Value, End of Period $10.43 $ 10.71 $ 11.78 $ 10.80 Number of Units Outstanding, End of Period -- -- -- 168 VAN KAMPEN UIF INTERNATIONAL MAGNUM SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.38 $ 12.83 $ 12.83 Accumulation Unit Value, End of Period $10.38 $ 12.83 $ 11.08 $ 8.82 Number of Units Outstanding, End of Period -- 624 624 625 VAN KAMPEN UIF MID CAP VALUE SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.96 $ 13.04 $ 13.04 Accumulation Unit Value, End of Period $10.96 $ 13.04 $ 14.25 $ 13.61 Number of Units Outstanding, End of Period -- -- -- 5,158 VAN KAMPEN UIF U.S. REAL ESTATE SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.17 $ 9.89 $ 12.61 Accumulation Unit Value, End of Period $10.17 $ 9.89 $ 12.61 $ 14.09 Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF VALUE SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 9.95 $ 9.63 $ 11.82 Accumulation Unit Value, End of Period $ 9.95 $ 9.63 $ 11.82 $ 11.98 Number of Units Outstanding, End of Period -- 903 1,431
WITH ENHANCED DEATH BENEFIT RIDER *The Contracts were first offered on November 10, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.27% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before November 10, 1998. 1. Effective May 1, 2002 AIM V.I. Growth and IncomeFund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to 47 the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. 2. Effective May 1, 2002 the Portfolios have been re-branded and have changed names from Morgan Stanley UIF Fixed Income Portfolio to Van Kampen UIF Core Plus Fixed Income Portfolio, Morgan Stanley UIF Equity Growth Portfolio to Van Kampen UIF Equity Growth Portfolio, Morgan Stanley UIF Global Value Equity Porfolio to Van Kampen UIF Global Value Equity Portfolio, Morgan Stanley UIF International Magnum Portfolio to Van Kampen UIF International Magnum Portfolio, Morgan Stanley UIF Mid Cap Value Portfolio to Van Kampen UIF Mid Cap Value Portfolio, Morgan Stanley UIF U.S. Real Estate Portfolio to Van Kampen UIF U.S. Real Estate Portfolio and Morgan Stanley UIF Value Portfolio to Van Kampen UIF Value Portfolio. 3. The Goldman Sachs VIT Global Income Sub-Account will not be available to new investors beginning on May 1, 2001. 48 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED* --------------------------------------------------------------------------------
For the Years Beginning January 1* and Ending December 31, SUB-ACCOUNTS 1998 1999 2000 2001 AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.73 $ 12.60 $ 11.88 Accumulation Unit Value, End of Period $10.73 $ 12.60 $ 11.88 $ 10.36 Number of Units Outstanding, End of Period -- 43121 101,781 94,585 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.39 $ 16.21 $ 14.22 Accumulation Unit Value, End of Period $11.39 $ 16.21 $ 14.22 $ 10.73 Number of Units Outstanding, End of Period -- 16,046 122,768 129,783 AIM V.I. CORE EQUITY SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.00 $ 11.36 $ 15.01 $ 12.63 Accumulation Unit Value, End of Period $11.36 $ 15.01 $ 12.63 $ 9.59 Number of Units Outstanding, End of Period -- 11,459 66,400 69,341 AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.21 $ 9.86 $ 9.78 Accumulation Unit Value, End of Period $10.21 $ 9.86 $ 9.78 $ 9.97 Number of Units Outstanding, End of Period -- 1,484 1,484 1,484 AIM V.I. GLOBAL UTILITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.72 $ 14.09 $ 14.09 Accumulation Unit Value, End of Period $10.72 $ 14.09 $ 13.59 $ 10.90 Number of Units Outstanding, End of Period -- -- -- -- AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.38 $ 9.80 $ 10.63 Accumulation Unit Value, End of Period $10.38 $ 9.80 $ 10.63 $ 10.99 Number of Units Outstanding, End of Period -- -- -- -- AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.82 $ 15.74 $ 12.32 Accumulation Unit Value, End of Period $11.82 $ 15.74 $ 12.32 $ 8.02 Number of Units Outstanding, End of Period -- 21,246 108,292 112,689 AIM V.I. HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.31 $ 11.22 $ 8.94 Accumulation Unit Value, End of Period $10.31 $ 11.22 $ 8.94 $ 8.36 Number of Units Outstanding, End of Period -- 185 10,889 11,220 AIM V.I. INTERNATIONAL GROWTH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.00 $ 10.68 $ 16.30 $ 11.81 Accumulation Unit Value, End of Period $10.68 $ 16.30 $ 11.81 $ 8.89 Number of Units Outstanding, End of Period -- 2,943 3,483 3,178 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $10.00 $ 11.51 $ 14.73 $ 12.37 Accumulation Unit Value, End of Period $11.51 $ 14.73 $ 12.37 $ 10.65 Number of Units Outstanding, End of Period -- 34,288 159,570 160,343 DREYFUS SOCIALLY RESPONSIBLE GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.77 $ 14.33 $ 12.55 Accumulation Unit Value, End of Period $10.77 $ 14.33 $ 12.55 $ 9.56 Number of Units Outstanding, End of Period -- 5,493 7,121 6,350 49 DREYFUS STOCK INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.87 $ 12.90 $ 11.52 Accumulation Unit Value, End of Period $10.87 $ 12.90 $ 11.52 $ 9.96 Number of Units Outstanding, End of Period -- 19,955 21,326 19,024 DREYFUS VIF GROWTH & INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.64 $ 12.40 $ 11.75 Accumulation Unit Value, End of Period $10.64 $ 12.40 $ 11.75 $ 10.89 Number of Units Outstanding, End of Period -- 3,983 3,676 3,568 DREYFUS VIF MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.04 $ 10.36 $ 10.81 Accumulation Unit Value, End of Period $10.04 $ 10.36 $ 10.81 $ 11.06 Number of Units Outstanding, End of Period -- 577 489 16,157 DREYFUS VIF SMALL COMPANY STOCK SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.65 $ 11.60 $ 12.39 Accumulation Unit Value, End of Period $10.65 $ 11.60 $ 12.39 $ 12.01 Number of Units Outstanding, End of Period -- 2,542 2,538 2,047 FIDELITY VIP CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.65 $ 14.26 $ 13.10 Accumulation Unit Value, End of Period $11.65 $ 14.26 $ 13.10 $ 11.32 Number of Units Outstanding, End of Period -- 32,161 13,1791 134,375 FIDELITY VIP EQUITY-INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.47 $ 10.96 $ 11.70 Accumulation Unit Value, End of Period $10.47 $ 10.96 $ 11.70 $ 10.94 Number of Units Outstanding, End of Period -- 11,621 45,849 55,016 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.19 $ 15.15 $ 13.27 Accumulation Unit Value, End of Period $11.19 $ 15.15 $ 13.27 $ 10.76 Number of Units Outstanding, End of Period -- 22,088 151,189 149,935 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 11.10 $ 8.47 Accumulation Unit Value, End of Period $10.43 $ 11.10 $ 8.47 $ 7.36 Number of Units Outstanding, End of Period -- 3,667 31,190 24,128 GOLDMAN SACHS VIT CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.09 $ 13.92 $ 12.61 Accumulation Unit Value, End of Period $11.09 $ 13.92 $ 12.61 $ 10.62 Number of Units Outstanding, End of Period -- 2,449 4,173 2,958 GOLDMAN SACHS CORE/SM/ SMALL CAP EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.59 $ 12.30 $ 12.32 Accumulation Unit Value, End of Period $10.59 $ 12.30 $ 12.32 $ 12.67 Number of Units Outstanding, End of Period -- 17,918 18,069 17,077 GOLDMAN SACHS VIT CORE/SM/ U.S. EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.89 $ 13.39 $ 11.91 Accumulation Unit Value, End of Period $10.89 $ 13.39 $ 11.91 $ 10.32 Number of Units Outstanding, End of Period -- 20,515 23,250 20,215 GOLDMAN SACHS VIT GLOBAL INCOME SUB-ACCOUNT (3) Accumulation Unit Value, Beginning of Period $10.00 $ 9.66 $ 9.87 $ 10.60 Accumulation Unit Value, End of Period $ 9.66 $ 9.87 $ 10.60 10.94 Number of Units Outstanding, End of Period -- -- -- -- GOLDMAN SACHS VIT GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 9.93 $ 10.41 $ 9.76 Accumulation Unit Value, End of Period $ 9.93 $ 10.41 $ 9.76 $ 8.71 Number of Units Outstanding, End of Period -- 2,081 2,047 1,386 GOLDMAN SACHS VIT INTERNATIONAL EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.84 $ 14.18 $ 12.12 Accumulation Unit Value, End of Period $10.84 $ 14.18 $ 12.12 $ 9.27 Number of Units Outstanding, End of Period -- -- 1,812 1,812 50 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.94 $ 20.78 $ 16.44 Accumulation Unit Value, End of Period $11.94 $ 20.78 $ 16.44 $ 10.76 Number of Units Outstanding, End of Period -- 19,189 64,075 65,183 MFS INVESTORS TRUST SERIES Accumulation Unit Value, Beginning of Period $10.00 $ 10.81 $ 11.35 $ 11.16 Accumulation Unit Value, End of Period $10.81 $ 11.35 $ 11.16 $ 9.23 Number of Units Outstanding, End of Period -- 4,808 11,160 9,277 MFS NEW DISCOVERY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.38 $ 19.42 $ 18.74 Accumulation Unit Value, End of Period $11.38 $ 19.42 $ 18.74 $ 17.51 Number of Units Outstanding, End of Period -- 707 1,509 913 NEUBERGER BERMAN AMT GUARDIAN SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.80 $ 12.22 $ 12.17 Accumulation Unit Value, End of Period $10.80 $ 12.22 $ 12.17 $ 11.79 Number of Units Outstanding, End of Period -- 1,924 1,415 1,315 NEUBERGER BERMAN AMT MID CAP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 12.12 $ 18.36 $ 16.72 Accumulation Unit Value, End of Period $12.12 $ 18.36 $ 16.72 $ 12.40 Number of Units Outstanding, End of Period -- 64 1,853 1,852 NEUBERGER BERMAN AMT PARTNERS SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.30 $ 10.89 $ 10.79 Accumulation Unit Value, End of Period $10.30 $ 10.89 $ 10.79 $ 10.32 Number of Units Outstanding, End of Period -- 17,996 16,330 16,031 VAN KAMPEN UIF CORE PLUS FIXED INCOME SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.15 $ 9.82 $ 10.75 Accumulation Unit Value, End of Period $10.15 $ 9.82 $ 10.75 $ 11.40 Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF EQUITY GROWTH SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.94 $ 15.02 $ 13.04 Accumulation Unit Value, End of Period $10.94 $ 15.02 $ 13.04 $ 10.90 Number of Units Outstanding, End of Period -- 7,464 11,011 9,643 VAN KAMPEN UIF GLOBAL EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.42 $ 10.69 $ 11.72 Accumulation Unit Value, End of Period $10.42 $ 10.69 $ 11.72 $ 10.72 Number of Units Outstanding, End of Period -- 245 363 244 VAN KAMPEN UIF INTERNATIONAL MAGNUM SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.38 $ 12.79 $ 11.03 Accumulation Unit Value, End of Period $10.38 $ 12.79 $ 11.03 $ 9.43 Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF MID-CAP VALUE SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.96 $ 13.01 $ 14.18 Accumulation Unit Value, End of Period $10.96 $ 13.01 $ 14.18 $ 13.52 Number of Units Outstanding, End of Period -- 1,788 4,089 2,772 VAN KAMPEN UIF U.S. REAL ESTATE SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 10.17 $ 9.86 $ 12.55 Accumulation Unit Value, End of Period $10.17 $ 9.86 $ 12.55 14.00 Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF VALUE SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $10.00 $ 9.95 $ 9.61 $ 11.82 Accumulation Unit Value, End of Period $ 9.95 $ 9.61 $ 11.82 $ 11.89 Number of Units Outstanding, End of Period -- 17,465 16,697 15,426
WITH ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER *The Contracts were first offered on November 10, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.27% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before November 10, 1998. 1. Effective May 1, 2002 AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to 51 the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. 2. Effective May 1, 2002 the Portfolios have been re-branded and have changed names from Morgan Stanley UIF Fixed Income Portfolio to Van Kampen UIF Core Plus Fixed Income Portfolio, Morgan Stanley UIF Equity Growth Portfolio to Van Kampen UIF Equity Growth Portfolio, Morgan Stanley UIF Global Value Equity Porfolio to Van Kampen UIF Global Value Equity Portfolio, Morgan Stanley UIF International Magnum Portfolio to Van Kampen UIF International Magnum Portfolio, Morgan Stanley UIF Mid Cap Value Portfolio to Van Kampen UIF Mid Cap Value Portfolio, Morgan Stanley UIF U.S. Real Estate Portfolio to Van Kampen UIF U.S. Real Estate Portfolio and Morgan Stanley UIF Value Portfolio to Van Kampen UIF Value Portfolio. 3. The Goldman Sachs VIT Global Income Sub-Account will not be available to new investors beginning on May 1, 2001. 52 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. *If a U.S. Treasury Note ("Note") with a maturity of the Guarantee Period is not available, we will determine an appropriate interest rate based on an interpolation of the next shortest duration and next longest duration Notes. The Market Value Adjustment factor is determined from the following formula: .9 X [I-(J + .0025)] 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. 53 EXAMPLES OF MARKET VALUE ADJUSTMENT -------------------------------------------------------------------------------- Purchase Payment: $10,000 allocated to a Guarantee Period Guarantee Period: 5 years Interest Rate: 4.50% Full Surrender: End of Contract Year 3 NOTE: These examples assume that premium taxes are not applicable.
Step 1. Calculate Contract Value at $10,000.00 X (1.045)/3 /= $11,411.66 End of Contract Year 3: Step 2. Calculate the Free Withdrawal .15 X ($10,000.00) = $1,500.00 Amount: I = 4.5% J = 4.2% Step 3. Calculate the Withdrawal N = 730 days =2 Charge: -------- 365 days Market Value Adjustment Factor: .9 X [I - (J + .0025)] X N = .9 X [.045 - Step 4. Calculate the Market Value (.042 + .0025)] X 2 = .0009 Adjustment: Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: = .0009 X ($11,411.66 - $1,500.00) = $8.92 Step 5. Calculate the amount received by a Contract Owner as a result of full withdrawal at the end of Contract Year $11,411.66 + $8.92 = $11,420.58 3:
EXAMPLE 1 (ASSUMES DECLINING INTEREST RATES) 54 EXAMPLE 2: (ASSUMES RISING INTEREST RATES)
Step 1. Calculate Contract Value at $10,000.00 X (1.045)/3 /= $11,411.66 End of Contract Year 3: Step 2. Calculate the Free Withdrawal .15 X ($10,000.00) = $1,500.00 Amount: I = 4.5% J = 4.8% Step 3. Calculate the Withdrawal N = 730 days =2 Charge: -------- 365 days Market Value Adjustment Factor: .9 X [I - (J + .0025)] X N = .9 X [.045 - Step 4. Calculate the Market Value (.048 + .0025)] X 2 = -.0099 Adjustment: Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: = -.0099 X ($11,411.66 - $1,500.00) = -$98.13 Step 5. Calculate the amount received by a Contract Owner as a result of full withdrawal at the end of Contract Year $11,411.66 - $98.13 = $11,313.53 3:
55 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- DESCRIPTION -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- EXPERTS -------------------------------------------------------------------------------- FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 56 677 - Green THE ALLSTATE\\(R)\\ PROVIDER VARIABLE ANNUITY (formerly referred to as "The Glenbrook Provider Variable Annuity") GLENBROOK LIFE AND ANNUITY COMPANY 300 N. MILWAUKEE AVE. VERNON HILLS, IL 60061 TELEPHONE NUMBER: 1-800-755-5275 PROSPECTUS DATED MAY 1, 2002 ------------------------------------------------------------------------------- GLENBROOK LIFE AND ANNUITY COMPANY ("GLENBROOK LIFE") is offering the Allstate\\(R)\\ Provider Variable Annuity, an individual 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 43 "INVESTMENT ALTERNATIVEs". The investment alternatives include 3 fixed account options ("FIXED ACCOUNT OPTIONS") and 40 variable sub-accounts ("VARIABLE SUB-ACCOUNTS") of the GLENBROOK LIFE Multi-Manager Variable Account ("VARIABLE ACCOUNT"). Each Variable Sub-Account invests exclusively in shares of one of the portfolios ("PORTFOLIOS") of the following mutual funds ("FUNDS"):
AIM VARIABLE INSURANCE FUNDS MFS(R) VARIABLE INSURANCE TRUST/SM/ FEDERATED INSURANCE SERIES OPPENHEIMER VARIABLE ACCOUNT FUNDS FIDELITY VARIABLE INSURANCE PRODUCTS PUTNAM VARIABLE ACCOUNT FUNDS FUND STI CLASSIC VARIABLE TRUST FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Not all of the Funds and/or Portfolios, however, may be available with your Contract. You should check with your representative for further information on the availability of Funds and/or Portfolios. Your annuity application will list all available Portfolios. WE (GLENBROOK LIFE) have filed a Statement of Additional Information, dated May 1, 2002, 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 59 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 UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A FEDERAL CRIME. IMPORTANT THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL NOTICES 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 TABLE OF CONTENTS -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- OVERVIEW -------------------------------------------------------------------------------- Important Terms 3 -------------------------------------------------------------------------------- The Contract at a Glance 4 -------------------------------------------------------------------------------- How the Contract Works 6 -------------------------------------------------------------------------------- Expense Table 7 -------------------------------------------------------------------------------- Financial Information 15 -------------------------------------------------------------------------------- CONTRACT FEATURES -------------------------------------------------------------------------------- The Contract 16 -------------------------------------------------------------------------------- Purchases 17 -------------------------------------------------------------------------------- Contract Value 18 -------------------------------------------------------------------------------- Investment Alternatives 19 -------------------------------------------------------------------------------- The Variable Sub-Accounts 19 -------------------------------------------------------------------------------- The Fixed Account Options 21 -------------------------------------------------------------------------------- Transfers 23 -------------------------------------------------------------------------------- Expenses 26 -------------------------------------------------------------------------------- Access To Your Money 28 -------------------------------------------------------------------------------- Income Payments 28 -------------------------------------------------------------------------------- DEATH BENEFITS 30 -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- OTHER INFORMATION -------------------------------------------------------------------------------- More Information: 34 -------------------------------------------------------------------------------- GLENBROOK LIFE 34 -------------------------------------------------------------------------------- The Variable Account 34 -------------------------------------------------------------------------------- The Portfolios 35 -------------------------------------------------------------------------------- The Contract 35 -------------------------------------------------------------------------------- Qualified Plans 36 -------------------------------------------------------------------------------- Legal Matters 36 -------------------------------------------------------------------------------- Taxes 37 -------------------------------------------------------------------------------- Annual Reports and Other Documents 42 -------------------------------------------------------------------------------- Experts 42 -------------------------------------------------------------------------------- Performance Information 42 -------------------------------------------------------------------------------- APPENDIX A-ACCUMULATION UNIT VALUES 44 -------------------------------------------------------------------------------- APPENDIX B-MARKET VALUE ADJUSTMENT EXAMPLE 60 -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 63 -------------------------------------------------------------------------------- 2 IMPORTANT TERMS -------------------------------------------------------------------------------- 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. PAGE -------------------------------------------------------------------------------- Accumulation Phase 6 -------------------------------------------------------------------------------- Accumulation Unit 18 -------------------------------------------------------------------------------- Accumulation Unit Value 18 -------------------------------------------------------------------------------- Anniversary Values 33 -------------------------------------------------------------------------------- Annuitant 16 -------------------------------------------------------------------------------- Automatic Additions Plan 17 -------------------------------------------------------------------------------- Automatic Portfolio Rebalancing Program 24 -------------------------------------------------------------------------------- Beneficiary 16 -------------------------------------------------------------------------------- Cancellation Period 18 -------------------------------------------------------------------------------- Contract* 16 -------------------------------------------------------------------------------- Contract Anniversary 5 -------------------------------------------------------------------------------- Contract Owner (You) 16 -------------------------------------------------------------------------------- Contract Value 18 -------------------------------------------------------------------------------- Contract Year 4 -------------------------------------------------------------------------------- Death Benefit Anniversary 32 -------------------------------------------------------------------------------- Death Proceeds 32 -------------------------------------------------------------------------------- Dollar Cost Averaging Program 24 -------------------------------------------------------------------------------- Due Proof of Death 32 -------------------------------------------------------------------------------- Enhanced Death Benefit Rider 32 -------------------------------------------------------------------------------- Enhanced Death and Income Benefit Combination Rider 33 -------------------------------------------------------------------------------- Enhanced Death and Income Benefit Combination Rider II 33 -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- Fixed Account Options 21 -------------------------------------------------------------------------------- Free Withdrawal Amount 26 -------------------------------------------------------------------------------- Funds 1 -------------------------------------------------------------------------------- GLENBROOK LIFE ("We" or "Us") 34 -------------------------------------------------------------------------------- Guarantee Periods 21 -------------------------------------------------------------------------------- Income Plan 28 -------------------------------------------------------------------------------- Investment Alternatives 19 -------------------------------------------------------------------------------- Issue Date 6 -------------------------------------------------------------------------------- Market Value Adjustment 23 -------------------------------------------------------------------------------- Payout Phase 6 -------------------------------------------------------------------------------- Payout Start Date 28 -------------------------------------------------------------------------------- Portfolios 35 -------------------------------------------------------------------------------- Qualified Contracts 39 -------------------------------------------------------------------------------- SEC 1 -------------------------------------------------------------------------------- Settlement Value 32 -------------------------------------------------------------------------------- Systematic Withdrawal Program 28 -------------------------------------------------------------------------------- Valuation Date 17 -------------------------------------------------------------------------------- Variable Account 34 -------------------------------------------------------------------------------- Variable Sub-Account 19 -------------------------------------------------------------------------------- * In certain states the Contract is available only as a group Contract. If you purchase a group Contract, we will issue you a certificate that represents your ownership and that summarizes the provisions of the group Contract. References to "Contract" in this prospectus include certificates, unless the context requires otherwise. 3 THE CONTRACT AT A GLANCE -------------------------------------------------------------------------------- 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 $3,000 ($2,000 for "QUALIFIED CONTRACTS", which are Contracts issued within QUALIFIED PLANS). You can add to your Contract as often and as much as you like, but each payment must be at least $50. ------------------------------------------------------------------------------- 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 1.15% of average daily net assets (1.37% if you select the ENHANCED DEATH BENEFIT RIDER; 1.59% if you selected the ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER (for Contracts issued before September 22, 2000); and 1.65% if you select the ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER II (for Contracts issued on or after September 22, 2000) .Annual contract maintenance charge of $35 (with certain exceptions) .Withdrawal charges ranging from 0% to 6% of purchase 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 Portfolio pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. ------------------------------------------------------------------------------- INVESTMENT The Contract offers 43 investment alternatives ALTERNATIVES including: .3 Fixed Account Options (which credit interest at rates we guarantee) .40 Variable Sub-Accounts investing in Portfolios offering professional money management by these investment advisers: . AIM Advisors, Inc. . Federated Investment Management Company . Fidelity Management & Research Company . Franklin Advisers, Inc. . MFS Investment Management(R) . Oppenheimer Funds, Inc. . Putnam Investment Management Group(R) . Templeton Global Advisors Limited . Trusco Capital Management, 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 1-800-755-5275. ------------------------------------------------------------------------------- 4 SPECIAL SERVICES For your convenience, we offer these special services: . AUTOMATIC PORTFOLIO REBALANCING PROGRAM . AUTOMATIC ADDITIONS PROGRAM . DOLLAR COST AVERAGING PROGRAM . SYSTEMATIC WITHDRAWAL PROGRAM 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 or the ANNUITANT (if the Contract is owned by a non-natural person) die before the PAYOUT START DATE, we will pay the death benefit described in the Contract. We offer an Enhanced Death Benefit Rider and an Enhanced Death and Income Benefit Combination Rider II. ------------------------------------------------------------------------------- TRANSFERS Before the Payout Start Date, you may transfer your Contract value ("CONTRACT VALUE") among the investment alternatives, with certain restrictions. Transfers to a Guarantee Period of the Fixed Account must be at least $50. 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 any time prior to the Payout Start Date. In general, you must withdraw at least $50 at a time. Full or partial withdrawals are available under limited circumstances on or after the Payout Start Date. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59/1/2/, may be subject to an additional 10% federal tax penalty. A withdrawal charge and MARKET VALUE ADJUSTMENT also may apply. -------------------------------------------------------------------------------
5 HOW THE CONTRACT WORKS -------------------------------------------------------------------------------- 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 43 investment alternatives and generally 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 any of the 3 Fixed Account Options, you will earn a fixed rate of interest that we declare periodically. If you invest in any of the 40 Variable Sub-Accounts, your investment return will vary up or down depending on the performance of the corresponding Portfolios. 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___ . 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 Portfolios. 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. LOGO 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 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 1-800-755-5275 if you have any questions about how the Contract works. 6 EXPENSE TABLE -------------------------------------------------------------------------------- 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 that may be imposed by the state where you reside. For more information about Variable Account expenses, see "Expenses," below. For more information about Portfolio expenses, please refer to the accompanying prospectuses for the Funds. CONTRACT OWNER TRANSACTION EXPENSES Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years Since We Received the Purchase 0 1 2 3 4 5 6+ Payment Being Withdrawn -------------------------------------------------------------------------------------------- Applicable Charge 6% 6% 5% 5% 4% 3% 0% -------------------------------------------------------------------------------------------- Annual Contract Maintenance Charge $35.00** -------------------------------------------------------------------------------------------- Transfer Fee $10.00*** --------------------------------------------------------------------------------------------
*Each Contract Year, you may withdraw up to 15% of your aggregate purchase payments without incurring a withdrawal charge. ** 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 portfolio rebalancing. We are currently waiving the transfer fee. VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT) WITHOUT THE ENHANCED DEATH BENEFIT RIDER, ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER, OR ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER II
Mortality and Expense Risk Charge 1.05% ----------------------------------------------------------------------------------- Administrative Expense Charge 0.10% ----------------------------------------------------------------------------------- Total Variable Account Annual Expense 1.15% -----------------------------------------------------------------------------------
WITH THE ENHANCED DEATH BENEFIT RIDER
Mortality and Expense Risk Charge 1.27% ------------------------------------------------------------------------------- Administrative Expense Charge 0.10% ------------------------------------------------------------------------------- Total Variable Account Annual Expense 1.37% -------------------------------------------------------------------------------
WITH THE ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER (FOR CONTRACTS ISSUED BEFORE SEPTEMBER 22, 2000)
Mortality and Expense Risk Charge 1.49% ------------------------------------------------------------------------------- Administrative Expense Charge 0.10% ------------------------------------------------------------------------------- Total Variable Account Annual Expense 1.59% -------------------------------------------------------------------------------
WITH THE ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER II (FOR CONTRACTS ISSUED ON OR AFTER SEPTEMBER 22, 2000.
Mortality and Expense Risk Charge 1.55% ------------------------------------------------------------------------------- Administrative Expense Charge 0.10% ------------------------------------------------------------------------------- Total Variable Account Annual Expense 1.65% -------------------------------------------------------------------------------
7 PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE DAILY NET ASSETS)
Total Portfolio Management Rule 12b-1 Other Annual Portfolio Fees Fees Expenses Expenses ---------------------------------------------------------------------------------------------------------------------- AIM V.I. Balanced Fund - Series 1 0.75% N/A 0.37% 1.12% ---------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund - Series 1 0.61% N/A 0.24% 0.85% ---------------------------------------------------------------------------------------------------------------------- AIM V.I. Core Equity Fund - Series 1 (2) 0.61% N/A 0.21% 0.82% ---------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund - Series 1 0.62% N/A 0.26% 0.88% ---------------------------------------------------------------------------------------------------------------------- AIM V.I. High Yield Fund Series 1 0.63% N/A 0.66% 1.29% ---------------------------------------------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund - Series 1 (2) 0.60% N/A 0.25% 0.85% ---------------------------------------------------------------------------------------------------------------------- Federated Prime Money Fund II (3,4) 0.75% N/A 0.16% 0.91% ---------------------------------------------------------------------------------------------------------------------- Fidelity VIP Contrafund Portfolio Initial Class (5) 0.58% N/A 0.10% 0.68% ---------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio Initial Class (5) 0.48% N/A 0.10% 0.58% ---------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio Initial Class (5) 0.58% N/A 0.10% 0.68% ---------------------------------------------------------------------------------------------------------------------- Fidelity VIP High Income Portfolio Initial Class (5) 0.58% N/A 0.13% 0.71% ---------------------------------------------------------------------------------------------------------------------- Fidelity VIP Index 500 Portfolio Initial Class (6) 0.24% N/A 0.11% 0.35% ---------------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio Initial Class (5) 0.73% N/A 0.19% 0.92% ---------------------------------------------------------------------------------------------------------------------- MFS Emerging Growth Series Initial Class (7) 0.75% N/A 0.12% 0.87% ---------------------------------------------------------------------------------------------------------------------- MFS Investors Trust Series - Initial Class (7) 0.75% N/A 0.15% 0.90% ---------------------------------------------------------------------------------------------------------------------- MFS New Discovery Series - Initial Class (7,8) 0.90% N/A 0.16% 1.06% ---------------------------------------------------------------------------------------------------------------------- MFS Research Series - Initial Class (7) 0.75% N/A 0.15% 0.90% ---------------------------------------------------------------------------------------------------------------------- MFS Utilities Series - Initial Class (7) 0.75% N/A 0.18% 0.93% ---------------------------------------------------------------------------------------------------------------------- Oppenheimer Aggressive Growth Fund/VA 0.64% N/A 0.04% 0.68% ---------------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund/VA 0.64% N/A 0.04% 0.68% ---------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA 0.64% N/A 0.06% 0.70% ---------------------------------------------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income Fund/VA 0.68% N/A 0.05% 0.73% ---------------------------------------------------------------------------------------------------------------------- Oppenheimer Multiple Strategies Fund/VA 0.72% N/A 0.04% 0.76% ---------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA (9) 0.74% N/A 0.05% 0.79% ---------------------------------------------------------------------------------------------------------------------- Putnam VT Diversified Income Fund - Class IB (10) 0.68% .025% 0.11% 1.04% ---------------------------------------------------------------------------------------------------------------------- Putnam VT Growth and Income Fund - Class IB (10) 0.46% .025% 0.05% 0.76% ---------------------------------------------------------------------------------------------------------------------- Putnam VT Growth Opportunities Fund - Class IB (10) 0.70% .025% 0.15% 1.10% ---------------------------------------------------------------------------------------------------------------------- Putnam VT Health Sciences Fund - Class IB (10) 0.70% .025% 0.09% 1.04% ---------------------------------------------------------------------------------------------------------------------- Putnam VT New Value Fund - Class IB (10) 0.70% .025% 0.09% 1.04% ---------------------------------------------------------------------------------------------------------------------- Putnam VT Voyager Fund II - Class IB (10) 0.70% .025% 0.92% 1.87% ---------------------------------------------------------------------------------------------------------------------- STI Capital Appreciation Fund (11) 1.15% N/A 0.29% 1.44% ---------------------------------------------------------------------------------------------------------------------- STI Growth and Income Fund (12) 0.00% N/A 1.20% 1.20% ---------------------------------------------------------------------------------------------------------------------- STI International Equity Fund (11) 1.25% N/A 1.07% 2.32% ---------------------------------------------------------------------------------------------------------------------- STI Investment Grade Bond Fund (11) 0.74% N/A 0.58% 1.32% ---------------------------------------------------------------------------------------------------------------------- STI Mid-Cap Equity Fund (11) 1.15% N/A 0.51% 1.66% ---------------------------------------------------------------------------------------------------------------------- STI Quality Growth Stock Fund (12) 0.00% N/A 1.30% 1.30% ---------------------------------------------------------------------------------------------------------------------- STI Small Cap Value Equity Fund (11) 1.15% N/A 0.76% 1.91% ---------------------------------------------------------------------------------------------------------------------- STI Value Income Stock Fund (11) 0.80% N/A 0.32% 1.12% ---------------------------------------------------------------------------------------------------------------------- Templeton Global Income Securities Fund - Class 2 (13) 0.63% 0.25% 0.08% 0.96% ---------------------------------------------------------------------------------------------------------------------- Templeton Growth Securities Fund- Class 2 (13) 0.80% 0.25% 0.05% 1.10% ----------------------------------------------------------------------------------------------------------------------
(1) 1. Figures shown in the Table are for the year ended December 31, 2001 (except as otherwise noted). 2. Effective May 1, 2002 the AIM V.I. Growth and Income Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund and AIM V.I. Premier Equity Fund, respectively. 3. "Management Fees" include a shareholder services fee of 0.25%. 8 4. Although not contractually obligated to do so, the shareholder services provider waived certain amounts. The Portfolio did not pay or accrue the shareholder services fee during the fiscal year ended December 31, 2001. Additionally, the Portfolio has no present intention of paying or accruing the shareholder services fee during the year ending December 31, 2002. "Total Portfolio Annual Expenses" listed in the table above reflect gross ratios prior to any voluntary waivers/reimbursements of expenses. Had this fee reduction been taken into account, "Total Portfolio Annual Expenses" would have been lower and would equal 0.66%. 5. Actual "Total Portfolio Annual Expenses" were lower because a portion of the brokerage commissions that the Portfolios paid was used to reduce the Portfolios' expenses. In addition, through arrangements with the Portfolios' custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the Portfolios' custodian expenses. These offsets may be discontinued at any time. Had these offsets been taken into account, "Total Portfolio Annual Expenses" would have been 0.64% for Contrafund Portfolio, 0.57% for Equity-Income Portfolio, 0.65% for Growth Portfolio, 0.70% for High Income Portfolio and 0.87% for Overseas Portfolio. 6. The Portfolio's manager has voluntarily agreed to reimburse expenses to the extent that "Total Portfolio Annual Expenses" (excluding interest, taxes, certain securities lending costs, brokerage commissions and extraordinary expenses) exceed 0.28%. This arrangement can be discontinued by the Portfolios' manager at any time. Including this reimbursement, the "Management Fees", "Other Expenses" and "Total Portfolio Annual Expenses" in 2001 were 0.24%, 0.04% and 0.28%, respectively. 7. Each Portfolio has an expense offset arrangement which reduces the Portfolios' custodian fee based upon the amount of cash maintained by the Portfolio with its custodian and dividend disbursing agent. Each Portfolio may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the Portfolios' expenses. "Other Expenses" do not take these expense reductions into account, and are therefore higher than the actual expenses of the Portfolios. Had these fee reductions been taken into account, "Total Portfolio Annual Expenses" would have been lower and would equal 0.86% for Emerging Growth Series, 0.89% for Investors Trust Series, 1.05% for New Discovery Series, 0.89 for Research Series and 0.92% for Utilities Series. 8. MFS has contractually agreed, subject to reimbursement, to bear expenses for the Portfolio such that "Other Expenses" (after taking into account the expense offset arrangement described in note 7 above), do not exceed 0.15% of the average daily net assets of the Portfolios during the current fiscal year. Without these fee arrangements "Total Portfolio Annual Expenses" would have been 1.09%. These contractual fee arrangements will continue at least until May 1, 2003, unless changed with the consent of the board of trustees which oversee the Portfolios. 9. Oppenheimer Funds, Inc. (OFI) will reduce the management fee by 0.10% as long as the fund's trailing 12-month performance at the end of the quarter is in the fifth Lipper peer-group quintile; and by 0.05% as long as it is in the fourth quintile. If the fund emerges from a "penalty box" position for a quarter but then slips back in the next quarter, OFI will reinstate the waiver. The waiver is voluntary and may be terminated by the Manager at any time. 10. Restated to reflect an increase in Rule 12b-1 Fees effective April 30, 2001. Actual Rule 12b-1 Fees during the most recent fiscal year were 0.22%. See the Funds' prospectus for more information about Rule 12b-1 fees payable under the Funds' distribution plan. 11. "Total Portfolio Annual Expenses" listed in the table above reflect gross ratios prior to any voluntary waivers/ reimbursements of expenses. The Investment Adviser, has voluntarily agreed to reduce or limit certain other expenses to the extent "Total Portfolio Annual Expenses" exceed 1.15% for Capital Appreciation Fund, 1.60% for International Equity Fund, 0.75% for Investment Grade Bond Fund, 1.15% for Mid-Cap Equity Fund, 1.20% for Small Cap Value Equity Fund and 0.95% for Value Income Stock Fund. This arrangement can be discontinued by the Adviser at any time. With these limitations taken into consideration, "Management Fees", "Rule 12b-1 Fees", "Other Expenses" and "Total Portfolio Annual Expenses" were as follows:
Total Portfolio Management Rule 12b-1 Other Annual Portfolio Fees Fees Expenses Expenses ---------------------------------------------------------------------------------------- STI Capital Appreciation Fund 0.86% N/A 0.29% 1.15% ---------------------------------------------------------------------------------------- STI International Equity Fund 0.53% N/A 1.07% 1.60% ---------------------------------------------------------------------------------------- STI Investment Grade Bond Fund 0.17% N/A 0.58% 0.75% ---------------------------------------------------------------------------------------- STI Mid-Cap Equity Fund 0.64% N/A 0.51% 1.15% ---------------------------------------------------------------------------------------- STI Small Cap Value Equity Fund 0.44% N/A 0.76% 1.20% ---------------------------------------------------------------------------------------- STI Value Income Stock Fund 0.63% N/A 0.32% 0.95% ----------------------------------------------------------------------------------------
9 12. The investment Adviser, has agreed to waive its fee and/or reimburse expenses to the extent necessary to limit "Total Portfolio Annual Expenses" to 1.20% for Growth and Income Fund and 1.30% for Quality Growth Stock Fund. If at any point before May 1, 2005, it becomes unnecessary for the Adviser to make reimbursements, the Adviser may retain the difference between "Total Portfolio Annual Expenses" of either Portfolio and its expense cap to recapture any of its prior reimbursements. Without these reimbursements, "Management Fees", "Other Expenses" and "Total Portfolio Annual Expenses" would have been 0.90%, 2.32% and 3.22% for Growth and Income Fund and 1.00%, 4.47% and 5.47% for Quality Growth Stock Fund, respectively. 13. The Portfolio administration fee is paid indirectly through the management fee. The Portfolio's Class 2 distribution plan or "rule 12b-1 plan" is described in the Portfolio's prospectus. 10 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, .. 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, and .. elected the Enhanced Death and Income Benefit Combination Rider II. THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT. ASSUMES TERMINATION
Portfolio 1 Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------- AIM V.I. Balanced $80 $132 $177 $320 ------------------------------------------------------------------------------- AIM V.I. Capital Appreciation $77 $123 $164 $293 ------------------------------------------------------------------------------- AIM V.I.Core Equity $77 $123 $162 $290 ------------------------------------------------------------------------------- AIM V.I. Growth $78 $124 $165 $296 ------------------------------------------------------------------------------- AIM V.I. High Yield $82 $137 $186 $337 ------------------------------------------------------------------------------- AIM V.I. Premier Equity $77 $123 $164 $293 ------------------------------------------------------------------------------- Federated Prime Money Fund II $78 $125 $167 $299 ------------------------------------------------------------------------------- Fidelity VIP Contrafund $76 $118 $155 $276 ------------------------------------------------------------------------------- Fidelity VIP Equity-Income $75 $115 $150 $265 ------------------------------------------------------------------------------- Fidelity VIP Growth $76 $118 $155 $276 ------------------------------------------------------------------------------- Fidelity VIP High Income $76 $119 $156 $279 ------------------------------------------------------------------------------- Fidelity VIP Index 500 $72 $108 $138 $241 ------------------------------------------------------------------------------- Fidelity VIP Overseas $78 $126 $167 $300 ------------------------------------------------------------------------------- MFS Emerging Growth $78 $124 $165 $295 ------------------------------------------------------------------------------- MFS Investors Trust $78 $125 $166 $298 ------------------------------------------------------------------------------- MFS New Discovery $80 $130 $174 $314 ------------------------------------------------------------------------------- MFS Research $78 $125 $166 $298 ------------------------------------------------------------------------------- MFS Utilities $78 $126 $168 $301 ------------------------------------------------------------------------------- Oppenheimer Aggressive Growth $76 $118 $155 $276 ------------------------------------------------------------------------------- Oppenheimer Capital Appreciation $76 $118 $155 $276 ------------------------------------------------------------------------------- Oppenheimer Global Securities $76 $119 $156 $278 ------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income $76 $120 $157 $281 ------------------------------------------------------------------------------- Oppenheimer Multiple Strategies $76 $121 $159 $284 ------------------------------------------------------------------------------- Oppenheimer Strategic Bond $77 $122 $161 $287 ------------------------------------------------------------------------------- Putnam VT Diversified Income $79 $129 $173 $312 ------------------------------------------------------------------------------- Putnam VT Growth and Income $76 $121 $159 $284 ------------------------------------------------------------------------------- Putnam VT Growth Opportunities $80 $131 $176 $318 ------------------------------------------------------------------------------- Putnam VT Health Sciences $79 $129 $173 $312 ------------------------------------------------------------------------------- Putnam VT New Value $79 $129 $173 $312 ------------------------------------------------------------------------------- Putnam VT Voyager II $88 $154 $215 $391 ------------------------------------------------------------------------------- STI Capital Appreciation $83 $141 $193 $351 ------------------------------------------------------------------------------- STI Growth and Income $81 $134 $181 $328 ------------------------------------------------------------------------------- STI International Equity $92 $168 $236 $431 ------------------------------------------------------------------------------- STI Investment Grade Bond $82 $138 $187 $339 ------------------------------------------------------------------------------- STI Mid-Cap Equity $86 $148 $204 $371 ------------------------------------------------------------------------------- STI Quality Growth Stock $82 $137 $186 $337 ------------------------------------------------------------------------------- STI Small Cap Value Equity $88 $156 $216 $394 ------------------------------------------------------------------------------- STI Value Income Stock $80 $132 $177 $320 ------------------------------------------------------------------------------- 11 Templeton Global Income Securities $79 $127 $169 $304 ------------------------------------------------------------------------------- Templeton Growth Securities $80 $131 $176 $318 -------------------------------------------------------------------------------
12 EXAMPLE 2 Same assumptions as Example 1 above, except that you decided not to surrender your Contract, or you began receiving income payments for a specified period of at least 120 months, at the end of each period. ASSUMES NO TERMINATION
Portfolio 1 Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------- AIM V.I. Balanced $29 $ 89 $152 $320 ------------------------------------------------------------------------------- AIM V.I. Capital Appreciation $26 $ 81 $138 $293 ------------------------------------------------------------------------------- AIM V.I. Core Equity $26 $ 80 $137 $290 ------------------------------------------------------------------------------- AIM V.I. Growth $27 $ 82 $140 $296 ------------------------------------------------------------------------------- AIM V.I. High Yield $31 $ 95 $160 $337 ------------------------------------------------------------------------------- AIM V.I. Premier Equity $26 $ 81 $138 $293 ------------------------------------------------------------------------------- Federated Prime Money Fund II $27 $ 83 $141 $299 ------------------------------------------------------------------------------- Fidelity VIP Contrafund $25 $ 76 $129 $276 ------------------------------------------------------------------------------- Fidelity VIP Equity-Income $24 $ 73 $124 $265 ------------------------------------------------------------------------------- Fidelity VIP Growth $25 $ 76 $129 $276 ------------------------------------------------------------------------------- Fidelity VIP High Income $25 $ 77 $131 $279 ------------------------------------------------------------------------------- Fidelity VIP Index 500 $21 $ 66 $112 $241 ------------------------------------------------------------------------------- Fidelity VIP Overseas $27 $ 83 $142 $300 ------------------------------------------------------------------------------- MFS Emerging Growth $27 $ 82 $139 $295 ------------------------------------------------------------------------------- MFS Investors Trust $27 $ 83 $141 $298 ------------------------------------------------------------------------------- MFS New Discovery $29 $ 87 $149 $314 ------------------------------------------------------------------------------- MFS Research $27 $ 83 $141 $298 ------------------------------------------------------------------------------- MFS Utilities $27 $ 83 $142 $301 ------------------------------------------------------------------------------- Oppenheimer Aggressive Growth $25 $ 76 $129 $276 ------------------------------------------------------------------------------- Oppenheimer Capital Appreciation $25 $ 76 $129 $276 ------------------------------------------------------------------------------- Oppenheimer Global Securities $25 $ 76 $130 $278 ------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income $25 $ 77 $132 $281 ------------------------------------------------------------------------------- Oppenheimer Multiple Strategies $25 $ 78 $134 $284 ------------------------------------------------------------------------------- Oppenheimer Strategic Bond $26 $ 79 $135 $287 ------------------------------------------------------------------------------- Putnam VT Diversified Income $28 $ 87 $148 $312 ------------------------------------------------------------------------------- Putnam VT Growth and Income $25 $ 78 $134 $284 ------------------------------------------------------------------------------- Putnam VT Growth Opportunities $29 $ 89 $151 $318 ------------------------------------------------------------------------------- Putnam VT Health Sciences $28 $ 87 $148 $312 ------------------------------------------------------------------------------- Putnam VT New Value $28 $ 87 $148 $312 ------------------------------------------------------------------------------- Putnam VT Voyager II $37 $112 $189 $391 ------------------------------------------------------------------------------- STI Capital Appreciation $32 $ 99 $168 $351 ------------------------------------------------------------------------------- STI Growth and Income $30 $ 92 $156 $328 ------------------------------------------------------------------------------- STI International Equity $41 $125 $211 $431 ------------------------------------------------------------------------------- STI Investment Grade Bond $31 $ 95 $162 $339 ------------------------------------------------------------------------------- STI Mid-Cap Equity $35 $106 $179 $371 ------------------------------------------------------------------------------- STI Quality Growth Stock $31 $ 95 $161 $337 ------------------------------------------------------------------------------- STI Small Cap Value Equity $37 $113 $191 $394 ------------------------------------------------------------------------------- STI Value Income Stock $29 $ 89 $152 $320 ------------------------------------------------------------------------------- Templeton Global Income Securities $28 $ 84 $144 $304 ------------------------------------------------------------------------------- Templeton Growth Securities $29 $ 89 $151 $318 -------------------------------------------------------------------------------
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EARNINGS. YOUR ACTUAL EXPENSES MAY BE LESSER OR GREATER THAN THOSE SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LESSER OR GREATER THAN 5%, WHICH IS NOT GUARANTEED. THE ABOVE EXAMPLES ASSUME THE ELECTION OF THE ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER II WITH A MORTALITY AND EXPENSE RISK CHARGE OF 1.55%. IF NO RIDER WERE ELECTED, OR THE ENHANCED DEATH BENEFIT RIDER WERE ELECTED, THE EXPENSE FIGURES SHOWN ABOVE WOULD BE SLIGHTLY 13 LOWER. TO REFLECT THE CONTRACT MAINTENANCE CHARGE IN THE EXAMPLES, WE ESTIMATED AN EQUIVALENT PERCENTAGE CHARGE, BASED ON THE CURRENT AVERAGE CONTRACT SIZE OF $38,997. 14 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 the date the Contracts were first offered. 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 LIFE and the Variable Account appear in the Statement of Additional Information. 15 THE CONTRACT -------------------------------------------------------------------------------- CONTRACT OWNER The Glenbrook Life Provider Variable Annuity is a contract between you, the Contract Owner, and Glenbrook Life, a life insurance company. As the Contract Owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted): .. the investment alternatives during the Accumulation and Payout Phases, .. the amount and timing of your purchase payments and withdrawals, .. the programs you want to use to invest or withdraw money, .. the income payment plan you want to use to receive retirement income, .. the Annuitant (either yourself or someone else) on whose life the income payments will be based, .. the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract Owner dies, and .. any other rights that the Contract provides. If you die, any surviving Contract Owner, or, if none, the Beneficiary may exercise the rights and privileges provided to them by the Contract. The Contract cannot be jointly owned by both a non-natural person and a natural person. If the Contract Owner is a grantor trust, the Contract Owner will be considered a non-living person for purposes of the Death of Owner and Death of Annuitant provisions of your Contract. The maximum age of the oldest Contract Owner and Annuitant cannot exceed 90 as of the date we receive the completed application. You may change the Contract Owner at any time. We will provide a change of ownership form to be signed by you and filed with us. After we accept the form, the change of ownership will be effective as of the date you signed the form. Until we receive your written notice to change the Contract Owner, we are entitled to rely on the most recent ownership 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 the Contract Owner, you should deliver your written notice to us promptly. Each change is subject to any payment made by us or any other action we take before we accept the change. 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 within a qualified plan. See "Qualified Plans" on page___. Changing ownership of this Contract may cause adverse tax consequences and may not be allowed under qualified plans. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner. ANNUITANT The Annuitant is the individual 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. You may change the Annuitant at any time prior to the Payout Start Date (only if the Contract Owner is a natural person). Once we accept a change, it takes effect as of the date you signed the request. Each change is subject to any payment we make or other action we take before we accept it. You may designate a joint Annuitant, who is a second person on whose life income payments depend. We permit joint Annuitants only on or after the Payout Start Date. If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be: (i) the youngest Contract Owner; otherwise, (ii) the youngest Beneficiary. BENEFICIARY The Beneficiary is the person who may elect to receive the Death Proceeds or become the new Contract Owner, subject to the "Death of Owner" section below, 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. You may name one or more primary and contingent Beneficiaries when you apply for a Contract. The primary Beneficiary is the person who is first entitled to receive benefits under the Contract upon death of the sole surviving Contract Owner. A contingent Beneficiary is the person selected by the Contract Owner who will become the Beneficiary if all named primary Beneficiaries die before the death of the sole surviving Contract Owner. You may change or add Beneficiaries at any time, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed by you and filed with us. After we accept the form, the change of Beneficiary will be effective as of the date you signed the form. 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. Each change is subject to any payment made by us or any other action we take before we accept 16 the change. If you did not name a Beneficiary or, unless otherwise provided in the Beneficiary designation, if a named Beneficiary is no longer living and there are no other surviving primary or contingent 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 one or more Beneficiaries survive you (or survives the Annuitant, if the Contract Owner is not a natural person), we will divide the Death Proceeds among the surviving Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the Death Proceeds in equal amounts to the surviving Beneficiaries. If more than one Beneficiary shares in the Death Proceeds, each Beneficiary will be treated as a separate and independent owner of his or her respective share. Each Beneficiary will exercise all rights related to his or her share, including the sole right to select a payout option, subject to any restrictions previously placed upon the Beneficiary. Each Beneficiary may designate a Beneficiary(ies) for his or her respective share, but that designated Beneficiary(ies) will be restricted to the payout option chosen by the original Beneficiary. MODIFICATION OF THE CONTRACT Only a Glenbrook Life officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law. ASSIGNMENTYou may not assign any 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 payable to the Beneficiary. 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. PURCHASES -------------------------------------------------------------------------------- MINIMUM PURCHASE PAYMENTS Your initial purchase payment must be at least $3,000 ($2,000 for a Qualified Contract). All subsequent purchase payments must be $50 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 reserve the right to reject any application in our sole discretion. AUTOMATIC ADDITIONS PROGRAM You may make subsequent purchase payments by automatically transferring money from your bank account. Consult your representative for more 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 home office. 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 home office. We are open for business 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. 17 RIGHT TO CANCEL You may cancel the Contract by returning it to us within the Cancellation Period, which is the 20 day period after you receive the Contract, or a longer period should your state require it. 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. In states where we are required to refund purchase payments, we reserve the right during the Cancellation Period to invest any purchase payments you allocated to a Variable Sub-Account to the money market Variable Sub-Account available under the Contract. We will notify you if we do so. At the end of the Cancellation Period, you may then allocate your money to other Variable Sub-Accounts. If your Contract is qualified under Section 408 of the Internal Revenue Code, we will refund the greater of any purchase payments or the Contract Value. CONTRACT VALUE -------------------------------------------------------------------------------- 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 investment 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 or transfer 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 theVariable Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Variable Sub-Account allocated to your Contract. ACCUMULATION UNIT VALUE As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect: .. changes in the share price of the Portfolio 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 Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we calculate 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, the Enhanced Death and Income Benefit Combination Rider and the Enhanced Death and Income Benefit Combination Rider II described on pages___ . YOU SHOULD REFER TO THE PROSPECTUSES FOR THE PORTFOLIOS THAT ACCOMPANY THIS PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE. 18 INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS -------------------------------------------------------------------------------- You may allocate your purchase payments to up to 40 Variable Sub-Accounts. Each Variable Sub-Account invests in the shares of a corresponding Portfolio. Each Portfolio has its own investment objective(s) and policies. We briefly describe the Portfolios below. For more complete information about each Portfolio, including expenses and risks associated with the Portfolio, please refer to the accompanying prospectuses for the Portfolios. You should carefully review the Portfolio prospectuses before allocating amounts to the Variable Sub-Accounts.
PORTFOLIO: EACH PORTFOLIO SEEKS: INVESTMENT ADVISOR: ------------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS* ------------------------------------------------------------------------------- AIM V.I. Balanced Fund As high a total return as possible, consistent with preservation of capital ------------------------------------------------------- AIM V.I. Capital Growth of capital Appreciation Fund AIM ADVISORS, ------------------------------------------------------ -INC. AIM V.I. Core Equity Growth of capital with a Fund secondary objective of current income ------------------------------------------------------- AIM V.I. Growth Fund Growth of capital ------------------------------------------------------- AIM V.I. High Yield A high level of current ------------------------ Fund income ------------------------------------------------------- AIM V.I. Premier Long-term growth of capital; Equity Fund Income is Secondary objective ------------------------------------------------------- FEDERATED INSURANCE SERIES ------------------------------------------------------------------------------- Federated VIP Prime Current income consistent FEDERATED Money Fund II with the stability of INVESTMENT principal and Federated MANAGEMENT COMPANY Investment liquidity Management Company ------------------------------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND ------------------------------------------------------------------------------- Fidelity VIP Long-term capital Contrafund(TM) appreciation Portfolio ------------------------------------------------------- Fidelity VIP Reasonable income Equity-Income Portfolio ------------------------------------------------------- FIDELITY MANAGEMENT Fidelity VIP Growth Capital appreciation & Portfolio RESEARCH COMPANY ------------------------------------------------------- Fidelity VIP High High level of current income Income Portfolio while also considering growth of capital ------------------------------------------------------- Fidelity VIP Index 500 Investment results that Portfolio correspond to the total return of common stocks publicly traded in the United States, as represented by the ------------------------ S&P 500 ------------------------------------------------------- Fidelity VIP Overseas Long-term growth of capital Portfolio ------------------------------------------------------- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (VIP) -- CLASS 2 ------------------------------------------------------------------------------- Templeton Global High current income. Capital FRANKLIN Income Securities Fund appreciation is a secondary ADVISORS, INC. Consideration. ------------------------------------------------------------------------------- Templeton Growth Long-term capital growth TEMPLETON Securities Fund GLOBAL ADVISORS LIMITED ------------------------------------------------------------------------------- MFS-REGISTERED TRADEMARK--VARIABLE INSURANCE TRUST/SM/ ------------------------------------------------------------------------------- MFS Emerging Growth Long-term growth of capital MFS INVESTMENT Series MANAGEMENT ------------------------------------------------------------------------------- MFS Investors Trust Long-term growth of capital Series with a Secondary objective to seek reasonable current income ------------------------------------------------------------------------------- MFS New Discovery Capital Appreciation ------------------------------------------------------------------------------- MFS Research Series Long-term growth of capital and future income ------------------------------------------------------------------------------- MFS Utilities Capital growth and current income ------------------------------------------------------------------------------- 19 OPPENHEIMER VARIABLE ACCOUNT FUNDS ------------------------------------------------------------------------------- Oppenheimer Aggressive Capital appreciation OPPENHEIMER FUNDS, Growth Fund/VA INC. ------------------------------------------------------------------------------- Oppenheimer Capital Capital appreciation Appreciation Fund/VA ------------------------------------------------------------------------------- Oppenheimer Global Long-term capital Securities Fund/VA appreciation ------------------------------------------------------------------------------- Oppenheimer Main High total return, which Street Growth & Income includes growth in the value Fund/VA of its shares as well as current income, from equity and debt securities ------------------------------------------------------------------------------- Oppenheimer Multiple A high total investment Strategies Fund/VA return which includes current income and capital appreciation in the value of its shares. ------------------------------------------------------------------------------- Oppenheimer Strategic High level of current income Bond Fund/VA ------------------------------------------------------------------------------- PUTNAM VARIABLE ACCOUNT FUNDS-CLASS IB ------------------------------------------------------------------------------- Putnam VT Diversified High Current income PUTNAM Income Fund consistent with capital INVESTMENT Management, Inc. preservation ------------------------------------------------------------------------------- Putnam VT Growth and Capital growth and current Income Fund income ------------------------------------------------------------------------------- Putnam VT Growth Capital Appreciation Opportunities ------------------------------------------------------------------------------- Putnam VT Health Capital Appreciation Sciences Fund ------------------------------------------------------------------------------- Putnam VT New Value Long-term capital Fund appreciation ------------------------------------------------------------------------------- Putnam VT Voyager Long-term growth of capital Fund II ------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST ------------------------------------------------------------------------------- STI Capital Capital Appreciation Appreciation Fund ------------------------------------------------------- STI Growth and Income Long-term capital Fund appreciation with the secondary goal of current income ------------------------------------------------------- STI International Long-term capital Equity Fund appreciation ------------------------------------------------------- TRUSCO MANAGEMENT, STI Investment Grade High total return through INC. Bond Fund current income and capital appreciation, while preserving the principal amount invested ------------------------------------------------------- STI Mid-Cap Equity Capital appreciation Fund ------------------------------------------------------- STI Quality Growth Long-term capital Stock Fund appreciation with nominal dividend income ------------------------------------------------------- STI Small Cap Value Capital appreciation with the ------------------------ Equity Fund secondary goal of current income ------------------------------------------------------- STI Value Income Stock Current income with the Fund secondary goal of capital appreciation -------------------------------------------------------
*A portfolio's investment objective may be changed by the Fund's Board of Trustees without shareholder approval. Effective May 1, 2002, the Portfolio changed its name from AIM V.I. Growth and Income Fund to AIM V.I. Core Equity Fund. Effective May 1, 2002, the Portfolio changed its name from AIM V.I. Value Fund to AIM V.I. Premier Equity 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 PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE PORTFOLIOS 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. VARIABLE INSURANCE PORTFOLIOS MAY NOT BE MANAGED BY THE SAME PORTFOLIO MANAGERS WHO MANAGE RETAIL MUTUAL FUNDS WITH SIMILAR NAMES. THESE PORTFOLIOS ARE LIKELY TO DIFFER FROM SIMILARLY NAMED RETAIL FUNDS IN ASSETS, CASH FLOW, AND TAX MATTERS. ACCORDINGLY, THE HOLDINGS AND INVESTMENT RESULTS OF A VARIABLE INSURANCE PORTFOLIO CAN BE EXPECTED TO BE GREATER OR LESS THAN THE INVESTMENT RESULTS OF SIMILARLY NAMED RETAIL MUTUAL FUNDS. 20 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: 2 dollar cost averaging options, and the option to invest in one or more Guarantee Periods included in the Guaranteed Maturity Fixed Account. The Fixed Account Options may not be available in all states. Please consult with your 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 FIXED ACCOUNT OPTIONS DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. Purchase payments that you allocate to the Dollar Cost Averaging Fixed Account Option ("DCA Fixed Account Option") will earn interest for a one year period at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound over the year to the annual interest rate we guaranteed at the time of allocation. After the one year period, we will declare a renewal rate which we guarantee for a full year. Subsequent renewal dates will be every twelve months for each payment or transfer. For each purchase payment, the first transfer from the DCA Fixed Account must occur within one month of the date of payment. If we do not receive an allocation from you within one month of the date of payment, the payment plus associated interest will be transferred to the money marketVariable Sub-Account in equal monthly installments using the longest transfer period being offered at the time the purchase payment is made. Transferring Account Value to the money marketVariable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 24. We will follow your instructions in transferring amounts monthly from the DCA Fixed Account. However, you may not choose less than 3 or more than 36 monthly installments. Further, you must transfer each purchase payment and all its earnings out of this Option by means of dollar cost averaging within 36 months of payment. At the end of 36 months, any nominal amounts remaining will be allocated to the money marketVariable Sub-Account. No transfers are permitted into the DCA Fixed Account. SHORT TERM DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. You may establish a Short Term Dollar Cost Averaging Program by allocating purchase payments to the Short Term Dollar Cost Averaging Fixed Account Option ("Short Term DCA Fixed Account Option"). We will credit interest to purchase payments you allocate to this Option for up to one year at the current rate in effect at the time of allocation. For each purchase payment, the first transfer from the Short Term DCA Fixed Account must occur within one month of the date of payment. If we do not receive an allocation from you within one month of the date of payment, the payment plus associated interest will be transferred to the money marketVariable Sub-Account in equal monthly installments using the longest transfer period being offered at the time the purchase payment is made. Transferring Account Value to the money marketVariable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 24. You must transfer each purchase payment and all its earnings out of this Option by means of dollar cost averaging within 12 months. At the end of the transfer period, any nominal amounts remaining in the Short Term DCA Fixed Account will be allocated to the money market Variable Sub-Account. If you discontinue the Short Term DCA Fixed Account Option before the end of the transfer period, we will transfer the remaining balance in Short Term DCA Fixed Account to the money market Variable Sub-Account unless you request a different investment alternative. No transfers are permitted into the Short Term DCA Fixed Account. We bear the investment risk for all amounts allocated to the DCA Fixed Account Option and the Short Term DCA Fixed Account Option. That is because we guarantee the current and renewal interest rates we credit to the amounts you allocate to either of these Options, which will never be less than the minimum guaranteed rate in the Contract. Currently, we determine, in our sole discretion, the amount of interest credited in excess of the guaranteed rate. We may declare more than one interest rate for different monies based upon the date of allocation to the DCA Fixed Account Option and the Short Term DCA Fixed Account Option. For current interest rate information, please contact your representative or GLENBROOK LIFE customer service at 1-800-755-5275. GUARANTEE PERIODS Each payment or transfer allocated to a Guarantee Period earns interest at a specified rate that we guarantee for a period of years. Guarantee Periods may range from 1 to 10 years. We are currently offering Guarantee Periods of 1, 3, 5, 7, and 10 years in length. In the future we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods. 21 You select the Guarantee Period for each payment 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(s). Each payment or transfer allocated to a Guarantee Period must be at least $50. 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 will not change the interest rate that we credit to a particular allocation until the end of the relevant Guarantee Period. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. 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 representative or GLENBROOK LIFE at 1-800-755-5275. HOW WE CREDIT INTEREST. We will credit interest daily to each amount allocated to a Guarantee Period at a rate that compounds to the annual interest rate that we declared at the beginning of the applicable Guarantee Period. THE FOLLOWING EXAMPLE ILLUSTRATES HOW A PURCHASE PAYMENT ALLOCATED TO A GUARANTEED PERIOD WOULD GROW, GIVEN AN ASSUMED GUARANTEE PERIOD AND ANNUAL INTEREST RATE:
Purchase Payment.................................................... $10,000 Guarantee Period.................................................... 5 years Annual Interest Rate................................................ 4.50%
END OF CONTRACT YEAR
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ---------- ---------- ---------- ---------- ------------ Beginning Contract $10,000.00 Value................ X (1 + Annual Interest Rate) 1.045 ---------- $10,450.00 Contract Value at end $10,450.00 of Contract Year..... X (1 + Annual Interest) 1.045 ---------- $10,920.25 Contract Value at end $10,920.25 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ---------- $11,411.66 Contract Value at end $11,411.66 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ---------- $11,925.19 Contract Value at end $11,925.19 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ----------- $12,461.82
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 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. 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 expiring Guarantee Period. The new Guarantee Period will begin on the day the previous Guarantee Period ends. The new interest rate will be our 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 22 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; we will pay interest from the day the Guarantee Period expired until the date of the transfer. The interest will be the rate for the shortest Guarantee Period then being offered; 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 income tax withholding, if applicable. We will pay interest from the day the Guarantee Period expired until the date of withdrawal. The interest will be the rate for the shortest Guarantee Period then being offered. 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. Withdrawals of earnings are treated as ordinary income and, if taken prior to age 59 /1/2,/ may be subject to an additional 10% federal tax penalty. MARKET VALUE ADJUSTMENT. All withdrawals and transfers from a Guarantee Period, other than those taken during the 30 day period after such Guarantee Period expires, are subject to a Market Value Adjustment. A Market Value Adjustment also may apply upon payment of a death benefit and when you apply amounts currently invested in a Guarantee Period to an Income Plan (unless paid or applied during the 30-day period after such Guarantee Period expires). We also will not apply a Market Value Adjustment to a withdrawal you make: .. within the Free Withdrawal Amount as described on page___ , .. that qualify for one of the waivers as described on page___ , .. to satisfy the IRS minimum distribution rules for the Contract, or .. a single withdrawal made by a surviving spouse made within one year after continuing 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 you remove it 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 from a Guaranteed Period to an amount that is less than the purchase payment applied to that period plus interest earned under the Contract. Generally, if the original Treasury Rate at the time you allocate money to a Guarantee Period is higher than the applicable current Treasury Rate for a period equal to the Guarantee Period, 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 Treasury Rate for a period equal to the Guarantee Period, 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. INVESTMENT ALTERNATIVES: TRANSFERS -------------------------------------------------------------------------------- TRANSFERS DURING THE ACCUMULATION PHASE During the Accumulation Phase, you may transfer Contract Value among the investment alternatives. You may not transfer Contract Value to the Short-Term Dollar Cost Averaging Fixed Account Option or the Dollar Cost Averaging Fixed Account Option. You may request transfers in writing on a form that we provided or by telephone according to the procedure described below. The minimum amount that you may transfer into a Guarantee Period is $50. We currently do not assess, but reserve the right to assess, a $10 charge on each transfer in excess of 12 per Contract Year. All transfers to or from more than one Portfolio on any given day counts as one 23 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. Central Time 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 for up to six months from the date we receive your request. If we decide to postpone transfers 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 such 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 so as 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 portion of your right to receive fixed income payments into variable income payments. If you choose an Income Plan that depends on any person's life, 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 1-800-755-5275. 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. DOLLAR COST AVERAGING PROGRAM Through our Dollar Cost Averaging Program, you may automatically transfer a fixed dollar amount every month during the Accumulation Phase from the Short Term DCA Fixed Account or the DCA Fixed Account, to any Variable Sub-Account. You may not use the Dollar Cost Averaging Program to transfer amounts to the Guarantee Periods. We will not charge a transfer fee for transfers made under this Program, nor will such transfer 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. Call or write us for instructions on how to enroll. AUTOMATIC PORTFOLIO REBALANCING PROGRAM Once you have allocated your money among the Variable Sub-Accounts, the performance of each Variable Sub-Account may cause a shift in the percentage you allocated to each Variable Sub-Account. If you select our Automatic Portfolio Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. We will not include money you allocate to the Fixed Account Options in the Automatic Portfolio Rebalancing Program. 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 request. We are not responsible for rebalancing that occurs prior to receipt 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 Fidelity VIP High 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 24 Fidelity VIP High Income Variable Sub-Account 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 Fidelity VIP High 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 Portfolio 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. Portfolio 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. 25 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. If you surrender your Contract, we will deduct the contract maintenance charge pro rated for the part of the Contract Year elapsed, unless your Contract qualifies for a waiver, described below. The charge is to compensate us for the cost of administering the Contracts and the Variable Account. Maintenance costs include expenses we incur collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract Owners and regulatory agencies. We cannot increase the charge. However, we will waive this charge if, as of the Contract Anniversary or upon full surrender: .. total purchase payments equal $50,000 or more, or .. all money is allocated to the Fixed Account. In addition, we will waive the Contract Maintenance Charge if total purchase payments are $50,000 or more as of the Payout Start Date. MORTALITY AND EXPENSE RISK CHARGE We deduct a mortality and expense risk charge daily at an annual rate of 1.05% of the average daily net assets you have invested in the Variable Sub-Accounts (1.27% if you select the Enhanced Death Benefit Rider, 1.49% if you selected the Enhanced Death and Income Combination Benefit Rider, and 1.55% if you select the Enhanced Death and Income Benefit Combination Rider II). 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 we will bear the loss. We charge an additional amount for the Enhanced Death Benefit Rider, the Enhanced Death and Income Benefit Combination Rider and the Enhanced Death and Income Benefit Combination Rider II, to compensate us for the additional risk that we accept by providing these options. We guarantee that we will not raise the mortality and expense risk charge. We assess the mortality and expense risk charge during both the Accumulation Phase and the Payout Phase. ADMINISTRATIVE EXPENSE CHARGE We deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-Accounts. We intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed 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 or Automatic Portfolio Rebalancing Program. WITHDRAWAL CHARGE We may assess a withdrawal charge of up to 6% of the purchase payment(s) you withdraw. The charge declines to 0% over a 6 year period that begins on the day we receive your payment. A schedule showing how the charge declines is shown on page 7. During each Contract Year, you can withdraw up to 15% of the aggregate amount of your purchase payments without paying the charge. Unused portions of this "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 calculating the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings, 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 terminate income payments to be received for a specified period; .. withdrawals taken to satisfy IRS minimum distribution rules for the Contract; or .. withdrawals that qualify for one of the waivers as 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 26 fee described above, to make up any difference. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 /1/2/\\, \\may be subject to an additional 10% federal tax penalty 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 Owner is not a natural person, are confined to a long term care facility or a hospital 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. You request the withdrawal and provide written proof 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, the Annuitant, or a member of your or the Annuitant's immediate family, is the physician prescribing your or the Annuitant's stay in a long term care facility. 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 with a terminal illness 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, if the Contract Owner is not a natural person, become unemployed at least one year after the Issue Date; 2. you or the Annuitant, if the Contract Owner is not a natural person, receive unemployment compensation as defined in the Contract for at least 30 days as a result of that unemployment; and 3. you or the Annuitant, if the Contract Owner is not a natural person, claim this benefit within 180 days of your or the Annuitant's initial receipt of unemployment compensation. Please refer to your Contract for more detailed information about the terms and conditions of these waivers. The laws of your state may limit the availability of these waivers and may also change certain terms and/or benefits available under the waivers. You should consult your Contract for further details on these variations. Also, even if you do not need to pay our withdrawal charge or a Market Value Adjustment 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. At our discretion, we may discontinue this practice 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 such 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 "Taxes" Section beginning on page -----. OTHER EXPENSES Each Portfolio deducts advisory fees and other expenses from its assets. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Variable Sub-Accounts. These fees and expenses are described in the accompanying prospectuses for the Portfolios. For a summary of current estimates of those charges and expenses, see page 8. We may receive compensation from the investment advisers or administrators of the Portfolios in connection with the administrative services we provide to the Portfolios. 27 ACCESS TO YOUR MONEY -------------------------------------------------------------------------------- You can withdraw some or all of your Contract Value at any time prior to the Payout Start Date. The amount payable upon withdrawal is the Contract Value (or portion thereof) next computed after we receive the request for a withdrawal at our home office, 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. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 /1/2,/ may be subject to an additional 10% federal tax penalty and a Market Value Adjustment. 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 for 30 days or more, we will pay interest as required by law. 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 Program or Automatic Portfolio Rebalancing Program. Depending on fluctuations in the value of the Variable Sub-Accounts and the value of the Fixed Account Options, systematic withdrawals may reduce or even exhaust the Contract Value. Withdrawals of earnings under a Systematic Withdrawal Program are taxed as ordinary income and, if taken prior to age 59 /1/2/, may be subject to an additional 10% federal tax penalty. Please consult your tax advisor before taking any withdrawal. We will make systematic withdrawal payments to you or your designated payee. At our discretion, 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. MINIMUM CONTRACT VALUE If your request for a partial withdrawal would reduce your Contract Value to less than $2,000, 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. Before terminating any Contract whose value has been previously reduced by withdrawals to less than $2,000, we will inform you in writing of our intention to terminate your Contract and give you at least 30 days in which to make an additional purchase payment to restore your Contract's Value to the contractual minimum of $2,000. 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 applicable taxes. INCOME PAYMENTS -------------------------------------------------------------------------------- PAYOUT START DATE You select the Payout Start Date in your application. The "PAYOUT START DATE" is the day that we apply your money to an Income Plan. The Payout Start Date must be: .. at least 30 days after the Issue Date; and .. no later than the day the Annuitant reaches age 90, 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 scheduled payments to you or someone you designate. 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. 28 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. You may elect to receive guaranteed payments for periods ranging from 5 to 30 years. 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 that support variable income payments even though we may 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. 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 are alive before we make each payment. Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on. Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or part of the Variable Account portion of the income payments at any time and receive a lump sum equal to the present value of the remaining variable payments associated with the amount withdrawn. The minimum amount you may withdraw under this feature is $1,000. A withdrawal charge may apply. We deduct applicable premium taxes from the Contract Value at the Payout Start Date. We may make other Income Plans available. If you elected the Enhanced Death and Income Benefit Combination Rider or the Enhanced Death and Income Benefit Combination Rider II, you may be able to apply an amount greater than your Contract Value to an Income Plan. You must apply at least the Contract Value in the Fixed Account on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account 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 to fixed income payments. We will apply your Contract Value, adjusted by any applicable Market Value Adjustment, less applicable taxes to your Income Plan on the Payout Start Date. If the amount available to apply under an Income Plan is less than $2,000, or not enough to provide an initial payment of at least $20, and state law permits, we may: .. terminate the Contract and pay you the Contract Value, adjusted by any applicable 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 29 more or less than your total purchase payments because (a) variable income payments vary with the investment results of the underlying Portfolios; 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. 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 any shorter time 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 applicable 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. DEATH BENEFITS -------------------------------------------------------------------------------- DEATH OF OWNER If you die before the Payout Start Date, any surviving joint Contract Owner or, if none, the Beneficiary will be designated the new Contract Owner and will be entitled to the options described below. If the new Contract Owner previously was the Beneficiary, however, the new Contract Owner's options will be subject to any restrictions previously placed upon the Beneficiary. The claim for death benefits must be submitted to us within 180 days of the relevant death in order to claim the standard or enhanced death benefit. If a complete claim is not submitted within 180 days of the relevant death, the claimant will receive the greater of Contract Value or the Settlement Value. (See "Death Proceeds" below). 1. If your spouse is the sole surviving Contract Owner or, in the absence of any surviving Contract Owner, is the sole Beneficiary: (a) Your spouse may elect to receive the Death Proceeds in a lump sum; or (b) Your spouse may elect to receive the Death Proceeds paid out under one of the Income Plans (described in "Income Payments" above) subject to the following conditions: The Payout Start Date must be within one year of your date of death. Income payments must be payable: (i) over the life of your spouse; or (ii) for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of your spouse; or (iii) over the life of your spouse with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of your spouse. (c) If your spouse does not elect one of these options, the Contract will continue in the Accumulation Phase as if the death had not occurred. If the Contract is continued in the Accumulation Phase, the following conditions apply: The Contract Value of the continued Contract will be the Death Proceeds. Unless otherwise instructed by the continuing spouse, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the Sub-accounts of the Variable Account. The excess will be allocated in proportion to your Contract Value in those Sub-accounts as of the end of the Valuation Period during which we receive the complete request for settlement of the Death Proceeds, except that any portion of this excess attributable to the Fixed Account Options will be allocated to the money market Variable Sub-account. Within 30 days of the date the Contract is continued, your surviving spouse may choose one of the following transfer alternatives without incurring a transfer fee: (i) transfer all or a portion of the excess among the 30 Variable Sub-accounts; (ii) transfer all or a portion of the excess into the Guaranteed Maturity Fixed Account and begin a new Guarantee Period; or (iii) transfer all or a portion of the excess into a combination of Variable Sub-accounts and the Guaranteed Maturity Fixed Account. Any such transfer does not count as one of the free transfers allowed each Contract Year and is subject to any minimum allocation amount specified in the Contract. The surviving spouse may make a single withdrawal of any amount within one year of the date of your death without incurring a Withdrawal Charge or Market Value Adjustment. Prior to the Payout Start Date, the Death Benefit of the continued Contract will be as defined in the Death Benefit provision. Only one spousal continuation is allowed under the Contract. 2. If the new Contract Owner is not your spouse but is a living person: (a) The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or (b) The new Contract Owner may elect to receive the Death Proceeds paid out under one of the Income Plans (described in "Income Payments" above) subject to the following conditions: The Payout Start Date must be within one year of your date of death. Income Payments must be payable: (i) over the life of the new Contract Owner; or (ii) . for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of the new Contract Owner; or (iii) over the life of the new Contract Owner with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the new Contract Owner. (c) If the new Contract Owner does not elect one of the options above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. On the date we receive the complete request for settlement of the Death Proceeds the Contract Value will be the Death Proceeds. Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers (as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived for any withdrawals made during this 5 year period. We reserve the right to offer additional options upon the death of the Contract Owner. If the new Contract Owner dies prior to the complete liquidation of the Contract Value, then the new Contract Owner's named Beneficiary(ies) will receive the greater of the Settlement Value or the remaining Contract Value. This amount must be liquidated as a lump sum within 5 years of the date of the original Contract Owner's death. 3. If the new Contract Owner is a corporation or other type of non-living person: (a) The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or (b) If the new Contract Owner does not elect the option above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. On the date we receive the complete request for settlement of the Death Proceeds the Contract Value under this option will be the Death Proceeds. Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers(as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived during this 5 year period. We reserve the right to make additional options available to the new Contract Owner upon the death of the Contract Owner. If any new Contract Owner is a non-living person, all new Contract Owners will be considered to be non-living persons for purposes of these provisions Under any of these options, all ownership rights, subject to any restrictions previously placed upon the Beneficiary, are available to the new Contract Owner from the date of your death to the date on which the Death Proceeds are paid. DEATH OF ANNUITANT If the Annuitant who is not also the Contract Owner dies prior to the Payout Start Date, the following apply: 1. If the Contract Owner is a living person, then the Contract will continue with a new Annuitant, who will be: (a) the youngest Contract Owner; otherwise (b) the youngest Beneficiary. You may change the Annuitant before the Payout Start Date. 2. If the Contract Owner is a non-living person: (a) The Contract Owner may elect to receive the Death Proceeds in a lump sum; or 31 (b) If the Contract Owner does not elect the option above, then the Contract Owner must receive the Contract Value payable within 5 years of the Annuitant's date of death. On date we receive the complete request for settlement of the Death Proceeds the Contract Value under this option will be the Death Proceds. Unless otherwise instructed by the Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the Contract Owner may make transfers (as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived during this 5 year period. We reserve the right to make additional options available to the Contract Owner upon the death of the Annuitant. Under any of these options, all ownership rights are available to the non-living Contract Owner from the date of the Annuitant's death to the date on which the Death Proceeds are paid. DUE PROOF OF DEATH 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, .. a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or .. any other proof acceptable to us. DEATH BENEFIT PAYMENTS DEATH PROCEEDS. If we receive a complete request for settlement of the Death Proceeds within 180 days of the date of your death, the Death Proceeds are equal to the applicable death benefit described below. Otherwise, the Death Proceeds are equal to the greater of the Contract value or the Settlement Value. We reserve the right to extend, on a non-discriminatory basis, the 180-day period in which the Death Proceeds will equal the applicable death benefit as described above. This right applies only for the purposes of determining the amount payable as Death Proceeds and in no way restricts when a claim may be filed. 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 value of 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 value of the death benefit, or 3. 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 an adjustment for any partial withdrawals since that Death Benefit Anniversary. A "Death Benefit Anniversary" is every seventh Contract Anniversary beginning with the Issue Date. For example, the Issue Date, 7th and 14th Contract Anniversaries are the first 3 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 Contract Value on the Death Benefit Anniversary adjusted by any prior purchase payments or withdrawals made since that Anniversary. We will determine the value of the death benefit as of the end of the Valuation Date on which we receive a complete request for payment of the death benefit. If we receive a request after 3 p.m. Central Time on a Valuation Date, we will process the request as of the following Valuation Date. OPTIONAL RIDERS We offer two optional riders: an Enhanced Death Benefit Rider and an Enhanced Death and Income Benefit Combination Rider II. You may elect to add either or no rider to your Contract; you may not add both. If you elect an optional rider, we will charge you a higher mortality and expense risk charge. We may discontinue offering either or both of these Riders at any time. The benefits under these Riders are described below. Before September 22, 2000, we offered the Enhanced Death and Benefit Combination Rider. We no longer offer it with this Contract. However, it also is described below for the convenience of Contract Owners who purchased it when it was available. ENHANCED DEATH BENEFIT RIDER You may elect the enhanced Death Benefit Rider if the oldest Contract Owner and Annuitant are no older than age 80 as of the date we receive the completed application, or a written request to add the Rider. If the Contract Owner is a living individual, the enhanced death benefit applies only upon the death of the Contract Owner. If the Contract Owner is not a living individual, the enhanced death benefit applies only upon the death of the Annuitant. For Contracts with the Enhanced Death Benefit Rider, the death benefit will be the greatest of (1) through (3) above, or (4) the enhanced death benefit. The enhanced death benefit is equal to the greater of the Enhanced Death Benefit A or Enhanced Death Benefit B. Enhanced Death Benefit B may not be available in all states. 32 The enhanced death benefit will never be greater than the maximum death benefit allowed by any state nonforfeiture laws that govern the Contract. ENHANCED DEATH BENEFIT A. At issue, Enhanced Death Benefit A is equal to the initial purchase payment. After issue, Enhanced Death Benefit A is the greatest of the Anniversary Values as of the date we determine the death benefit. The "Anniversary Value" is equal to the Contract Value on a Contract Anniversary, increased by purchase payments made since that Anniversary and reduced by an adjustment for any partial withdrawals since that Anniversary. The adjustment is equal to (a) divided by (b), and the result multiplied by (c) where: (a) = the withdrawal amount, (b) = the Contract Value immediately prior to the withdrawal, and (c) = the most recently calculated Enhanced Death Benefit A. We will calculate Anniversary Values for each Contract Anniversary prior to the oldest Contract Owner's or the Annuitant's, if the Contract Owner is not a natural person, 85th birthday. After age 85, we will recalculate Enhanced Death Benefit A only for purchase payments and withdrawals. ENHANCED DEATH BENEFIT B. The Enhanced Death Benefit B is equal to total purchase payments made reduced by a withdrawal adjustment, as defined below. 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 adjustment is equal to (a) divided by (b), and the result multiplied by (c) where: (a) = the withdrawal amount, (b) = the Contract Value immediately prior to the withdrawal, and (c) = the most recently calculated Enhanced Death Benefit B. ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER. (for Contracts issued before September 22, 2000) The enhanced death benefit portion of the Enhanced Death and Income Benefit Combination Rider is as described above under "Enhanced Death Benefit Rider." The enhanced income benefit guarantees that the amount of income payments you receive will not be less than those determined by applying the value of the enhanced death benefit on the Payout Start Date to the minimum guaranteed rate (rather than to any current rates we may be offering) for the Income Plan you select. 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 90th Birthday. 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 a single or joint lives 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. 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. ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER II. (for Contracts issued on or after September 22, 2000). Instead of the Enhanced Death Benefit Rider, you may choose the Enhanced Death and Income Benefit Combination Rider II. The Enhanced Death and Income Benefit Combination Rider II may not be available in all states. The enhanced death benefit portion of the Enhanced Death and Income Benefit Combination Rider II is as described above under "Enhanced Death Benefit Rider." The enhanced income benefit guarantees that the amount of income payments you receive will not be less than those determined by applying the value of the enhanced death benefit on the Payout Start Date to the minimum guaranteed rate (rather than to any current rates we may be offering) for the Income Plan you select. The guaranteed income benefit amount is determined by applying the enhanced income benefit amount less any applicable taxes to the guaranteed rates for the Income Plan you elect. The Income Plan you elect must satisfy the conditions described below. 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 .. occurs during the 30 day period following a Contract Anniversary. 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 33 guaranteed for either a single or joint lives 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. You must elect to receive fixed income payments, which will be calculated using the appropriate guaranteed income payment table provided in your Contract. 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. If you expect to apply your Contract Value to variable income payment options or to current annuity payment rates then in effect, electing the enhanced income benefit may not be appropriate. The enhanced income benefit only applies to the determination of income payments under Income Plans in the circumstances described above. This is not a guarantee of Contract Value or investment performance. This benefit does not enhance the amounts you receive in partial withdrawal or surrenders. If you surrender you Contract, you will not receive any benefit under this Rider. MORE INFORMATION -------------------------------------------------------------------------------- GLENBROOK LIFE GLENBROOK LIFE is the issuer of the Contract. GLENBROOK LIFE is a stock life insurance company organized under the laws of the State of Arizona in 1998. Previously, GLENBROOK LIFE was organized under the laws of the State of Illinois in 1992. GLENBROOK LIFE was originally organized under the laws of the State of Indiana in 1965. From 1965 to 1983 GLENBROOK LIFE was known as "United Standard Life Assurance Company" and from 1983 to 1992 as "William Penn Life Assurance Company of America." GLENBROOK LIFE 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 home office is located at 3100 Sanders Road, Northbrook, Illinois 60062. GLENBROOK LIFE 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 Illinois. With the exception of directors' qualifying shares, all of the outstanding capital stock of Allstate Insurance Company is owned by The Allstate Corporation. GLENBROOK LIFE and Allstate Life entered into a reinsurance agreement effective June 5, 1992. Under the reinsurance agreement, Allstate Life reinsures substantially all of GLENBROOK LIFE'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 LIFE; GLENBROOK LIFE remains the sole obligor under the Contract to you. Independent rating agencies regularly evaluate life insurers' claims-paying ability, quality of investments, and overall stability. A.M. Best Company assigns an A+ (Superior) financial strength rating to Allstate Life, which results in an A+r rating to GLENBROOK LIFE due to the reinsurance agreement with Allstate Life mentioned above. Standard & Poor's Insurance Rating Services assigns an AA+ (Very Strong) financial strength rating and Moody's Investors Service assigns an Aa2 (Excellent) financial strength rating to GLENBROOK LIFE, sharing 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 LIFE established the GLENBROOK LIFE Multi-Manager Variable Account on January 15, 1996. 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 LIFE. 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 LIFE. The Variable Account consists of multiple Variable Sub-Accounts. Each Variable Sub-Account invests in a corresponding Portfolio. 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 Portfolios. We may use 34 the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account. THE PORTFOLIOS DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value. VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Portfolios 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 Portfolios 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 Portfolio 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 Variable Sub-Account by the net asset value per share of the corresponding Portfolio. 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 Portfolio 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 PORTFOLIOS. If the shares of any of the Portfolios 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 Portfolio and substitute shares of another eligible investment Portfolio. Any substitution of securities will comply with the requirements of the Investment Company Act of 1940. 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. Certain of the Portfolios 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 Portfolio. The boards of directors of these Portfolios monitor for possible conflicts among separate accounts buying shares of the Portfolios. 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, a Portfolio's board of directors may require a separate account to withdraw its participation in a Portfolio. A Portfolio's net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a separate account withdrawing because of a conflict. THE CONTRACT DISTRIBUTION. ALFS, Inc. ("ALFS"), located at 3100 Sanders Road, Northbrook, IL 60062-7154, serves as principal underwriter of the Contracts. ALFS is a wholly owned subsidiary of Allstate Life. ALFS is a registered broker dealer under the Securities and Exchange Act of 1934, as amended ("EXCHANGE ACT"), and is a member of the National Association of Securities Dealers, Inc. 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. These commissions are intended to cover distribution expenses. Sometimes, we also pay the broker-dealer a persistency bonus in addition to the standard commissions. A persistency bonus is not expected to exceed 0.25%, on an annual basis, of the Contract Values considered in connection with the bonus. 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 LIFE 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; 35 .. 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 Jorden Burt, Washington, D.C., has advised GLENBROOK LIFE on certain federal securities law matters. All matters of state insurance law pertaining to the Contracts, including the validity of the Contracts and GLENBROOK LIFE's right to issue such Contracts under state insurance law, have been passed upon by Michael J. Velotta, General Counsel of GLENBROOK LIFE. 36 TAXES -------------------------------------------------------------------------------- THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. GLENBROOK LIFE 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 GLENBROOK LIFE AND ANNUITY COMPANY GLENBROOK LIFE 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 LIFE, and its operations form a part of GLENBROOK LIFE, it will not be taxed separately. 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 LIFE 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 LIFE does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore GLENBROOK LIFE does not intend to make provisions for any such taxes. If GLENBROOK LIFE is taxed on investment income or capital gains of the Variable Account, then GLENBROOK LIFE may impose a charge against the Variable Account in order to make provision for such taxes. 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 LIFE 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 does not enjoy tax deferral and is taxed as ordinary income received or accrued by the owner during the taxable year. 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) immediate annuity 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. 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 LIFE does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements. OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a contract owner 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 a broader selection of investment alternatives. Also, you may be able to transfer among investment alternatives more frequently than in such rulings. These differences could result in you 37 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 LIFE 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. 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 full withdrawal under a non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract. 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. The Federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. 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. WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding the taxation of any additional withdrawal received after the Payout Start Date. It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine. DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide: 1. if any Contract Owner dies on or after the Payout 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 Contract Owner's death; 2. if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owner's death. These requirements are satisfied if any portion of the Contract Owner's interest that 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 1 year of the Contract Owner's death. If the Contract Owner's designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner. 3. if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract 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 Contract Owner. TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit 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 Income Plan, the amounts are taxed in the same manner as annuity payments. 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 591/2. However, no penalty tax is incurred on distributions: 1. made on or after the date the Contract Owner attains age 591/2, 2. made as a result of the Contract Owner's death or becoming totally disabled, 3. made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary, 4. made under an immediate annuity, or 5. attributable to investment in the Contract before August 14, 1982. You should consult a competent tax advisor to determine how these exceptions may apply to your situation. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, 38 any additional withdrawal or other modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owner's attaining age 591/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. You should consult a competent tax advisor prior to taking a withdrawal. TAX FREE EXCHANGES UNDER IRC SECTION 1035. A 1035 exchange is a tax-free exchange of a non-qualified life insurance contract, endowment contract or annuity contract for a new non-qualified annuity contract. The Contract Owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them. TAXATION OF OWNERSHIP CHANGES. 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 taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax. Currently we do not allow assignments. AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-qualified deferred annuity contracts issued by GLENBROOK LIFE (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution. INCOME TAX WITHHOLDING Generally, GLENBROOK LIFE is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. GLENBROOK LIFE is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory. Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number. TAX QUALIFIED CONTRACTS The income on qualified plan and IRA investments is tax deferred, and the income on variable annuities held by such plans does 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. 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 under Sections 401 and 403; and .. State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Section 457. GLENBROOK LIFE reserves the right to limit the availability of the Contract for use with any of the Qualified Plans listed above or to modify the Contract to conform with tax requirements. 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 certain transactions such as excess contributions, premature distributions, and, distributions that do not conform to specified commencement and minimum distribution rules. 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. TAXATION OF WITHDRAWALS FROM A QUALIFIED CONTRACT. If you make a partial withdrawal under a Qualified Contract other than a Roth IRA, 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. We do not keep track of nondeductible contributions, and all tax reporting of distributions from Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable. "QUALIFIED DISTRIBUTIONS" from Roth IRAs are not included in gross income. "Qualified distributions" are any distributions made more than five taxable years after 39 the taxable year of the first contribution to any Roth IRA and which are: .. made on or after the date the Contract Owner attains age 591/2, .. made to a beneficiary after the Contract Owner's death, .. attributable to the Contract Owner being disabled, or .. made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000). "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. All tax reporting of distributions from Roth IRAs will indicate that the taxable amount is not determined. REQUIRED MINIMUM DISTRIBUTIONS. Generally, qualified plans require minimum distributions upon reaching age 701/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the Contract. Not all income plans offered under the Contract satisfy the requirements for minimum distributions. Because these distributions are required under the Code and the method of calculation is complex, please see a competent tax advisor. THE DEATH BENEFIT AND QUALIFIED CONTRACTS. Pursuant to the Code and IRS regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may not invest in life insurance contracts. However, an IRA may provide a death benefit that equals the greater of the purchase payments or the Contract Value. The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or 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 satisfy the requirements of an IRA. We believe that these regulations do not prohibit all forms of optional death benefits, however, at this time we are not allowing the Enhanced Earnings Death Benefit Plus Option to be sold with an IRA. It is also possible that the certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under qualified plans, such as in connection with a 403(b) plan. GLENBROOK LIFE reserves the right to limit the availability of the Contract for use with any of the qualified plans listed above. PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM QUALIFIED CONTRACTS. A 10% penalty tax applies to the taxable amount of any premature distribution from a Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 591/2. However, no penalty tax is incurred on distributions: 1. made on or after the date the Contract Owner attains age 591/2, 2. made as a result of the Contract Owner's death or total disability, 3. made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary, 4. made pursuant to an IRS levy, 5. made for certain medical expenses, 6. made to pay for health insurance premiums while unemployed (only applies for IRAs), 7. made for qualified higher education expenses (only applies for IRAs), and 8. made for a first time home purchase (up to a $10,000 lifetime limit and only applies for IRAs). During the first 2 years of the individual's participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax. You should consult a competent tax advisor to determine how these exceptions may apply to your situation. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON QUALIFIED CONTRACTS. With respect to Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayer's attaining age 591/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. You should consult a competent tax advisor prior to taking a withdrawal. INCOME TAX WITHHOLDING ON QUALIFIED CONTRACTS. Generally, GLENBROOK LIFE is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered "ELIGIBLE ROLLOVER DISTRIBUTIONS." The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. GLENBROOK LIFE 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 40 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, 3. a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or, 4. hardship distributions. For all annuitized distributions that are not subject to the 20% withholding requirement, GLENBROOK LIFE is required to withhold federal income tax using the wage withholding rates from all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory. Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number. 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. 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. Subject to certain limitations, a traditional Individual Retirement Account or Annuity may be converted or "ROLLED OVER" to a Roth Individual Retirement Annuity. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions. SIMPLIFIED EMPLOYEE PENSION PLANS. Section 408(k) of the Code allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice. SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS). Sections 408(p) and 401(k) of the Code allow eligible 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 IRA 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. TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS (TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND YOUR COMPETENT TAX ADVISOR. TAX SHELTERED ANNUITIES. Section 403(b) of the Tax 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 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee: .. attains age 591/2, .. separates from service, .. dies, .. becomes disabled, or .. incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship). These limitations do not apply to withdrawals where GLENBROOK LIFE 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. Self-employed individuals may establish tax favored retirement plans for themselves and their employees. Such retirement plans (commonly referred to as "H.R.10" or "KEOGH") may permit the purchase of annuity contracts. 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. In eligible governmental plans, all assets and income must be held in a trust/ custodial account/annuity contract for the exclusive benefit of the participants and their beneficiaries. To the extent the Contracts are used in connection with a non-governmental eligible plan, employees are considered 41 general creditors of the employer and the employer as owner of the Contract has the sole right to the proceeds of the Contract. Under eligible 457 plans, contributions made for the benefit of the employees will not be includible in the employees' gross income until distributed from the plan. ANNUAL REPORTS AND OTHER DOCUMENTS -------------------------------------------------------------------------------- GLENBROOK LIFE's annual report on Form 10-K for the year ended December 31, 2001 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. 0001007285. 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 300 N. Milwaukee Ave., Vernon Hills, IL 60061 (telephone: 1-800-755-5275). EXPERTS -------------------------------------------------------------------------------- The financial statements of Glenbrook Life as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 and the related financial statement schedule incorporated herein by reference from the Annual Report on Form 10-K of Glenbrook Life and from the Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, incorporated herein by reference, and have been so incorporated 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, 2001 and for each of the periods in the two years then ended incorporated herein by reference from the Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, incorporated herein by reference and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. PERFORMANCE INFORMATION -------------------------------------------------------------------------------- We may advertise the performance of the Variable Sub-Accounts, including yield and total return information. 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. Yield refers to the income generated by an investment in a Variable Sub-Account over a specified period. 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 Portfolios for the periods beginning with the inception dates of the Portfolios 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 42 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 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED --------------------------------------------------------------------------------
For the Years Beginning January 1* and Ending December 31, SUB-ACCOUNTS 1998 1999 2000 2001 AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.73 $ 12.66 $ 11.99 Accumulation Unit Value, End of Period $10.73 $ 12.66 $ 11.99 $ 10.501 Number of Units Outstanding, End of Period -- 7,487 52,646 90,025 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.39 $ 16.29 $ 14.35 Accumulation Unit Value, End of Period $11.39 $ 16.29 $ 14.35 $ 10.883 Number of Units Outstanding, End of Period -- 8,743 73,347 76,217 AIM V.I. CORE EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 11.36 $ 15.09 $ 12.74 Accumulation Unit Value, End of Period $15.09 $ 15.09 $ 12.74 $ 9.721 Number of Units Outstanding, End of Period -- 12,180 53,747 73,192 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.83 $ 15.82 $ 12.43 Accumulation Unit Value, End of Period $11.83 $ 15.82 $ 12.43 $ 8.127 Number of Units Outstanding, End of Period -- 13,275 69,688 57,165 AIM V.I. HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.31 $ 11.27 $ 9.03 Accumulation Unit Value, End of Period $10.31 $ 11.27 $ 9.03 $ 8.477 Number of Units Outstanding, End of Period -- 7,387 9,651 16,857 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 11.52 $ 14.80 $ 12.49 Accumulation Unit Value, End of Period $11.52 $ 14.80 $ 12.49 $ 10.794 Number of Units Outstanding, End of Period -- 42,074 115,418 13,3037 FEDERATED PRIME MONEY FUND II SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.06 $ 10.55 Accumulation Unit Value, End of Period -- $ 10.06 $ 10.55 $ 10.819 Number of Units Outstanding, End of Period -- 7,985 11,541 46,149 FIDELITY VIP CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.66 $ 14.33 $ 13.23 Accumulation Unit Value, End of Period $11.66 $ 14.33 $ 13.23 $ 11.473 Number of Units Outstanding, End of Period -- 18,963 101,434 128,908 FIDELITY VIP EQUITY-INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.48 $ 11.02 $ 11.81 Accumulation Unit Value, End of Period $10.48 $ 11.02 $ 11.81 $ 11.096 Number of Units Outstanding, End of Period -- 30,264 100,008 169,933 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.20 $ 15.22 $ 13.40 Accumulation Unit Value, End of Period $11.20 $ 15.22 $ 13.40 $ 10.906 Number of Units Outstanding, End of Period -- 25,821 168,574 193,055 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 11.16 8.55 Accumulation Unit Value, End of Period $10.43 $ 11.16 $ 8.55 $ 7.462 Number of Units Outstanding, End of Period -- 3,837 45,083 69,939 44 FIDELITY VIP INDEX 500 SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.14 Accumulation Unit Value, End of Period -- -- 9.14 $ 7.944 Number of Units Outstanding, End of Period -- -- 106,077 178,134 FIDELITY VIP OVERSEAS SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 8.38 Accumulation Unit Value, End of Period -- -- $ 8.38 $ 6.529 Number of Units Outstanding, End of Period -- -- 30,679 32,911 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.95 $ 20.88 $ 16.60 Accumulation Unit Value, End of Period $11.95 $ 20.88 $ 16.60 $ 10.913 Number of Units Outstanding, End of Period -- 1,059 58,101 104,779 MFS INVESTORS TRUST SERIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.81 $ 11.41 $ 11.26 Accumulation Unit Value, End of Period $10.81 $ 11.41 $ 11.26 $ 9.358 Number of Units Outstanding, End of Period -- 6,295 1,547 45,121 MFS NEW DISCOVERY SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $ 10.00 Accumulation Unit Value, End of Period $ 17.758 Number of Units Outstanding, End of Period 6,802 MFS RESEARCH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.53 $ 10.85 Accumulation Unit Value, End of Period -- $ 11.53 $ 10.85 $ 8.445 Number of Units Outstanding, End of Period -- -- 15,852 60,264 MFS UTILITIES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $ 10.00 Accumulation Unit Value, End of Period Number of Units Outstanding, End of Period OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.73 $ 12.05 Accumulation Unit Value, End of Period -- $ 13.73 $ 12.05 $ 8.187 Number of Units Outstanding, End of Period -- -- 24,923 55,945 OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.11 $ 11.95 Accumulation Unit Value, End of Period -- 12.00 11.95 10.329 Number of Units Outstanding, End of Period -- -- 53,406 146,217 OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.11 $ 13.62 Accumulation Unit Value, End of Period -- 13.11 13.62 11.846 Number of Units Outstanding, End of Period -- -- 60,419 91,989 OPPENHEIMER MAIN STREET GROWTH & INCOME SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.78 $ 9.72 Accumulation Unit Value, End of Period -- $ 10.78 $ 9.72 $ 8.636 Number of Units Outstanding, End of Period -- -- 121,955 283,935 OPPENHEIMER MULTIPLE STRATEGIES SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period -- -- $ 10.16 $ 10.49 Accumulation Unit Value, End of Period -- -- $ 10.49 $ 10.603 Number of Units Outstanding, End of Period -- -- 20,686 116,284 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.16 $ 10.31 Accumulation Unit Value, End of Period -- $ 10.16 $ 10.31 $ 10.690 Number of Units Outstanding, End of Period -- -- 28,737 56,563 PUTNAM VT DIVERSIFIED INCOME SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.867 Number of Units Outstanding, End of Period -- 45 PUTNAM VT GROWTH AND INCOME SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.907 Number of Units Outstanding, End of Period -- PUTNAM VT GROWTH OPPORTUNITIES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.149 Number of Units Outstanding, End of Period -- PUTNAM VT HEALTH SCIENCES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.798 Number of Units Outstanding, End of Period -- PUTNAM VT NEW VALUE SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.123 Number of Units Outstanding, End of Period -- PUTNAM VT VOYAGER II SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.141 Number of Units Outstanding, End of Period -- STI CAPITAL APPRECIATION SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.60 $ 10.80 Accumulation Unit Value, End of Period -- $ 10.60 $ 10.80 $ 10.107 Number of Units Outstanding, End of Period -- 10,425 -- 54,725 STI GROWTH AND INCOME SUB-ACCOUNT (3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 10.79 Accumulation Unit Value, End of Period -- -- $ 10.79 $ 10.075 Number of Units Outstanding, End of Period -- -- 16,189 88,166 SIT INTERNATIONAL EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.72 Accumulation Unit Value, End of Period -- -- $ 9.72 $ 7.937 Number of Units Outstanding, End of Period -- -- 2,615 7,445 STI INVESTMENT GRADE BOND SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 10.61 Accumulation Unit Value, End of Period -- -- $ 10.61 $ 11.452 Number of Units Outstanding, End of Period -- -- 11649 30994 STI MID-CAP EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.21 Accumulation Unit Value, End of Period -- $ 9.21 $ 9.350 Number of Units Outstanding, End of Period -- 5778 16934 STI QUALITY GROWTH STOCK SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.58 Accumulation Unit Value, End of Period -- -- $ 9.58 $ 7.703 Number of Units Outstanding, End of Period -- -- 9,606 11,789 STI SMALL CAP VALUE EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 11.85 Accumulation Unit Value, End of Period -- -- $ 11.85 $ 14.234 Number of Units Outstanding, End of Period -- -- 3,572 STI VALUE INCOME STOCK SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 9.46 $ 10.33 Accumulation Unit Value, End of Period -- $ 9.46 $ 10.33 $ 10.097 Number of Units Outstanding, End of Period 5,699 13,619 32,108 TEMPLETON GLOBAL INCOME SECURITIES SUB-ACCOUNT (3,5) Accumulation Unit Value, Beginning of Period -- -- $ 10.74 $ 11.39 Accumulation Unit Value, End of Period -- -- $ 11.39 $ 11.513 Number of Units Outstanding, End of Period -- -- 438 2,410 46 TEMPLETON GROWTH SECURITIES SUB-ACCOUNT (3,5) Accumulation Unit Value, Beginning of Period -- -- $ 12.89 $ 13.59 Accumulation Unit Value, End of Period -- -- $ 13.59 $ 13.262 Number of Units Outstanding, End of Period -- -- 11,237 10,586 TEMPLETON STOCK (CLASS 2) SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- -- $ 11.37 $ 11.42 Accumulation Unit Value, End of Period -- -- 11.42 -- Number of Units Outstanding, End of Period -- -- 0 -- TEMPLETON BOND (CLASS 2) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.87 Accumulation Unit Value, End of Period -- -- $ 9.87 -- Number of Units Outstanding, End of Period -- -- 0 --
BASIC POLICY The Contracts were first offered on November 10, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.05% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before November 10, 1998, except as described in the footnotes below. (1) Variable Sub-Accounts that commenced operations on November 1, 1999. (2) Variable Sub-Accounts that commenced operations on January 24, 2000. (3) Variable Sub-Accounts that commenced operations on May 1, 2000. (4) Variable Sub-Accounts that commenced operations on August 30, 2001. (5) Effective May 1, 2000, the Portfolios in which the Templeton Stock (Class 2) and Templeton Bond (Class 2) Variable Sub-Accounts invested were merged into the Templeton Growth Securities (Class 2) and the Templeton Global Income Securities Portfolios. Accordingly, for administrative convenience, as of May 1, 2000, the corresponding Variable Sub-Accounts merged with and into a new Variable Sub-Accounts named Templeton Growth Securities (Class 2) and Templeton Global Income Securities (Class 2), respectively, with accumulating Unit Values starting at $10.00. For ease of comparison, in this table we are continuing to show AUVs for the predecessor Variable Sub-Accounts. (6) Effective May 1, 2002, the AIM V.I. Growth and Income fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund and AIM V.I. Premier Equity Fund, respectively. 47 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED --------------------------------------------------------------------------------
For the Years Beginning January 1* and Ending December 31, SUB-ACCOUNTS 1998 1999 2000 2001 AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.73 $ 12.63 $ 11.94 Accumulation Unit Value, End of Period $10.73 $ 12.63 $ 11.94 $ 10.428 Number of Units Outstanding, End of Period 16,023 97,759 129,553 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.39 $ 16.25 $ 14.28 Accumulation Unit Value, End of Period $11.39 $ 16.25 $ 14.28 $ 10.808 Number of Units Outstanding, End of Period -- 17,447 131,661 139,313 AIM V.I. CORE EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 11.36 $ 15.05 $ 12.68 Accumulation Unit Value, End of Period $11.36 $ 15.05 $ 12.68 $ 9.654 Number of Units Outstanding, End of Period -- 16,349 92,618 96,750 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.82 $ 15.78 $ 12.38 Accumulation Unit Value, End of Period 11.82 15.78 12.38 8.071 Number of Units Outstanding, End of Period -- 14,400 102,340 90,578 AIM V.I. HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.31 $ 11.25 $ 8.98 Accumulation Unit Value, End of Period $10.31 $ 11.25 $ 8.98 $ 8.419 Number of Units Outstanding, End of Period -- 3,356 14,455 20,655 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 11.52 $ 14.76 $ 12.43 Accumulation Unit Value, End of Period $11.52 $ 14.76 $ 12.43 $ 10.720 Number of Units Outstanding, End of Period -- 35445 212306 204770 FEDERATED PRIME MONEY MARKET FUND II SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period --- $ 10.00 $ 10.06 $ 10.52 Accumulation Unit Value, End of Period -- $ 10.06 $ 10.52 $ 10.767 Number of Units Outstanding, End of Period -- 2,093 29,533 138,387 FIDELITY VIP CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.66 $ 14.29 $ 13.16 Accumulation Unit Value, End of Period $11.66 $ 14.29 $ 13.16 11.394 Number of Units Outstanding, End of Period -- 30,660 158,530 154,780 FIDELITY VIP EQUITY-INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.47 $ 10.99 $ 11.76 Accumulation Unit Value, End of Period $10.47 $ 10.99 $ 11.76 11.020 Number of Units Outstanding, End of Period -- 17,530 80,045 140,070 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.20 $ 15.19 $ 13.33 Accumulation Unit Value, End of Period $11.20 $ 15.19 $ 13.33 10.831 Number of Units Outstanding, End of Period 313 45,514 210,113 224,251 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 11.13 $ 8.51 Accumulation Unit Value, End of Period -- $ 11.13 $ 8.51 7.410 Number of Units Outstanding, End of Period -- 3,914 55,317 76,456 48 FIDELITY VIP INDEX 500 SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period -- -- 10.00 9.12 Accumulation Unit Value, End of Period -- -- 9.12 7.910 Number of Units Outstanding, End of Period -- -- 10,6497 189,268 FIDELITY VIP OVERSEAS SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period -- -- $ 15.78 $ 8.36 Accumulation Unit Value, End of Period -- -- $ 8.36 6.500 Number of Units Outstanding, End of Period -- -- 27,868 40,817 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.95 $ 20.83 $ 16.52 Accumulation Unit Value, End of Period $11.95 $ 20.83 $ 16.52 $ 10.838 Number of Units Outstanding, End of Period -- 3,068 78,198 112,839 MFS INVESTORS TRUST SERIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.81 $ 11.38 $ 11.21 Accumulation Unit Value, End of Period $10.81 $ 11.38 $ 11.21 $ 9.293 Number of Units Outstanding, End of Period -- 3,323 23,850 35,987 MFS NEW DISCOVERY SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 18.83 Accumulation Unit Value, End of Period -- -- $ 18.83 $ 17.636 Number of Units Outstanding, End of Period -- -- 2,028 11,438 MFS RESEARCH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.52 $ 10.82 Accumulation Unit Value, End of Period -- $ 11.52 $ 10.82 $ 8.405 Number of Units Outstanding, End of Period -- -- 27,229 48,292 MFS UTILITIES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $ 10.00 Accumulation Unit Value, End of Period $ 9.116 Number of Units Outstanding, End of Period 804 OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.72 $ 12.02 Accumulation Unit Value, End of Period -- $ 13.72 $ 12.02 $ 8.148 Number of Units Outstanding, End of Period -- -- 33,428 67,549 OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.11 $ 11.92 Accumulation Unit Value, End of Period -- $ 12.11 $ 11.92 $ 10.28 Number of Units Outstanding, End of Period -- -- 25,664 80,173 OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.10 $ 13.59 Accumulation Unit Value, End of Period -- $ 13.10 $ 13.59 $ 11.790 Number of Units Outstanding, End of Period -- -- 32,775 78,891 OPPENHEIMER MAIN STREET GROWTH AND INCOME SUB-ACCOUNT(1) ------------------------------------------------------------------------------- Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.77 $ 9.70 Accumulation Unit Value, End of Period -- $ 10.77 $ 9.70 $ 8.594 Number of Units Outstanding, End of Period -- -- 139,189 263,407 OPPENHEIMER MULTIPLE STRATEGIES SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 10.47 Accumulation Unit Value, End of Period -- -- $ 10.47 $ 10.558 Number of Units Outstanding, End of Period -- -- 21,773 80,527 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.16 $ 10.29 Accumulation Unit Value, End of Period -- $ 10.16 $ 10.29 $ 10.639 Number of Units Outstanding, End of Period -- -- 19,036 64,322 PUTNAM VT DIVERSIFIED INCOME SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.853 Number of Units Outstanding, End of Period -- 49 PUTNAM VT GROWTH & INCOME SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.892 Number of Units Outstanding, End of Period -- PUTNAM VT GROWTH OPPORTUNITIES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.134 Number of Units Outstanding, End of Period -- PUTNAM VT HEALTH SCIENCES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.784 Number of Units Outstanding, End of Period -- PUTNAM VT NEW VALUE SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.108 Number of Units Outstanding, End of Period -- PUTNAM VT VOYAGER II SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.126 Number of Units Outstanding, End of Period -- STI CAPITAL APPRECIATION SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 10.77 Accumulation Unit Value, End of Period -- -- $ 10.77 $ 10.059 Number of Units Outstanding, End of Period -- -- 42,494 52,273 STI GROWTH AND INCOME SUB-ACCOUNT (3) Accumulation Unit Value, Beginning of Period -- -- 10.00 10.77 Accumulation Unit Value, End of Period -- -- 10.77 10.032 Number of Units Outstanding, End of Period -- -- 22,751 45,818 STI INTERNATIONAL EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 10.77 Accumulation Unit Value, End of Period -- -- $ 10.77 $ 7.903 Number of Units Outstanding, End of Period -- -- 3,637 4,982 STI INVESTMENT GRADE BOND SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 10.59 Accumulation Unit Value, End of Period -- -- $ 10.59 $ 11.403 Number of Units Outstanding, End of Period -- -- 6,263 38,428 STI MID-CAP EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.19 Accumulation Unit Value, End of Period -- -- $ 9.19 $ 9.310 Number of Units Outstanding, End of Period -- -- 8,565 27,595 STI QUALITY GROWTH STOCK SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.56 Accumulation Unit Value, End of Period -- -- $ 9.56 $ 7.670 Number of Units Outstanding, End of Period -- -- 41,199 48,072 STI SMALL CAP VALUE EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 11.83 Accumulation Unit Value, End of Period -- -- $ 11.83 $ 14.174 Number of Units Outstanding, End of Period -- -- 8,399 30,993 STI VALUE INCOME STOCK SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 9.46 $ 10.31 Accumulation Unit Value, End of Period -- $ 9.46 $ 10.31 $ 10.059 Number of Units Outstanding, End of Period -- 4,408 42,942 61,537 TEMPLETON GLOBAL INCOME SECURITIES SUB-ACCOUNT (3,5) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 11.37 Accumulation Unit Value, End of Period -- -- $ 11.37 $ 11.470 Number of Units Outstanding, End of Period -- -- 954 3,023 50 TEMPLETON GROWTH SECURITIES SUB-ACCOUNT (3,5) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 13.57 Accumulation Unit Value, End of Period -- -- $ 13.57 $ 13.213 Number of Units Outstanding, End of Period -- -- 6,597 10,369 TEMPLETON STOCK (CLASS 2) SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- -- $ 11.36 $ 11.40 Accumulation Unit Value, End of Period -- -- $ 11.40 -- Number of Units Outstanding, End of Period -- -- 0 -- TEMPLETON BOND (CLASS 2) SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.86 Accumulation Unit Value, End of Period -- -- $ 9.86 -- Number of Units Outstanding, End of Period -- -- 0 --
WITH ENHANCED DEATH BENEFIT RIDER * The Contracts were first offered on November 10, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.27% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before November 10, 1998, except as described in the footnotes below. (1) Variable Sub-Accounts that commenced operations on November 1, 1999. (2) Variable Sub-Accounts commenced operations on January 24, 2000. (3) Variable Sub-Accounts commenced operations on May 1, 2000. (4) Variable Sub-Accounts commenced operations on August 30, 2000. (5) Effective May 1, 2000, the Portfolio in which the Templeton Stock (Class 2) and Templeton Bond (Class 2) Variable Sub-Accounts invested were merged into the Templeton Growth Securities (Class 2) and the Global Income Securities Portfolio. Accordingly, for administrative convenience, as of May 1, 2000, the corresponding Variable Sub-Account merged with and into a new Variable Sub-Accounts named the Templeton Growth Securities (Class 2). For ease of comparison, in this table we are continuing to show AUV's for the predecessor Variable Sub-Accounts. For Templeton Growth Securities (Class 2) and Templeton Global Income Securities (Class2). (6) Effective May 1, 2002, the AIM V.I. Growth and Income fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity fund and AIM V.I. Premier Equity Fund, respectively. 51 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED -------------------------------------------------------------------------------- WITH ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER FOR CONTRACTS ISSUED BEFORE 9/22/00
For the Years Beginning January 1* and Ending December 31, ------------------------------------------------- SUB-ACCOUNTS 1998 1999 2000 2001 ------------------------------------------------------------------------------- AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.73 $ 12.60 $ 11.88 Accumulation Unit Value, End of Period $10.73 $ 12.60 $ 11.88 $ 10.356 Number of Units Outstanding, End of Period 405 43,121 101,781 94,585 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.39 $ 16.21 $ 14.22 Accumulation Unit Value, End of Period $11.39 $ 16.21 $ 14.22 $ 10.734 Number of Units Outstanding, End of Period 398 16,046 122,768 129,783 AIM V.I. CORE EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 11.36 $ 15.01 $ 15.01 Accumulation Unit Value, End of Period $11.36 $ 15.01 $ 12.63 $ 9.588 Number of Units Outstanding, End of Period 386 1,159 66,400 69,341 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.82 $ 15.74 $ 12.32 Accumulation Unit Value, End of Period $11.82 $ 15.74 $ 12.32 $ 8.015 Number of Units Outstanding, End of Period 386 21,246 108,292 112,689 AIM V.I. HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.31 $ 11.22 $ 8.94 Accumulation Unit Value, End of Period 10.31 $ 11.22 $ 8.94 $ 8.361 Number of Units Outstanding, End of Period 185 10,889 1,120 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 11.51 $ 14.73 $ 12.37 Accumulation Unit Value, End of Period $11.51 $ 14.73 $ 12.37 $ 10646 Number of Units Outstanding, End of Period 34,288 159,570 160,343 FEDERATED PRIME MONEY FUND II SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.06 $ 10.49 Accumulation Unit Value, End of Period -- $ 10.06 $ 10.49 $ 10.716 Number of Units Outstanding, End of Period -- 5,291 40,906 127,260 FIDELITY VIP CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.65 $ 14.26 $ 13.10 Accumulation Unit Value, End of Period $11.65 $ 14.26 $ 13.10 11.315 Number of Units Outstanding, End of Period 387 32,161 131,791 134,375 FIDELITY VIP EQUITY-INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.47 $ 10.96 $ 11.70 Accumulation Unit Value, End of Period $10.47 $ 10.96 $ 11.70 10.944 Number of Units Outstanding, End of Period -- 1,1621 45,849 55,016 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.19 $ 15.15 $ 13.27 Accumulation Unit Value, End of Period $11.19 $ 15.15 $ 13.27 10.756 Number of Units Outstanding, End of Period -- 22,088 151,189 149,935 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 11.10 $ 8.47 Accumulation Unit Value, End of Period $10.43 $ 11.10 $ 8.47 7.359 Number of Units Outstanding, End of Period -- 3,667 3,1190 24,128 52 FIDELITY VIP INDEX 500 SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.11 Accumulation Unit Value, End of Period -- -- $ 9.11 7.876 Number of Units Outstanding, End of Period -- -- 91,596 113,232 FIDELITY VIP OVERSEAS SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period -- -- 10.00 8.34 Accumulation Unit Value, End of Period -- -- 8.34 6.473 Number of Units Outstanding, End of Period -- -- 30,230 29,449 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.94 $ 20.78 $ 16.44 Accumulation Unit Value, End of Period $11.94 $ 20.78 $ 16.44 $ 10.763 Number of Units Outstanding, End of Period -- 19,189 63,991 65,183 MFS INVESTORS TRUST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.81 $ 11.35 $ 11.16 Accumulation Unit Value, End of Period $10.81 $ 11.35 $ 11.16 $ 9.229 Number of Units Outstanding, End of Period -- 4,808 11,160 9,277 MFS NEW DISCOVERY SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 18.74 Accumulation Unit Value, End of Period -- -- 18.74 17.515 Number of Units Outstanding, End of Period -- -- 1,509 913 MFS RESEARCH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.52 $ 10.79 Accumulation Unit Value, End of Period -- $ 11.52 $ 10.79 $ 8.365 Number of Units Outstanding, End of Period -- -- 60,709 73,568 MFS UTILITIES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $ 10.00 Accumulation Unit Value, End of Period Number of Units Outstanding, End of Period OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.72 $ 11.99 Accumulation Unit Value, End of Period -- $ 13.72 $ 11.99 $ 8.109 Number of Units Outstanding, End of Period -- -- 38,398 42,643 OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.10 $ 11.89 Accumulation Unit Value, End of Period -- $ 12.10 $ 11.89 $ 10.232 Number of Units Outstanding, End of Period -- -- 38,398 43,914 OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.10 $ 13.55 Accumulation Unit Value, End of Period -- $ 13.10 $ 13.55 $ 11.734 Number of Units Outstanding, End of Period -- -- 33,241 33,299 OPPENHEIMER MAIN STREET GROWTH & INCOME SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.77 $ 9.67 Accumulation Unit Value, End of Period -- $ 10.77 $ 9.67 $ 8.55 Number of Units Outstanding, End of Period -- -- 130,587 144,668 OPPENHEIMER MULTIPLE STRATEGIES SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 10.45 Accumulation Unit Value, End of Period -- -- $ 10.45 $ 10.513 Number of Units Outstanding, End of Period -- -- 20,592 28,807 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.15 $ 10.26 Accumulation Unit Value, End of Period -- $ 10.15 $ 10.26 $ 10.589 Number of Units Outstanding, End of Period -- -- 19,624 26,549 PUTNAM VT DIVERSIFIED INCOME SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.860 Number of Units Outstanding, End of Period --- 53 PUTNAM VT GROWTH AND INCOME SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.899 Number of Units Outstanding, End of Period -- PUTNAM VT GROWTH OPPORTUNITIES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.142 Number of Units Outstanding, End of Period -- PUTNAM VT HEALTH SCIENCES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.791 Number of Units Outstanding, End of Period -- PUTNAM VT NEW VALUE SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.116 Number of Units Outstanding, End of Period -- PUTNAM VT VOYAGER II SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.134 Number of Units Outstanding, End of Period -- STI CAPITAL APPRICIATION SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 10.75 Accumulation Unit Value, End of Period -- -- $ 10.75 $ 10.012 Number of Units Outstanding, End of Period -- -- 44,314 41,591 STI GROWTH AND INCOME SUB-ACCOUNT (3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 10.75 Accumulation Unit Value, End of Period -- -- $ 10.75 $ 9.989 Number of Units Outstanding, End of Period -- -- 47,617 54,798 STI INTERNATIONAL EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.68 Accumulation Unit Value, End of Period -- -- $ 9.68 $ 7.869 Number of Units Outstanding, End of Period -- -- 9,071 10,251 STI INVESTMENT GRADE BOND SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 10.57 Accumulation Unit Value, End of Period -- -- $ 10.57 $ 11.354 Number of Units Outstanding, End of Period -- -- 15,973 27,766 STI MID-CAP EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.17 Accumulation Unit Value, End of Period -- -- $ 9.17 $ 9.271 Number of Units Outstanding, End of Period -- -- 14,742 15,970 STI QUALITY GROWTH STOCK SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.54 Accumulation Unit Value, End of Period -- -- $ 9.54 $ 7.637 Number of Units Outstanding, End of Period -- -- 62,796 75,646 STI SMALL CAP VALUE EQUITY SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 11.81 Accumulation Unit Value, End of Period -- -- $ 11.81 -- Number of Units Outstanding, End of Period -- -- 6098 -- STI VALUE INCOME STOCK SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 9.46 $ 10.28 Accumulation Unit Value, End of Period -- $ 9.46 $ 10.28 $ 10.001 Number of Units Outstanding, End of Period -- 11,848 11,462 15,344 TEMPLETON GLOBAL INCOME SECURITIES SUB-ACCOUNT (3,5) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 11.36 Accumulation Unit Value, End of Period -- -- $ 11.36 $ 11.428 Number of Units Outstanding, End of Period -- -- 11,685 13,624 54 TEMPLETON GROWTH SECURITIES SUB-ACCOUNT (3,5) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 13.55 Accumulation Unit Value, End of Period -- -- $ 13.55 $ 13.165 Number of Units Outstanding, End of Period -- -- 9457 10,221 TEMPLETON STOCK (CLASS 2) SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- -- $ 11.36 $ 11.39 Accumulation Unit Value, End of Period -- -- $ 11.39 Number of Units Outstanding, End of Period -- -- 0 TEMPLETON BOND (CLASS 2) SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 9.86 Accumulation Unit Value, End of Period -- -- $ 9.86 -- Number of Units Outstanding, End of Period -- -- 0 --
* The Contracts were first offered on November 10, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.49% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before November 10, 1998, except as described in the footnotes below. (1) Variable Sub-Accounts that commenced operations on November 1, 1999. (2) Variable Sub-Accounts commenced operations on January 24, 2000. (3) Variable Sub-Accounts commenced operations on May 1, 2000. (4) Variable Sub-Accounts commenced operations on August 30, 2000. (5) Effective May 1, 2000, the Portfolio in which the Templeton Stock (Class 2) and Templeton Bond (Class 2) Variable Sub-Accounts invested were merged into the Templeton Growth Securities (Class 2) and the Global Income Securities Portfolio. Accordingly, for administrative convenience, as of May 1, 2000, the corresponding Variable Sub-Account merged with and into a new Variable Sub-Accounts named the Templeton Growth Securities (Class 2). For ease of comparison, in this table we are continuing to show AUV's for the predecessor Variable Sub-Accounts. For Templeton Growth Securities (Class 2) and Templeton Global Income Securities (Class2) the Accumulation Unit Values are $12.89 and $10.74, respectively. (6) Effective May 1, 2002, the AIM V.I. Growth and Income fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity fund and AIM V.I. Premier Equity Fund, respectively. 55 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED -------------------------------------------------------------------------------- WITH ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER II FOR CONRACTS ISSUED ON OR AFTER 9/22/00
For the Years Beginning January 1* and Ending December 31, SUB-ACCOUNTS 2000 2001 AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.21 Accumulation Unit Value, End of Period $ 9.21 $ 8.024 Number of Units Outstanding, End of Period 4,515 61,468 AIM V.I. CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 7.80 Accumulation Unit Value, End of Period $ 7.80 $ 5.888 Number of Units Outstanding, End of Period 34,530 99,227 AIM V.I. CORE EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.06 Accumulation Unit Value, End of Period $ 8.06 $ 6.117 Number of Units Outstanding, End of Period 20,079 104,459 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 7.52 Accumulation Unit Value, End of Period $ 7.52 $ 4.90 Number of Units Outstanding, End of Period 32,771 133,470 AIM V.I. HIGH YIELD SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.37 Accumulation Unit Value, End of Period $ 8.37 $ 7.825 Number of Units Outstanding, End of Period 81 8,589 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.54 Accumulation Unit Value, End of Period $ 8.54 $ 7.345 Number of Units Outstanding, End of Period 22,904 96,014 FEDERATED PRIME MONEY FUND II SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.17 Accumulation Unit Value, End of Period $ 10.17 $ 10.375 Number of Units Outstanding, End of Period 5,731 72,350 FIDELITY VIP CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.23 Accumulation Unit Value, End of Period $ 9.23 $ 7.970 Number of Units Outstanding, End of Period 14,991 80,328 FIDELITY VIP EQUITY-INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.42 Accumulation Unit Value, End of Period $ 10.42 $ 9.740 Number of Units Outstanding, End of Period 17,198 42,652 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.37 Accumulation Unit Value, End of Period $ 8.37 $ 6.783 Number of Units Outstanding, End of Period 21,583 76,935 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.30 Accumulation Unit Value, End of Period $ 8.30 $ 7.209 56 Number of Units Outstanding, End of Period 102 4,442 FIDELITY VIP INDEX 500 SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.83 Accumulation Unit Value, End of Period $ 8.83 $ 7.634 Number of Units Outstanding, End of Period 8,780 52,114 FIDELITY VIP OVERSEAS SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.68 Accumulation Unit Value, End of Period $ 8.68 $ 6.732 Number of Units Outstanding, End of Period 4,854 11,548 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.08 Accumulation Unit Value, End of Period $ 8.08 $ 5.287 Number of Units Outstanding, End of Period 11,866 61,761 MFS INVESTORS TRUST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.64 Accumulation Unit Value, End of Period $ 9.64 $ 7.965 Number of Units Outstanding, End of Period 11,698 70,874 MFS NEW DISCOVERY SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $ 10.00 Accumulation Unit Value, End of Period 8.923 Number of Units Outstanding, End of Period 4,370 MFS RESEARCH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period Accumulation Unit Value, End of Period Number of Units Outstanding, End of Period MFS UTILITIES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $ 10.00 Accumulation Unit Value, End of Period Number of Units Outstanding, End of Period OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period 10.00 8.61 Accumulation Unit Value, End of Period 8.61 6.666 Number of Units Outstanding, End of Period 11,698 70,874 OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.92 Accumulation Unit Value, End of Period $ 8.92 $ 7.667 Number of Units Outstanding, End of Period 18,937 81,840 OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.41 Accumulation Unit Value, End of Period $ 9.41 $ 8.142 Number of Units Outstanding, End of Period 2457 16,539 OPPENHEIMER MAIN STREET GROWTH & INCOME SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.72 Accumulation Unit Value, End of Period $ 8.72 $ 7.702 Number of Units Outstanding, End of Period 33,469 146,919 OPPENHEIMER MULTIPLE STRATEGIES SUB-ACCOUNT (2) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.68 Accumulation Unit Value, End of Period $ 9.68 $ 9.727 Number of Units Outstanding, End of Period 3,475 24,335 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.88 Accumulation Unit Value, End of Period $ 9.88 $ 10.184 57 Number of Units Outstanding, End of Period 4,378 33,868 PUTNAM VT DIVERSIFIED INCOME SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.851 Number of Units Outstanding, End of Period -- PUTNAM VT GROWTH AND INCOME SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $ 9.890 Number of Units Outstanding, End of Period -- PUTNAM VT GROWTH OPPORTUNITIES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.132 Number of Units Outstanding, End of Period -- PUTNAM VT HEALTH SCIENCES SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $9.782 Number of Units Outstanding, End of Period -- PUTNAM VT NEW VALUE SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.106 Number of Units Outstanding, End of Period -- PUTNAM VT VOYAGER II SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 Accumulation Unit Value, End of Period $10.124 Number of Units Outstanding, End of Period -- STI CAPITAL APPRICIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.28 Accumulation Unit Value, End of Period $ 9.28 $ 8.640 Number of Units Outstanding, End of Period 214 12,066 STI GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.78 Accumulation Unit Value, End of Period $ 9.78 $ 9.088 Number of Units Outstanding, End of Period 4,178 35,434 SIT INTERNATIONAL EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.54 Accumulation Unit Value, End of Period $ 9.54 $ 7.749 Number of Units Outstanding, End of Period 358 5,355 STI INVESTMENT GRADE BOND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.39 Accumulation Unit Value, End of Period $ 10.39 $ 11.154 Number of Units Outstanding, End of Period 2,172 31,355 STI MID-CAP EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.68 Accumulation Unit Value, End of Period $ 8.68 $ 8.766 Number of Units Outstanding, End of Period 5,995 1205 STI QUALITY GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.76 Accumulation Unit Value, End of Period $ 8.76 $ 7.007 Number of Units Outstanding, End of Period 4,378 33,868 58 STI SMALL CAP VALUE EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.59 Accumulation Unit Value, End of Period $ 10.59 -- Number of Units Outstanding, End of Period 570 -- STI VALUE INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.92 Accumulation Unit Value, End of Period $ 10.92 $ 10.620 Number of Units Outstanding, End of Period 123 7,368 TEMPLETON GLOBAL INCOME SECURITIES SUB-ACCOUNT (3,5) Accumulation Unit Value, Beginning of Period $ 10.00 $ 11.36 Accumulation Unit Value, End of Period $ 11.36 $ 10.516 Number of Units Outstanding, End of Period 11,685 533 TEMPLETON GROWTH SECURITIES SUB-ACCOUNT (3,5) Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.00 Accumulation Unit Value, End of Period $ 10.00 $ 9.703 Number of Units Outstanding, End of Period 2,289 2,050
* The Contracts were first offered on November 10, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.65% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before November 10, 1998, except as described in the footnotes below. (1) Variable Sub-Accounts that commenced operations on November 1, 1999. (2) Variable Sub-Accounts commenced operations on January 24, 2000. (3) Variable Sub-Accounts commenced operations on May 1, 2000. (4) Variable Sub-Accounts commenced operations on August 30, 2000. (5) Effective May 1, 2000, the Portfolio in which the Templeton Stock (Class 2) and Templeton Bond (Class 2) Variable Sub-Accounts invested were merged into the Templeton Growth Securities (Class 2) and the Global Income Securities Portfolio. Accordingly, for administrative convenience, as of May 1, 2000, the corresponding Variable Sub-Account merged with and into a new Variable Sub-Accounts named the Templeton Growth Securities (Class 2). For ease of comparison, in this table we are continuing to show AUV's for the predecessor Variable Sub-Accounts. For Templeton Growth Securities (Class 2) and Templeton Global Income Securities (Class2) the Accumulation Unit Values are $12.89 and $10.74, respectively. (6) Effective May 1, 2002, the AIM V.I. Growth and Income fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity fund and AIM V.I. Premier Equity Fund, respectively. 59 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. *If a U.S. Treasury Note ("Note") with a maturity of the Guarantee Period is not available, we will determine an appropriate interest rate based on an interpolation of the next shortest duration and next longest duration Notes. The Market Value Adjustment factor is determined from the following formula: .9 X [I-(J +.0025)] 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. 60 EXAMPLES OF MARKET VALUE ADJUSTMENT -------------------------------------------------------------------------------- Purchase Payment: $10,000 allocated to a Guarantee Period Guarantee Period: 5 years Interest Rate: 4.50% Full Surrender: End of Contract Year 3 NOTE: These examples assume that premium taxes are not applicable.
Step 1. Calculate Contract Value at End $10,000.00 X (1.045)/3 /= $11,411.66 of Contract Year 3: Step 2. Calculate the Free Withdrawal .15 X ($10,000.00) = $1,500.00 Amount: Step 3. Calculate the Withdrawal Charge: I = 4.5% J = 4.2% N = 730 days =2 -------- Step 4. Calculate the Market Value 365 days Adjustment: Market Value Adjustment Factor:.9 X [I - (J +.0025)] X N =.9 X [.045 - (.042 +.0025)] X 2 =.0009 Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: =.0009 X ($11,411.66 - $1,500.00) = $8.92 Step 5. Calculate the amount received by a Contract Owner as a result of full withdrawal at the end of Contract Year $11,411.66 + $8.92 = $11,420.58 3:
EXAMPLE 1 (ASSUMES DECLINING INTEREST RATES) 61 EXAMPLE 2: (ASSUMES RISING INTEREST RATES)
Step 1. Calculate Contract Value at End $10,000.00 X (1.045)/3 /= $11,411.66 of Contract Year 3: Step 2. Calculate the Free Withdrawal .15 X ($10,000.00) = $1,500.00 Amount: Step 3. Calculate the Withdrawal Charge: I = 4.5% J = 4.8% N = 730 days =2 -------- Step 4. Calculate the Market Value 365 days Adjustment: Market Value Adjustment Factor:.9 X [I - (J +.0025)] X N =.9 X [.045 - (.048 +.0025)] X 2 = -.0099 Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: = -.0099 X ($11,411.66 - $1,500.00) = - $98.13 Step 5. Calculate the amount received by a Contract Owner as a result of full withdrawal at the end of Contract Year $11,411.66 - $98.13 = $11,313.53 3:
62 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- DESCRIPTION -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- CALCULATION OF VARIABLE INCOME PAYMENTS -------------------------------------------------------------------------------- CALCULATION OF ANNUITY UNIT VALUES -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- DESCRIPTION -------------------------------------------------------------------------------- GENERAL MATTERS -------------------------------------------------------------------------------- Incontestability -------------------------------------------------------------------------------- Settlements -------------------------------------------------------------------------------- Safekeeping of the Variable Account's -------------------------------------------------------------------------------- Assets -------------------------------------------------------------------------------- Premium Taxes -------------------------------------------------------------------------------- Tax Reserves -------------------------------------------------------------------------------- EXPERTS -------------------------------------------------------------------------------- FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 63 Blue - 678 THE ALLSTATE\\(R)\\ PROVIDER VARIABLE ANNUITY (formerly referred to as "The Glenbrook Provider Variable Annuity") GLENBROOK LIFE AND ANNUITY COMPANY ---------------------------------- 300 N. MILWAUKEE AVE. VERNON HILLS, IL 60061 TELEPHONE NUMBER: 1-800-755-5275 PROSPECTUS DATED MAY 1, 2002 ------------------------------------------------------------------------------- GLENBROOK LIFE AND ANNUITY COMPANY ("GLENBROOK LIFE") is offering the --------------------------------------------------- Allstate\\(R)\\ Provider Variable Annuity, an individual 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 41 "INVESTMENT ALTERNATIVES". The investment alternatives include 3 fixed account options ("FIXED ACCOUNT OPTIONS") and 38 variable sub-accounts ("VARIABLE SUB-ACCOUNTS") of the GLENBROOK LIFE -------------- Multi-Manager Variable Account ("VARIABLE ACCOUNT"). Each Variable Sub-Account invests exclusively in shares of the portfolios ("PORTFOLIOS") of the following mutual funds ("FUNDS")
AIM VARIABLE INSURANCE FUNDS (VIT) FRANKLIN TEMPLETON VARIABLE INSURANCE THE DREYFUS SOCIALLY RESPONSIBLE PRODUCTS TRUST - CLASS 2 GROWTH FUND, INC./SM/ GOLDMAN SACHS VARIABLE INSURANCE TRUST DREYFUS STOCK INDEX FUND MFS(R) VARIABLE INSURANCE TRUST/SM/ DREYFUS VARIABLE INVESTMENT FUND (VIF) OPPENHEIMER VARIABLE ACCOUNT FUNDS FIDELITY VARIABLE INSURANCE PRODUCTS THE UNIVERSAL INSTITUTIONAL FUNDS, INC. FUND
: Each Fund has multiple investment Portfolios. Not all of the Funds and/or Portfolios, however, may be available with your Contract. You should check with your representative for further information on the availability of Funds and/or Portfolios. Your annuity application will list all available Portfolios. WE (GLENBROOK LIFE) have filed a Statement of Additional Information, dated May 1, 2002, 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 65 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 UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A FEDERAL CRIME. IMPORTANT THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL NOTICES 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 TABLE OF CONTENTS -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- OVERVIEW -------------------------------------------------------------------------------- Important Terms 3 -------------------------------------------------------------------------------- The Contract at a Glance 4 -------------------------------------------------------------------------------- How the Contract Works 6 -------------------------------------------------------------------------------- Expense Table 7 -------------------------------------------------------------------------------- Financial Information 14 -------------------------------------------------------------------------------- CONTRACT FEATURES -------------------------------------------------------------------------------- The Contract 15 -------------------------------------------------------------------------------- Purchases 16 -------------------------------------------------------------------------------- Contract Value 17 -------------------------------------------------------------------------------- Investment Alternatives -------------------------------------------------------------------------------- The Variable Sub-Accounts 18 -------------------------------------------------------------------------------- The Fixed Account Option 20 -------------------------------------------------------------------------------- Transfers 22 -------------------------------------------------------------------------------- Expenses 24 -------------------------------------------------------------------------------- Access To Your Money 26 -------------------------------------------------------------------------------- Income Payments 27 -------------------------------------------------------------------------------- DEATH BENEFITS 28 -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- OTHER INFORMATION -------------------------------------------------------------------------------- More Information: 32 -------------------------------------------------------------------------------- GLENBROOK LIFE 32 -- ----------------------------------------------------------------------------- The Variable Account 33 -------------------------------------------------------------------------------- The Portfolios 33 -------------------------------------------------------------------------------- The Contract 33 -------------------------------------------------------------------------------- Qualified Plans 34 -------------------------------------------------------------------------------- Legal Matters 34 -------------------------------------------------------------------------------- Taxes 35 -------------------------------------------------------------------------------- Annual Reports and Other Documents 40 -------------------------------------------------------------------------------- Experts 40 -------------------------------------------------------------------------------- Performance Information 40 -------------------------------------------------------------------------------- APPENDIX A-ACCUMULATION UNIT VALUES 42 -------------------------------------------------------------------------------- APPENDIX B-MARKET VALUE ADJUSTMENT EXAMPLE 58 -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 61 -------------------------------------------------------------------------------- 2 IMPORTANT TERMS -------------------------------------------------------------------------------- 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. PAGE -------------------------------------------------------------------------------- Accumulation Phase 6 -------------------------------------------------------------------------------- Accumulation Unit 14 -------------------------------------------------------------------------------- Accumulation Unit Value 14 -------------------------------------------------------------------------------- Anniversary Values 31 -------------------------------------------------------------------------------- Annuitant 15 -------------------------------------------------------------------------------- Automatic Portfolio Rebalancing Program 23 -------------------------------------------------------------------------------- Beneficiary 15 -------------------------------------------------------------------------------- Cancellation Period 4 -------------------------------------------------------------------------------- Contract* 15 -------------------------------------------------------------------------------- Contract Anniversary 5 -------------------------------------------------------------------------------- Contract Owner ("You") 6 -------------------------------------------------------------------------------- Contract Value 17 -------------------------------------------------------------------------------- Contract Year 4 -------------------------------------------------------------------------------- Death Benefit Anniversary 30 -------------------------------------------------------------------------------- Death Proceeds 30 -------------------------------------------------------------------------------- Dollar Cost Averaging Program 23 -------------------------------------------------------------------------------- Due Proof of Death 30 -------------------------------------------------------------------------------- Enhanced Death Benefit Rider 31 -------------------------------------------------------------------------------- Enhanced Death and Income Benefit Combination Rider 31 -------------------------------------------------------------------------------- Enhanced Death and Income Benefit Combination Rider II 31 -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- Fixed Account Options 20 -------------------------------------------------------------------------------- Free Withdrawal Amount 24 -------------------------------------------------------------------------------- Funds 1 -------------------------------------------------------------------------------- GLENBROOK LIFE ("We" or "Us") 1 -------------- -------------------------------------------------------------------------------- Guarantee Periods 20 -------------------------------------------------------------------------------- Income Plan 27 -------------------------------------------------------------------------------- Investment Alternatives 1 -------------------------------------------------------------------------------- Issue Date 6 -------------------------------------------------------------------------------- Market Value Adjustment 22 -------------------------------------------------------------------------------- Payout Phase 6 -------------------------------------------------------------------------------- Payout Start Date 27 -------------------------------------------------------------------------------- Portfolios 1 -------------------------------------------------------------------------------- Qualified Contracts 4 -------------------------------------------------------------------------------- SEC 1 -------------------------------------------------------------------------------- Settlement Value 30 -------------------------------------------------------------------------------- Systematic Withdrawal Program 26 -------------------------------------------------------------------------------- Valuation Date 16 -------------------------------------------------------------------------------- Variable Account 1 -------------------------------------------------------------------------------- Variable Sub-Account 1 -------------------------------------------------------------------------------- * In certain states the Contract is available only as a group Contract. If you purchase a group Contract, we will issue you a certificate that represents your ownership and that summarizes the provisions of the group Contract. References to "Contract" in this prospectus include certificates, unless the context requires otherwise. 3 THE CONTRACT AT A GLANCE -------------------------------------------------------------------------------- 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 $3,000 ($2,000 for "QUALIFIED CONTRACTS", which are Contracts issued within QUALIFIED PLANS). You can add to your Contract as often and as much as you like, but each payment must be at least $50. --------------------------------------------------------------------------------------- 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 1.15% of average daily net assets (1.37% if you select the ENHANCED DEATH BENEFIT RIDER; 1.59% if you selected the ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER (for Contracts issued before September 22, 2000); and 1.65% if you select the ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER II (for Contracts issued on or after September 22, 2000). .Annual contract maintenance charge of $35 (with certain exceptions) .Withdrawal charges ranging from 0% to 6% of purchase 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 Portfolio pays expenses that you will bear indirectly if you invest in a Variable Sub-Account. --------------------------------------------------------------------------------------- INVESTMENT ALTERNATIVES The Contract offers 42 investment alternatives including: .3 Fixed Account Options (which credit interest at rates we guarantee) .38 Variable Sub-Accounts investing in Portfolios offering professional money management by these investment advisers: . AIM Advisors, Inc. . The Dreyfus Corporation . Fidelity Management & Research Company . Franklin Advisers, Inc. . Franklin Mutual Advisers, LLC . Goldman Sachs Asset Management . Goldman Sachs Asset Management International . MFS Investment Management(R) . Miller Anderson & Sherrerd, LLP . Morgan Stanley Asset Management . OppenheimerFunds, Inc. . Templeton Asset Management LTD . Templeton Global Advisors Limited . Templeton Investment Counsel, Inc. To find out current rates being paid on the Fixed Account, or to find out how the Variable Sub-Accounts have performed, please call us at 1-800-755-5275. --------------------------------------------------------------------------------------- 4 SPECIAL SERVICES For your convenience, we offer these special services: . AUTOMATIC PORTFOLIO REBALANCING PROGRAM . AUTOMATIC ADDITIONS PROGRAM . DOLLAR COST AVERAGING PROGRAM . SYSTEMATIC WITHDRAWAL PROGRAM --------------------------------------------------------------------------------------- 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 or the ANNUITANT (if the Contract is owned by a non-natural person) die before the PAYOUT START DATE, we will pay the death benefit described in the Contract. We offer an Enhanced Death Benefit Rider and an Enhanced Death and Income Benefit Combination Rider II. --------------------------------------------------------------------------------------- TRANSFERS Before the Payout Start Date, you may transfer your Contract value ("CONTRACT VALUE") among the investment alternatives, with certain restrictions. Transfers to a GUARANTEE PERIOD of the Fixed Account must be at least $50. 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 any time prior to the Payout Start Date. In general, you must withdraw at least $50 at a time. Full or partial withdrawals are available under limited circumstances on or after the Payout Start Date. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59/1/2/, may be subject to an additional 10% federal tax penalty. A withdrawal charge and MARKET VALUE ADJUSTMENT also may apply. ---------------------------------------------------------------------------------------
5 HOW THE CONTRACT WORKS -------------------------------------------------------------------------------- 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 42 investment alternatives and generally 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 any of the three 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 Portfolios. 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___. 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 Portfolios. 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. LOGO 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 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 1-800-755-5275 if you have any questions about how the Contract works. 6 EXPENSE TABLE -------------------------------------------------------------------------------- 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 that may be imposed by the state where you reside. For more information about Variable Account expenses, see "Expenses," below. For more information about Portfolio expenses, please refer to the accompanying prospectuses for the Funds. CONTRACT OWNER TRANSACTION EXPENSES Withdrawal Charge (as a percentage of purchase payments)*
Number of Complete Years Since We Received the Purchase 0 1 2 3 4 5 6+ Payment Being Withdrawn -------------------------------------------------------------------------------------------- Applicable Charge 6% 6% 5% 5% 4% 3% 0% -------------------------------------------------------------------------------------------- Annual Contract Maintenance Charge $35.00** -------------------------------------------------------------------------------------------- Transfer Fee $10.00*** --------------------------------------------------------------------------------------------
*Each Contract Year, you may withdraw up to 15% of your aggregate purchase payments without incurring a withdrawal charge. ** 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 portfolio rebalancing. We are currently waiving the transfer fee. VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT) Without the Enhanced Death Benefit Rider, Enhanced Death and Income Benefit Combination Rider, or Enhanced Death and Income Benefit Combination Rider II
Mortality and Expense Risk Charge 1.05% ----------------------------------------------------------------------------------- Administrative Expense Charge 0.10% ----------------------------------------------------------------------------------- Total Variable Account Annual Expense 1.15% -----------------------------------------------------------------------------------
With the Enhanced Death Benefit Rider
Mortality and Expense Risk Charge 1.27% ------------------------------------------------------------------------------- Administrative Expense Charge 0.10% ------------------------------------------------------------------------------- Total Variable Account Annual Expense 1.37% -------------------------------------------------------------------------------
With the Enhanced Death and Income Benefit Combination Rider (for Contracts issued before September 22, 2000)
Mortality and Expense Risk Charge 1.49% ------------------------------------------------------------------------------- Administrative Expense Charge 0.10% ------------------------------------------------------------------------------- Total Variable Account Annual Expense 1.59% ------------------------------------------------------------------------------- With the Enhanced Death and Income Benefit Combination Rider II (for Contracts issued on or after September 22, 2000) Mortality and Expense Risk Charge 1.55% ------------------------------------------------------------------------------- Administrative Expense Charge 0.10% ------------------------------------------------------------------------------- Total Variable Account Annual Expenses 1.65% -------------------------------------------------------------------------------
7 PORTFOLIO ANNUAL EXPENSES (as a percentage of Portfolio average daily net assets)/1/
Total Management Rule12b-1 Other Portfolio Portfolio Fees Fees Expenses Annual Expenses --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Balanced Fund - Series I 0.75% N/A 0.37% 1.12% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Core Equity Fund - Series I (2) 0.61% N/A 0.21% .82% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Diversified Income Fund - Series I 0.60% N/A 0.33% 0.93% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Government Securities Fund - Series I 0.50% N/A 0.58% 1.08% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Growth Fund - Series I 0.62% N/A 0.26% 0.88% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. International Growth Fund - Sereis I (2) 0.73% N/A 0.32% 1.05% --------------------------------------------------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund - Series I (2) 0.60% N/A 0.25% 0.85% --------------------------------------------------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth Fund, Inc.: Initial Shares 0.75% N/A 0.03% 0.78% --------------------------------------------------------------------------------------------------------------------------- Dreyfus Stock Index Fund: Initial Shares 0.25% N/A 0.01% 0.26% --------------------------------------------------------------------------------------------------------------------------- Dreyfus VIF - Growth & Income Portfolio: Initial Shares 0.75% N/A 0.05% 0.80% --------------------------------------------------------------------------------------------------------------------------- Dreyfus VIF - Money Market Portfolio 0.50% N/A 0.08% 0.58% --------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Contrafund Portfolio - Initial Class (3) 0.58% N/A 0.10% 0.68% --------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Portfolio - Initial Class (3) 0.48% N/A 0.10% 0.58% --------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio - Initial Class (3) 0.58% N/A 0.10% 0.68% --------------------------------------------------------------------------------------------------------------------------- Fidelity VIP High Income Portfolio - Initial Class (3) 0.58% N/A 0.13% 0.71% --------------------------------------------------------------------------------------------------------------------------- Franklin Small Cap Fund-Class 2 (4,5) 0.45% 0.25% 0.31% 1.01% --------------------------------------------------------------------------------------------------------------------------- Mutual Shares Securities Fund - Class 2 (4) 0.60% 0.25% 0.19% 1.04% --------------------------------------------------------------------------------------------------------------------------- Templeton Developing Markets Securities Fund - Class 2 (4) 1.25% 0.25% 0.32% 1.82% --------------------------------------------------------------------------------------------------------------------------- Templeton Foreign Securities Fund - Class 2 (4,6,7) 0.68% 0.25% 0.22% 1.15% --------------------------------------------------------------------------------------------------------------------------- Templeton Growth Securities Fund - Class 2 (4,8) 0.80% 0.25% 0.05% 1.10% --------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT Capital Growth Fund (9) 0.75% N/A 0.94% 1.69% --------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ Small Cap Equity Fund (9) 0.75% N/A 0.47% 1.22% --------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ U.S. Equity Fund (9) 0.70% N/A 0.12% 0.82% --------------------------------------------------------------------------------------------------------------------------- Goldman Sachs VIT International Equity Fund (9) 1.00% N/A 1.05% 2.05% --------------------------------------------------------------------------------------------------------------------------- MFS Emerging Growth Series - Initial Class (10) 0.75% N/A 0.12% 0.87% --------------------------------------------------------------------------------------------------------------------------- MFS Investors Trust Series - Initial Class (10) 0.75% N/A 0.15% 0.90% --------------------------------------------------------------------------------------------------------------------------- MFS New Discovery Series (10,11) 0.90% N/A 0.16% 1.06% --------------------------------------------------------------------------------------------------------------------------- MFS Research Series - Initial Class (10) 0.75% N/A 0.15% 0.90% --------------------------------------------------------------------------------------------------------------------------- Oppenheimer Aggressive Growth Fund/VA 0.64% N/A 0.04% 0.68% --------------------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund/VA 0.64% N/A 0.04% 0.68% --------------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund/VA 0.64% N/A 0.06% 0.70% --------------------------------------------------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income Fund/VA 0.68% N/A 0.05% 0.73% --------------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund/VA(12) 0.74% N/A 0.05% 0.79% --------------------------------------------------------------------------------------------------------------------------- Van Kampen UIF Core Plus Fixed Income Portfolio (13,14) 0.40% N/A 0.31% 0.71% --------------------------------------------------------------------------------------------------------------------------- Van Kampen UIF Equity Growth Portfolio (13,14) 0.55% N/A 0.36% 0.91% --------------------------------------------------------------------------------------------------------------------------- Van Kampen UIF Global Value Equity Portfolio (13,14) 0.80% N/A 0.48% 1.28% --------------------------------------------------------------------------------------------------------------------------- Van Kampen UIF Mid Cap Value Portfolio (13,14) 0.75% N/A 0.35% 1.10% --------------------------------------------------------------------------------------------------------------------------- Van Kampen UIF Value Portfolio (13,14) 0.55% N/A 0.38% 0.93% ---------------------------------------------------------------------------------------------------------------------------
(after contractual fee waivers and expense reimbursements, where applicable, as indicated in the footnotes) (1) Figures shown in the Table are for the year ended December 31, 2001(except as otherwise noted). (2) Effective May 1, 2002 AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. (3) Actual "Total Portfolio Annual Expenses" were lower because a portion of the brokerage commissions that the Portfolios paid was used to reduce the Portfolios' expenses. In addition, through arrangements with the Portfolios' 8 custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the Portfolios' custodian expenses. These offsets may be discontinued at any time. Had these offsets been taken into account, "Total Portfolio Annual Expenses" would have been 0.64% for Contrafund Portfolio, 0.57% for Equity-Income Portfolio, 0.65% for Growth Portfolio and 0.70% for High Income Portfolio. (4) The Portfolio's Class 2 distribution plan or "rule 12b-1 plan" is described in the Portfolio's prospectus. (5) The manager had agreed in advance to make an estimated reduction of 0.08% to its management fee to reflect reduced services resulting from the Portfolio's investment in a Franklin Templeton money fund. This reduction is required by the Portfolio's Board of Trustees and an order of the Securities and Exchange Commission. Without this reduction, "Total Portfolio Annual Expenses" would have been 1.09%. (6) Effective May 1, 2002 the Templeton International Securities Fund - Class 2 changed its name to the Templeton Foreign Securities Fund - Class 2. (7) The manager had agreed in advance to make an estimated reduction of 0.01% to its management fee to reflect reduced services resulting from the Portfolio's investment in a Franklin Templeton money fund. This reduction is required by the Portfolio's Board of Trustees and an order of the Securities and Exchange Commission. Without this reduction, "Total Portfolio Annual Expenses" would have been 1.16%. (8) The Portfolio administration fee is paid indirectly through the management fee. (9) "Total Portfolio Annual Expenses" listed in the table above reflect gross ratios prior to any voluntary waivers/ reimbursements of expenses. Goldman Sachs Asset Management and Goldman Sachs Asset Management International, the investment advisers, have voluntarily agreed to reduce or limit certain other expenses (excluding management fees, taxes, interest, brokerage fees, litigation, indemnification and other extraordinary expenses) to the extent "Total Portfolio Annual Expenses" exceed 1.00% for Capital Growth Fund, 1.00% for Core/sm/ Small Cap Equity Fund, 0.81% for Core/sm/ U.S. Equity Fund and 1.35% for International Equity Fund. With these limitations taken into consideration, "Management Fees", "Rule 12b-1 Fees", "Other Expenses" and "Total Portfolio Annual Expenses" were as follows:
Total Management Rule12b-1 Other Portfolio Portfolio Fees Fees Expenses Annual Expenses ---------------------------------------------------------------------------------------------------- Goldman Sachs VIT Capital Growth Fund 0.75% N/A 0.25% 1.00% ---------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ Small Cap Equity 0.75% N/A 0.25% 1.00% Fund ---------------------------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM /U.S. Equity Fund* 0.70% N/A 0.12% 0.82% ---------------------------------------------------------------------------------------------------- Goldman Sachs VIT International Equity Fund 1.00% N/A 0.35% 1.35% ----------------------------------------------------------------------------------------------------
* The Portfolio had expenses offset by earnings credits for the custodian bank. Had the expenses offset been taken into account, "Total Portfolio Annual Expenses" would have been 0.81%. (10) Each Portfolio has an expense offset arrangement which reduces the Portfolios' custodian fee based upon the amount of cash maintained by the Portfolio with its custodian and dividend disbursing agent. Each Portfolio may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the Portfolios' expenses. "Other Expenses" do not take these expense reductions into account, and are therefore higher than the actual expenses of the Portfolios. Had these fee reductions been taken into account, "Total Portfolio Annual Expenses" would have been lower and would equal 0.86% for Emerging Growth Series, 0.89% for Investors Trust Series, 1.05% for New Discovery Series and 0.89 for Research Series. (11) MFS has contractually agreed, subject to reimbursement, to bear expenses for the Portfolio such that "Other Expenses" (after taking into account the expense offset arrangement described in note 10 above), do not exceed 0.15% of the average daily net assets of the Portfolios during the current fiscal year. Without these fee arrangements "Total Portfolio Annual Expenses" would have been 1.09%. These contractual fee arrangements will continue at least until May 1, 2003, unless changed with the consent of the board of trustees which oversee the Portfolios. (12) Oppenheimer Funds, Inc. (OFI) will reduce the management fee by 0.10% as long as the Portfolio's trailing 12-month performance at the end of the quarter is in the fifth Lipper peer-group quintile; and by 0.05% as long as it is in the fourth quintile. If the fund emerges from a "penalty box" position for a quarter but then slips back in the next quarter, OFI will reinstate the waiver. The waiver is voluntary and may be terminated by the Manager at any time. (13) "Total Portfolio Annual Expenses" listed in the table above reflect gross ratios prior to any voluntary waivers/ reimbursements of expenses by the adviser. For the year ended December 31, 2001, the management fee was reduced to reflect the voluntary waiver of a portion or all of the management fee and the reimbursement by the 9 Portfolios' adviser to the extent "Total Portfolio Annual Expenses" exceed the following percentages: Van Kampen UIF Core Plus Fixed Income Portfolio 0.70%; Van Kampen UIF Equity Growth Portfolio 0.85%; Van Kampen UIF Global Value Equity Portfolio 1.15%; Van Kampen UIF Mid Cap Value Portfolio 1.05%; Van Kampen UIF Value Portfolio 0.85%. The adviser may terminate this voluntary waiver at any time at its sole discretion. After such reductions, the "Management Fees", "Rule 12b-1 Fees", "Other Expenses" and "Total Portfolio Annual Expenses" were as follows:
Total Management Rule 12b-1 Other Portfolio Portfolio Fees Fees Expenses Annual Expenses ------------------------------------------------------------------------------------ Van Kampen UIF Core Plus Fixed 0.39% N/A 0.31% 0.70% Income Portfolio ------------------------------------------------------------------------------------ Van Kampen UIF Equity Growth 0.49% N/A 0.36% 0.85% Portfolio ------------------------------------------------------------------------------------ Van Kampen UIF Global Equity 0.67% N/A 0.48% 1.15% Portfolio ------------------------------------------------------------------------------------ Van Kampen UIF Mid Cap Value 0.70% N/A 0.35% 1.05% Portfolio ------------------------------------------------------------------------------------ Van Kampen UIF Value Portfolio 0.47% N/A 0.38% 0.85% ------------------------------------------------------------------------------------
(14) Effective May 1, 2002 the Portfolios have been re-branded and have changed names from Morgan Stanley UIF Fixed Income Portfolio to Van Kampen UIF Core Plus Fixed Income Portfolio, Morgan Stanley UIF Equity Growth Portfolio to Van Kampen UIF Equity Growth Portfolio, Morgan Stanley UIF Global Value Equity Portfolio to Van Kampen UIF Global Value Equity Portfolio, Morgan Stanley UIF Mid Cap Value Portfolio to Van Kampen UIF Mid Cap Value Portfolio and Morgan Stanley UIF Value Portfolio to Van Kampen UIF Value Portfolio. 10 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, .. 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, and .. elected the Enhanced Death and Income Benefit Combination Rider II. THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT. ASSUMES TERMINATION.
Portfolio 1 Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------- AIM V.I. Balanced $76 $111 $148 $279 ------------------------------------------------------------------------------- AIM V.I. Core Equity $73 $101 $133 $248 ------------------------------------------------------------------------------- AIM V.I. Diversified Income $74 $105 $138 $259 ------------------------------------------------------------------------------- AIM V.I. Government Securities $76 $109 $146 $275 ------------------------------------------------------------------------------- AIm V.I. Growth $73 $103 $136 $254 ------------------------------------------------------------------------------- AIM V.I. International Growth $75 $109 $144 $272 ------------------------------------------------------------------------------- AIM V.I. Premier Equity $73 $102 $134 $251 ------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth $72 $100 $130 $244 Fund, Inc.: Initial Shares ------------------------------------------------------------------------------- Dreyfus Stock Index: Initial Shares $67 $ 84 $103 $187 ------------------------------------------------------------------------------- Dreyfus VIF - Growth & Income: Initial $73 $101 $131 $246 Shares ------------------------------------------------------------------------------- Dreyfus VIF - Money Market $70 $ 94 $120 $222 ------------------------------------------------------------------------------- Fidelity VIP Contrafund $71 $ 97 $125 $233 ------------------------------------------------------------------------------- Fidelity VIP Equity-Income $70 $ 94 $120 $222 ------------------------------------------------------------------------------- Fidelity VIP Growth $71 $ 97 $125 $233 ------------------------------------------------------------------------------- Fidelity VIP High Income $72 $ 98 $127 $236 ------------------------------------------------------------------------------- Franklin Small Cap - Class 2 $75 $107 $142 $268 ------------------------------------------------------------------------------- Mutual Shares Securities - Class 2 $75 $108 $144 $271 ------------------------------------------------------------------------------- Templeton Developing Markets Securities - $75 $108 $144 $271 Class 2 ------------------------------------------------------------------------------- Templeton Foreign Securities - Class 2 $76 $112 $150 $282 ------------------------------------------------------------------------------- Templeton Growth Securities - Class 2 $76 $110 $147 $277 ------------------------------------------------------------------------------- Goldman Sachs VIT Capital Growth $82 $128 $177 $335 ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ Small Cap $77 $114 $153 $289 Equity ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ U.S. Equity $73 $101 $133 $248 ------------------------------------------------------------------------------- Goldman Sachs VIT International Equity $85 $139 $195 $369 ------------------------------------------------------------------------------- MFS Emerging Growth $73 $103 $135 $253 ------------------------------------------------------------------------------- MFS Investors Trust $74 $104 $137 $256 ------------------------------------------------------------------------------- MFS New Discovery $75 $109 $145 $273 ------------------------------------------------------------------------------- MFS Research $74 $104 $137 $256 ------------------------------------------------------------------------------- Oppenheimer Aggressive Growth $71 $ 97 $125 $233 ------------------------------------------------------------------------------- Oppenheimer Capital Appreciation $71 $ 97 $125 $233 ------------------------------------------------------------------------------- Oppenheimer Global Securities $64 $ 76 $89 $158 ------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income $72 $ 99 $128 $238 ------------------------------------------------------------------------------- Oppenheimer Strategic Bond $73 $101 $131 $245 ------------------------------------------------------------------------------- Van Kampen UIF Core Plus Fixed Income $72 $ 98 $127 $236 ------------------------------------------------------------------------------- Van Kampen UIF Equity Growth $74 $104 $137 $257 ------------------------------------------------------------------------------- Van Kampen UIF Global Value Equity $74 $105 $138 $259 ------------------------------------------------------------------------------- Van Kampen UIF Mid Cap Value $76 $110 $147 $277 ------------------------------------------------------------------------------- Van Kampen UIF Value $78 $116 $156 $295 -------------------------------------------------------------------------------
11 EXAMPLE 2 Same assumptions as Example 1 above, except that you decided not to surrender your Contract, or you began receiving income payments for a specified period of at least 120 months, at the end of each period. ASSUMES NO TERMINATION.
Portfolio 1 Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------- AIM V.I. Balanced $25 $ 77 $131 $279 ------------------------------------------------------------------------------- AIM V.I. Core Equity $22 $ 67 $116 $248 ------------------------------------------------------------------------------- AIM V.I. Diversified Income $23 $ 71 $121 $259 ------------------------------------------------------------------------------- AIM V.I. Government Securities $25 $ 75 $129 $275 ------------------------------------------------------------------------------- AIM V.I. Growth $22 $ 69 $119 $254 ------------------------------------------------------------------------------- AIM V.I. International Growth $24 $ 75 $127 $272 ------------------------------------------------------------------------------- AIM V.I. Premier Equity $22 $ 68 $117 $251 ------------------------------------------------------------------------------- The Dreyfus Socially Responsible Growth $21 $ 66 $113 $244 Fund, Inc.: Initial Shares ------------------------------------------------------------------------------- Dreyfus Stock Index: Initial Shares $16 $ 50 $86 $187 ------------------------------------------------------------------------------- Dreyfus VIF - Growth & Income: Initial $22 $ 67 $114 $246 Shares ------------------------------------------------------------------------------- Dreyfus VIF - Money Market $19 $ 60 $103 $222 ------------------------------------------------------------------------------- Fidelity VIP Contrafund $20 $ 63 $108 $233 ------------------------------------------------------------------------------- Fidelity VIP Equity-Income $19 $ 60 $103 $222 ------------------------------------------------------------------------------- Fidelity VIP Growth $20 $ 63 $108 $233 ------------------------------------------------------------------------------- Fidelity VIP High Income $21 $ 64 $110 $236 ------------------------------------------------------------------------------- Franklin Small Cap - Class 2 $24 $ 73 $125 $268 ------------------------------------------------------------------------------- Mutual Shares Securities Fund - Class 2 $24 $ 74 $127 $271 ------------------------------------------------------------------------------- Templeton Developing Markets Securities - $24 $ 74 $127 $271 Class 2 ------------------------------------------------------------------------------- Templeton Foreign Securites - Class 2 $25 $ 78 $133 $282 ------------------------------------------------------------------------------- Templeton Growth Securities - Class 2 $25 $ 76 $130 $277 ------------------------------------------------------------------------------- Goldman Sachs VIT Capital Growth $31 $ 94 $160 $335 ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ Small Cap $26 $ 80 $136 $289 Equity ------------------------------------------------------------------------------- Goldman Sachs VIT CORE/SM/ U.S. Equity $22 $ 67 $116 $248 ------------------------------------------------------------------------------- Goldman Sachs VIT International Equity $34 $105 $178 $369 ------------------------------------------------------------------------------- MFS Emerging Growth $22 $ 69 $118 $253 ------------------------------------------------------------------------------- MFS Investors Trust $23 $ 70 $120 $256 ------------------------------------------------------------------------------- MFS New Discovery $24 $ 75 $128 $273 ------------------------------------------------------------------------------- MFS Research $23 $ 70 $120 $256 ------------------------------------------------------------------------------- Oppenheimer Aggressive Growth $20 $ 63 $108 $233 ------------------------------------------------------------------------------- Oppenheimer Capital Appreciation $20 $ 63 $108 $233 ------------------------------------------------------------------------------- Oppenheimer Global Securities $13 $ 42 $72 $158 ------------------------------------------------------------------------------- Oppenheimer Main Street Growth & Income $21 $ 65 $111 $238 ------------------------------------------------------------------------------- Oppenheimer Strategic Bond $22 $ 67 $114 $245 ------------------------------------------------------------------------------- Van Kampen UIF Core Plus Fixed Income $21 $ 64 $110 $236 ------------------------------------------------------------------------------- Van Kampen UIF Equity Growth $23 $ 70 $120 $257 ------------------------------------------------------------------------------- Van Kampen UIF Global Value Equity $23 $ 71 $121 $259 ------------------------------------------------------------------------------- Van Kampen UIF Mid Cap Value $25 $ 76 $130 $277 ------------------------------------------------------------------------------- Van Kampen UIF Value $27 $ 82 $139 $295 -------------------------------------------------------------------------------
12 PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EARNINGS. YOUR ACTUAL EXPENSES MAY BE LESS OR GREATER THAN THOSE SHOWN ABOVE. SIMILARLY, YOUR RATE OF RETURN MAY BE LESS OR GREATER THAN 5%, WHICH IS NOT GUARANTEED. THE EXAMPLES ASSUME THAT ANY CONTRACTUAL FEE WAIVERS OR EXPENSE REIMBURSEMENT ARRANGEMENTS DESCRIBED IN THE FOOTNOTES TO THE PORTFOLIO EXPENSE TABLE ARE IN EFFECT FOR THE PERIODS INDICATED. THE ABOVE EXAMPLES ASSUME THE ELECTION OF THE ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER II WITH A MORTALITY AND EXPENSE RISK CHARGE OF 1.55%. IF NO RIDER WERE ELECTED, OR THE ENHANCED DEATH BENEFIT RIDER WERE ELECTED, THE EXPENSE FIGURES SHOWN ABOVE WOULD BE SLIGHTLY LOWER. TO REFLECT THE CONTRACT MAINTENANCE CHARGE IN THE EXAMPLES, WE ESTIMATED AN EQUIVALENT PERCENTAGE CHARGE, BASED ON THE CURRENT AVERAGE CONTRACT SIZE OF $45,000. 13 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 the date the Contracts were first offered. 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 LIFE also appear in the Statement of Additional Information. 14 THE CONTRACT -------------------------------------------------------------------------------- CONTRACT OWNER The Glenbrook Life Provider Variable Annuity is a contract between you, the Contract Owner, and Glenbrook Life, a life insurance company. As the Contract Owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted): .. the investment alternatives during the Accumulation and Payout Phases, .. the amount and timing of your purchase payments and withdrawals, .. the programs you want to use to invest or withdraw money, .. the income payment plan you want to use to receive retirement income, .. the Annuitant (either yourself or someone else) on whose life the income payments will be based, .. the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract Owner dies, and .. any other rights that the Contract provides. If you die, any surviving Contract Owner, or, if none, the Beneficiary may exercise the rights and privileges provided to them by the Contract. The Contract cannot be jointly owned by both a non-natural person and a natural person. If the Contract Owner is a grantor trust, the Contract Owner will be considered a non-living person for the purposes of the Death of Owner and Death of Annuitant provisions of your contract. The maximum age of the oldest Contract Owner and Annuitant cannot exceed 90 as of the date we receive the completed application. You may change the Contract Owner at any time. We will provide a change of ownership form to be signed by you and filed with us. After we accept the form, the change of ownership will be effective as of the date you signed the form. Until we receive your written notice to change the Contract Owner, we are entitled to rely on the most recent ownership 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 the Contract Owner, you should deliver your written notice to us promptly. Each change is subject to any payment made by us or any other action we take before we accept the change. 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 within a qualified plan. See "Qualified Plans" on page__. Changing of ownership of this Contract may cause adverse tax consequences and may not be allowed under qualified plans. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner. ANNUITANT The Annuitant is the individual 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. You may change the Annuitant at any time prior to the Payout Start Date (only if the Contract Owner is a natural person). Once we accept a change, it takes effect as of the date you signed the request. Each change is subject to any payment we make or other action we take before we accept it. You may designate a joint Annuitant, who is a second person on whose life income payments depend at the time you select an Income Plan. We permit joint Annuitants only on or after the Payout Start Date. If the Annuitant dies prior to the Payout Start Date, the new Annuitant will be: (i) the youngest Contract Owner; otherwise, (ii) the youngest Beneficiary. BENEFICIARY The Beneficiary is the person who may elect to receive the Death Proceeds or become the new Contract Owner, subject to the "Death of Owner" section below, 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. You may name one or more primary and contingent Beneficiaries when you apply for a Contract. The primary Beneficiary is the person who is first entitled to receive benefits under the Contract upon the death of the sole surviving Contract Owner. A contingent Beneficiary is the person selected by the Contract Owner who will become the Beneficiary if all named primary Beneficiaries die before the death of the sole surviving Contract Owner. You may change or add Beneficiaries at any time, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed by you and filed with us. After we accept the form, the change of Beneficiary will be effective as of the date you signed the form. 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 15 the written notice. Accordingly, if you wish to change your Beneficiary, you should deliver your written notice to us promptly. Each change is subject to any payment made by us or any other action we take before we accept the change. If you did not name a Beneficiary or, unless otherwise provided in the Beneficiary designation, if a named Beneficiary is no longer living and there are no other surviving primary or contingent 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 one or more Beneficiaries survive you (or survives the Annuitant, if the Contract Owner is not a natural person), we will divide the Death Proceeds among the surviving Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the Death Proceeds in equal amounts to the surviving Beneficiaries. If more than one Beneficiary shares in the Death Proceeds, each Beneficiary will be treated as a separate and independent owner of his or her respective share. Each Beneficiary will exercise all rights related to his or her share, including the sole right to select a payout option, subject to any restrictions previously placed upon the Beneficiary. Each Beneficiary may designate a Beneficiary(ies) for his or her respective share, but that designated Beneficiary(ies) will be restricted to the payout option chosen by the original Beneficiary. MODIFICATION OF THE CONTRACT Only a Glenbrook Life officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law. ASSIGNMENT You may not assign any 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 payable to the Beneficiary. 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. PURCHASES -------------------------------------------------------------------------------- MINIMUM PURCHASE PAYMENTS Your initial purchase payment must be at least $3,000 ($2,000 for a Qualified Contract). All subsequent purchase payments must be $50 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 reserve the right to reject any application in our sole discretion. AUTOMATIC ADDITIONS PROGRAM You may make subsequent purchase payments by automatically transferring money from your bank account. Consult your representative for more 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 home office. 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 home office. We are open for business 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 16 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 the Contract by returning it to us within the Cancellation Period, which is the 20 day period after you receive the Contract, or a longer period should your state require it. You may return your Contract 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. In states where we are required to refund purchase payments, we reserve the right during the Cancellation Period to invest any purchase payments you allocated to a Variable Sub-Account to the money market Variable Sub-Account available under the Contract. We will notify you if we do so. At the end of the Cancellation Period, you may then allocate your money to other Variable Sub-Accounts. If your Contract is qualified under Section 408 of the Internal Revenue Code, we will refund the greater of any purchase payments or the Contract Value. CONTRACT VALUE -------------------------------------------------------------------------------- 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 investment 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 or transfer you have allocated to a Variable Sub-Account by (ii) the Accumulation Unit Value of that Variable Sub-Account next computed after we receive your payment or transfer. For example, if we receive a $10,000 purchase payment allocated to a Variable Sub-Account when the Accumulation Unit Value for the Variable Sub-Account is $10, we would credit 1,000 Accumulation Units of that Variable Sub-Account to your Contract. Withdrawals and transfers from a Variable Sub-Account would, of course, reduce the number of Accumulation Units of that Variable Sub-Account allocated to your Contract. ACCUMULATION UNIT VALUE As a general matter, the Accumulation Unit Value for each Variable Sub-Account will rise or fall to reflect: .. changes in the share price of the Portfolio 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 Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we calculate 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, the Enhanced Death and Income Benefit Combination Rider, and the Enhanced Death and Income Benefit Rider II described on pages __. YOU SHOULD REFER TO THE PROSPECTUSES FOR THE PORTFOLIOS THAT ACCOMPANY THIS PROSPECTUS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE. 17 INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS -------------------------------------------------------------------------------- You may allocate your purchase payments to up to 39 Variable Sub-Accounts. Each Variable Sub-Account invests in the shares of a corresponding Portfolio. Each Portfolio has its own investment objective(s) and policies. We briefly describe the Portfolios below. For more complete information about each Portfolio, including expenses and risks associated with the Portfolio, please refer to the accompanying prospectuses for the Portfolios. You should carefully review the Portfolio prospectuses before allocating amounts to the Variable Sub-Accounts.
PORTFOLIO: EACH PORTFOLIO SEEKS: INVESTMENT ADVISOR: ------------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS* ------------------------------------------------------------------------------- AIM V.I. Balanced Fund As high a total return as possible, consistent with preservation of capital ------------------------------------------------------- AIM V.I. Core Equity Growth of capital with a Fund** secondary objective of current income ------------------------------------------------------- AIM ADVISORS, AIM V.I. Diversified A high level of current INC. Income Fund income ------------------------------------------------------- AIM V.I. Government A high level of current Securities Fund income consistent with a reasonable concern for safety of principal ------------------------------------------------------- AIM V.I. Growth Fund Growth of capital ------------------------------------------------------- AIM V.I. International Long-term growth of capital ------------------------ Growth Fund** ------------------------------------------------------- AIM V.I. Premier Long-term growth of capital Equity Fund** and income as a secondary objective ------------------------------------------------------- THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC./SM/; THE DREYFUS STOCK INDEX FUND; AND THE DREYFUS VARIABLE INVESTMENT FUND (VIF) (COLLECTIVELY, THE DREYFUS FUNDS) ------------------------------------------------------------------------------- The Dreyfus Socially Capital growth and, Responsible Growth secondarily, current income Fund, Inc. ------------------------------------------------------- Dreyfus Stock Index To match the total return of Fund the Standard & Poor's(R) 500 Composite Stock Price Index THE DREYFUS ------------------------------------------------------ -CORPORATION Dreyfus VIF Growth & Long-term capital growth, Income Portfolio current income and growth of income, consistent with reasonable investment risk ------------------------------------------------------- Dreyfus VIF Money A high level of current Market Portfolio income as is consistent with the preservation of capital ------------------------ and the maintenance of liquidity ------------------------------------------------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND ------------------------------------------------------------------------------- Fidelity VIP Long-term capital Contrafund appreciation ------------------------------------------------------- Fidelity VIP Reasonable income FIDELITY MANAGEMENT & Equity-Income RESEARCH COMPANY Portfolio ------------------------------------------------------- Fidelity VIP Growth Capital appreciation Portfolio ------------------------------------------------------- Fidelity VIP High High level of current income ------------------------ Income Portfolio while also considering growth of capital ------------------------------------------------------- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (VIP) -- CLASS 2 ------------------------------------------------------------------------------- Franklin Small Cap Long-term capital growth FRANKLIN ADVISERS, Fund INC. ------------------------------------------------------------------------------- Mutual Shares Capital appreciation. FRANKLIN MUTUAL Securities Fund Secondary goal is income ADVISERS, LLC. ------------------------------------------------------------------------------- Templeton Developing Long-term capital TEMPLETON ASSET Markets Securities appreciation MANAGEMENT LTD Fund ------------------------------------------------------------------------------- Templeton Growth Long-term capital growth TEMPLETON GLOBAL Securities Fund ADVISORS LIMITED ------------------------------------------------------------------------------- 18 Templeton Long-term capital growth TEMPLETON INVESTMENT International Securities Fund COUNSEL, LLC ------------------------------------------------------------------------------- GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT) ------------------------------------------------------------------------------- Goldman Sachs VIT Long-term growth of capital Capital Growth Fund ------------------------------------------------------- GOLDMAN SACHS ASSET Goldman Sachs VIT Long-term growth of capital MANAGEMENT CORE/SM/ Small Cap Equity Fund ------------------------------------------------------- Goldman Sachs VIT Long-term growth of capital CORE/SM/ U.S. Equity and dividend income ------------------------ Fund ------------------------------------------------------- Goldman Sachs VIT Long-term capital GOLDMAN SACHS ASSET International Equity appreciation MANAGEMENT Fund INTERNATIONAL ------------------------------------------------------------------------------- MFS(R) VARIABLE INSURANCE TRUST/SM/ ------------------------------------------------------------------------------- MFS Emerging Growth Long-term growth of capital Series ------------------------------------------------------- MFS Investors Trust Long-term growth of capital MFS INVESTMENT Series with a secondary objective to MANAGEMENT(R) seek reasonable current income ------------------------------------------------------- MFS New Discovery Capital appreciation Series ------------------------------------------------------------------------------- MFS Research Series Long-term growth of capital and future income ------------------------------------------------------- THE UNIVERSAL INSTITUTIONAL FUNDS, INC. ------------------------------------------------------------------------------- Van Kampen UIF Equity Long-term capital Growth Portfolio appreciation ------------------------------------------------------- Van Kampen UIF Fixed Above-average total return MORGAN STANLEY ASSET Income Portfolio over a market cycle of three MANAGEMENT to five years ------------------------------------------------------- Van Kampen UIF Global Long-term capital Equity Portfolio appreciation ------------------------------------------------------- Van Kampen UIF Mid Cap Above-average total return ------------------------ Value Portfolio over a market cycle of three to five years ------------------------------------------------------- Van Kampen UIF Value Above-average total return MILLER ANDERSON & Portfolio over a market cycle of three SHERRERD, LLP to five years ------------------------------------------------------------------------------- OPPENHEIMER VARIABLE ACCOUNT FUNDS ------------------------------------------------------------------------------- Oppenheimer Aggressive Capital appreciation Growth Fund/VA ------------------------------------------------------- Oppenheimer Capital Capital appreciation Appreciation Fund/VA ------------------------------------------------------- OPPENHEIMER FUNDS, Oppenheimer Global Long-term capital INC. Securities Fund/VA appreciation ------------------------------------------------------- Oppenheimer Main High total return, which Street Growth & Income includes growth in the value Fund/VA of its shares as well as current income, from equity and debt securities ------------------------ ------------------------------------------------------- Oppenheimer Strategic High level of current income Bond Fund/VA -------------------------------------------------------
*A Portfolio's investment objective may be changed by the Portfolio's Board of Trustees without shareholders approval **Effective May 1, 2002 AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. 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 PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE PORTFOLIOS 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. VARIABLE INSURANCE PORTFOLIOS MAY NOT BE MANAGED BY THE SAME PORTFOLIO MANAGERS WHO MANAGE RETAIL MUTUAL FUNDS WITH SIMILAR NAMES. THESE PORTFOLIOS ARE LIKELY TO DIFFER FROM SIMILARLY NAMED RETAIL FUNDS IN ASSETS, CASH FLOW AND TAX MATTERS. ACCORDINGLY, THE HOLDINGS AND INVESTMENT RESULTS OF A VARIABLE INSURANCE PORTFOLIO CAN BE EXPECTED TO BE GREATER OR LESS THAN THE INVESTMENT RESULTS OF SIMILARLY NAMED RETAIL MUTUAL FUNDS. 19 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: 2 dollar cost averaging options, and the option to invest in one or more Guarantee Periods included in the Guaranteed Maturity Fixed Account. The Fixed Account Options may not be available in all states. Please consult with your 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 FIXED ACCOUNT OPTIONS DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. Purchase payments that you allocate to the Dollar Cost Averaging Fixed Account Option ("DCA Fixed Account Option") will earn interest for a one year period at the current rate in effect at the time of allocation. We will credit interest daily at a rate that will compound over the year to the annual interest rate we guaranteed at the time of allocation. After the one year period, we will declare a renewal rate which we guarantee for a full year. Subsequent renewal dates will be every twelve months for each payment or transfer. For each purchase payment, the first transfer from the DCA Fixed Account must occur within one month of the date of payment. If we do not receive an allocation from you within one month of the date of payment, the payment plus associated interest will be transferred to the money market Sub-Account in equal monthly installments using the longest transfer period being offered at the time the purchase payment is made. Transferring Account Value to the money market Variable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 23. We will follow your instructions in transferring amounts monthly from the DCA Fixed Account. However, you may not choose less than 3 or more than 36 monthly installments. Further, you must transfer each purchase payment and all its earnings out of this Option by means of dollar cost averaging within 36 months of payment. At the end of 36 months, any nominal amounts remaining in this option will be allocated to the money market Variable Sub-Account. No transfers are permitted into the DCA Fixed Account. SHORT TERM DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. You may establish a Short Term Dollar Cost Averaging Program by allocating purchase payments to the Short Term Dollar Cost Averaging Fixed Account Option ("Short Term DCA Fixed Account Option"). We will credit interest to purchase payments you allocate to this Option for up to one year at the current rate in effect at the time of allocation. For each purchase payment, the first transfer from the Short Term DCA Fixed Account must occur within one month of the date of payment. If we do not receive an allocation from you within one month of the date of payment, the payment plus associated interest will be transferred to the money market Sub-Account in equal monthly installments using the longest transfer period being offered at the time the purchase payment is made. Transferring Account Value to the money market Variable Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 23. You must transfer each purchase payment and all its earnings out of this Option by means of dollar cost averaging within 12 months. At the end of the transfer period, any nominal amounts remaining in the Short Term DCA Fixed Account will be allocated to the money market Variable Sub-Account. If you discontinue the Short Term DCA Fixed Account Option before the end of the transfer period, we will transfer the remaining balance in the Short Term DCA Fixed Account to the money market Variable Sub-Account unless you request a different investment alternative. No transfers are permitted into the Short Term DCA Fixed Account. We bear the investment risk for all amounts allocated to the DCA Fixed Account Option and the Short Term DCA Fixed Account Option. That is because we guarantee the current and renewal interest rates we credit to the amounts you allocate to either of these Options, which will never be less than the minimum guaranteed rate in the Contract. Currently, we determine, in our sole discretion, the amount of interest credited in excess of the guaranteed rate. We may declare more than one interest rate for different monies based upon the date of allocation to the DCA Fixed Account Option and the Short Term DCA Fixed Account Option. For current interest rate information, please contact your representative or GLENBROOK LIFE customer service at 1-800-755-5275. GUARANTEE PERIODS Each payment or transfer allocated to a Guarantee Period earns interest at a specified rate that we guarantee for a period of years. Guarantee Periods may range from 1 to 10 years. We are currently offering Guarantee Periods of 1, 3, 5, 7, and 10 years in length. In the future we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods. You select the Guarantee Period for each payment 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(s). Each payment or transfer 20 allocated to a Guarantee Period must be at least $50. 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 will not change the interest rate that we credit to a particular allocation until the end of the relevant Guarantee Period. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. 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 representative or GLENBROOK LIFE at 1-800-755-5275. HOW WE CREDIT INTEREST. We will credit interest daily to each amount allocated to a Guarantee Period at a rate that compounds to the annual interest rate that we declared at the beginning of the applicable Guarantee Period. THE FOLLOWING EXAMPLE ILLUSTRATES HOW A PURCHASE PAYMENT ALLOCATED TO A GUARANTEED PERIOD WOULD GROW, GIVEN AN ASSUMED GUARANTEE PERIOD AND ANNUAL INTEREST RATE:
Purchase Payment......... $10,000 Guarantee Period......... 5 years Annual Interest Rate..... 4.50%
END OF CONTRACT YEAR
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ---------- ---------- ---------- ---------- ------------ Beginning Contract $10,000.00 Value................ X (1 + Annual Interest Rate) 1.045 ---------- $10,450.00 Contract Value at end $10,450.00 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ---------- $10,920.25 Contract Value at end $10,920.25 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ---------- $11,411.66 Contract Value at end $11,411.66 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ---------- $11,925.19 Contract Value at end $11,925.19 of Contract Year..... X (1 + Annual Interest Rate) 1.045 ----------- $12,461.82
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 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. 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 expiring Guarantee Period. The new Guarantee Period will begin on the day the previous Guarantee Period ends. The new interest rate will be our 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; 3) Instruct us to transfer all or a portion of your money to one or more Variable Sub-Accounts of the 21 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; we will pay interest from the day the Guarantee Period expired until the date of the transfer. The interest will be the rate for the shortest Guarantee Period then being offered; 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 income tax withholding, if applicable. We will pay interest from the day the Guarantee Period expired until the date of withdrawal. The interest will be the rate for the shortest Guarantee Period then being offered. 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. Withdrawals of as earnings are taxed as ordinary income and, if taken prior to age 59 /1/2,/ may be subject to an additional 10% federal tax penalty. MARKET VALUE ADJUSTMENT. All withdrawals and transfers from a Guarantee Period, other than those taken during the 30 day period after such Guarantee Period expires, are subject to a Market Value Adjustment. A Market Value Adjustment also may apply upon payment of a death benefit and when you apply amounts currently invested in a Guarantee Period to an Income Plan (unless paid or applied during the 30-day period after such Guarantee Period expires). We also will not apply a Market Value Adjustment to a withdrawal you make: .. within the Free Withdrawal Amount as described on page___ .. that qualify for one of the waivers as described on page___ .. to satisfy the IRS minimum distribution rules for the Contract, or .. a single withdrawal made by a surviving spouse made within one year after continuing 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 you remove it 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 from a Guaranteed Period to an amount that is less than the purchase payment applied to that period plus interest earned under the Contract. Generally, if the original Treasury Rate at the time you allocate money to a Guarantee Period is higher than the applicable current Treasury Rate for a period equal to the Guarantee Period, 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 Treasury Rate for a period equal to the Guarantee Period, 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. INVESTMENT ALTERNATIVES: TRANSFERS -------------------------------------------------------------------------------- TRANSFERS DURING THE ACCUMULATION PHASE During the Accumulation Phase, you may transfer Contract Value among the investment alternatives. You may not transfer Contract Value to either the Short-Term Dollar Cost Averaging Fixed Account or the Dollar Cost Averaging Fixed Account Options. You may request transfers in writing on a form that we provided or by telephone according to the procedure described below. The minimum amount that you may transfer into a Guarantee Period is $50. We currently do not assess, but reserve the right to assess, a $10 charge on each transfer in excess of 12 per Contract Year. All transfers to or from more than one Portfolio on any given day counts as one transfer. We will process transfer requests that we receive before 3:00 p.m. Central Time on any Valuation Date using the 22 Accumulation Unit Values for that Date. We will process requests completed after 3:00 p.m. Central Time 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 for up to six months from the date we receive your request. If we decide to postpone transfers 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 such 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 so as 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 portion of your right to receive fixed income payments into variable income payments. If you choose an Income Plan that depends on any person's life, 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 1-800-755-5275. 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. DOLLAR COST AVERAGING PROGRAM Through our Dollar Cost Averaging Program, you may automatically transfer a fixed dollar amount every month during the Accumulation Phase from the Short Term DCA Fixed Account or the DCA Fixed Account, to any Variable Sub-Account. You may not use the Dollar Cost Averaging Program to transfer amounts to the Guarantee Periods. We will not charge a transfer fee for transfers made under this Program, nor will such transfer 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. Call or write us for instructions on how to enroll. AUTOMATIC PORTFOLIO REBALANCING PROGRAM Once you have allocated your money among the Variable Sub-Accounts, the performance of each Variable Sub-Account may cause a shift in the percentage you allocated to each Variable Sub-Account. If you select our Automatic Portfolio Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. We will not include money you allocate to the Fixed Account Options in the Automatic Portfolio Rebalancing Program. 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 request. We are not responsible for rebalancing that occurs prior to receipt 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 Fidelity VIP High 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 Fidelity VIP High Income Variable Sub-Account now represents 50% of your holdings because of its increase in value. If you choose to have your holdings 23 rebalanced quarterly, on the first day of the next quarter, we would sell some of your units in the Fidelity VIP High 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 Portfolio 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. Portfolio 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. 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. If you surrender your Contract, we will deduct the contract maintenance charge pro rated for the part of the Contract Year elapsed, unless your Contract qualifies for a waiver, described below. The charge is to compensate us for the cost of administering the Contracts and the Variable Account. Maintenance costs include expenses we incur collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract Owners and regulatory agencies. We cannot increase the charge. However, we will waive this charge if, as of the Contract Anniversary or upon full surrender: .. total purchase payments equal $50,000 or more, or .. all money is allocated to the Fixed Account. In addition, we will waive the Contract Maintenance Charge if total purchase payments are $50,000 or more as of the Payout Start Date. MORTALITY AND EXPENSE RISK CHARGE We deduct a mortality and expense risk charge daily at an annual rate of 1.05% of the average daily net assets you have invested in the Variable Sub-Accounts (1.27% if you select the Enhanced Death Benefit Rider, 1.49% if you selected the Enhanced Death and Income Combination Rider, and 1.55% if you select the Enhanced Death and Income Benefit Combination Rider II). 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 we will bear the loss. We charge an additional amount for the Enhanced Death Benefit Rider, the Enhanced Death and Income Benefit Combination Rider and the Enhanced Death and Income Benefit Combination Rider II to compensate us for the additional risk that we accept by providing these options. We guarantee that we will not raise the mortality and expense risk charge. We assess the mortality and expense risk charge during both the Accumulation Phase and the Payout Phase. ADMINISTRATIVE EXPENSE CHARGE We deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-Accounts. We intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed 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 or Automatic Portfolio Rebalancing Program. WITHDRAWAL CHARGE We may assess a withdrawal charge of up to 6% of the purchase payment(s) you withdraw. The charge declines to 0% over a 6 year period that begins on the day we receive your payment. A schedule showing how the charge declines is shown on page 7. During each Contract Year, you can withdraw up to 15% of the aggregate amount of your purchase payments without paying the charge. Unused portions of this "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 calculating the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first. However, for federal income tax purposes, please note that withdrawals are considered to have come first from earnings, which means you pay taxes on the earnings portion of your withdrawal. We do not apply a 24 withdrawal charge in the following situations: .. on the Payout Start Date (a withdrawal charge may apply if you terminate income payments to be received for a specified period; .. on the death of the Contract Owner, or the Annuitant, if the Contract Owner is not a natural person (unless the Settlement Value is used to determine the death benefit); .. withdrawals taken to satisfy IRS minimum distribution rules for the Contract; or .. withdrawals that qualify for one of the waivers as 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 of earnings are taxed as ordinary income and, if taken prior to age 59 /1/2,/ may be subject to an additional 10% federal tax penalty 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 Owner is not a natural person, are confined to a long term care facility or a hospital 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. You request the withdrawal and provide written proof 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, the Annuitant, or a member of your or the Annuitant's immediate family, is the physician prescribing your or the Annuitant's stay in a long term care facility. 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 with a terminal illness 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, if the Contract Owner is not a natural person, become unemployed at least one year after the Issue Date; 2. you or the Annuitant, if the Contract Owner is not a natural person, receive unemployment compensation as defined in the Contract for at least 30 days as a result of that unemployment; and 3. you or the Annuitant, if the Contract Owner is not a natural person, claim this benefit within 180 days of your or the Annuitant's initial receipt of unemployment compensation. Please refer to your Contract for more detailed information about the terms and conditions of these waivers. The laws of your state may limit the availability of these waivers and may also change certain terms and/or benefits available under the waivers. You should consult your Contract for further details on these variations. Also, even if you do not need to pay our withdrawal charge or a Market Value Adjustment 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. At our discretion, we may discontinue this practice 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 such 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 25 not it was sufficient. Our status under the Internal Revenue Code is briefly described in the "Taxes" Section beginning on page___. OTHER EXPENSES Each Portfolio deducts advisory fees and other expenses from its assets. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Variable Sub-Accounts. These fees and expenses are described in the accompanying prospectuses for the Portfolios. For a summary of current estimates of those charges and expenses, see page 7. We may receive compensation from the investment advisers or administrators of the Portfolios in connection with the administrative services we provide to the Portfolios. ACCESS TO YOUR MONEY -------------------------------------------------------------------------------- You can withdraw some or all of your Contract Value at any time prior to the Payout Start Date. The amount payable upon withdrawal is the Contract Value (or portion thereof) next computed after we receive the request for a withdrawal at our home office, 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. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 591/2, may be subject to an additional 10% federal tax penalty. 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 for 30 days or more, we will pay interest as required by law. 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 Program or Automatic Portfolio Rebalancing Program. Depending on fluctuations in the value of the Variable Sub-Accounts and the value of the Fixed Account Options, systematic withdrawals may reduce or even exhaust the Contract Value. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59/1/2/, may be subject to an additional 10% federal tax penalty. Please consult your tax advisor before taking any withdrawal. We will make systematic withdrawal payments to you or your designated payee. At our discretion, 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. MINIMUM CONTRACT VALUE If your request for a partial withdrawal would reduce your 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. Before terminating any Contract whose value has been previously reduced by withdrawals to less than $2,000, we will inform you in writing of our intention to terminate your Contract and give you at least 30 days in which to make an additional purchase payment to restore your Contract's value to the contractual minimum of $2,000. 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 applicable taxes. 26 INCOME PAYMENTS -------------------------------------------------------------------------------- PAYOUT START DATE You select the Payout Start Date in your application. The "PAYOUT START DATE" is the day that we apply your money to an Income Plan. The Payout Start Date must be: .. at least 30 days after the Issue Date; and .. no later than the day the Annuitant reaches age 90, 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 scheduled payments to you or someone you designate. 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. 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. You may elect to receive guaranteed payments for periods ranging from 5 to 30 years. 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 that support variable income payments even though we may 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. 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 are alive before we make each payment. Please note that under such Income Plans, if you elect to take no minimum guaranteed payments, it is possible that the payee could receive only 1 income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only 2 income payments if they die before the third income payment, and so on. Generally, you may not make withdrawals after the Payout Start Date. One exception to this rule applies if you are receiving variable income payments that do not depend on the life of the Annuitant (such as under Income Plan 3). In that case you may terminate all or part of the Variable Account portion of the income payments at any time and receive a lump sum equal to the present value of the remaining variable payments associated with the amount withdrawn. The minimum amount you may withdraw under this feature is $1,000. A withdrawal charge may apply. We deduct applicable premium taxes from the Contract Value at the Payout Start Date. We may make other Income Plans available. If you elected the Enhanced Death and Income Benefit Combination Rider or the Enhanced Death and Income Benefit Combination Rider II, you may be able to apply an amount greater than your Contract Value to an Income Plan. You must apply at least the Contract Value in the Fixed Account on the Payout Start Date to fixed income payments. If you wish to apply any portion of your Fixed Account 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 to fixed income payments. We will apply your Contract Value, adjusted by any applicable Market Value Adjustment, less applicable taxes to your Income Plan on the Payout Start 27 Date. If the amount available to apply under an Income Plan is less than $2,000, or not enough to provide an initial payment of at least $20, and state law permits, we may: .. terminate the Contract and pay you the Contract Value, adjusted by any applicable 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 Portfolios; 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. 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 any shorter time 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 applicable 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. DEATH BENEFITS -------------------------------------------------------------------------------- DEATH OF OWNER If you die before the Payout Start Date, any surviving joint Contract Owner or, if none, the Beneficiary will be designated the new Contract Owner and will be entitled to the options described below. If the new Contract Owner previously was the Beneficiary, however, the new Contract Owner's options will be subject to any restrictions previously placed upon the Beneficiary. The claim for death benefits must be submitted to us within 180 days of the relevant death in order to claim the standard or enhanced death benefit. If a complete claim is not submitted within 180 days of the relevant death, the claimant will receive the greater of Contract Value or the Settlement Value. (See "Death Proceeds" below). 1. If your spouse is the sole surviving Contract Owner or, in the absence of any surviving Contract Owner, is the sole Beneficiary: (a) Your spouse may elect to receive the Death Proceeds in a lump sum; or (b) Your spouse may elect to receive the Death Proceeds paid out under one of the Income Plans (described in "Income Payments" above) subject to the following conditions: The Payout Start Date must be within one year of your date of death. Income payments must be payable: (i) over the life of your spouse; or (ii) for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of your spouse; or 28 (iii) over the life of your spouse with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of your spouse. (c) If your spouse does not elect one of these options, the Contract will continue in the Accumulation Phase as if the death had not occurred. If the Contract is continued in the Accumulation Phase, the following conditions apply: The Contract Value of the continued Contract will be the Death Proceeds. Unless otherwise instructed by the continuing spouse, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the Sub-accounts of the Variable Account. The excess will be allocated in proportion to your Contract Value in those Sub-accounts as of the end of the Valuation Period during which we receive the complete request for settlement of the Death Proceeds, except that any portion of this excess attributable to the Fixed Account Options will be allocated to the money market Variable Sub-account. Within 30 days of the date the Contract is continued, your surviving spouse may choose one of the following transfer alternatives without incurring a transfer fee: (i) transfer all or a portion of the excess among the Variable Sub-accounts; (ii) transfer all or a portion of the excess into the Guaranteed Maturity Fixed Account and begin a new Guarantee Period; or (iii) transfer all or a portion of the excess into a combination of Variable Sub-accounts and the Guaranteed Maturity Fixed Account. Any such transfer does not count as one of the free transfers allowed each Contract Year and is subject to any minimum allocation amount specified in the Contract. The surviving spouse may make a single withdrawal of any amount within one year of the date of your death without incurring a Withdrawal Charge or Market Value Adjustment. Prior to the Payout Start Date, the Death Benefit of the continued Contract will be as defined in the Death Benefit provision. Only one spousal continuation is allowed under the Contract. 2. If the new Contract Owner is not your spouse but is a living person: (a) The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or (b) The new Contract Owner may elect to receive the Death Proceeds paid out under one of the Income Plans (described in "Income Payments" above) subject to the following conditions: The Payout Start Date must be within one year of your date of death. Income Payments must be payable: (i) over the life of the new Contract Owner; or (ii) . for a guaranteed number of payments from 5 to 50 years but not to exceed the life expectancy of the new Contract Owner; or (iii) over the life of the new Contract Owner with a guaranteed number of payments from 5 to 30 years but not to exceed the life expectancy of the new Contract Owner. (c) If the new Contract Owner does not elect one of the options above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. On the date we receive the complete request for settlement of the Death Proceeds, the Contract Value will be the Death Proceeds. Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers (as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived for any withdrawals made during this 5 year period. We reserve the right to offer additional options upon the death of the Contract Owner. If the new Contract Owner dies prior to the complete liquidation of the Contract Value, then the new Contract Owner's named Beneficiary(ies) will receive the greater of the Settlement Value or the remaining Contract Value. This amount must be liquidated as a lump sum within 5 years of the date of the original Contract Owner's death. 3. If the new Contract Owner is a corporation or other type of non-living person: (a) The new Contract Owner may elect to receive the Death Proceeds in a lump sum; or (b) If the new Contract Owner does not elect the option above, then the new Contract Owner must receive the Contract Value payable within 5 years of your date of death. On the date we receive the complete request for settlement of the Death Proceeds, the Contract Value under this option will be the Death Proceeds. Unless otherwise instructed by the new Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the new Contract Owner may make transfers(as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived during this 5 year period. We reserve the right to make additional options available to the new Contract Owner upon the death of the 29 Contract Owner. If any new Contract Owner is a non-living person, all new Contract Owners will be considered to be non-living persons for purposes of these provisions. Under any of these options, all ownership rights, subject to any restrictions previously placed upon the Beneficiary, are available to the new Contract Owner from the date of your death to the date on which the Death Proceeds are paid. DEATH OF ANNUITANT If the Annuitant who is not also the Contract Owner dies prior to the Payout Start Date, the following apply: 1. If the Contract Owner is a living person, then the Contract will continue with a new Annuitant, who will be: (a) the youngest Contract Owner; otherwise (b) the youngest Beneficiary. You may change the Annuitant before the Payout Start Date. 2. If the Contract Owner is a non-living person: (a) The Contract Owner may elect to receive the Death Proceeds in a lump sum; or (b) If the Contract Owner does not elect the option above, then the Contract Owner must receive the Contract Value payable within 5 years of the Annuitant's date of death. On the date we receive the complete request for settlement of the Death Proceeds the Contract Value under this option will be the Death Proceds. Unless otherwise instructed by the Contract Owner, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the money market Variable Sub-Account. Henceforth, the Contract Owner may make transfers (as described in "Transfers During the Payout Phase" above) during this 5 year period. The new Contract Owner may not make additional purchase payments to the Contract under this election. Withdrawal Charges will be waived during this 5 year period. We reserve the right to make additional options available to the Contract Owner upon the death of the Annuitant. Under any of these options, all ownership rights are available to the non-living Contract Owner from the date of the Annuitant's death to the date on which the Death Proceeds are paid. DUE PROOF OF DEATH 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, .. a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or .. any other proof acceptable to us. DEATH BENEFIT PAYMENTS DEATH PROCEEDS If we receive a complete request for settlement of the Death Proceeds within 180 days of the date of your death, the Death Proceeds are equal to the applicable death benefit described below. Otherwise, the Death Proceeds are equal to the greater of the Contract value or the Settlement Value. We reserve the right to extend, on a non-discriminatory basis, the 180-day period in which the Death Proceeds will equal the applicable death benefit as described above. This right applies only for the purposes of determining the amount payable as Death Proceeds and in no way restricts when a claim may be filed. 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 value of 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 value of the death benefit, or 3. 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 an adjustment for any partial withdrawals since that Death Benefit Anniversary. A "Death Benefit Anniversary" is every seventh Contract Anniversary beginning with the Issue Date. For example, the Issue Date, 7th and 14th Contract Anniversaries are the first 3 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 Contract Value on the Death Benefit Anniversary adjusted by any prior purchase payments (or withdrawals) made since that Anniversary. We will determine the value of the death benefits as of the end of the Valuation Date on which we receive a complete request for payment of the death benefit. If we receive a request after 3 p.m. Central Time on a Valuation Date, we will process the request as of the end of the following Valuation Date. OPTIONAL RIDERS We offer two optional riders: an Enhanced Death Benefit Rider and an Enhanced Death and Income Benefit Combination Rider II. You may elect to add either or no Rider to your Contract; you may not add both. If you 30 elect an optional Rider, we will charge you a higher mortality and expense risk charge. We may discontinue offering either or both of these Riders at any time. The benefits under these Riders are described below. Before September 22, 2000, we offered the Enhanced Death and Benefit Combination Rider. We no longer offer it with this Contract. However, it also is described below for the convenience of Contract Owners who purchased it when it was available. ENHANCED DEATH BENEFIT RIDER You may elect the Enhanced Death Benefit Rider if the oldest Contract Owner and Annuitant are no older than age 80 as of the date we receive the completed application or written request to add the Rider. If the Contract Owner is a living individual, the enhanced death benefit applies only upon the death of the Contract Owner. If the Contract Owner is not a living individual, the enhanced death benefit applies only upon the death of the Annuitant. For Contracts with the Enhanced Death Benefit Rider, the death benefit will be the greatest of (1) through (3) above, or (4) the enhanced death benefit. The enhanced death benefit is equal to the greater of the Enhanced Death Benefit A or Enhanced Death Benefit B. Enhanced Death Benefit B may not be available in all states. The enhanced death benefit will never be greater than the maximum death benefit allowed by any state nonforfeiture laws that govern the Contract. ENHANCED DEATH BENEFIT A. At issue, Enhanced Death Benefit A is equal to the initial purchase payment. After issue, Enhanced Death Benefit A is the greatest of the ANNIVERSARY VALUES as of the date we determine the death benefit. The "Anniversary Value" is equal to the Contract Value on a Contract Anniversary, increased by purchase payments made since that Anniversary and reduced by an adjustment for any partial withdrawals since that Anniversary. The adjustment is equal to (a) divided by (b), and the result multiplied by (c) where: (a) = is the withdrawal amount, (b) = is the Contract Value immediately prior to the withdrawal, and (c) = is the most recently calculated Enhanced Death Benefit A. We will calculate Anniversary Values for each Contract Anniversary prior to the oldest Contract Owner's or the Annuitant's, if the Contract Owner is not a natural person, 85th birthday. After age 85, we will recalculate Enhanced Death Benefit A for purchase payments and withdrawals. ENHANCED DEATH BENEFIT B. The Enhanced Death Benefit B is equal to total purchase payments made reduced by a withdrawal adjustment, as defined below. 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 adjustment is equal to (a) divided by (b), and the result multiplied by (c) where: (a) = the withdrawal amount, (b) = is the Contract Value immediately prior to the withdrawal, and (c) = is the most recently calculated Enhanced Death Benefit B. ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER. (FOR CONTRACTS ISSUED BEFORE SEPTEMBER 22, 2000) The enhanced death benefit portion of the Enhanced Death and Income Benefit Combination Rider is as described above under "Enhanced Death Benefit Rider." The enhanced income benefit guarantees that the amount of income payments you receive will not be less than those determined by applying the value of the enhanced death benefit on the Payout Start Date to the minimum guaranteed rate (rather than to any current rates we may be offering) for the Income Plan you select. 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 90th Birthday. 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 a single or joint lives 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. 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. ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER II (FOR CONTRACTS ISSUED ON OR AFTER SEPTEMBER 22, 2000). Instead of the Enhanced Death Benefit Rider, you may choose the Enhanced Death and Income Benefit Combination Rider II. The Enhanced Death and Income Benefit Combination Rider II may not be available in all states. The enhanced death benefit portion of the Enhanced 31 Death and Income Benefit Combination RiderII is as described above under "Enhanced Death Benefit Rider." The enhanced income benefit guarantees that the amount of income payments you receive will not be less than those determined by applying the value of the enhanced death benefit on the Payout Start Date to the minimum guaranteed rate (rather than to any current rates we may be offering) for the Income Plan you select. The guaranteed income benefit amount is determined by applying the enhanced income benefit amount less any applicable taxes to the guaranteed rates for the Income Plan you elect. The Income Plan you elect must satisfy the conditions described below. 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 .. occurs during the 30 day period following a Contract Anniversary. 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 a single or joint lives 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. You must elect to receive fixed income payments, which will be calculated using the appropriate Guaranteed Income Payment table provided in your Contract. 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. If you expect to apply your Contract Value to variable income payment options or to current annuity payment rates then in effect, electing the enhanced income benefit may not be appropriate. The enhanced income benefit only applies to the determination of income payments under Income Plans in the circumstances described above. This benefit does not guarantee Contract Value or investment performance. This benefit does not enhance the amounts you receive in partial withdrawal or surrenders. If you surrender your Contract, you will not receive any benefit under this Rider. MORE INFORMATION -------------------------------------------------------------------------------- GLENBROOK LIFE GLENBROOK LIFE is the issuer of the Contract. GLENBROOK LIFE is a stock life insurance company organized under the laws of the State of Arizona in 1998. Previously, GLENBROOK LIFE was organized under the laws of the State of Illinois in 1992. GLENBROOK LIFE was originally organized under the laws of the State of Indiana in 1965. From 1965 to 1983 GLENBROOK LIFE was known as "United Standard Life Assurance Company" and from 1983 to 1992 as "William Penn Life Assurance Company of America." GLENBROOK LIFE 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 home office is located at 3100 Sanders Road, Northbrook, Illinois, 60062. GLENBROOK LIFE 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 Illinois. All of the outstanding capital stock of Allstate Insurance Company is owned by The Allstate Corporation. GLENBROOK LIFE and Allstate Life entered into a reinsurance agreement effective June 5, 1992. Under the reinsurance agreement, Allstate Life reinsures substantially all of GLENBROOK LIFE'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 LIFE; GLENBROOK LIFE remains the sole obligor under the Contract to you. Independent rating agencies regularly evaluate life insurers' claims-paying ability, quality of investments, and overall stability. A.M. Best Company assigns an A+ (Superior) financial strength rating to Allstate Life, which results in an A+r rating to GLENBROOK LIFE due to the reinsurance agreement with Allstate Life mentioned above. Standard & Poor's Insurance Rating Services assigns an AA+ (Very Strong) financial strength rating and Moody's Investors Service assigns an Aa2 (Excellent) financial strength rating to GLENBROOK LIFE, sharing 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. 32 THE VARIABLE ACCOUNT GLENBROOK LIFE established the GLENBROOK LIFE Multi-Manager Variable Account on January 15, 1996. 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 LIFE. 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 LIFE. The Variable Account consists of multiple Variable Sub-Accounts. Each Variable Sub-Account invests in a corresponding Portfolio. 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 Portfolios. We may use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account. THE PORTFOLIOS DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value. VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Portfolios 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 Portfolios 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 Portfolio 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 Variable Sub-Account by the net asset value per share of the corresponding Portfolio. 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 Portfolio 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 PORTFOLIOS. If the shares of any of the Portfolios 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 Portfolio and substitute shares of another eligible investment portfolio. Any substitution of securities will comply with the requirements of the Investment Company Act of 1940. 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. Certain of the Portfolios 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 Portfolio. The boards of directors of these Portfolios monitor for possible conflicts among separate accounts buying shares of the Portfolios. 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, a Portfolio's board of directors may require a separate account to withdraw its participation in a Portfolio. A Portfolio's net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a separate account withdrawing because of a conflict. THE CONTRACT DISTRIBUTION. ALFS, Inc. ("ALFS"), located at 3100 Sanders Road, Northbrook, IL 60062-7154, serves as principal underwriter of the Contracts. ALFS is a wholly owned subsidiary of Allstate Life. ALFS is a registered broker dealer under the Securities and Exchange Act of 1934, as amended ("EXCHANGE ACT"), and is a member of the National Association of Securities Dealers, Inc. We will pay commissions to broker-dealers who sell the contracts. Commissions paid may vary, but we estimate 33 that the total commissions paid on all Contract sales will not exceed 8% of all purchase payments. These commissions are intended to cover distribution expenses. Sometimes, we also pay the broker-dealer a persistency bonus in addition to the standard commissions. A persistency bonus is not expected to exceed 0.25%, on an annual basis, of the Contract Values considered in connection with the bonus. 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 LIFE 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 within 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 Jorden Burt LLP, Washington, D.C., has advised GLENBROOK LIFE on certain federal securities law matters. All matters of state insurance law pertaining to the Contracts, including the validity of the Contracts and GLENBROOK LIFE's right to issue such Contracts under state insurance law, have been passed upon by Michael J. Velotta, General Counsel of GLENBROOK LIFE. 34 TAXES -------------------------------------------------------------------------------- THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. GLENBROOK LIFE 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 GLENBROOK LIFE AND ANNUITY COMPANY GLENBROOK LIFE 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 LIFE, and its operations form a part of GLENBROOK LIFE, it will not be taxed separately. 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 LIFE 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 LIFE does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore GLENBROOK LIFE does not intend to make provisions for any such taxes. If GLENBROOK LIFE is taxed on investment income or capital gains of the Variable Account, then GLENBROOK LIFE may impose a charge against the Variable Account in order to make provision for such taxes. 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 LIFE 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 does not enjoy tax deferral and is taxed as ordinary income received or accrued by the owner during the taxable year. 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) immediate annuity 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. 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 LIFE does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements. OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a contract owner 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 a broader selection of investment alternatives. Also, you may be able to transfer among investment alternatives more frequently than in such rulings. These differences could 35 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 LIFE 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. 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 full withdrawal under a non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract. 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. The Federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. 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. WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding the taxation of any additional withdrawal received after the Payout Start Date. It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine. DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide: 1. if any Contract Owner dies on or after the Payout 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 Contract Owner's death; 2. if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owner's death. These requirements are satisfied if any portion of the Contract Owner's interest that 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 1 year of the Contract Owner's death. If the Contract Owner's designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner. 3. if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract 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 Contract Owner. TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit 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 Income Plan, the amounts are taxed in the same manner as annuity payments. 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 591/2. However, no penalty tax is incurred on distributions: 1. made on or after the date the Contract Owner attains age 591/2, 2. made as a result of the Contract Owner's death or becoming totally disabled, 3. made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary, 4. made under an immediate annuity, or 5. attributable to investment in the Contract before August 14, 1982. You should consult a competent tax advisor to determine how these exceptions may apply to your situation. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, 36 any additional withdrawal or other modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owner's attaining age 591/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. You should consult a competent tax advisor prior to taking a withdrawal. TAX FREE EXCHANGES UNDER IRC SECTION 1035. A 1035 exchange is a tax-free exchange of a non-qualified life insurance contract, endowment contract or annuity contract for a new non-qualified annuity contract. The Contract Owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them. TAXATION OF OWNERSHIP CHANGES. 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 taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax. Currently we do not allow assignments. AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-qualified deferred annuity contracts issued by GLENBROOK LIFE (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution. INCOME TAX WITHHOLDING Generally, GLENBROOK LIFE is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. GLENBROOK LIFE is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory. Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number. TAX QUALIFIED CONTRACTS The income on qualified plan and IRA investments is tax deferred, and the income on variable annuities held by such plans does 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. 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 under Sections 401 and 403; and .. State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Section 457. GLENBROOK LIFE reserves the right to limit the availability of the Contract for use with any of the Qualified Plans listed above or to modify the Contract to conform with tax requirements. 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 certain transactions such as excess contributions, premature distributions, and, distributions that do not conform to specified commencement and minimum distribution rules. 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. TAXATION OF WITHDRAWALS FROM A QUALIFIED CONTRACT. If you make a partial withdrawal under a Qualified Contract other than a Roth IRA, 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. We do not keep track of nondeductible contributions, and all tax reporting of distributions from Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable. "QUALIFIED DISTRIBUTIONS" from Roth IRAs are not included in gross income. "Qualified distributions" are any distributions made more than five taxable years after 37 the taxable year of the first contribution to any Roth IRA and which are: .. made on or after the date the Contract Owner attains age 591/2, .. made to a beneficiary after the Contract Owner's death, .. attributable to the Contract Owner being disabled, or .. made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000). "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. All tax reporting of distributions from Roth IRAs will indicate that the taxable amount is not determined. REQUIRED MINIMUM DISTRIBUTIONS. Generally, qualified plans require minimum distributions upon reaching age 701/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the Contract. Not all income plans offered under the Contract satisfy the requirements for minimum distributions. Because these distributions are required under the Code and the method of calculation is complex, please see a competent tax advisor. THE DEATH BENEFIT AND QUALIFIED CONTRACTS. Pursuant to the Code and IRS regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may not invest in life insurance contracts. However, an IRA may provide a death benefit that equals the greater of the purchase payments or the Contract Value. The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or 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 satisfy the requirements of an IRA. We believe that these regulations do not prohibit all forms of optional death benefits. It is also possible that the certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under qualified plans, such as in connection with a 403(b) plan. GLENBROOK LIFE reserves the right to limit the availability of the Contract for use with any of the qualified plans listed above. PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM QUALIFIED CONTRACTS. A 10% penalty tax applies to the taxable amount of any premature distribution from a Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 591/2. However, no penalty tax is incurred on distributions: 1. made on or after the date the Contract Owner attains age 591/2, 2. made as a result of the Contract Owner's death or total disability, 3. made in substantially equal periodic payments over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary, 4. made pursuant to an IRS levy, 5. made for certain medical expenses, 6. made to pay for health insurance premiums while unemployed (only applies for IRAs), 7. made for qualified higher education expenses (only applies for IRAs), and 8. made for a first time home purchase (up to a $10,000 lifetime limit and only applies for IRAs). During the first 2 years of the individual's participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax. You should consult a competent tax advisor to determine how these exceptions may apply to your situation. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON QUALIFIED CONTRACTS. With respect to Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayer's attaining age 591/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. You should consult a competent tax advisor prior to taking a withdrawal. INCOME TAX WITHHOLDING ON QUALIFIED CONTRACTS. Generally, GLENBROOK LIFE is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered "ELIGIBLE ROLLOVER DISTRIBUTIONS." The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. GLENBROOK LIFE 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 38 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, 3. a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or, 4. hardship distributions. For all annuitized distributions that are not subject to the 20% withholding requirement, GLENBROOK LIFE is required to withhold federal income tax using the wage withholding rates from all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory. Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number. 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. 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. Subject to certain limitations, a traditional Individual Retirement Account or Annuity may be converted or "ROLLED OVER" to a Roth Individual Retirement Annuity. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions. SIMPLIFIED EMPLOYEE PENSION PLANS. Section 408(k) of the Code allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice. SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS). Sections 408(p) and 401(k) of the Code allow eligible 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 IRA 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. TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS (TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND YOUR COMPETENT TAX ADVISOR. TAX SHELTERED ANNUITIES. Section 403(b) of the Tax 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 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee: .. attains age 591/2, .. separates from service, .. dies, .. becomes disabled, or .. incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship). These limitations do not apply to withdrawals where GLENBROOK LIFE 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. Self-employed individuals may establish tax favored retirement plans for themselves and their employees. Such retirement plans (commonly referred to as "H.R.10" or "KEOGH") may permit the purchase of annuity contracts. 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. In eligible governmental plans, all assets and income must be held in a trust/ custodial account/annuity contract for the exclusive benefit of the participants and their beneficiaries. To the extent the Contracts are used in connection with a non-governmental eligible plan, employees are considered 39 general creditors of the employer and the employer as owner of the Contract has the sole right to the proceeds of the Contract. Under eligible 457 plans, contributions made for the benefit of the employees will not be includible in the employees' gross income until distributed from the plan. ANNUAL REPORTS AND OTHER DOCUMENTS -------------------------------------------------------------------------------- GLENBROOK LIFE's annual report on Form 10-K for the year ended December 31, 2001 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. 0001007285. 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 300 Milwaukee Ave, Vernon Hills, 60061 (telephone: 1-800-755-5275). EXPERTS -------------------------------------------------------------------------------- The financial statements of Glenbrook Life as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 and the related financial statement schedule incorporated herein by reference from the Annual Report on Form 10-K of Glenbrook Life and from the Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, incorporated herein by reference, and have been so incorporated 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, 2001 and for each of the periods in the two years then ended incorporated herein by reference from the Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, incorporated herein by reference and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. PERFORMANCE INFORMATION -------------------------------------------------------------------------------- We may advertise the performance of the Variable Sub-Accounts, including yield and total return information. 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. Yield refers to the income generated by an investment in a Variable Sub-Account over a specified period. 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 Portfolios for the periods beginning with the inception dates of the Portfolios 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 40 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. 41 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED* --------------------------------------------------------------------------------
For the Years Beginning January 1* and Ending December 31, ---------------------------------------------- SUB-ACCOUNTS 1998 1999 2000 2001 ------------------------------------------------------------------------------- AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.73 $ 12.66 $ 11.99 Accumulation Unit Value, End of Period $10.73 $ 12.66 $ 11.99 $ 10.50 Number of Units Outstanding, End of Period -- 7,487 52,646 90,025 AIM V.I. CORE EQUITY SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 $ 11.36 $ 15.09 $ 12.74 Accumulation Unit Value, End of Period $11.36 $ 15.09 $ 12.74 $ 9.72 Number of Units Outstanding, End of Period -- 12,180 53,747 73,192 AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.22 $ 9.91 $ 9.87 Accumulation Unit Value, End of Period $10.22 $ 9.91 $ 9.87 $ 10.10 Number of Units Outstanding, End of Period -- 721 721 721 AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.38 $ 9.85 $ 10.73 Accumulation Unit Value, End of Period $10.38 $ 9.85 $ 10.73 $ 11.28 Number of Units Outstanding, End of Period -- -- 2,954 12,908 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.83 $ 15.82 $ 12.43 Accumulation Unit Value, End of Period $11.83 $ 15.82 $ 12.43 $ 8.12 Number of Units Outstanding, End of Period -- 13,275 69,688 57,165 AIM V.I. INTERNATIONAL GROWTH SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 $ 10.68 $ 16.38 $ 11.92 Accumulation Unit Value, End of Period $10.68 $ 16.38 $ 11.92 $ 9.00 Number of Units Outstanding, End of Period -- -- 4,196 4,353 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 $ 11.52 $ 14.80 $ 12.49 Accumulation Unit Value, End of Period $11.52 $ 14.80 $ 12.49 $ 10.79 Number of Units Outstanding, End of Period -- 42,074 115,418 133,037 DREYFUS SOCIALLY RESPONSIBLE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.79 $ 14.40 $ 12.66 Accumulation Unit Value, End of Period $10.79 $ 14.40 $ 12.66 $ 9.692 Number of Units Outstanding, End of Period -- 3,130 5,459 2,854 DREYFUS STOCK INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.87 $ 12.97 $ 11.63 Accumulation Unit Value, End of Period $10.87 $ 12.97 $ 11.63 $ 10.098 Number of Units Outstanding, End of Period -- 9,930 23,030 17,916 DREYFUS VIF GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.65 $ 12.47 $ 11.86 Accumulation Unit Value, End of Period $10.65 $ 12.47 $ 11.86 $ 11.078 Number of Units Outstanding, End of Period -- 2,680 3,326 13,021 DREYFUS VIF MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.05 $ 10.40 $ 10.91 Accumulation Unit Value, End of Period $10.05 $ 10.40 $ 10.91 $ 11.211 Number of Units Outstanding, End of Period -- -- -- 33,552 42 FIDELITY VIP II CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.66 $ 14.33 $ 13.23 Accumulation Unit Value, End of Period $11.66 $ 14.33 $ 13.23 $ 11.473 Number of Units Outstanding, End of Period -- 18,963 101,434 128,908 FIDELITY VIP EQUITY INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.48 $ 11.02 $ 11.81 Accumulation Unit Value, End of Period $10.48 $ 11.02 $ 11.81 $ 11.096 Number of Units Outstanding, End of Period -- 30,264 100,008 169,933 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.20 $ 15.22 $ 13.40 Accumulation Unit Value, End of Period $11.20 $ 15.22 $ 13.40 $ 10.906 Number of Units Outstanding, End of Period -- 25,821 168,574 193,055 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 11.16 $ 8.55 Accumulation Unit Value, End of Period $10.43 $ 11.16 $ 8.55 $ 7.461 Number of Units Outstanding, End of Period -- 3,837 45,009 69,939 FRANKLIN SMALL CAP INVESTMENTS (CLASS 2) SUB-ACCOUNT(1)(3) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.70 -- Accumulation Unit Value, End of Period -- $ 12.70 $ 20.98 -- Number of Units Outstanding, End of Period -- -- 579 -- FRANKLIN SMALL CAP (CLASS 2) SUB-ACCOUNT(2)(3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 12.17 Accumulation Unit Value, End of Period -- -- $ 12.17 $ 17.574 Number of Units Outstanding, End of Period -- -- -- 1,478 GOLDMAN SACHS VIT CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.10 $ 13.99 $ 12.73 Accumulation Unit Value, End of Period $11.10 $ 13.99 $ 12.73 $ 10.763 Number of Units Outstanding, End of Period -- -- 573 573 GOLDMAN SACHS VIT CORE/(R)/ SMALL CAP EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.60 $ 12.36 $ 12.36 Accumulation Unit Value, End of Period $10.60 $ 12.36 $ 12.44 $ 12.851 Number of Units Outstanding, End of Period -- 86 717 716 GOLDMAN SACHS VIT CORE/(R)/ US EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.90 $ 13.46 $ 12.02 Accumulation Unit Value, End of Period $10.90 $ 13.46 $ 12.02 $ 10.466 Number of Units Outstanding, End of Period -- -- 317 159 GOLDMAN SACHS VIT GLOBAL INCOME SUB-ACCOUNT (7) Accumulation Unit Value, Beginning of Period $10.00 $ 9.67 $ 9.92 $ 10.70 Accumulation Unit Value, End of Period $ 9.67 $ 9.92 $ 10.70 $ 11.090 Number of Units Outstanding, End of Period -- -- 724 895 GOLDMAN SACHS VIT INTERNATONAL EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.84 $ 14.25 $ 12.24 Accumulation Unit Value, End of Period $10.84 $ 14.25 $ 12.24 $ 9.402 Number of Units Outstanding, End of Period -- -- 168 167 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.95 $ 20.88 $ 16.60 Accumulation Unit Value, End of Period $11.95 $ 20.88 $ 16.60 $ 10.91 Number of Units Outstanding, End of Period -- 1,059 58,025 104,779 MFS INVESTORS TRUST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.81 $ 11.41 $ 11.26 Accumulation Unit Value, End of Period $10.81 $ 11.41 $ 11.26 $ 9.35 Number of Units Outstanding, End of Period -- 6,295 15,337 MFS NEW DISCOVERY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.38 $ 19.52 $ 19.92 Accumulation Unit Value, End of Period $11.38 $ 19.52 $ 18.92 $ 17.76 Number of Units Outstanding, End of Period -- 183 3,146 6,802 43 MFS RESEARCH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.53 $ 10.85 Accumulation Unit Value, End of Period -- $ 11.53 $ 10.85 $ 8.45 Number of Units Outstanding, End of Period -- -- 15,842 60,264 MUTUAL SHARE SECURITIES (CLASS 2) SUB-ACCOUNT(2)(3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 20.98 Accumulation Unit Value, End of Period -- -- $ 20.98 14.930 Number of Units Outstanding, End of Period -- -- 579 6,817 MUTUAL SHARES INVESTMENTS (CLASS 2) SUB-ACCOUNT(1)(3) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.31 -- Accumulation Unit Value, End of Period -- $ 10.31 $ 10.19 -- Number of Units Outstanding, End of Period -- -- 4,984 -- OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.73 $ 12.05 Accumulation Unit Value, End of Period -- $ 13.73 $ 12.05 $ 8.19 Number of Units Outstanding, End of Period -- -- 24,920 55,945 OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.11 $ 11.95 Accumulation Unit Value, End of Period -- $ 12.11 $ 11.95 $ 10.329 Number of Units Outstanding, End of Period -- -- 53,426 146,217 OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.11 $ 13.62 Accumulation Unit Value, End of Period -- $ 13.11 $ 13.62 $ 11.846 Number of Units Outstanding, End of Period -- -- 60,421 91,989 OPPENHEIMER MAIN STREET GROWTH AND INCOME SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.78 $ 9.72 Accumulation Unit Value, End of Period -- $ 10.78 $ 9.729 $ 8.64 Number of Units Outstanding, End of Period -- -- 121,955 283,935 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.16 $ 10.31 Accumulation Unit Value, End of Period -- $ 10.16 $ 10.31 $ 10.69 Number of Units Outstanding, End of Period -- -- 28,736 56,563 TEMPLETON DEVELOPING MARKETS SECURITIES (CLASS 2) SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.16 $ 8.17 Accumulation Unit Value, End of Period -- $ 12.16 $ 8.17 7.426 Number of Units Outstanding, End of Period -- -- -- -- TEMPLETON FOREIGN SECURITIES SUB-ACCOUNT (1) (5) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.26 $ 11.39 Accumulation Unit Value, End of Period -- $ 11.26 $ 10.87 $ 9.027 Number of Units Outstanding, End of Period -- -- 438 2,780 TEMPLETON GROWTH SECURITIES SUB-ACCOUNT (2)(3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 13.59 Accumulation Unit Value, End of Period -- -- $ 13.59 $ 13.262 Number of Units Outstanding, End of Period -- -- 11,237 10,586 TEMPLETON STOCK (CLASS 2) SUB-ACCOUNT(1)(3) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.37 $ 11.42 Accumulation Unit Value, End of Period -- $ 11.37 $ 11.42 -- Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF EQUITY GROWTH SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.94 $ 15.09 $ 13.17 Accumulation Unit Value, End of Period $10.94 $ 15.09 $ 13.17 $ 11.049 Number of Units Outstanding, End of Period -- -- 162 -- VAN KAMPEN UIF CORE PLUS FIXED INCOME SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.15 $ 9.87 $ 10.49 Accumulation Unit Value, End of Period $10.15 $ 9.87 $ 10.49 $ 11.723 Number of Units Outstanding, End of Period -- -- -- -- 44 VAN KAMPEN UIF GLOBAL VALUE EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 10.73 $ 11.83 Accumulation Unit Value, End of Period $10.43 $ 10.73 $ 11.83 $ 10.874 Number of Units Outstanding, End of Period -- -- 959 -- VAN KAMPEN UIF MID CAP VALUE SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.96 $ 13.07 $ 14.32 Accumulation Unit Value, End of Period $10.96 $ 13.07 $ 14.32 $ 13.705 Number of Units Outstanding, End of Period -- -- 5,400 -- VAN KAMPEN UIF VALUE SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 9.95 $ 9.65 $ 11.93 Accumulation Unit Value, End of Period $ 9.95 $ 9.65 $ 11.93 $ 12.058 Number of Units Outstanding, End of Period -- -- 233 --
BASIC POLICY * The Contracts were first offered on November 10, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.05% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before November 10, 1998, except as described in the footnotes below. (1) Variable Sub-Accounts that commenced operations on Novemeber 1, 1999. (2) Variable Sub-Accounts that commenced operations on May 1, 2000. (3) Effective May 1, 2000, the Portfolios in which the Franklin Small Cap Investments (Class 2), Mutual Shares Investments (Class 2), and Templeton Stock (Class 2) Variable Sub-Accounts invested were merged into the Franklin Small Cap (Class 2), Mutual Shares Securities (Class 2), and the Templeton Growth Securities (Class 2) Portfolios. Accordingly, for administrative convenience, as of May 1, 2000, the corresponding Variable Sub-Accounts merged with and into new Variable Sub-Accounts named Franklin Small Cap (Class 2), Mutual Shares Securities (Class 2), and the Templeton Growth Securities (Class 2), respectively, with Accumulation Unit Values starting at $10.00. For each of the comparison, in this table we are continuing to show AUV's for the predecessor Variable Sub-Accounts. (4) Effective May 1, 2002 AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. (5) Effective May 1, 2002 the Templeton International Securities Fund - Class 2 changed its name to the Templeton Foreign Securities Fund - Class 2. (6) Effective May 1, 2002 the Portfolios have been re-branded and have changed names from Morgan Stanley UIF Fixed Income Portfolio to Van Kampen UIF Core Plus Fixed Income Portfolio, Morgan Stanley UIF Equity Growth Portfolio to Van Kampen UIF Equity Growth Portfolio, Morgan Stanley UIF Global Value Equity Porfolio to Van Kampen UIF Global Value Equity Portfolio, Morgan Stnaley International Magnum Portfolio to Van Kampen UIF International Magnum Portfolio, Morgan Stanley UIF Mid Cap Value Portfolio to Van Kampen UIF Mid Cap Value Portfolio, Morgan Stanley UIF U.S. Real Estate Portfolio to Van Kampen UIF U.S. Real Estate Portfolio and Morgan Stanley UIF Value Portfolio Van Kampen UIF Value Portfolio. (7) Goldman Sachs VIT Global Income Portfolio will not be available to new investors beginning May 1, 2002. 45 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED* -------------------------------------------------------------------------------- WITH ENHANCED DEATH BENEFIT RIDER
For the Years Beginning January 1* and Ending December 31, ---------------------------------------------- SUB-ACCOUNTS 1998 1999 2000 2001 ------------------------------------------------------------------------------- AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.73 $ 12.66 $ 11.99 Accumulation Unit Value, End of Period $10.73 $ 12.66 $ 11.99 $ 10.50 Number of Units Outstanding, End of Period -- 7,487 52,646 90,025 AIM V.I. CORE EQUITY SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 $ 11.36 $ 15.09 $ 12.74 Accumulation Unit Value, End of Period $11.36 $ 15.09 $ 12.74 $ 9.72 Number of Units Outstanding, End of Period -- 12,180 53,747 73,192 AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.22 $ 9.91 $ 9.87 Accumulation Unit Value, End of Period $10.22 $ 9.91 $ 9.87 $ 10.10 Number of Units Outstanding, End of Period -- 721 721 721 AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.38 $ 9.85 $ 10.73 Accumulation Unit Value, End of Period $10.38 $ 9.85 $ 10.73 $ 11.28 Number of Units Outstanding, End of Period -- -- 2,954 12,908 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.83 $ 15.82 $ 12.43 Accumulation Unit Value, End of Period $11.83 $ 15.82 $ 12.43 $ 8.12 Number of Units Outstanding, End of Period -- 13,275 69,688 57,165 AIM V.I. INTERNATIONAL GROWTH SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 $ 10.68 $ 16.38 $ 11.92 Accumulation Unit Value, End of Period $10.68 $ 16.38 $ 11.92 $ 9.00 Number of Units Outstanding, End of Period -- -- 4,196 43,53 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 $ 11.52 $ 14.80 $ 12.49 Accumulation Unit Value, End of Period $11.52 $ 14.80 $ 12.49 $ 10.79 Number of Units Outstanding, End of Period -- 42,074 115,418 133,037 DREYFUS SOCIALLY RESPONSIBLE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.78 $ 14.36 $ 12.60 Accumulation Unit Value, End of Period $10.78 $ 14.36 $ 12.60 $ 9.63 Number of Units Outstanding, End of Period -- 1,093 1,147 4,204 DREYFUS STOCK INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.87 $ 12.94 $ 11.58 Accumulation Unit Value, End of Period $10.87 $ 12.94 $ 11.58 $ 10.03 Number of Units Outstanding, End of Period -- 5,556 16,753 33,168 DREYFUS VIF GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.64 $ 12.43 $ 11.80 Accumulation Unit Value, End of Period $10.64 $ 12.43 $ 11.80 $ 10.962 Number of Units Outstanding, End of Period -- -- -- 4,754 DREYFUS VIF MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.04 $ 10.38 $ 10.86 Accumulation Unit Value, End of Period $10.04 $ 10.38 $ 10.86 $ 11.134 Number of Units Outstanding, End of Period -- -- 4,766 53,563 46 FIDELITY VIP II CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.66 $ 14.29 $ 13.16 Accumulation Unit Value, End of Period $11.66 $ 14.29 $ 13.16 $ 11.394 Number of Units Outstanding, End of Period -- 30,660 158,502 154,780 FIDELITY VIP EQUITY INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.47 $ 10.99 $ 11.76 Accumulation Unit Value, End of Period $10.47 $ 10.99 $ 11.76 $ 11.020 Number of Units Outstanding, End of Period -- 17,530 80,075 140,070 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.20 $ 15.19 $ 13.33 Accumulation Unit Value, End of Period $11.20 $ 15.19 $ 13.33 10.831 Number of Units Outstanding, End of Period -- 45,514 210,159 224,251 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 11.13 $ 8.51 Accumulation Unit Value, End of Period $10.43 $ 11.13 $ 8.51 $ 7.411 Number of Units Outstanding, End of Period -- 3,914 55,337 76,456 FRANKLIN SMALL CAP INVESTMENTS (CLASS 2) SUB-ACCOUNT(1)(3) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.67 -- Accumulation Unit Value, End of Period -- $ 12.67 $ 20.95 -- Number of Units Outstanding, End of Period -- -- 158 -- FRANKLIN SMALL CAP (CLASS 2) SUB-ACCOUNT(2)(3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 12.16 Accumulation Unit Value, End of Period -- -- $ 12.16 $ 17.509 Number of Units Outstanding, End of Period -- -- -- 1,637 GOLDMAN SACHS VIT CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.09 $ 13.95 $ 12.67 Accumulation Unit Value, End of Period $11.09 $ 13.95 $ 12.67 $ 10.689 Number of Units Outstanding, End of Period -- -- -- 12,933 GOLDMAN SACHS VIT CORE/(R)/SMALL CAP EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.60 $ 12.36 $ 12.38 Accumulation Unit Value, End of Period $10.60 $ 12.36 $ 12.38 $ 12.674 Number of Units Outstanding, End of Period -- -- -- -- GOLDMAN SACHS VIT CORE/(R)/ US EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.89 $ 13.46 $ 11.97 Accumulation Unit Value, End of Period $10.89 $ 13.46 $ 11.97 $ 10.394 Number of Units Outstanding, End of Period -- -- -- 514 GOLDMAN SACHS VIT GLOBAL INCOME SUB-ACCOUNT (7) Accumulation Unit Value, Beginning of Period $10.00 $ 9.67 $ 9.90 $ 14.28 Accumulation Unit Value, End of Period $ 9.67 $ 9.90 $ 14.28 $ 11.013 Number of Units Outstanding, End of Period -- -- -- 9,473 GOLDMAN SACHS VIT INTERNATONAL EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.84 $ 14.22 $ 12.18 Accumulation Unit Value, End of Period $10.84 $ 14.22 $ 12.18 $ 9.338 Number of Units Outstanding, End of Period -- -- 272 204 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.95 $ 20.83 $ 16.52 Accumulation Unit Value, End of Period $11.95 $ 20.83 $ 16.52 $ 10.84 Number of Units Outstanding, End of Period -- 3,068 78,095 112,839 MFS INVESTORS TRUST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.81 $ 11.38 $ 11.21 Accumulation Unit Value, End of Period $10.81 $ 11.38 $ 11.21 $ 9.29 Number of Units Outstanding, End of Period -- 3,323 23,834 35,987 MFS NEW DISCOVERY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.38 $ 19.47 $ 18.83 Accumulation Unit Value, End of Period $11.38 $ 19.47 $ 18.83 $ 17.64 Number of Units Outstanding, End of Period -- 1,669 2,029 11,438 47 MFS RESEARCH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.52 $ 10.82 Accumulation Unit Value, End of Period -- $ 11.52 $ 10.82 $ 8.40 Number of Units Outstanding, End of Period -- -- 27,212 48,292 MUTUAL SHARE SECURITIES (CLASS 2) SUB-ACCOUNT(2)(3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 14.09 Accumulation Unit Value, End of Period -- -- $ 14.09 14.876 Number of Units Outstanding, End of Period -- -- 4,988 1,904 MUTUAL SHARES INVESTMENTS CLASS (2) SUB-ACCOUNT(1)(3) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.31 -- Accumulation Unit Value, End of Period -- -- $ 10.31 -- Number of Units Outstanding, End of Period -- -- -- -- OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.72 $ 12.02 Accumulation Unit Value, End of Period -- $ 13.72 $ 12.02 $ 8.15 Number of Units Outstanding, End of Period -- -- 33,424 67,549 OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.11 $ 11.92 Accumulation Unit Value, End of Period -- $ 12.11 $ 11.92 $ 10.28 Number of Units Outstanding, End of Period -- -- 25,674 80,173 OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.10 $ 13.59 Accumulation Unit Value, End of Period -- $ 13.10 $ 13.59 $ 11.79 Number of Units Outstanding, End of Period -- -- 32,776 78,891 OPPENHEIMER MAIN STREET GROWTH AND INCOME SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.77 $ 9.70 Accumulation Unit Value, End of Period -- $ 10.77 $ 9.70 $ 8.60 Number of Units Outstanding, End of Period -- -- 139,125 263,407 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.16 $ 10.29 Accumulation Unit Value, End of Period -- $ 10.16 $ 10.29 $ 10.64 Number of Units Outstanding, End of Period -- -- 19,035 64,322 TEMPLETON DEVELOPING MARKETS SECURITIES (CLASS 2) SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.16 $ 8.15 Accumulation Unit Value, End of Period -- $ 12.16 $ 8.15 $ 7.356 Number of Units Outstanding, End of Period -- -- -- -- TEMPLETON FOREIGN EQUITY SECURITIES SUB-ACCOUNT (1)(5) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.25 $ 10.84 Accumulation Unit Value, End of Period -- $ 11.25 $ 10.84 $ 8.984 Number of Units Outstanding, End of Period -- -- 1,773 2,056 TEMPLETON GROWTH SECURITIES SUB-ACCOUNT (2)(3) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.36 $ 13.57 Accumulation Unit Value, End of Period -- $ 11.36 $ 13.57 $ 13.21 Number of Units Outstanding, End of Period -- -- 6,599 10,369 TEMPLETON STOCK (CLASS 2) SUB-ACCOUNT(1)(3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 -- Accumulation Unit Value, End of Period -- -- $ 11.40 -- Number of Units Outstanding, End of Period -- -- 0 -- VAN KAMPEN UIF EQUITY GROWTH SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.94 $ 15.05 $ 13.11 Accumulation Unit Value, End of Period $10.94 $ 15.05 $ 13.11 $ 10.897 Number of Units Outstanding, End of Period -- 1,953 1,953 -- VAN KAMPEN UIF CORE PLUS FIXED INCOME SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.15 $ 9.85 $ 10.80 Accumulation Unit Value, End of Period $10.15 $ 9.85 $ 10.80 $ 11.562 Number of Units Outstanding, End of Period -- 1,566 4,181 -- 48 VAN KAMPEN UIF GLOBAL VALUE EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 10.71 $ 11.78 Accumulation Unit Value, End of Period $10.43 $ 10.71 $ 11.78 $ 10.724 Number of Units Outstanding, End of Period -- -- 245 -- VAN KAMPEN UIF MID CAP VALUE SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.96 $ 13.04 $ 14.25 Accumulation Unit Value, End of Period $10.96 $ 13.04 $ 14.25 $ 13.517 Number of Units Outstanding, -- -- -- -- End of Period ------------------------------------------------------------------------------- VAN KAMPEN UIF VALUE SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 9.95 $ 9.63 $ 11.87 Accumulation Unit Value, End of Period $ 9.95 $ 9.63 $ 11.87 $ 11.892 Number of Units Outstanding, End of Period -- 903 903 --
* The Contracts were first offered on November 10, 1998. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.27% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before November 10, 1998 except as described in the footnotes below. (1) Variable Sub-Accounts that commenced operations on Novemeber 1, 1999. (2) Variable Sub-Accounts that commenced operations on May 1, 2000. (3) Effective May 1, 2000, the Portfolios in which the Franklin Small Cap Investments (Class 2), Mutual Shares Investments (Class 2), and Templeton Stock (Class 2) Variable Sub-Accounts invested were merged into the Franklin Small Cap (Class 2), Mutual Shares Securities (Class 2), and the Templeton Growth Securities (Class 2) Portfolios. Accordingly, for administrative convenience, as of May 1, 2000, the corresponding Variable Sub-Accounts merged with and into new Variable Sub-Accounts named Franklin Small Cap (Class 2), Mutual Shares Securities (Class 2), and the Templeton Growth Securities (Class 2), respectively, with Accumulation Unit Values starting at $10.00. For each of the comparison, in this table we are continuing to show AUV's for the predecessor Variable Sub-Accounts. (4) Effective May 1, 2002 AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. (5) Effective May 1, 2002 the Templeton International Securities Fund - Class 2 changed its name to the Templeton Foreign Securities Fund - Class 2. (6) Effective May 1, 2002 the Portfolios have been re-branded and have changed names from Morgan Stanley UIF Fixed Income Portfolio to Van Kampen UIF Core Plus Fixed Income Portfolio, Morgan Stanley UIF Equity Growth Portfolio to Van Kampen UIF Equity Growth Portfolio, Morgan Stanley UIF Global Value Equity Porfolio to Van Kampen UIF Global Value Equity Portfolio, Morgan Stnaley International Magnum Portfolio to Van Kampen UIF International Magnum Portfolio, Morgan Stanley UIF Mid Cap Value Portfolio to Van Kampen UIF Mid Cap Value Portfolio, Morgan Stanley UIF U.S. Real Estate Portfolio to Van Kampen UIF U.S. Real Estate Portfolio and Morgan Stanley UIF Value Portfolio Van Kampen UIF Value Portfolio. (7) Goldman Sachs VIT Global Income Portfolio will not be available to new investors beginning May 1, 2002. 49 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED* -------------------------------------------------------------------------------- WITH ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER (FOR CONTRACTS ISSUED BEFORE 9/22/00)
For the Years Beginning January 1* and Ending December 31, ---------------------------------------------- SUB-ACCOUNTS 1998 1999 2000 2001 ------------------------------------------------------------------------------- AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.73 $ 12.66 $ 11.99 Accumulation Unit Value, End of Period $10.73 $ 12.66 $ 11.99 $ 10.50 Number of Units Outstanding, End of Period -- 7,487 52,646 90,025 AIM V.I.CORE EQUITY SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 $ 11.36 $ 15.09 $ 12.74 Accumulation Unit Value, End of Period $11.36 $ 15.09 $ 12.74 $ 9.72 Number of Units Outstanding, End of Period -- 12,180 53,747 73,192 AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.22 $ 9.91 $ 9.87 Accumulation Unit Value, End of Period $10.22 $ 9.91 $ 9.87 $ 10.10 Number of Units Outstanding, End of Period -- 721 721 721 AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.38 $ 9.85 $ 10.73 Accumulation Unit Value, End of Period $10.38 $ 9.85 $ 10.73 $ 11.28 Number of Units Outstanding, End of Period -- -- 2,954 12,908 AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.83 $ 15.82 $ 12.43 Accumulation Unit Value, End of Period $11.83 $ 15.82 $ 12.43 $ 8.12 Number of Units Outstanding, End of Period -- 13,275 69,688 57,165 AIM V.I. INTERNATIONAL GROWTH SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 $ 10.68 $ 16.38 $ 11.92 Accumulation Unit Value, End of Period $10.68 $ 16.38 $ 11.92 $ 9.00 Number of Units Outstanding, End of Period -- -- 4,196 43,53 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $10.00 $ 11.52 $ 14.80 $ 12.49 Accumulation Unit Value, End of Period $11.52 $ 14.80 $ 12.49 $ 10.79 Number of Units Outstanding, End of Period -- 42,074 115,418 133,037 DREYFUS SOCIALLY RESPONSIBLE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.78 $ 14.33 $ 12.55 Accumulation Unit Value, End of Period $10.78 $ 14.33 $ 12.55 $ 9.56 Number of Units Outstanding, End of Period -- 5,493 7,121 6,350 DREYFUS STOCK INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.87 $ 12.90 $ 11.52 Accumulation Unit Value, End of Period $10.87 $ 12.90 $ 11.52 $ 9.96 Number of Units Outstanding, End of Period 401 19,955 21,326 19,024 DREYFUS VIF GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.64 $ 12.40 $ 11.75 Accumulation Unit Value, End of Period $10.64 $ 12.40 $ 11.75 $ 10.886 Number of Units Outstanding, End of Period -- 3,983 3,676 3,568 DREYFUS VIF MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.04 $ 10.36 $ 10.81 Accumulation Unit Value, End of Period $10.04 $ 10.36 $ 10.81 $ 11.057 Number of Units Outstanding, End of Period -- 577 489 16,157 50 FIDELITY VIP II CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.65 $ 14.26 $ 13.10 Accumulation Unit Value, End of Period $11.65 $ 14.26 $ 13.10 $ 11.315 Number of Units Outstanding, End of Period 387 32,161 13,1791 134,375 FIDELITY VIP EQUITY INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.47 $ 10.96 $ 11.70 Accumulation Unit Value, End of Period $10.47 $ 10.96 $ 11.70 $ 10.944 Number of Units Outstanding, End of Period -- 11,621 45,849 55,016 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.19 $ 15.15 $ 13.27 Accumulation Unit Value, End of Period $11.19 $ 15.15 $ 13.27 $ 10.756 Number of Units Outstanding, End of Period -- 22,088 151,189 149,935 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.43 $ 11.10 $ 8.47 Accumulation Unit Value, End of Period $10.43 $ 11.10 $ 8.47 $ 7.359 Number of Units Outstanding, End of Period -- 3,667 31,190 24,128 FRANKLIN SMALL CAP INVESTMENTS (CLASS 2) SUB-ACCOUNT(1)(3) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.66 -- Accumulation Unit Value, End of Period -- $ 12.66 $ 20.95 -- Number of Units Outstanding, End of Period -- -- 158 -- FRANKLIN SMALL CAP (CLASS 2) SUB-ACCOUNT(2)(3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 12.16 Accumulation Unit Value, End of Period -- -- $ 12.16 $ 17.509 Number of Units Outstanding, End of Period -- -- -- -- GOLDMAN SACHS VIT CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.09 $ 13.92 $ 12.61 Accumulation Unit Value, End of Period $11.09 $ 13.92 $ 12.61 $ 10.615 Number of Units Outstanding, End of Period -- 2,449 41,73 2,958 GOLDMAN SACHS VIT CORE/(R)/ SMALL CAP EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.59 $ 12.30 $ 12.32 Accumulation Unit Value, End of Period $10.59 $ 12.30 $ 12.32 $ 12.674 Number of Units Outstanding, End of Period -- 17,918 18,069 17,077 GOLDMAN SACHS VIT CORE/(R)/ US EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.89 $ 13.39 $ 11.91 Accumulation Unit Value, End of Period $10.89 $ 13.39 $ 11.91 $ 10.322 Number of Units Outstanding, End of Period 401 20,515 23,250 20,215 GOLDMAN SACHS VIT GLOBAL INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 9.66 $ 9.87 $ 10.60 Accumulation Unit Value, End of Period $ 9.66 $ 9.87 $ 10.60 $ 11.013 Number of Units Outstanding, End of Period -- -- -- -- GOLDMAN SACHS VIT INTERNATONAL EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.84 $ 14.18 $ 12.12 Accumulation Unit Value, End of Period $10.84 $ 14.18 $ 12.12 $ 9.273 Number of Units Outstanding, End of Period -- -- 1,812 1,812 MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.94 $ 20.78 $ 16.44 Accumulation Unit Value, End of Period $11.94 $ 20.78 $ 16.44 $ 10.76 Number of Units Outstanding, End of Period 377 19,189 63,991 65,183 MFS INVESTORS TRUST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 10.81 $ 11.35 $ 11.16 Accumulation Unit Value, End of Period $10.81 $ 11.35 $ 11.16 $ 9.23 Number of Units Outstanding, End of Period -- 4,808 11,160 9,277 MFS NEW DISCOVERY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $10.00 $ 11.38 $ 19.42 $ 18.74 Accumulation Unit Value, End of Period $11.38 $ 19.42 $ 18.74 $ 17.51 Number of Units Outstanding, End of Period -- 707 1,509 -- 51 MFS RESEARCH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.52 $ 10.79 Accumulation Unit Value, End of Period -- $ 11.52 $ 10.79 $ 8.365 Number of Units Outstanding, End of Period -- -- 60,709 -- MUTUAL SHARE SECURITIES (CLASS 2) SUB-ACCOUNT(2)(3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 14.07 Accumulation Unit Value, End of Period -- -- $ 14.07 $ 15.42 Number of Units Outstanding, End of Period -- -- 4,992 -- MUTUAL SHARES INVESTMENTS CLASS (2) SUB-ACCOUNT(1)(3) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.30 -- Accumulation Unit Value, End of Period -- -- $ 10.30 -- Number of Units Outstanding, End of Period -- -- -- -- OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.72 $ 11.99 Accumulation Unit Value, End of Period -- $ 13.72 $ 11.99 $ 8.11 Number of Units Outstanding, End of Period -- -- 38,398 42,643 OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.10 $ 11.89 Accumulation Unit Value, End of Period -- $ 12.10 $ 11.89 $ 10.23 Number of Units Outstanding, End of Period -- -- 35,976 43,914 OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 13.10 $ 13.55 Accumulation Unit Value, End of Period -- $ 13.10 $ 13.55 $ 11.73 Number of Units Outstanding, End of Period -- -- 33,241 33,299 OPPENHEIMER MAIN STREET GROWTH AND INCOME SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.77 $ 9.67 Accumulation Unit Value, End of Period -- $ 10.77 $ 9.67 $ 8.55 Number of Units Outstanding, End of Period -- -- 130,587 144,668 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 10.15 $ 10.26 Accumulation Unit Value, End of Period -- $ 10.15 $ 10.26 $ 10.59 Number of Units Outstanding, End of Period -- -- 19,624 26,549 TEMPLETON DEVELOPING MARKETS SECURITIES (CLASS 2) SUB-ACCOUNT(1) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 12.15 $ 8.13 Accumulation Unit Value, End of Period -- $ 12.15 $ 8.13 $ 7.48 Number of Units Outstanding, End of Period -- -- -- -- TEMPLETON FOREIGN SECURITIES SUB-ACCOUNT (1)(5) Accumulation Unit Value, Beginning of Period -- $ 10.00 $ 11.25 $ 10.82 Accumulation Unit Value, End of Period -- $ 11.25 $ 10.82 $ 9.64 Number of Units Outstanding, End of Period -- -- -- -- TEMPLETON GROWTH SECURITIES SUB-ACCOUNT (2)(3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 $ 13.55 Accumulation Unit Value, End of Period -- -- $ 13.55 $ 13.17 Number of Units Outstanding, End of Period -- -- 9,457 10,221 TEMPLETON STOCK (CLASS 2) SUB-ACCOUNT(1)(3) Accumulation Unit Value, Beginning of Period -- -- $ 10.00 -- Accumulation Unit Value, End of Period -- -- $ 11.39 -- Number of Units Outstanding, End of Period -- -- 0 -- VAN KAMPEN UIF CORE PLUS FIXED INCOME SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.15 $ 9.82 $ 10.75 Accumulation Unit Value, End of Period $10.15 $ 9.82 $ 10.75 $ 11.642 Number of Units Outstanding, End of Period -- -- -- -- VAN KAMPEN UIF EQUITY GROWTH SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.94 $ 15.02 $ 13.04 Accumulation Unit Value, End of Period $10.94 $ 15.02 $ 13.04 $ 10.973 Number of Units Outstanding, End of Period 406 7,464 11,011 -- 52 VAN KAMPEN UIF GLOBAL VALUE EQUITY SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.42 $ 10.69 $ 11.72 Accumulation Unit Value, End of Period $10.42 $ 10.69 $ 11.72 $ 10.799 Number of Units Outstanding, End of Period -- 245 363 -- VAN KAMPEN UIF MID CAP VALUE SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 10.96 $ 13.01 $ 14.18 Accumulation Unit Value, End of Period $10.96 $ 13.01 $ 14.18 $ 13.611 Number of Units Outstanding, End of Period -- 1,788 4,089 -- VAN KAMPEN UIF VALUE SUB-ACCOUNT (6) Accumulation Unit Value, Beginning of Period $10.00 $ 9.95 $ 9.61 $ 11.82 Accumulation Unit Value, End of Period $ 9.95 $ 9.61 $ 11.82 $ 11.975 Number of Units Outstanding, End of Period -- 17,465 16,697 --
* The Contracts were first offered on November 10, 1998. The Accumulation Unit Values in this table reflect a Mortality and expense risk charge of 1.49% and an administrative expense charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before November 10, 1998 except as described in the footnotes below. (1) Variable Sub-Accounts that commenced operations on Novemeber 1, 1999. (2) Variable Sub-Accounts that commenced operations on May 1, 2000. (3) Effective May 1, 2000, the Portfolios in which the Franklin Small Cap Investments (Class 2), Mutual Shares Investments (Class 2), and Templeton Stock (Class 2) Variable Sub-Accounts invested were merged into the Franklin Small Cap (Class 2), Mutual Shares Securities (Class 2), and the Templeton Growth Securities (Class 2) Portfolios. Accordingly, for administrative convenience, as of May 1, 2000, the corresponding Variable Sub-Accounts merged with and into new Variable Sub-Accounts named Franklin Small Cap (Class 2), Mutual Shares Securities (Class 2), and the Templeton Growth Securities (Class 2), respectively, with Accumulation Unit Values starting at $10.00. For each of the comparison, in this table we are continuing to show AUV's for the predecessor Variable Sub-Accounts. (4) Effective May 1, 2002 AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. (5) Effective May 1, 2002 the Templeton International Securities Fund - Class 2 changed its name to the Templeton Foreign Securities Fund - Class 2. (6) Effective May 1, 2002 the Portfolios have been re-branded and have changed names from Morgan Stanley UIF Fixed Income Portfolio to Van Kampen UIF Core Plus Fixed Income Portfolio, Morgan Stanley UIF Equity Growth Portfolio to Van Kampen UIF Equity Growth Portfolio, Morgan Stanley UIF Global Value Equity Porfolio to Van Kampen UIF Global Value Equity Portfolio, Morgan Stnaley International Magnum Portfolio to Van Kampen UIF International Magnum Portfolio, Morgan Stanley UIF Mid Cap Value Portfolio to Van Kampen UIF Mid Cap Value Portfolio, Morgan Stanley UIF U.S. Real Estate Portfolio to Van Kampen UIF U.S. Real Estate Portfolio and Morgan Stanley UIF Value Portfolio Van Kampen UIF Value Portfolio. (7) Goldman Sachs VIT Global Income Portfolio will not be available to new investors beginning May 1, 2002. 53 APPENDIX A ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT SINCE CONTRACTS WERE FIRST OFFERED* -------------------------------------------------------------------------------- WITH ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER II (FOR CONTRACTS ISSUED ON OR AFTER 9/22/00)
For the Years Beginning January 1* and Ending December 31, ------------------------------------------- SUB-ACCOUNTS 1998 1999 2000 2001 ------------------------------------------------------------------------------- AIM V.I. BALANCED SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.21 Accumulation Unit Value, End of Period $ 9.21 $ 8.024 Number of Units Outstanding, End of Period 4,545 61,468 AIM V.I.CORE EQUITY SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.06 Accumulation Unit Value, End of Period $ 8.06 $ 6.117 Number of Units Outstanding, End of Period 20,079 104,459 AIM V.I. DIVERSIFIED INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 7.80 Accumulation Unit Value, End of Period $ 7.80 $ 10.297 Number of Units Outstanding, End of Period 34,530 -- AIM V.I. GOVERNMENT SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.43 Accumulation Unit Value, End of Period $ 10.43 $ 10.785 Number of Units Outstanding, End of Period -- -- AIM V.I. GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 7.52 Accumulation Unit Value, End of Period $ 7.52 $ 4.890 Number of Units Outstanding, End of Period 32,771 133,470 AIM V.I. INTERNATIONAL GROWTH SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.32 Accumulation Unit Value, End of Period $ 8.32 $ 6.255 Number of Units Outstanding, End of Period -- 1,446 AIM V.I. PREMIER EQUITY SUB-ACCOUNT (1) Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.54 Accumulation Unit Value, End of Period $ 8.54 $ 7.345 Number of Units Outstanding, End of Period 22,904 96,014 DREYFUS SOCIALLY RESPONSIBLE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.42 Accumulation Unit Value, End of Period $ 8.42 $ 6.410 Number of Units Outstanding, End of Period -- 2,161 DREYFUS STOCK INDEX SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.83 Accumulation Unit Value, End of Period $ 8.83 $ 7.626 Number of Units Outstanding, End of Period 403 5,634 DREYFUS VIF GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.38 Accumulation Unit Value, End of Period $ 9.38 $ 8.683 Number of Units Outstanding, End of Period -- 6,523 54 DREYFUS VIF MONEY MARKET SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.17 Accumulation Unit Value, End of Period $ 10.17 $ 10.400 Number of Units Outstanding, End of Period 8,743 10,868 FIDELITY VIP CONTRAFUND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.23 Accumulation Unit Value, End of Period $ 9.23 $ 7.970 Number of Units Outstanding, End of Period 14,991 80,328 FIDELITY VIP EQUITY INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.42 Accumulation Unit Value, End of Period $ 10.42 $ 9.741 Number of Units Outstanding, End of Period 17,198 42,652 FIDELITY VIP GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.37 Accumulation Unit Value, End of Period $ 8.37 $ 6.782 Number of Units Outstanding, End of Period 21,583 76,935 FIDELITY VIP HIGH INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.30 Accumulation Unit Value, End of Period 8.30 $ 7.209 Number of Units Outstanding, End of Period 102 4,442 FRANKLIN SMALL CAP INVESTMENTS (CLASS 2) SUB-ACCOUNT(1)(3) Accumulation Unit Value, Beginning of Period Accumulation Unit Value, End of Period Number of Units Outstanding, End of Period GOLDMAN SACHS VIT CAPITAL GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.76 Accumulation Unit Value, End of Period $ 8.76 $ 7.737 Number of Units Outstanding, End of Period 1,593 4,137 GOLDMAN SACHS VIT CORE/(R)/ SMALL CAP EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.61 Accumulation Unit Value, End of Period $ 9.61 $ 9.88 Number of Units Outstanding, End of Period -- 4,499 GOLDMAN SACHS VIT CORE US EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.81 Accumulation Unit Value, End of Period $ 8.81 $ 7.627 Number of Units Outstanding, End of Period 1,916 4,493 GOLDMAN SACHS VIT GLOBAL INCOME SUB-ACCOUNT (4) Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.36 Accumulation Unit Value, End of Period $ 10.36 10.682 Number of Units Outstanding, End of Period -- -- GOLDMAN SACHS VIT INTERNATONAL EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.09 Accumulation Unit Value, End of Period $ 9.09 $ 6.952 Number of Units Outstanding, End of Period -- -- MFS EMERGING GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.08 Accumulation Unit Value, End of Period $ 8.08 $ 5.286 Number of Units Outstanding, End of Period 11,866 61,761 MFS INVESTORS TRUST SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.64 Accumulation Unit Value, End of Period $ 9.64 $ 7.965 Number of Units Outstanding, End of Period 576 15,527 MFS NEW DISCOVERY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.55 55 Accumulation Unit Value, End of Period $ 9.55 $ 8.923 Number of Units Outstanding, End of Period -- 4,370 MFS RESEARCH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.61 Accumulation Unit Value, End of Period $ 8.61 $ 6.666 Number of Units Outstanding, End of Period 11,698 70,874 MUTUAL SHARE SECURITIES (CLASS 2) SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.45 Accumulation Unit Value, End of Period $ 10.45 $ 11.00 Number of Units Outstanding, End of Period -- 2,884 OPPENHEIMER AGGRESSIVE GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 6.94 Accumulation Unit Value, End of Period $ 6.94 $ 4.694 Number of Units Outstanding, End of Period 8,000 54,096 OPPENHEIMER CAPITAL APPRECIATION SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.92 Accumulation Unit Value, End of Period $ 8.92 $ 7.667 Number of Units Outstanding, End of Period 18937 81840 OPPENHEIMER GLOBAL SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.41 Accumulation Unit Value, End of Period $ 9.41 $ 8.142 Number of Units Outstanding, End of Period 2,457 16,839 OPPENHEIMER MAIN STREET GROWTH AND INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.72 Accumulation Unit Value, End of Period $ 8.72 $ 7.702 Number of Units Outstanding, End of Period 33,469 16,839 OPPENHEIMER STRATEGIC BOND SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.88 Accumulation Unit Value, End of Period $ 9.88 $ 10.184 Number of Units Outstanding, End of Period 976 34,123 TEMPLETON DEVELOPING MARKETS SECURITIES (CLASS 2) SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.17 Accumulation Unit Value, End of Period $ 8.17 $ 7.507 Number of Units Outstanding, End of Period -- -- TEMPLETON FOREIGN SECURITIES SUB-ACCOUNT(2) Accumulation Unit Value, Beginning of Period 10.00 9.60 Accumulation Unit Value, End of Period $ 9.60 $ 8.548 Number of Units Outstanding, End of Period -- -- TEMPLETON GROWTH SECURITIES SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.00 Accumulation Unit Value, End of Period $ 10.00 $ 9.703 Number of Units Outstanding, End of Period 2,289 2,050 VAN KAMPEN UIF EQUITY GROWTH SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 8.06 Accumulation Unit Value, End of Period $ 8.06 6.727 Number of Units Outstanding, End of Period 2,971 -- VAN KAMPEN UIF CORE PLUS FIXED INCOME SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.49 Accumulation Unit Value, End of Period $ 10.49 11.275 Number of Units Outstanding, End of Period -- -- VAN KAMPEN UIF GLOBAL EQUITY SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 10.50 Accumulation Unit Value, End of Period $ 10.50 9.601 Number of Units Outstanding, End of Period -- -- 56 VAN KAMPEN UIF MID CAP VALUE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 9.92 Accumulation Unit Value, End of Period $ 9.92 9.452 Number of Units Outstanding, End of Period 1,841 -- VAN KAMPEN UIF VALUE SUB-ACCOUNT Accumulation Unit Value, Beginning of Period $ 10.00 $ 11.65 Accumulation Unit Value, End of Period $ 11.65 11.718 Number of Units Outstanding, End of Period -- --
* The Contracts with the Enhanced Death and Income Benefit Combination Rider II were first offered on September 22, 2000. The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.55% and an administrative charge of 0.10%. All of the Variable Sub-Accounts commenced operations on or before September 22, 2000, except as described in the footnotes below. (1) Effective May 1, 2002 AIM V.I. Growth and Income Fund, AIM V.I. International Equity Fund and AIM V.I. Value Fund changed their names to the AIM V.I. Core Equity Fund, AIM V.I. International Growth Fund and AIM V.I. Premier Equity Fund, respectively. (2) Effective May 1, 2002 the Templeton International Securities Fund - Class 2 changed its name to the Templeton Foreign Securities Fund - Class 2. (3) Effective May 1, 2002 the Portfolios have been re-branded and have changed names from Morgan Stanley UIF Fixed Income Portfolio to Van Kampen UIF Core Plus Fixed Income Portfolio, Morgan Stanley UIF Equity Growth Portfolio to Van Kampen UIF Equity Growth Portfolio, Morgan Stanley UIF Global Value Equity Porfolio to Van Kampen UIF Global Value Equity Portfolio, Morgan Stnaley International Magnum Portfolio to Van Kampen UIF International Magnum Portfolio, Morgan Stanley UIF Mid Cap Value Portfolio to Van Kampen UIF Mid Cap Value Portfolio, Morgan Stanley UIF U.S. Real Estate Portfolio to Van Kampen UIF U.S. Real Estate Portfolio and Morgan Stanley UIF Value Portfolio Van Kampen UIF Value Portfolio. (4) Goldman Sachs VIT Global Income Portfolio will not be available to new investors beginning May 1, 2002. 57 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. *If a U.S. Treasury Note ("Note") with a maturity of the Guarantee Period is not available, we will determine an appropriate interest rate based on an interpolation of the next shortest duration and next longest duration Notes. The Market Value Adjustment factor is determined from the following formula: .9 X [I-(J + .0025)] 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. 58 EXAMPLES OF MARKET VALUE ADJUSTMENT -------------------------------------------------------------------------------- Purchase Payment: $10,000 allocated to a Guarantee Period Guarantee Period: 5 years Interest Rate: 4.50% Full Surrender: End of Contract Year 3 NOTE: These examples assume that premium taxes are not applicable.
Step 1. Calculate Contract Value at $10,000.00 X (1.045)/3 /= $11,411.66 End of Contract Year 3: Step 2. Calculate the Free Withdrawal .15 X ($10,000.00) = $1,500.00 Amount: Step 3: Calculate the Withdrawal I = 4.5% Charge: J = 4.2% N = 730 days =2 -------- 365 days Step 4: Calculate the Market Value Market Value Adjustment Factor: .9 X Adjustment: [I - (J + .0025)] X N = .9 X [.045 - (.042 + .0025)] X 2 = .0009 Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: = .0009 X ($11,411.66 - $1,500.00) = $8.92 Step 5. Calculate the amount received by a Contract Owner as a result of full withdrawal at the end of Contract Year 3: $11,411.66 + $8.92 = $11,420.58
EXAMPLE 1 (ASSUME DECLINING INTEREST RATES) 59 EXAMPLE 2: (ASSUMES RISING INTEREST RATES)
Step 1. Calculate Contract Value at $10,000.00 X (1.045)/3 /= $11,411.66 End of Contract Year 3: Step 2. Calculate the Free Withdrawal .15 X ($10,000.00) = $1,500.00 Amount: Step 3: Calculate the Withdrawal I = 4.5% Charge: J = 4.8% N = 730 days =2 -------- 365 days Step 4. Calculate the Market Value Market Value Adjustment Factor: .9 X Adjustment: [I - (J + .0025)] X N = .9 X [.045 - (.048 + .0025)] X 2 = - .0099 Market Value Adjustment = Market Value Adjustment Factor X Amount Subject to Market Value Adjustment: = - .0099 X ($11,411.66 - $1,500.00) = - $98.13 Step 5. Calculate the amount received by a Contract Owner as a result of full withdrawal at the end of Contract Year 3: $11,411.66 - $98.13 = $11,313.53
60 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- DESCRIPTION -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- CALCULATION OF VARIABLE INCOME PAYMENTS -------------------------------------------------------------------------------- PAGE -------------------------------------------------------------------------------- CALCULATION OF ANNUITY UNIT VALUES -------------------------------------------------------------------------------- GENERAL MATTERS -------------------------------------------------------------------------------- Incontestability -------------------------------------------------------------------------------- Settlements -------------------------------------------------------------------------------- Safekeeping of the Variable Account's Assets -------------------------------------------------------------------------------- Premium Taxes -------------------------------------------------------------------------------- Tax Reserves -------------------------------------------------------------------------------- EXPERTS -------------------------------------------------------------------------------- FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 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. 61